June 1, 2016

TRIA and Terrorism Risks:

A Reinsurance Perspective
Questions for Discussion

• What makes the U.S. market unique/different from other 

terrorism markets around the world?

• How is the reinsurance market handling the evolving risk 

of terrorism?

• What are the biggest impediments to faster/more growth 

in the terrorism insurance market?

• What might help accelerate that growth?

• How is the program administered? Should there be 

changes?

2
Total Reinsurance Capital Globally

3

• Global reinsurer capital estimated at US$565 billion at 12/13/2015

• Includes both traditional and alternative forms of reinsurer capital
Global Terrorism Treaty Market

4

Global Terrorism Treaty Market

Limit $19.9B

Premium $793M

ROL 4.01%

Limit: $10.0B 

Prem: $238M 

Limit: $25M 

Prem: $375K 

Limit: $2.9B 

Prem: $74.6M

Limit: $1.7B 

Prem: $101M

Limit: $188M

Prem: $4.9M

Europe

Asia

Aus. / N.Z

U.S.A

Latin 

America

Total Industry Estimate*

Limit: $4.46B

Prem: $356M

Worldwide

Other Limit: $612M 

Prem: $17M

Source: Validus Internal Estimates 

*Represents only standalone terror market. Does not include terror protection included in all risk covers
Global Terror Attacks and Fatalities – 2000 to 2014

5

 -

 2,000

 4,000

 6,000

 8,000

 10,000

 12,000

 14,000

 16,000

 18,000

 -

 5,000

 10,000

 15,000

 20,000

 25,000

 30,000

 35,000

 40,000

 45,000

 50,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Attacks Fatalities

Source: Global Terrorism Database

To date, there have been no Certified Acts 

under TRIA
Global Economic Costs of Terrorism (2014 USD billion)–

2000 to 2014

6

Source: Institute for Economics and Peace

4.93

51.51

7.65

5.42

10.99 11.07

15.78

20.44

13.4

14.74

12.00 12.31

16.96

32.92

52.9

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
U.S. Terrorism Insurance Take-Up Rates

7

27%

49%

58% 59% 59%

57%

61% 62%

64%

62% 62%

59%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Marsh 2015 Terrorism Risk Insurance Report
Steady Decline in Prices Over the Last 10+ Years

0

20

40

60

80

100

120

2006 2007 2008 2009 2010 2011 2012 2013 2014 9M: 2015

Terrorism Renewal Price Index (RPI) - Lancashire. 2006 = 100

8

Source: Company Reports

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Overview of Existing Market

• TRIA covers foreign and domestic commercial lines 

terror events. Each company’s retention is a function 

of a percentage of individual subject premium. 

• There is a stand-alone terrorism market that is split 

between private insurers and state-backed Terror Pools 

(e.g. Pool Re in the UK, ARPC in Australia). 

• The private market fills in where there is not currently 

a terror pool or offers an alternative. 

• Marsh June 2015 Report: maximum achievable limits 

in standalone terrorism insurance market: $4.3B

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Key Aspects of Regulatory Framework

Make Available Requirement (Mandatory Offer of 

Coverage)

•Commercial insurers must offer terrorism insurance 

to potential insureds. Insureds can decline this 

coverage.

•The “Make Available Requirement” is the key driver 

of steady take up rates in the commercial terrorism 

insurance market.

•TRIA’s federal backstop enable insurers to make 

coverage available to all potential insureds.

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Key Aspects of Regulatory Framework

State requirements to cover losses resulting from acts of 

terrorism

• By state law, workers compensation insurance cannot 

exclude losses resulting from acts of terrorism. Due to the 

nature of these claims, workers compensation exposure 

makes up a significant proportion of overall terrorism risk. 

• Many states prohibit exclusions for the peril of fire 

following the act of terrorism, including California, Illinois, 

and New York. Other states provide for limited terrorism 

exclusions. 

• The ISO terrorism exclusion still has not been approved in 

every state. 

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2015 TRIA Reauthorization Reforms 

• Federal share of losses (XS deductible) decreased 

from 85% to 80% over 5 years. Insurers did not 

oppose, but might have opposed a larger 2015 

reduction. 

