Report of the 

President’s Working Group on Financial Markets

Market Conditions for Terrorism Risk Insurance 

2010

Report of the 

President’s Working Group On Financial Markets 

The Long-Term Availability and Affordability of 

Insurance for Terrorism Risk 

Completed pursuant to 15 U.S.C. 6701 note § 108(e)

April 2014

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

Table of Contents

I. EXECUTIVE SUMMARY......................................................................................................................1

II. OVERVIEW OF THE TERRORISM RISK INSURANCE ACT .......................................................5

A. Commercial Property and Casualty Insurance.........................................................................................5

B. Terrorism Risk Insurance Program..........................................................................................................6

1. Mandating the Availability of Insurance for Terrorism Risk ......................................................7

2. Certifying an Act of Terrorism....................................................................................................8

3. Providing a Federal Share of Compensation for Insured Losses.................................................9

a. Federal Payments to Insurers under TRIP .............................................................9

b. Limit on Aggregate Annual Liability ....................................................................11

c. Recoupment of Federal Payments under TRIP ...................................................11

d. Summary...............................................................................................................13

III. AVAILABILITY AND AFFORDABILITY OF TERRORISM RISK INSURANCE .....................14

A. Findings of the PWG’s 2006 and 2010 Reports to Congress.................................................................14

B. Factors Affecting the Long-Term Availability and Affordability of Terrorism Risk Insurance .............15

1. Ability of Insurers to Estimate Frequency and Severity ............................................................15

2. Potential for Catastrophic Losses...............................................................................................16

3. Insurer Policyholder Surplus......................................................................................................17

4. Credit Rating Agency Considerations.......................................................................................18

5. Private Reinsurance Capacity....................................................................................................19

6. Market Uncertainty Relating to the Reauthorization of TRIP ................................................21

C. Availability of Terrorism Risk Insurance ...............................................................................................22

1. Embedded Market .....................................................................................................................22

2. Standalone Market.....................................................................................................................23

3. Workers’ Compensation Market................................................................................................25

D. Affordability of Terrorism Risk Insurance ...........................................................................................25

1. Pricing Data and Illustrations....................................................................................................26

2. Take-Up Rate Data and Illustrations.........................................................................................30

3. Standalone Market.....................................................................................................................32

IV. COMMENTS TO THE PWG NOTICE REGARDING MODIFICATIONS 

TO THE TERRORISM RISK INSURANCE PROGRAM .............................................................33

A. Reducing Federal Taxpayer Exposure ...................................................................................................33

1. Modifications to the Deductible and/or the Federal Share.......................................................33

2. Modifications to the Program Trigger.......................................................................................34

3. Introduction of Ex Ante Premiums.............................................................................................34

B. Clarifying Coverage for NBCR and Cyber Attacks...............................................................................35

C. Enhancing Transparency of the Certification Process...........................................................................35

V. CONCLUSION.....................................................................................................................................37

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The Long-Term Availability and Affordability of Insurance for Terrorism Risk

PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

Glossary of Acronyms and Abbreviatio

Calendar year, as defined by TRIA § 102(11).................................................Program Year

Cap on annual liability, as provided by TRIA § 103(e)(2)....................................Program Cap

Credit rating agencies......................................................................................CRAs

Department of the Treasury...........................................................................Treasury

Direct earned premium......................................................................................DEP

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.............Dodd-Frank Act

Federal Insurance Office....................................................................................FIO

Federal Register notice published July 16, 2013 (78 Fed. Reg. 42,588)....................PWG Notice

Government Accountability Office.......................................................................GAO

Insurance Linked Security...................................................................................ILS

Insurance Services Office....................................................................................ISO

Lines of insurance for which federal payments may be made under TRIA........TRIP-eligible lines

National Association of Insurance Commissioners..................................................NAIC

Nuclear, biological, chemical, or radiological..........................................................NBCR

President’s Working Group on Financial Markets......................................................PWG

Probable Maximum Loss...................................................................................PML

Property and casualty........................................................................................P/C

Secretary of the Treasury..............................................................................Secretary

Terrorism Risk Insurance Act of 2002, as amended...................................................TRIA

Terrorism Risk Insurance Extension Act of 2005....................................................TRIEA

Terrorism Risk Insurance Program......................................................................TRIP

Terrorism Risk Insurance Program Reauthorization Act of 2007..............................TRIPRA

The terrorist attacks of September 11, 2001.............................................................9/11

Threshold for federal payments, as provided by TRIA § 103(e)(1)(B)..................Program Trigger

Total Insured Value...........................................................................................TIV

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PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

1

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

I. EXE

The Terrorism Risk Insurance Act of 2002, as amended (TRIA),1 requires U.S. insurers to make insurance 

available for losses resulting from acts of terrorism, and provides a federal government backstop for the 

insurers’ resulting financial exposures. TRIA established in the U.S. Department of the Treasury (Treasury) the 

Terrorism Risk Insurance Program (TRIP), which is responsible for administering the essential components of 

TRIA.2

Section 108(e) of TRIA requires the President’s Working Group on Financial Markets (PWG)3

 to conduct, on 

an ongoing basis, an analysis of the long-term availability and affordability of insurance for terrorism risk, and 

to report to Congress regarding the PWG’s findings.4 The PWG previously reported to Congress in 2006 and 

again in 2010 (the 2006 PWG Report and 2010 PWG Report, respectively).5 The analysis and conclusions 

in the 2006 PWG Report and the 2010 PWG Report were based on consultations with industry participants 

and comments responding to Federal Register notices. In addition, Treasury provided an assessment of TRIA 

to Congress on June 30, 2005.6

 The 2005 Treasury report relied in part on surveys of various stakeholders 

conducted by an independent research firm under Treasury auspices.

To assist the PWG’s analysis in connection with this report (this Report), on July 16, 2013, Treasury published 

a notice and request for comment (the PWG Notice),7

 in reply to which 29 written comments were submitted. 

Submissions in reply to the PWG Notice are available at treasury.gov/initiatives/fio. 

This Report draws upon the comments received in response to the PWG Notice, as well as from direct 

engagement by PWG member staff (staff) with a range of stakeholders, including consumer advocates, insurers, 

reinsurers, industry services firms, state insurance regulators, commercial insurance policyholders, the National 

Association of Insurance Commissioners (NAIC), and industry trade associations. Most comments submitted to 

the PWG addressed whether and to what extent uncertainty concerning TRIA’s scheduled expiration at the end 

of 2014 affects the affordability and availability of terrorism risk insurance, which is referenced in this Report. 

1 15 U.S.C. § 6701 note. Citations herein to TRIA, as amended, refer to the relevant section(s) of the statute. 

2 For purposes of this report, TRIA refers to the statute, as amended, and TRIP refers to the program, as it is 

administered. 

3 The PWG is composed of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal 

Reserve System, the Chair of the Securities and Exchange Commission, and the Chairman of the Commodity 

Futures Trading Commission (or their respective designees). The Secretary of the Treasury, or his designee, is the 

Chairman of the PWG. Exec. Order No. 12,631; 53 Fed. Reg. 9,421 (Mar. 18, 1988). 

4 The PWG must submit the reports to the Committee on Banking, Housing, & Urban Affairs of the Senate and the 

Committee on Financial Services of the House of Representatives. TRIA § 108(e). 

5 President’s Working Group on Financial Markets, Terrorism Risk Insurance (September 2006), available at http:

www.treasury.gov/resource-center/fin-mkts/Documents/report.pdf (hereinafter PWG 2006 Report); President’s

Working Group on Financial Markets, Market Conditions for Terrorism Risk Insurance (2010), available at http://ww

treasury.gov/resource-center/fin-mkts/Documents/PWG%20Report%20Final%20January%2013.pdf (hereinafter 

PWG 2010 Report). 

6 U.S. Department of the Treasury, Assessment: The Terrorism Risk Insurance ct of  2002 (June 30, 2005), ava

at http://www.treasury.gov/resource-center/fin-mkts/Documents/tria_studyby_treas.pdf (hereinafter Treasury 

2005 Report). In 2008, the GAO submitted a report to Congress addressing the availability of coverage for attacks 

involving NBCR weapons. U.S. Government Accountability Office, Terrorism Insurance, Status of Coverage Availability 

for Attacks Involving Nuclear, Biological, Chemical, or Radiological Weapons, GAO-09-39 (December 2008), available at http://

www.gao.gov/new.items/d0939.pdf (hereinafter GAO 2008 Report).

7 78 Fed. Reg. 42,588. 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

2

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Consistent with the 2006 and 2010 PWG reports, this Report draws its data and conclusions from comments 

submitted in response to the PWG Notice, particularly data provided by two global insurance brokers, as well as 

from consultations with various stakeholders. 

The findings of the PWG in this Report include:

• Insurance for terrorism risk currently is available and affordable. The availability and affordability of 

insurance for terrorism risk has not changed appreciably since 2010. 

