On April 17, 2014, the President’s Working Group on Financial Markets (“PWG”) released its report (the “Report”) to Congress on the state of terrorism risk insurance, as required under the Terrorism Risk Insurance Act (“TRIA”). The PWG is composed of various governmental figures, including the Chairman of the Board of Governors of the Federal Reserve System, the Chair of the Securities and Exchange Commission, the Chairman of the Commodity Futures Trading Commission, as well as the Secretary of the Treasury who serves as Chair of the PWG.
The Report indicates that prices for terrorism risk insurance have declined since TRIA was passed, with approximately 3% to 5% of commercial property insurance premiums currently being attributed to terrorism risk coverage. According to the Report, however, prices have generally remained constant since 2010. The lack of further price decreases may be attributed in part to the uncertainty around whether TRIA will be renewed, and indeed, the Report notes that information provided to the PWG indicates that the market is “tightening” due to the possibility that Congress will fail to extend TRIA. The Report warns that if TRIA is not renewed, terrorism risk insurance would likely become less available, resulting in more limited and costly coverage.
In addition, the Report notes that “take-up rates” – i.e., the percentage of policyholders that purchase coverage for terrorism risk – have risen from 27% in 2003 to around 60% today. The Report also addresses the fact that while the market for terrorism risk insurance is fairly robust, the private market does not currently have the capacity to provide reinsurance for terrorism risk to the extent currently provided by TRIA. We will continue to monitor TRIA developments, including any new indications as to whether TRIA will be renewed.
A copy of the report can be accessed here.