• Program trigger increased from $100m to $200m 

over 5 years. Smaller insurers could be impacted. 

The trigger now applies to aggregate annual 

losses, as opposed to losses from a single act of 

terrorism. 

• Industry aggregate retention increased from 

$27.5b to $37.5b over 5 years, after which it will 

be indexed. Insurers did not oppose the increase. 

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Proposed Reforms not adopted in 2015

• Some stakeholders proposed ex ante premium 

payments by insurers, to pre-fund federal payments. 

Others viewed ex ante premiums as appropriate only 

for different approaches such as Pool Re. 

• TRIA’s Make Available Requirement is silent as to 

NBCR and Cyber losses. NBCR losses are generally 

excluded from underlying policies, but insurers 

wanted clarity regarding whether a cyber attack could 

be certified. 

• Some stakeholders proposed to bifurcate the 

program, with different thresholds for NCBR and 

Conventional. Stakeholders presented a range of 

views on capacity for Conventional terrorism risk. 

13
Hypothetical TRIA Industry Allocation

14 Source: CBO Paper – Federal Reinsurance for Terrorism Risk in 2015 and Beyond
Comparison of Terrorism Risk Insurance Programs

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Current Market Components

Make-available requirement

–Obligatory coverage for workers compensation

Optional coverage offering

-Market includes standalone terror market, as 

well as terror coverage within traditional 

reinsurance placements

Limited appetite for NBCR, and remains a significant 

hurdle

Limited appetite for NBCR and remains a significant 

hurdle

Premium often calculated as a % of all-risk premium Premium calculated based on views on terror 

frequency and severity assumptions

Terrorism coverage typically follows the fortune of 

commercial property policies

Coverage is customized to client needs

Covers foreign and domestic terror events occurring in 

the U.S.

When covered, typically covers both foreign and 

domestic terror events. Many all-risk placements

exclude foreign terror coverage

Ambiguity on cyber coverage Ambiguity on cyber coverage, but typically excluded

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Insurance Industry Reinsurance Industry
Potential Impediments to Growth

• Evolving nature of terror risk 

• Property damage non-property damage, loss of life, and business interruption

• Industry appetite for NBCR and cyber terror

• Data Quality issues – lack of standardization

• Aggregation of Exposure

• Model Quality

• Ongoing structure of Government Sponsored Programs

• Perceived Correlation of Terror Losses to Investment Portfolio Volatility

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Data Quality Example– Different Coverage Information

• High Value New York City location

• Two data sources, both with unknown building characteristics

• Matching TIV, but different coverage splits

• Large difference in scenario accumulations for conventional 

attacks

• Some reinsurers have developed an internal database of high 

risk structures which provides the ability to update incorrectly 

reported coverage values and building characteristics

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Data Quality - Illustrative Analysis

19

Source: Sampling of Validus Customer Base
Trend of Annual Terrorism Rates in the 

U.S.

20

Source: Global Terrorism Database
Vendor Model Capabilities

Typical Vendor View Preferred View of Risk

Model 

Limitations 

Addressed

• Not spatially modeled

• Only major cities

• Low coverage (386 cities)

• Conditional probabilities are 

utility based

• Sophisticated spatial modeling

• High resolution 

• High coverage (3000+ counties)

• Utilization on third party expertise to 

augment vendor target event set

Summary

of rates

• Conservative view of terrorism 

risk (rates are high)

• Frequency not updated for the 

changing landscape of the 

terror peril

• More realistic view of terrorism risk 

supported by intelligence network

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Suggested Topics for Additional Review

• Scenario planning to address efficacy of private market role in 

response to changes to the existing government sponsored 

program.

• Analytical review of the potential capacity of the reinsurance 

industry for terrorism risk. Suggest we use the capacity deployed 

for peak risk areas (e.g. U.S. Hurricane) as a proxy for potential 

capacity expansion

– Address unique nature of terror risk, and specifically 

accumulation issues in metro areas

– Consideration for appetite relating to conventional, NBCR, 

and cyber

• Correlation of terrorism risk with financial markets, and how that 

could inhibit capacity supporting terror risk in both the 

traditional and non-traditional reinsurance market

• Challenges associated with data quality, exposure aggregate, and 

existing modeling capabilities for terror risk

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