• Prices for terrorism risk insurance vary considerably depending upon the policyholder’s industry and the 

location of the risk exposures. 

• Such prices have declined since TRIA was enacted and, in the aggregate, currently approximate 3 to 5 

percent of commercial property insurance premiums. 

• Take-up rates – i.e., the percentage of policyholders that purchase coverage for terrorism risk – have 

improved since the adoption of TRIA and are roughly stable at 60 percent in the aggregate (as 

compared to 27 percent in 2003, the first full year TRIA was in effect). 

• Information provided to the PWG in response to the PWG Notice indicates that the market currently is 

tightening in light of uncertainty as to whether TRIA will be renewed. 

• The private market does not have the capacity to provide reinsurance for terrorism risk to the extent 

currently provided by TRIA. 

• In the absence of TRIA, terrorism risk insurance likely would be less available. Coverage that would be 

available likely would be more costly and/or limited in scope. 

Overview of the Terrorism Risk Insurance Act

After the September 11th attacks (9/11), insurers and reinsurers largely withdrew from the terrorism risk 

insurance market.8

 This and other factors contributed to a severe market shortage for terrorism risk insurance, 

which Congress sought to address through the enactment of TRIA.

In general, TRIA requires each commercial property and casualty (P/C) insurer to participate in TRIP and 

to make coverage available for losses resulting from certified acts of terrorism. Further, TRIA authorizes the 

Secretary of the Treasury (the Secretary) to make federal payments to an insurer for a portion of insured losses 

resulting from a certified act of terrorism that exceed the insurer’s deductible. Insurers also co-participate with 

federal funding with respect to payments for losses above the deductible, and may be required to surcharge 

policyholders in order to fund recoupment payments made to Treasury. Treasury has never made a payment to 

any insurer under TRIP. 

As enacted, TRIA was originally scheduled to expire on December 31, 2005, but was reauthorized in 2005 and 

again in 2007.9

 With both reauthorizations, Congress modified elements of TRIP, in part to reduce federal 

taxpayer exposure under TRIA to insured losses from acts of terrorism. The 2007 reauthorization of TRIA 

is scheduled to expire on December 31, 2014. House and Senate Committee hearings regarding the question 

8 See, e.g., General Accounting Office (currently known as the Government Accountability Office), Terrorism Insura

Rising Uninsured Exposure to Attacks Heightens Potential Economic Vulnerabilities, 3-7 (February 27, 2002) (hereinafter GAO 

2002 Report); Comment to the PWG Notice from the Risk Management Society, 2 (September 2013) (characterizing 

the potential unavailability and unaffordability of insurance for terrorism risk as an economic problem). 

9 The Terrorism Risk Insurance Extension Act of 2005 (TRIEA) was enacted on December 22, 2005. 119 Stat. 

2660-2662. TRIEA reauthorized TRIP for two years, through December 31, 2007. The Terrorism Risk Insurance 

Program Reauthorization Act of 2007 (TRIPRA) was enacted on December 26, 2007. 121 Stat. 1839-1841. 

TRIPRA reauthorized TRIP for seven years, through December 31, 2014. 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

3

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

of reauthorization were conducted on September 11, 2012,10 September 19, 2013,11 September 25, 2013,12

November 13, 2013,13 and February 25, 2014.14

Availability and Affordability of Terrorism Risk Insurance

The per-risk capacity – a metric used to measure the amount of available coverage – of the market for terrorism 

risk insurance increased only modestly since 2010.15 The aggregate policyholder take-up rate appears to have 

stabilized at 60 percent.16 In certain industries, take-up rates may be substantially higher (e.g., 81 percent for the 

media industry) or lower (e.g., 42 percent for the chemicals industry).17 Similarly, costs vary broadly, and may be 

much higher for high risk properties and in certain urban areas, such as Chicago, New York City, San Francisco, 

and Washington, D.C.18 Overall, premium rates for terrorism risk coverage have declined by about half since 

the post-9/11 peak, have been relatively stable over the last several years, and currently represent a small 

percentage of overall commercial property insurance premiums.19 

Several factors may affect, and in some instances challenge, the availability and affordability of insurance for 

terrorism risk, including: (1) the ability of insurers to estimate the frequency and severity of losses resulting from 

terrorism; (2) the potential for catastrophic losses resulting from terrorism; (3) insurer policyholder surplus levels; 

(4) insurer credit rating agency considerations; (5) private reinsurance capacity; and (6) uncertainty relating to the 

reauthorization of TRIP.

After 9/11 and prior to the enactment of TRIA, property owners and developers reported the inability to 

procure adequate insurance coverage for terrorism risk, or the inability to find coverage at reasonable prices.20 

In 2005 and again in 2007, in each case as then-scheduled expirations of TRIA approached, prices for terrorism 

risk insurance increased.21 Similarly, industry sources report concerns that the long-term availability and 

affordability of insurance for terrorism risk will be adversely affected if TRIA is not renewed before it expires 

at the end of 2014, and that the market is already tightening in anticipation of the termination of the federal 

government backstop.22 

10 TRIA at Ten Years: The Future of the Terrorism Risk Insurance Program: Hearing before the H. Comm. on Financial Services 

Subcommittee on Housing and Insurance, 112th Cong. (September 11, 2012), available at http://financialservices.house.gov/

calendar/eventsingle.aspx?EventID=307443. 

11 The Terrorism Risk Insurance Act of 2002: Hearing before the H. Comm. on Financial Services, 113th Cong. (September 19, 

2013), available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=349518. 

12 Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market, Hearing before the S. Comm. on Banking, Housing, 

& Urban Affairs, 113th Cong. (September 25, 2013), available at http://www.banking.senate.gov/public/index.

cfm?FuseAction=Hearings.Hearing&Hearing_ID=b9077dbb-2ae2-425a-89dd-793fcb049190. 

13 The Future of Terrorism Insurance: Fostering Private Market Innovation to Limit Taxpayer Exposure: Hearing before the H. Comm. 

on Financial Services Subcommittee on Housing and Insurance, 113th Cong. (November 13, 2013), available at http://

financialservices.house.gov/calendar/eventsingle.aspx?EventID=360497. 

14 Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market, Part II, Hearing before the S. Comm. On Banking, 

Housing, & Urban Affairs, 113th Cong. (February 25, 2014), available at http://www.banking.senate.gov/public/index.

cfm?FuseAction=Hearings.Hearing&Hearing_ID=08e1735c-d2be-4260-a1dc-12975ab9397f.

15 See section III.C.1.

16 Marsh and McLennan Companies, 2013 Terrorism Risk Insurance Report, 8 (May 2013) (hereinafter Marsh 2013 Report).

17 Id. at 9. 

18 Id. at 10. 

19 Id. at 11-14; Comment to the PWG Notice from Aon plc, 6-7 (September 2013). 

20 See, e.g., GAO 2002 Report at 10-11.

21 See Comment to the PWG Notice from Aon plc, 6 (September 2013) (showing median terrorism risk insurance 

premiums as a percentage of median property insurance premiums from 2002 through 2013). 

22 See, e.g. Marsh 2013 Report. at 19-21; Comment to the PWG Notice from Aon plc, 12, 18-21 (September 2013). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

4

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

As TRIP has evolved through amendments to TRIA, the U.S. insurance industry has adapted to the resulting 

increases in net terrorism exposure under commercial policies. However, the U.S. insurance industry remains 

unprepared to retain the entire exposure to terrorism risk. In fact, 28 of the 29 commenters to the PWG 

Notice assert, to varying degrees, that pricing for terrorism risk insurance will be adversely affected, and its 

availability substantially curtailed, should TRIA expire at the end of 2014.23 In its response to the PWG 

Notice, Aon plc (Aon), a global insurance and reinsurance broker, concluded from a survey of over 1,200 of its 

clients that: “If TRIA were to expire in 2014, the vast majority of the existing insurance market for terrorism 

will disappear.”24 Marsh & McLennan Companies (Marsh), another global industry services provider, made 

a similar observation, noting that some insurers it surveyed “have indicated to us that they could be forced to 

withdraw from geographical areas that have the greatest need for terrorism coverage or they may even exit 

certain lines of business, such as workers’ compensation or commercial property in high profile jurisdictions.”25 

Some commenters disagreed with this conclusion. For example, one commenter suggested that the market is 

sufficiently robust and mature to operate without the government backstop, albeit at higher prices.26

Comments to the PWG Notice Regarding Potential Modifications to the Terrorism Risk 

Insurance Program

In light of the pending expiration and potential reauthorization of TRIA, commenters to the PWG Notice 

and other interested parties have suggested various modifications to TRIA intended to bring greater certainty 

to the marketplace, improve the availability and affordability of insurance for terrorism risk, and/or decrease 

federal taxpayer exposure to insured losses resulting from acts of terrorism. Although an analysis of potential 

modifications to TRIA is outside the scope of PWG’s mandate to report on the long-term availability and 

affordability of insurance for terrorism risk,27 such comments are summarized in this Report. 

