Chief executive officers of property/casualty insurance carriers said their companies will still stand ready to provide terrorism coverage when—not if—the Terror Risk Insurance Act expires without an extension, during a casualty insurance conference last week.
The CEOs of three large commercial insurers—XL, AIG and Zurich—also said, however, that unless private reinsurers or the capital markets provide some support, industry terrorism capacity will shrink and coverage prices will soar.
“It would appear to me that the industry is not a sympathetic case in front of Congress. They [lawmakers] have far more pressing things to do,” said Greg Hendrick, CEO of Insurance Operations for XL Group, during the final session of Advisen’s Casualty Insights conference.
“We should all be prepared,” he said. “There isn’t going to be TRIA in place” after the expiration date, Hendrick said.
The Terrorism Risk Insurance Act, which was initially enacted in 2002, and amended by the Terrorism Risk Insurance Revision and Extension Act of 2005 and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) (collectively, including both amendments, TRIA), is currently set to expire on Dec. 31, 2014.
Responding to the question of whether his company would continue to write terrorism coverage, Hendrick said that XL would remain in the market. “The underwriting process is not solely backed on TRIA, but I would imagine it would result in a massive shrinking of capacity unless we find some reinsurance capacity or some of this capital on the side to come to work behind us and provide a solution.”
Hendrick continued: “That assumes our clients are willing to pay a price that is multiples of what it is today to support and service that capital.”
Speaking for XL only, he said, “We’re ready to keep going. We’re going to need some extra reinsurance capacity, and we’ll need [understanding] between buyers and sellers that the prices have gone way up.”
Dan Riordan, CEO, Global Corporate for Zurich, also said his company would continue to provide terrorism coverage, suggesting that the industry’s skills at innovation need to kick in. “We’ll continue to look at how we spread the risk,” Riordan added.
“We’ll look at regional exposures, city blocks. We’ll continue to do that without TRIA.”
“Honestly, it would help to have it, but I don’t think it’s looking very good at this point,” Riordan agreed.
Hendrick predicted: “We will not get TRIA renewed as it is. We’ll have to give something back.”
“We can handle block by block,…but when you get to the really big ones, we’re going to need an umbrella” because of the catastrophic nature of the risk, Hendrick continued.
Co-panelist John Doyle, CEO of global commercial insurance for AIG, finished Hendrick’s thought, explaining that “NBCR” risks—standing for nuclear, biological, chemical and radiological risks—are “the really big ones” to which Hendrick was referring.
“I could see a market…for property risks,” Doyle said, suggesting that alternative capacity from the capital markets would rush in. But workers’ comp would be a “huge pain point,” he said.
“So I think the government is going to have to do something,” Doyle said.
Mark Wilhelm, CEO of Safety National, a writer of large deductible workers’ compensation and excess casualty, said “workers’ comp isn’t like property or excess casualty where you can stack the layers.”
“It’s a significant issue,” Wilhelm agreed.
As a result, Wilhelm said carriers have to “step back and reevaluate” the risks they’re taking on “from an overall enterprise point”—evaluating “what we’re going to write and where we’re going to back off.”
“Places such as New York City are going to be very difficult for all of us, [and] NBCR is beyond the total capability—surplus—of this entire industry.”
“Without some umbrella protection, we would be in deep trouble if that kind of event took place,” Wilhelm predicted.