March 21st, 2016

Public Sector Risk: Terrorism

Posted at 1:00 AM ET

A number of countries provide for government supported terrorism risk transfer solutions to manage global threats of terrorism. The actual mechanisms employed are a spectrum between loan and direct support, as illustrated in the chart below.

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One risk transfer solution, international terrorism pools, have been established to meet the needs of the specific individual country they support, often reflecting specific terrorist threats within each country. As is the case with The Terrorism Risk Insurance Act in the United States, coverage provided by international terrorism pools is typically triggered by a national governmental declaration of the occurrence of a terrorism event. Some pools purchased private reinsurance to protect their exposures, which has brought benefits. In 2014, pools that purchased private reinsurance experienced price decreases because capacity increased in the marketplace in the absence of major terrorism losses (1).

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Notes:

1. Marsh: 2015 Terrorism Risk Insurance Report.

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