23 One commenter, the Cato Institute, expressed a contrary view. Specifically, the Cato Institute argued that the 

private market is capable of insuring terrorism risk and that TRIA should be allowed to expire at the end of 2014. 

Comment to the PWG Notice from the Cato Institute, 1 (September 2013). 

24 Comment to the PWG Notice from Aon plc, 3 (September 2013). Aon reported to the PWG that the clients 

included in its survey resemble businesses of the size and complexity similar to those in the Fortune 2000. Data from 

the Aon survey reflect the twelve-month period ending June 30, 2013.

25 See Marsh 2013 Report at 1-2. 

26 Comment to the PWG Notice from the Cato Institute, 16 (September 2013). 

27 See TRIA § 108(e). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

5

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

II. VEVIEW

This section of the Report provides a brief background regarding the commercial property and casualty 

insurance sector in general, and then describes the Terrorism Risk Insurance Program, including how it has 

evolved since TRIA’s enactment in 2002.

A. Commercial Property and Casualty Insurance

Commercial lines insurance policies allow businesses to transfer risk exposure to insurers in exchange for 

premium payments. Just as with personal lines of insurance for homeowners or private passenger auto, 

commercial lines policies stipulate the causes of loss (i.e., perils) covered, as well as other terms and conditions 

for the insurance policy to remain in effect. In 2012, commercial P/C insurance policies (including workers’ 

compensation) accounted for $247 billion – or 47 percent – of the approximately $524 billion of premiums 

written by the U.S. P/C insurance sector (commercial and personal lines).28 

With the exception of workers’ compensation insurance, commercial P/C policies are generally either “allperil”29 or “named peril” policies. All-peril policies cover losses arising from perils that are not expressly 

excluded and typically cover losses arising from fire, smoke, windstorm, hail, civil disobedience, and vandalism, 

but exclude losses caused by acts of war. Prior to 9/11, losses from acts of terrorism typically were not excluded 

from all-peril policies. A named peril policy covers only losses arising from perils specified in the policy. Under 

state laws, workers’ compensation insurance must provide compensation for injuries or illnesses to covered 

individuals that occur in the course of employment, regardless of the peril.30

The business of commercial P/C insurance is primarily regulated by state law. Most state insurance regulators 

are authorized to review and approve policy forms and rates, though the form and rate filing process and the 

applicable consumer protection standards vary by state. State law may prohibit certain exclusions in commercial 

P/C policies. For example, twenty-nine states, including New York, Illinois, and California, require an insurer to 

cover losses from fire following a broad range of events. Of those states, fifteen permit exclusions of fire losses 

following acts of terrorism, and fourteen states prohibit such exclusions.31 

Prior to 9/11, commercial all-peril P/C insurance policies generally did not exclude losses arising from acts 

of terrorism. Following the events of 9/11, which resulted in $32.5 billion of insured losses,32 insurers and 

reinsurers moved to reduce the potential for catastrophic insured lossesresulting from acts of terrorism. 

Reinsurance renewals excluded terrorism risk. Due to limited availability of reinsurance coverage for terrorism 

risk, insurers sought to avoid exposure to catastrophic terrorism losses by excluding coverage of terrorism risk in 

commercial P/C insurance policies.33 

By early 2002, insurers were submitting terrorism exclusions for review by state insurance regulators in order 

to exclude coverage of losses arising from acts of terrorism. Where coverage of losses arising from acts of 

terrorism could not be excluded, such as for workers’ compensation insurance, some insurers declined to renew 

insurance policies altogether.34 

28 SNL Financial LC, U.S. Insurance Statutory, P/C Industry Briefing Books – Income Statement (September 2013). 

29 All-peril policies may also be referred to as special peril policies.

30 With the exception of Texas, states require employers to provide workers’ compensation benefits to employees. 

31 See Marsh 2013 Report at 19. 

32 In 2001 dollars. 

33 See, e.g., GAO 2002 Report at 3-7.

34 See, e.g., Comment to the PWG Notice from the National Council on Compensation Insurance, 6-7 (September 

2013). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

6

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

The relative unaffordability or outright unavailability of insurance for terrorism risk had far-reaching and 

adverse effects on the national economy, including the cancellation or delay of construction projects and 

commercial real estate transactions.35 

B. Terrorism Risk Insurance Program

TRIA was enacted on November 26, 2002, in recognition that the widespread unavailability of insurance for 

terrorism risk “could seriously hamper ongoing and planned construction, property acquisition, and other 

business projects, generate a dramatic increase in rents, and otherwise suppress economic activity.”36 The stated 

purpose of TRIA is to establish a temporary federal program of shared public and private compensation for 

insured losses resulting from acts of terrorism, in order to:

• Protect consumers by addressing market disruptions and ensure the continued widespread availability 

and affordability of property and casualty insurance for terrorism risk; and 

• Allow for a transitional period for the private markets to stabilize, resume pricing of such insurance, 

and build capacity to absorb any future losses, while preserving state insurance regulation and consumer 

protections.37 

TRIA established TRIP within Treasury.38 TRIA authorizes the Secretary to administer TRIP and to pay a 

federal share of compensation to insurers for insured losses from a certified act of terrorism.39 TRIA requires 

insurers of certain commercial lines to participate in TRIP and to make coverage available for losses resulting 

from certified acts of terrorism.40 TRIA also defines a process for repayment by the insurance sector of some or 

all of any federal compensation paid under TRIP.41

Subtitle A of Title V of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)42

established the Federal Insurance Office (FIO) in Treasury. The statute provides FIO with the authority to assist 

the Secretary in administering TRIP. 

35 See, e.g., GAO 2002 Report at 13-14.

36 TRIA § 101(a)(5). 

37 TRIA § 101(b). 

38 TRIA § 103(a)(1). 

39 TRIA § 103(a)(2). 

40 TRIA §§ 103(a)(3), (c). 

41 TRIA § 103(e)(7). 

42 Pub. L. 111-203, 124 Stat. 1589. 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

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The Long-Term Availability and Affordability of Insurance for Terrorism Risk

1. Mandating the Availability of Insurance for Terrorism Risk

TRIA requires insurers offering certain lines of commercial P/C insurance, commonly known as “TRIP-eligible 

lines,” to participate in TRIP. Specifically, TRIA requires each entity that meets the definition of an insurer43

to make available coverage for insured losses resulting from certified acts of terrorism “that does not differ 

materially from the terms, amounts, and other coverage limitations applicable to losses arising from events other 

than acts of terrorism” (the “make available” provision).44 

Subject to exclusions specified in TRIA,45 TRIP-eligible lines of insurance consist of certain commercial lines 

of P/C insurance.46 Under the implementing regulation, such commercial lines of insurance include excess 

insurance, workers’ compensation insurance, directors and officers liability insurance, and commercial insurance 

within the following lines:47

• Fire and allied lines; 

• Commercial multiple peril (liability and non-liability portions); 

• Ocean marine; 

• Inland marine; 

• Workers’ compensation;

• Other liability; 

• Products liability; 

• Aircraft (all perils); and 

• Boiler and machinery. 

The regulation lists the following lines of business as not falling within the scope of TRIP-eligible lines:48

• Federal crop insurance issued or reinsured under the Federal Crop Insurance Act (7 U.S.C. § 1501 et 

seq.), or any other type of crop or livestock insurance that is privately issued or reinsured;

• Private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1988) (12 

U.S.C. § 4901) or title insurance;

• Financial guaranty insurance issued by monoline financial guaranty insurance corporations;

• Insurance for medical malpractice;

• Health or life insurance, including group life insurance;

• Flood insurance provided under the National Flood Insurance Act of 1968 (42 U.S.C. § 4001 et seq.) or 

earthquake insurance;

• Reinsurance or retrocessional reinsurance;

• Commercial automobile insurance;

43 An insurer is any entity, including any affiliate thereof, which receives direct earned premiums for TRIP-eligible lines 

of insurance and is: licensed or admitted to engage in the business of insurance in any state; an eligible surplus lines 

carrier; a federally-approved maritime, energy, or aviation insurer; a state residual market or workers’ compensation 

fund; or, to the extent provided in rules issued by the Secretary, a captive insurer or a self-insurance arrangement. 

TRIA § 102(6). 

44 TRIA § 103(c). 

45 TRIA § 102(12)(B).

46 TRIA § 102(12)(A). 

47 31 C.F.R. § 50.5(u)(1). 

48 Id.
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

8

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

• Burglary and theft insurance;

• Surety insurance;

• Professional liability insurance;49 and 

• Farmowners multiple peril insurance.

