July 31st, 2018

TRIPRA: The Need to Ease Rating Agencies and Regulators’ Concerns

Posted at 1:00 AM ET

terrorism-rep-connections-banner-2In 2018, the minimum industry trigger for the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) increased to USD 160 million, contributing to continued rating agency concerns. In late 2017, A.M. Best updated its terrorism methodology and fully integrated the peril into its stochastic Best’s Capital Adequacy Ratio (BCAR) Model.

Insurers that participate in the federal backdrop are required to retain a portion of their terrorism risk on their balance sheets, a figure that increases annually. Rating agencies continue to warn insurers that their ratings could suffer because of an overreliance on TRIPRA.

Considering the current 20% deductible requirement and policyholder surplus as filter, Guy Carpenter’s analysis concludes that small to midsize insurers are substantially more vulnerable to the annual increases in the TRIPRA industry triggers and their overall net retentions as a percentage of policyholder surplus. Insurers with less than USD 300 million in surplus would likely need to incorporate additional private reinsurance market capacity to protect their capital and satisfy rating agencies and regulators as the industry trigger continues to increase to USD 200 million in 2020.

TRIPRA’s 2015 renewal increased industry triggers and coinsurance obligations. Insurers – particularly smaller mutual and regional insurers – must continue to address solvency concerns from rating agencies, with some insurers seeing higher premium costs as they take steps to ensure that they maintain sufficient policyholder surplus. This could also result in higher premium costs for primary insurance buyers.

Marsh’s 2018 Terrorism Risk Insurance Report, produced with support from Guy Carpenter, explores the state of the terrorism insurance marketplace, presenting data on purchasing and pricing trends.

Click here to download the full report >>

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