August 5th, 2009

Global Terror Update: Latin America

Posted at 1:00 AM ET


There is no terror pool or government involvement in terror coverage. Terrorism is generally excluded for personal and commercial lines.


Terrorism risk became a standard exclusion on all property, engineering risks and general liability policies following the events of September 11, 2001. This included both new policies and those that renew on or after November 9, 2001. The few requests for terrorism coverage are handled on a case-by-case basis. Local insurance carriers generally follow the conditions of coverage approved by IRB Brasil Resseguros S.A.


Following the events of September 11, 2001, the Chilean Insurers Association approved a general terrorism exclusion clause that can be used by any insurance company and applies to all covers. Terrorism cover has been excluded since September 2001 on all primary insurance and reinsurance contracts. Nonetheless, since last year in some cases, the insurance companies are including terrorism cover free within property personal insurance and commercial lines, up to a maximum of USD2 million. For any commercial property policy with larger exposure, terrorism cover can be purchased at an extra cost. Terrorism insurance for this type of risk is purchased on a facultative basis.


In Colombia, primary insurers have Sabotage and Terrorism (S&T) capacity for small accounts, which is normally supported by their treaties. When the account is considered as medium or big, insurance companies regularly request facultative support. The S&T cover is handled as “AMIT” which can be translated as malicious acts by third parties, which traditionally included guerrilla groups.

In the last four years, there has been a significant decrease in S&T rates, primarily because terrorism risk seems to be lower now. There are still subversive groups, but the attacks are declining. Further, there are more reinsurers, mainly from London market, interested in the country; so the competition is very high. Even some local reinsurers which did not give this coverage in the past are now open to providing it.


Currently, there is no terror pool or government involvement in terror coverage, and there are no terrorism exclusions for commercial or personal lines. However, following the events of September 11, 2001, specified terrorist risks like banks, airports and government buildings began to purchase terrorism cover.


Sub-limits for terrorism have been introduced into both proportional and non-proportional treaties, along with other conditions, exclusions and limitations. Peruvian insurers now have separate treaties for covering terrorism and political risk. They tend to be limited to 50 percent or less of the standard property perils limit. The two main Peruvian insurance companies, Pacifico and Rimac, currently have excess of loss protection placed.

Given the risk of isolated incidents of civil unrest and terrorist activity, the facultative reinsurance market remains actively involved in offering cover for both terror and political risks. This persists despite the fact that large amounts of local capacity are available. In some cases, local insurers prefer to complement their capacities with purchased facultative reinsurance.

Peru does not offer a terror pool, and the government is not involved in providing terror coverage. 

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