TRIA voided by operation of law any exclusion for acts of terrorism that existed in contracts for TRIP-eligible 

lines of insurance in force as of November 26, 2002.50 Additionally, TRIA voided any state approvals of 

terrorism exclusions for TRIP-eligible lines of insurance that were in force as of that date. An insurer may only 

exclude coverage for an act of terrorism if the policyholder authorizes the exclusion in writing, or fails to pay the 

increase in premium attributable to the terrorism risk coverage within 30 days of notification of the premium 

amount and the policyholder’s rights with respect to such coverage.51

While TRIA requires insurers to make available insurance for terrorism risk on the same terms as other 

insurance, the law does not mandate any particular price for such coverage. Premiums charged by insurers 

remain subject to state regulatory authority, which varies by state in terms of the nature and extent of the 

regulatory review of rates charged by insurers. TRIA does not require a policyholder to purchase insurance for 

terrorism risk. If a policyholder declines coverage, an insurer may, but is not required to, “negotiate with the 

policyholder an option for partial coverage” if permitted by state law.52

TRIA requires an insurer to make additional disclosures to policyholders as a condition for federal payment 

eligibility under TRIP. At the time of offer, purchase, and renewal of a policy, an insurer must provide clear 

and conspicuous disclosure to the policyholder of the premium charged for the coverage of losses from certified 

acts of terrorism, and of the federal share of compensation for such losses.53 In addition, an insurer also must 

provide to the policyholder a clear and conspicuous notice of the $100 billion Program Cap (described below).54 

2. Certifying an Act of Terrorism

Only losses from certified acts of terrorism are eligible for federal payments to insurers under TRIP. A certified 

“act of terrorism” is an act certified by the Secretary, in concurrence with the Secretary of State and the 

Attorney General: 

• to be an act of terrorism; 

• to be a violent act or an act that is dangerous to human life, property, or infrastructure; 

• to have resulted in damage within the United States; and

• to have been committed by an individual or individuals, as part of an effort to coerce the civilian 

population of the United States or to influence the policy or affect the conduct of the U.S. government 

by coercion.55

49 TRIEA added “directors and officers liability insurance” to the scope of TRIP-eligible insurance. TRIEA § 3(b)(2), 

119 Stat. 2661.

50 TRIA § 105(a). 

51 TRIA § 105(c). 

52 31 C.F.R. § 50.21(d). “Partial coverage” means “coverage that is on different terms, amounts, or coverage 

limitations, as long as such an offer does not violate any applicable State law requirements.” 31 C.F.R. § 50.24(a).

53 TRIA § 103(b)(2); 31 C.F.R. § 50.10. 

54 TRIA § 103(b)(3); 31 C.F.R. § 50.15. 

55 TRIA § 102(1). TRIA also provides that an act may occur outside the United States in the case of certain air 

carriers or vessels, or the premises of an U.S. mission. TRIA § 102(1)(A)(iii)(I)-(II). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

9

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

TRIA prohibits the Secretary from certifying an act that was either committed as part of the course of a war 

declared by Congress,56 or that does not result in aggregate industry insured losses subject to TRIP exceeding $5 

million.57 TRIA neither prescribes how insured losses should be measured58 nor what source(s) of insured loss 

data should be relied upon by the Secretary.59

The Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) expanded the scope of acts to 

which TRIA may apply. Prior to TRIPRA, only an act of terrorism committed by individuals “acting on behalf 

of any foreign person or foreign interest” could have been certified.60 TRIPRA removed this condition, so that 

an act committed by any person may be certified.61 

As of this Report, no event has been certified by the Secretary, in concurrence with the Secretary of State and 

the Attorney General, as an act of terrorism. 

3. Providing a Federal Share of Compensation for Insured Losses

Determination of whether and in what amounts insurers are eligible for payments under TRIP and whether and 

in what amount some or all of such payments may be subject to recoupment involves the interplay of multiple 

factors, including the $5 million certification requirement, the Program Trigger, individual insurer deductibles, 

federal and private co-participation percentages, an industry aggregate retention, and the Program Cap. These 

factors are described below.

a. Federal Payments to Insurers under TRIP

As originally established, the federal share of compensation to an insurer under TRIP for losses from a certified 

act of terrorism was equal to 90 percent (i.e., the federal share) of the portion of insured losses exceeding that 

insurer’s deductible during a Program Year (i.e., a given calendar year).62 Individual “insurer deductibles” are 

determined as a percentage of the insurer’s direct earned premium (DEP)63 for TRIP-eligible lines of insurance 

during the preceding calendar year. As enacted, TRIA established the insurer deductible at 1 percent of DEP 

for the period beginning on November 26, 2002, and ending on December 31, 2002, but increased it to 7 

percent of DEP for the 2003 Program Year, 10 percent for 2004, and 15 percent for 2005.64 

The Terrorism Risk Insurance Extension Act of 2005 (TRIEA) decreased the federal share from 90 percent 

to 85 percent of the portion of insured losses that exceeds an insurer’s deductible during a Program Year, 

beginning with 2007. Put another way, insurers with eligible losses were each subject to a 15 percent coparticipation. Separately, TRIEA increased the insurer deductible from 15 percent of DEP to 17.5 percent in 

56 This limiting clause does not apply with respect to coverage for workers’ compensation insurance. TRIA § 102(1)(B)(i). 

57 TRIA § 102(1)(B)(ii).

58 For example, paid losses measure losses already paid to claimants, but may develop slowly and therefore underrepresent actual losses that will develop in the months following an insured event. Incurred losses may develop more 

quickly, but typically include estimates of unpaid losses, which will vary based on an insurer’s reserving practices and 

view of loss development.

59 See, e.g., Comment to the PWG Notice from the Property Casualty Insurers Association of America, 8 (September 

2013).

60 TRIA § 102(1)(A)(iv). 

61 TRIPRA § 3(a).

62 TRIA § 103(e)(1)(A). 

63 Direct earned premium represents the amount of premium exposed to loss during a given period. Earned premium 

for a calendar year is equal to written premium plus the unearned premium reserve at the start of the year less the 

unearned premium reserve at the end of the year. 

64 TRIA § 102(7). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

10

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

2006 and to 20 percent in 2007 (in each instance DEP is based on the preceding calendar year). The deductible 

remains at 20 percent through 2014.65 

Federal payments to insurers under TRIP for losses from a certified act of terrorism are not permitted unless the 

act of terrorism results in losses exceeding a “Program Trigger.”66 As originally enacted, TRIA included the $5 

million certification requirement, but not a separate Program Trigger. TRIEA established a Program Trigger of 

$50 million for 2006, and increased that threshold to $100 million for 2007 and future years.67 

The effect of these modifications to the federal share and to the insurer deductible, and the introduction and 

expansion of the Program Trigger, has been to steadily decrease the amount of federal payments potentially 

available to a given insurer under TRIP for losses from a certified act of terrorism. To illustrate, if in 2004 an 

insurer with $1 billion of DEP (as of 2003) incurred $400 million of losses from a certified act of terrorism, that 

insurer would have been eligible for a federal share of compensation amounting to $270 million.68 However, 

if in 2005 an insurer with $1 billion of DEP (as of 2004) incurred $400 million of losses from a certified act of 

terrorism, that insurer would have been eligible for a lesser federal share of compensation, amounting to $225 

million.69 Similarly, if in 2010 an insurer with $1 billion of DEP (as of 2009) incurred $400 million of losses 

from a certified act of terrorism, that insurer would have been eligible for a share of federal compensation of 

only $170 million.70 Finally, if in 2010 an insurer with DEP (as of 2009) of $2 billion incurred $400 million 

of losses from a certified act of terrorism, that insurer would not have been eligible for federal payments under 

TRIP, because its losses would not have exceeded the applicable deductible.71

65 TRIEA § 3(c).

66 TRIA § 103(e)(1)(B)(ii). 

67 Id. 

68 Insurer deductible was 10% of DEP, or $100 million. The federal share in 2004 was 90 percent of losses exceeding 

the insurer deductible (0.90 * [$400 million – $100 million] = $270 million). 

69 Insurer deductible was 15% of DEP, or $150 million. The federal share in 2005 was 90 percent of losses exceeding 

the insurer deductible (0.90 * [$400 million – $150 million] = $225 million). 

70 Insurer deductible was 20% of DEP, or $200 million. The federal share in 2010 was 85 percent of losses exceeding 

the insurer deductible (0.85 * [$400 million – $200 million] = $170 million). 

71 Insurer deductible was 20% of DEP, or $400 million. The federal share in 2010 was 85 percent of losses exceeding 

the insurer deductible (0.85 * [$400 million – $400 million] = 0). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

11

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Figure 1 illustrates how the insurer co-participation share and deductible have increased from 2002 to the 

present.

Figure 1: TRIA Coinsurance & TRIA Deductible Increases TRIA Coinsurance & TRIA Deductible Increases

2002 2003 2004 2005 2006 2007-2014

5.0%

10.0%

15.0%

20.0%

25.0%

Coinsurance TRIA Deductible

0.0%

Program Year

Source: Comment to the PWG Notice from Aon plc (September 2013)

b. Limit on Aggregate Annual Liability

For certified acts of terrorism, TRIA limits the ultimate exposure of insurers under TRIP-eligible lines and of 

the federal government for payments to insurers under TRIP. Specifically, TRIA prohibits the Secretary from 

making payments for any portion of aggregate insured losses from acts of terrorism which exceed the “Program 

Cap” of $100 billion during a Program Year.72 Moreover, an insurer that meets its insurer deductible under 

TRIP is not liable for any portion of losses that exceeds the Program Cap.73 TRIA requires the Secretary to 

determine the pro rata share of insured losses to be paid by each affected insurer and to notify Congress in the 

event that insured losses under TRIP exceed the Program Cap.74 

c. Recoupment of Federal Payments under TRIP

In the event that federal payments are made to insurers under TRIP, TRIA authorizes the Secretary to collect 

“terrorism loss risk-spreading premiums” from insurers.75 Insurers are required to collect such premiums from 

policyholders as a surcharge on insurance policies for TRIP-eligible lines of insurance after the Program Year 

in which federal payments are made, and to remit them to the Secretary.76 The requirement to collect terrorism 

loss risk-spreading premiums and remit such amounts collected to Treasury is not limited to insurers that 

received federal payments under TRIP, but rather applies to all insurers of TRIP-eligible lines.77 

72 TRIA § 103(e)(2)(A). 

73 Id. 

74 TRIA §§ 103(e)(2)-(3). 

75 TRIA § 103(e)(7). 

76 TRIA § 103(e)(8)(A), (B). 

77 Id.
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

12

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Collection by the Secretary of such terrorism loss risk-spreading premiums is either mandatory or discretionary, 

depending on the amount of federal payments made under TRIP and the total insured losses from certified acts 

of terrorism during a Program Year. If “uncompensated insured losses” (i.e., the total insured losses less federal 

payments) do not exceed the “insurance marketplace aggregate retention amount” (i.e., a minimum amount of 

insured losses, depending on the aggregate amount of insured losses, that must ultimately be paid by the private 

markets), TRIA requires the collection of terrorism loss risk-spreading premiums.

The insurance marketplace aggregate retention under TRIA is equal to the lesser of aggregate insured losses 

from acts of terrorism during a Program Year and retention amounts established in the law, which have 

increased over time: $10 billion for 2003; $12.5 billion for 2004; $15 billion for 2005; $25 billion for 2006; and 

$27.5 billion for 2007 and each Program Year thereafter.78

The “mandatory recoupment amount” is the difference between the insurance marketplace aggregate retention 

amount and uncompensated insured losses.79 TRIA also authorizes the Secretary to recoup an additional 

amount of the federal financial assistance above the mandatory recoupment amount.80 TRIA currently requires 

the Secretary to collect an amount equal to 133 percent of the mandatory recoupment amount.81

Accordingly, the minimum recoupment amount that the Secretary would have been required to collect from 

insurers after a Program Year has steadily increased over the years since the enactment of TRIA. To illustrate, 

if insured losses from acts of terrorism had totaled $40 billion in 2005, and if $20 billion of federal payments 

had been made under TRIP, then mandatory recoupment would not have occurred.82 Any recoupment of 

the $20 billion federal payment would have been discretionary. On the other hand, if insured losses from acts 

of terrorism had totaled $40 billion in 2010, and if $20 billion of federal payments had been made under 

TRIP, then recoupment of 133 percent of $7.5 billion of the federal payments (i.e., $10 billion) would have 

been mandatory.83 Recoupment of any of the remaining $12.5 billion of federal payments would have been 

discretionary. 

78 TRIA § 103(e)(6). 

79 TRIA § 103(e)(7). 

80 TRIA § 103(e)(7)(D). 

81 TRIA § 103(e)(7)(C). 

82 Twenty billion dollars of uncompensated insured losses would have exceeded the insurance marketplace aggregate 

retention amount for 2005 (the lesser of $15 billion or total insured losses of $40 billion). 

83 The mandatory recoupment amount of $7.5 billion equals the insurance marketplace aggregate retention amount 

for 2010 (the lesser of $27.5 billion or total insured losses of $40 billion) less the uncompensated insured losses 

($20 billion). Under TRIPRA the Secretary would have been required to collect 133 percent of the mandatory 

recoupment amount (1.33 * $7.5 billion = $10 billion). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

13

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

d. Summary

Figure 2 summarizes the TRIP coverage mechanism for certified acts of terrorism satisfying the $5 million 

certification requirement.

TRIP Summary Illustration Figure 2: TRIP Summary Illustration

Source: Comment to the PWG Notice from Aon plc (September 2013)

$100B

$100m Program Trigger

85% TRIA coverage

TRIA Coinsurance exposure

TRIA Terrorism Coverage

TRIA Deductible

Original policy deductible

15%

TRIA

Co-ins

20% of gross earned premium

(prior year)

Policy Deductible

In the event of a certified act of terrorism that exceeds the $100 million Program Trigger, TRIA makes available 

a federal share of compensation to insurers with qualifying losses in excess of applicable deductibles, calculated 

based on prior year premiums for TRIP-eligible lines. Federal payments to an insurer under TRIP equal 85 

percent of the portion of insured losses exceeding the insurer’s deductible during a Program Year.

The Program Cap is $100 billion of aggregate insured losses. TRIA does not permit the Secretary to authorize 

payments for any portion of losses over that figure, and an insurer that has met its deductible is not liable for any 

portion of losses exceeding the Program Cap. 

The Secretary is required to recoup federal payments made under TRIP which exceed a mandated industry 

retention through collection of terrorism loss risk-spreading premiums charged by insurers on TRIPeligible lines. If uncompensated insured losses do not exceed the insurance marketplace aggregate retention 

amount, the Secretary is required to collect 133 percent of the difference. The insurance marketplace 

aggregate retention amount is the lesser of total insured losses from certified acts of terrorism or $27.5 billion. 

Recoupment of federal payments that exceed the mandatory recoupment amount is subject to the discretion of 

the Secretary. As of this Report, a payment has never been made through TRIP.
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

14

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

IIVA

I

For purposes of this Report, the PWG relied on information provided in comments submitted in response to 

the PWG Notice, including the results provided therein of surveys conducted by two large insurance brokerage 

firms, as well as on consultations with a range of stakeholders.84 

In 2005, Treasury issued a report to Congress assessing TRIA, which was based in part on survey data Treasury 

collected from insurers and policyholders via an independent research firm.85 Through those surveys, Treasury 

evaluated the effectiveness of TRIP, evaluated the likely capacity of the P/C industry to offer insurance for 

terrorism risk after the then-scheduled termination of TRIP, and addressed the availability and affordability of 

such insurance for various policyholders, including railroads, trucking, and public transit.

In this section, findings from the 2006 PWG Report and the 2010 PWG Report are briefly summarized. Various 

factors affecting the long-term availability and affordability of insurance for terrorism risk are then discussed, 

including market indications relating to the scheduled expiration of TRIA in December 2014. Finally, industry 

metrics with respect to the availability and affordability of insurance for terrorism risk are reviewed.

A. Findings of the PWG’s 2006 and 2010 Reports to Congress

The PWG reported the following key findings in 2006:86

• The availability and affordability of terrorism risk insurance improved from 2001 to 2006, despite the 

statutory increases in insurer retentions during that period under TRIA. Insurers allocated additional 

capacity to terrorism risk, prices declined, and take-up rates increased. Terrorism risk insurance take-up 

rates grew from 30 percent in 2002 to approximately 60 percent in 2006.

• Improvements in the terrorism risk insurance market were due to several important factors including: 

better risk measurement and management, improved modeling, greater reinsurance capacity, and the 

recovery in the financial condition of property and casualty insurers.

• Take-up rates increased as prices fell, but a significant proportion of policyholders still did not purchase 

terrorism coverage by 2006. 

• Further improvements in insurers’ ability to model and manage terrorism risk likely would have 

contributed to the long-term development of the terrorism risk insurance market. The high level of 

uncertainty associated with predicting the frequency of terrorist attacks and a general unwillingness by a 

significant number of insurance policyholders to purchase insurance coverage, made any prediction of 

the potential degree of long-term development of the terrorism risk insurance market difficult.

• Coverage for terrorism risk in group life insurance policies remained generally available and at 

affordable prices, despite that group life insurance has not been part of TRIP.

• Insurers generally did not provide coverage for losses resulting from nuclear, biological, chemical, and 

radiological (NBCR) events even before 9/11, and for the most part were not providing NBCR coverage 

even with a federal backstop in place. Given the general reluctance of insurers to provide coverage for 

these types of risks, limited capacity, relatively high prices, and policyholder expectations, little potential 

84 Among others, staff consulted with representatives from the insurance regulatory departments of Massachusetts, 

New York, and California, as well as from the NAIC. Staff also consulted with various consumer advocates, insurers, 

reinsurers, commercial insurance policyholders, trade associations, and industry services providers.

85 Treasury 2005 Report. 

86 PWG 2006 Report. 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

15

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

for future market development appeared to exist. Subsequently, the Government Accountability Office 

(GAO) found that available capacity for NBCR terrorism risk insurance and reinsurance was limited.87

The PWG reported the following key findings in 2010:88

• The availability and affordability of terrorism risk insurance provided by the private sector had 

improved since 2006, and insurers had built capital and increased aggregate capacity.

• Overall, aggregate terrorism risk insurance capacity had increased, and significantly in some forms. 

Nevertheless, capacity was constrained in some markets (e.g., high-risk geographic locations and 

properties), and some commercial insurance policyholders in high-risk urban areas had difficulty 

obtaining coverage with sufficient limits.

• Improvements in the terrorism risk insurance market may have occurred due to improvements in 

modeling and managing accumulation and concentration of aggregate loss exposure; new market 

entrants and increased competition; and improved capital positions of the property and casualty 

insurance and reinsurance industries. The industry was developing a better understanding of aggregate 

risk for the peril of terrorist attacks, and the increased capacity and competition had resulted in 

decreases in price generally.

• Take-up rates among commercial insurance policyholders reached approximately 60 percent in 2006, 

but remained roughly flat through 2010. Among those commercial insurance policyholders taking up 

terrorism risk insurance, some indications suggested that more coverage, as measured by policy limits, 

was being purchased.

• Market participants (policyholders, insurers, and reinsurers) remained uncertain about the ability of 

models to predict the frequency and severity of terrorist attacks. Such views influenced policyholder 

perception of risk and purchase decisions, as well as insurer and reinsurer capacity allocations to support 

terrorism risk coverage.

As described in sections III.C and III.D, the availability and affordability of terrorism risk insurance through 

2013 are largely comparable to the findings the PWG reported in 2010. 

B. Factors Affecting the Long-Term Availability and Affordability of Terrorism Risk 

Insurance

The availability and affordability of insurance for terrorism risk depends on a variety of factors, and appears to 

have been substantially influenced by TRIA. Comments submitted in response to the PWG Notice identified 

several factors affecting availability and affordability, certain of which are discussed below.

1. Ability of Insurers to Estimate Frequency and Severity

According to commenters, a significant challenge to pricing terrorism risk is the lack of credible empirical 

historical data on which to base loss projections and pricing.89 When empirical historical data are not available, 

insurers often rely on commercial catastrophe risk models to price risk (e.g., for other low-frequency, high-severity 

87 GAO 2008 Report at 14. 

88 PWG 2010 Report. 

89 Comment to the PWG Notice from the American Insurance Association, 5 (September 2013) (distinguishing the data 

that are available to insurers for pricing terrorism risk from the data that are available for pricing natural catastrophe 

risk); Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market, Hearing before the S. Comm. on Banking, Housing, 

& Urban Affairs, 113th Cong. (September 25, 2013) (statement from Robert P. Hartwig, Ph.D., CPCU, Insurance 

Information Institute, at 19), available at http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.

Testimony&Hearing_ID=b9077dbb-2ae2-425a-89dd-793fcb049190&Witness_ID=8f726a39-e80f-412f-9672-

7afb49e64fb7 (explaining that insurers do not have data with which to estimate the frequency of terrorist attacks). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

16

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

perils such as earthquakes, floods, and severe storms). These models simulate the frequency and severity of 

catastrophic events over a period of many years, and estimate the damage and financial effects of such damage 

on a given set of insured exposures. 

Terrorism risk models have become more advanced in the past twelve years, and today consider a spectrum 

of potential targets and weapons and incorporate expertise from counterterrorism and law enforcement 

professionals when available. These models offer insurers additional tools to evaluate accumulations of 

exposures and probable maximum losses within areas affected by potential attacks.90 Nonetheless, commenters 

report that such models are still of relatively limited utility, particularly in terms of developing pricing for the risk 

of large-scale attacks with a sufficient degree of confidence.91

Aon describes modeling of terrorism risk as “a means for underwriters to measure how much limit [an 

insurer has] at risk in a given geographic area – nothing more, nothing less.”92 Among others, the following 

impediments to more robust modeling of terrorism risk have been identified to the PWG:93

• Lack of sufficient experience and historical information by which to validate a model (frequency);

• Unique nature of terrorism risk;

• Geographic concentration of terrorism risk (proximity of insured assets to perceived “targets”);

• Diversity of potential weapons scenarios;

• Number of potential targets; and

• Insufficient exposure data.

2. Potential for Catastrophic Losses

Insurers have exhibited reluctance to offer coverage for terrorism risk if the associated losses cannot be predicted 

and may be unlimited. TRIP limits an insurer’s exposure by sharing the risk of insured losses that could exceed 

the insurer deductible and capping the aggregate liability of insurers and the federal government at $100 billion. 

An essential objective for any insurer is to limit the possibility that a single event could result in insured losses 

that threaten its solvency or otherwise bear on its ability to pay future claims and write new business. Thus, an 

insurer estimates and takes action to limit its probable maximum loss (PML) relating to any single event. An 

insurer may reduce its exposure to an unacceptable PML by canceling insurance policies for some exposures, 

particularly if sufficiently reliable loss estimates cannot be made. 

90 See The Terrorism Risk Insurance Act of 2002: Hearing before the H. Comm. on Financial Services, 113th Cong. (September 19, 

2013) (statement from Dr. Gordon Woo, Catastrophist, Risk Management Solutions Inc., at 1), available at http://

financialservices.house.gov/uploadedfiles/hhrg-113-ba00-wstate-gwoo-20130919.pdf (explaining that catastrophe 

insurance modeling addresses the need of insurers to quantify risk). 

91 See, e.g., Comment to the PWG Notice from Liberty Mutual Insurance, 3 (September 2013); Comment to the PWG 

Notice from the American Insurance Association, 5 (September 2013); Comment to the PWG Notice from the National 

Association of Mutual Insurance Companies, 6 (September 2013); Comment to the PWG Notice from the Property 

Casualty Insurers Association of America, 1 (September 2013); Reauthorizing TRIA: The State of the Terrorism Risk Insurance 

Market, Hearing before the S. Comm. on Banking, Housing, & Urban Affairs, 113th Cong. (September 25, 2013) (statement from 

Robert P. Hartwig, Ph.D., CPCU, Insurance Information Institute, at 19), available at http://www.banking.senate.gov/

public/index.cfm?FuseAction=Hearings.Testimony&Hearing_ID=b9077dbb-2ae2-425a-89dd-793fcb049190&Witness_

ID=8f726a39-e80f-412f-9672-7afb49e64fb7 (stating that terrorism risk models can predict the severity but not the 

frequency of insured losses from acts of terrorism); but see The Terrorism Risk Insurance Act of 2002: Hearing before the H. 

Comm. on Financial Services, 113th Cong. (September 19, 2013) (statement from Dr. Gordon Woo, Catastrophist, Risk 

Management Solutions Inc., at 1), available at http://financialservices.house.gov/uploadedfiles/hhrg-113-ba00-wstategwoo-20130919.pdf (stating that “terrorism insurance risk modeling has attained a level of capability”). 

92 Comment to the PWG Notice from Aon plc, 16 (September 2013).

93 Id.
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

17

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

The American Academy of Actuaries has developed several estimates of insured losses from large-scale NBCR 

attacks in various U.S. locations, including a $778 billion estimated loss which could result from a potential 

NBCR terrorist attack in New York City.94 In certain “Tier 1” urban centers in the United States, such as 

Manhattan, the potential for catastrophic losses from an act of terrorism could significantly limit the ability of 

the private market to make insurance for terrorism risk available in the absence of a federal program such as 

TRIP. 

3. Insurer Policyholder Surplus

An insurer’s policyholder surplus is the excess of its assets over its liabilities, as measured on an accounting 

basis prescribed by state insurance regulators. The relevant state insurance regulator and credit rating agencies 

(CRAs) monitor the surplus level of an insurer relative to its portfolio of risks as a principal indicator of its 

solvency. Greater surplus allows an insurer to absorb unexpectedly large insured losses or to write additional 

business. Aggregate policyholder surplus is one indicator of the amount of coverage that the insurance industry 

can make available. 

The aggregate policyholder surplus of the U.S. P/C insurance industry increased from $295 billion in 2002 to 

$597 billion in 2012.95 The aggregate premium-to-surplus ratio declined from 1.38 in 2002 to 0.88 in 2012,96

meaning the industry decreased its leverage. Some commenters argue that the substantial growth in aggregate 

surplus is evidence that the private market is now positioned to insure terrorism risk.97 Further reauthorization 

of TRIP, such commenters conclude, would amount to unnecessary federal assistance to a financially sound 

insurance industry.98 

Notwithstanding the growth in aggregate industry surplus, insurance industry commenters argue that 

current insurer exposures to terrorism risk are significant, relative to individual insurer surplus levels.99 These 

commenters report that, for many insurers, exposure to terrorism risk would be too large, relative to surplus, in 

the absence of reinsurance through private markets or support through TRIP.100 Notably, exposure to terrorism 

risk is not a factor in the state regulatory method of measuring the minimum amount of required capital for 

insurers. 

Seventy-three of the approximately 900 insurers reporting DEP for TRIP-eligible lines have surplus levels that 

exceed $1 billion. These 73 insurers account for approximately 76 percent of the market for TRIP-eligible 

lines of insurance in terms of premium volume. One hundred fifteen insurers (approximately 83 percent of 

the market by DEP for TRIP-eligible insurance) have surplus levels that exceed $500 million, and 282 insurers 

(approximately 93 percent of the market) have surplus levels that exceed $100 million. The remaining insurers, 

accounting for approximately 7 percent of the market, have surplus levels of less than $100 million.101

94 Comment to the PWG Notice from the American Academy of Actuaries, 2-3 (September 2013). See also Comment 

to the PWG Notice from Liberty Mutual Insurance, 2-3 (September 2013) (referencing modeled terrorist events that 

exceed $750 billion of insured losses, including modeled anthrax attacks that exceed $900 billion of insured losses). 

95 SNL Financial, U.S. Insurance Statutory, P/C Industry Briefing Books – Balance Sheet (September 2013). 

96 Aggregate property and casualty sector premium was $407 billion in 2002, relative to $295 billion of aggregate 

surplus. Aggregate premiums were $524 billion in 2012, relative to $597 billion of aggregate surplus. SNL 

Financial, U.S. Insurance Statutory, P/C Industry Briefing Books – Balance Sheet, Income Statement (September 

2013).

97 See, e.g., Comment to the PWG Notice from the Cato Institute, 12-13 (September 2013). 

98 Id. at 14. 

99 See, e.g., Comment to the PWG Notice from the American Insurance Association, 14-15 (September 2013). 

100 Id. 

101 SNL Financial LC (November 2013) (aggregating DEP for TRIP-eligible lines of insurance, in addition to 

Policyholder Surplus, as reported for 2012). “Insurers” in this case are identified at the “SNL Groups” level (i.e., 

insurance groups, as opposed to legal entities).
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

18

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

To some degree, growth in aggregate industry surplus is countered by the increase in the industry’s exposure to 

unreimbursed losses from acts of terrorism as TRIA has evolved. As described above, the insurer deductible has 

increased from 7 percent in 2003 to 20 percent today. 

Among the approximately 900 insurers with DEP for TRIP-eligible lines, the median insurer deductible represented 

as a percent of surplus is approximately 8 percent. However, 179 insurers, accounting for approximately 21 percent 

of the market by premium volume, have TRIA deductibles that exceed 20 percent of surplus.

In addition, the federal share of compensation to insurers for losses exceeding the deductible was lowered from 

90 percent to 85 percent in the 2005 reauthorization, effective January 1, 2007. Insurers estimate that the 

potential insured losses that would not be compensated by federal payments average between 8 and 12 percent 

of policyholder surplus.102 Insurers expect that exposure to terrorism risk of many insurers would “double or 

triple and leave exposures in excess of 20 percent of total surplus” if TRIP is not reauthorized.103 

4. Credit Rating Agency Considerations

CRAs rate insurers based on quantitative and qualitative assessments, including exposure to losses from natural 

catastrophes or acts of terrorism. A.M. Best, for example, considers an insurer’s aggregate exposure, number 

of insured locations, and concentration of exposures within certain locations.104 Given these factors, A.M. Best 

evaluates an insurer’s exposure to losses from a terrorist attack, the effect such losses would have on the insurer’s 

surplus, and the ability the insurer would have to pay additional, expected claims after such losses. A.M. Best 

reports that insurers “with more concentrations – that are in excess of 20 [percent] of surplus prior to any 

recoveries from a federal backstop – are at a greater risk than [insurers] with fewer insured concentrations.”105

Commercial viability of insurers is influenced by credit ratings. Policies offered by a lower rated insurer may 

be less viable or attractive in the marketplace, and therefore, insurers prefer to achieve higher ratings. CRAs 

are taking steps that may lead to downgrades of insurers if and when TRIA expires; this may have adverse 

implications for the availability and affordability of terrorism risk insurance. 

For example, in 2013, A.M. Best assessed insurers’ exposures to terrorism risk in the absence of TRIP, and asked 

some insurers to present action plans “detailing the steps they will take to reduce concentration of exposure to 

terrorism risk, should [TRIA] protection change materially.”106 Any such insurer that did not present a sufficient 

plan likely would have been subjected to negative rating pressure by A.M. Best.107 In December 2013, A.M. 

Best reported that all such insurers presented action plans to sufficiently reduce exposure to terrorism risk in 

the event that TRIA is not renewed, and that, therefore, negative rating actions were not taken.108 Subsequent 

to this exercise A.M. Best remains concerned with TRIA’s potential expiration, and notes that it will continue 

102 Comment to the PWG Notice from the American Insurance Association, 14 (September 2013). 

103 Id. at 15. 

104 A.M. Best Methodology, The Treatment of Terrorism Risk In the Rating Evaluation, 1 (November 27, 2013), available at

http://www3.ambest.com/ambv/ratingmethodology/OpenPDF.aspx?rc=197680.

105 Id. at 5. 

106 A.M. Best, Future of TRIPRA Remains Uncertain, Rating Pressure Intensifies, 1 (October 9, 2013), available at http://www3.

ambest.com/DisplayBinary/DisplayBinary.aspx?TY=P&record_code=217533&URatingId=2421524. 

A.M. Best’s assessment included a stress test of insurers’ balance sheets, which simulated the result of a conventional 

terrorist attack “similar to a five- or six-ton TNT truck bomb.” Those insurers that failed the stress test, under the 

assumption that TRIP did not exist, were asked to present plans for reducing exposure to terrorism risk in the event 

that TRIA expires. 

107 Id. 

108 A.M. Best, No Rating Actions Taken on Insurers with Terrorism Exposure Despite Uncertain Future of 

TRIPRA (December 19, 2013), available at http://www3.ambest.com/frames/frameserver.

asp?site=press&tab=1&altsrc=14&altnum=&refnum=65504648775446506655. 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

19

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

to monitor insurers’ exposures to terrorism risk and “will be prepared to take appropriate rating actions where 

necessary.”109

5. Private Reinsurance Capacity

Reinsurance is a mechanism by which insurers transfer, or “cede,” portions of risk exposures to other insurers 

(reinsurers) in exchange for a premium. Reinsurance serves a number of functions for a primary insurer, 

including allowing it to offer coverage for large exposures, protect policyholder surplus, and stabilize loss 

experience. Reinsurance increases the capacity of the primary insurance market (i.e., the amount of coverage 

that insurers can make available) by providing access to additional capital. 

The availability of reinsurance is particularly important to primary insurers covering terrorism risk because of 

the potential for catastrophic losses. The unwillingness of reinsurers to offer affordable coverage for terrorism 

risk in the aftermath of 9/11 contributed to the unavailability of coverage for terrorism risk in the primary 

insurance market. Currently, and in the absence of reinsurance or other sources of funding for terrorism risk 

in the private sector, TRIP provides a level of protection to primary insurers, which preserves the availability of 

private capital for terrorism risk insurance on affordable terms. 

Although a private reinsurance market for terrorism risk exists, the market is supported by limited capital 

and coverage has not been available in amounts approaching that afforded under TRIP. According to 

some industry estimates, as little as $6 to $8 billion of global reinsurance coverage is available for terrorism 

risk in the United States.110 Moreover, the scope of coverage available from the private reinsurance market 

has been narrower in comparison to coverage available through TRIP. For example, private reinsurance 

may not cover losses caused by NBCR attacks, even though such losses may not be excluded from insurers’ 

workers’ compensation policies.111 Private market reinsurance for terrorism risk has typically limited coverage 

to acts carried out by foreign persons, whereas a certified act of terrorism under TRIA is not subject to that 

limitation.112 

Figure 3, which was submitted with testimony before the House Committee on Financial Services by Marsh,113

shows estimated North American reinsurance dedicated capital of $100 billion; however only a fraction of this is 

presently available to support terrorism risk. 

109 Id. A.M. Best also noted that its stress test “was not meant to be a worst-case scenario.” Id.

110 Comment to the PWG Notice from the Reinsurance Association of America, 3 (September 2013); TRIA at Ten Years: 

The Future of the Terrorism Risk Insurance Program, Hearing before the H. Comm. on Financial Services Subcommittee on Housing and 

Insurance, 112th Cong. (September 11, 2012) (statement of Edward B. Ryan, Aon Benfield, at 3), available at http://

financialservices.house.gov/uploadedfiles/hhrg-112-ba04-wstate-eryan-20120911.pdf. 

111 See Comment to the PWG Notice from Marsh, 8 (September 2013) (“the industry is not adequately capitalized to 

support such exposure”). 

112 Comment to the PWG Notice from Aon plc, 30 (September 2013). 

113 The Terrorism Risk Insurance Act of 2002: Hearing before the H. Comm. on Financial Services, 113th Cong. (September 

19, 2013) (statement from Peter J. Beshar, Executive Vice President and General Counsel, Marsh & McLennan 

Companies, at 5), available at http://financialservices.house.gov/uploadedfiles/hhrg-113-ba00-wstatepbeshar-20130919.pdf. 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

20

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Figure 3: Analysis of Dedicated Insurance and Reinsurance Capital

Source: Marsh Testimony (September 19, 2013)

Figure 3: Guy Carpenter Analysis of Dedicated Insurance and Reinsurance Capital

Est. $700B P&C 

US (Re) 

Insurance 

Dedicated 

Capital

Est. $195B

Global

Reinsurance

Dedicated 

Capital

Est. $100B

North American

Reinsurance

Dedicated Capital

In connection with Figure 3, Marsh commented to the Committee:

It is important to note, however, that not all capital is dedicated to or capable of writing 

terrorism coverage. While alternative, or “capital markets,” providers have brought substantial 

reinsurance capacity into the industry, most have little to no appetite for the peril. Some are 

forced to decline on the basis of legal obligations made to their investors, whereas others simply 

avoid the exposure on the grounds of correlations with financial markets risk.114

Marsh estimates that $1 to $2 billion of capacity for terrorism coverage is currently available from private 

reinsurance markets, and that capacity is likely smaller in major metropolitan areas due to concentration of 

risk;115 the amount of coverage available is also more limited if NBCR coverage is not excluded.116 The cost of 

standalone terrorism reinsurance may be 1 to 4 percent of the limits purchased in “non-target, lightly populated 

regions,” but in “target cites and/or densely populated commercial centers,” the cost may be 15 percent of the 

reinsurance limit or more.117

The largest modeled conventional terrorist attack (involving a truck bomb detonation in Manhattan) produced 

an estimated insured loss of approximately $38 billion, while a nuclear detonation in Manhattan could produce 

a loss approaching $950 billion.118 To the extent covered by insurance, commenters note that such losses would 

overwhelm the industry in the absence of federal support.119 

114 Id. at 6.

115 Comment to the PWG Notice from Marsh, 9 (September 2013). 

116 Comment to the PWG Notice from Aon plc, 30-31. Aon also reports that “[r]einsurers have grown slightly more 

comfortable with the exposure, and capacity has increased .... Nevertheless, the inability to assign frequencies to the 

occurrence of terrorism events makes the value proposition for buyers difficult to assess.” Id. at 31.

117 Comment to the PWG Notice from Marsh, 10 (September 2013).

118 Id. As indicated above, the American Academy of Actuaries also has reported several estimates of insured losses, 

including a $778 billion estimated loss resulting from a potential NBCR terrorist attack in New York City. Comment 

to the PWG Notice from the American Academy of Actuaries, 2-3 (September 2013). See also Comment to the PWG 

Notice from Liberty Mutual Insurance, 2-3 (September 2013). 

119 See, e.g., Comment to the PWG Notice from Liberty Mutual Insurance, 2-3 (September 2013); Comment to the 

PWG Notice from the Reinsurance Association of America, 3 (September 2013); TRIA at Ten Years: The Future of the 

Terrorism Risk Insurance Program, Hearing before the H. Comm. on Financial Services Subcommittee on Housing and Insurance, 112th

Cong. (September 11, 2012) (statement of Edward B. Ryan, Aon Benfield, at 3). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

21

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

As mentioned by Marsh, recent capital market developments have added a new dynamic to the private 

reinsurance market with minimal impact in the terrorism risk insurance sector. Investment capital, including 

from hedge funds and pension funds, has added new reinsurance capacity, including through insurance 

linked securities (ILS) such as catastrophe bonds. Although this development in ILS markets has made P/C 

reinsurance more available and affordable, insurers report that ILS transactions have not offered coverage for 

terrorism risk.120 

6. Market Uncertainty Relating to the Reauthorization of TRIP

In the timeframe leading up to the previous scheduled TRIA expirations, pricing for terrorism risk insurance 

spiked. This can be seen on Figure 6 in section D.1 below. Figure 6 also shows a recent upward pricing trend.121 

Aon’s comment to the PWG Notice states:

It is expected that pricing volatility will increase throughout the balance of 2013 and will 

become particularly acute in [the fourth quarter of 2013], as major insurance contracts come 

up for renewal in 2014 with a portion of the contract extending beyond the end of 2014, and 

TRIA’s scheduled expiration on 12/31/2014.122

Aon’s view, supported by others, is that “the insurance market has repeatedly signaled that it will not offer the 

same level of terrorism coverage”123 mandated by TRIA if its government backstop is not in place. Proponents 

of a long-term reauthorization argue that insurance for terrorism risk would not be available or affordable in 

the absence of TRIP. These proponents include a broad range of stakeholders, including insurers, reinsurers, 

insurance agents and brokers, policyholders, state legislators and regulators, some insurance consumer 

advocates, and academics. Insurers, reinsurers, and agents and brokers acknowledge the developments in the 

market from 2002 to 2013, but warn that insurers would again exclude coverage of losses from acts of terrorism 

if TRIP is not reauthorized. State insurance regulators echo industry views and also expect that an availability 

crisis would result.124 State legislators express concern regarding the adverse effects that such unavailability 

would have on state economies.125 

Despite the adverse effects of uncertainty regarding the potential reauthorization of TRIP on the availability 

and affordability of terrorism risk insurance, as expressed by a range of stakeholders, support for a long-term 

reauthorization of TRIP is not unanimous. Some public policy organizations, including the Cato Institute, 

Taxpayers for Common Sense, and certain insurance consumer representatives, such as the Consumer 

120 Comment to the PWG Notice from the American Insurance Association, 20 (September 2013). Capital marketslinked reinsurance vehicles have been primarily dedicated to weather risks and to date represent approximately $45 

billion of capacity worldwide. Aon Benfield, Reinsurance Market Outlook: Post Convergence – The Next USD100 Billion

(September 2013). 

121 The graph shows in part “insurance markets beginning to adjust their portfolios of risk to manage the potential 

expiration of TRIA.” Comment to the PWG Notice from Aon plc, 6 (September 2013).

122 Id. at 7.

123 Id. at 6. 

124 Comment to the PWG Notice from the New York Department of Financial Services (September 2013); Comment to 

the PWG Notice from the National Association of Insurance Commissioners (September 2013). 

125 Comment to the PWG Notice from the National Council of Insurance Legislators (September 2013). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

22

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Federation of America, comment that TRIA should expire.126 These commenters assert that insurance 

for terrorism risk would still be available and affordable in the absence of a federal program that mandates 

coverage and limits insurer exposure. One commenter argues that insurers would have a strong incentive to 

offer insurance for terrorism risk in the absence of a federal backstop because failing to do so would risk losing 

policyholders (i.e., to other insurers that are willing to make coverage available).127 Another commenter argues 

that TRIP “crowds out” what would otherwise be a vibrant private reinsurance market for terrorism risk by 

offering coverage at no cost.128 

C. Availability of Terrorism Risk Insurance

The availability of insurance for terrorism risk refers to whether insurers offer coverage for losses arising from 

an act of terrorism. Availability of insurance for terrorism risk typically is evaluated by measuring the available 

capacity in the private insurance market. Capacity refers to the maximum amount of coverage (i.e., the limit) 

that an insurer is willing to make available, and often is measured in terms of limit per insured risk exposure (i.e., 

per-risk). A common practice in analyzing the capacity available in the private insurance market is to aggregate 

the per-risk limits that insurers are willing to offer. This approach may overestimate the amount of actual 

capacity available in the market, but it serves as a useful benchmark when considering year-over-year trends. 

Insureds most commonly purchase terrorism risk insurance by accepting the offer, required of insurers by TRIA, 

in insurance contracts for TRIP-eligible lines. This market for terrorism risk insurance is called the “embedded” 

market because the coverage for terrorism risk is included in a broader policy. The foundation of the embedded 

market, therefore, is TRIA itself. Embedded terrorism coverage is offered on terms that do not differ materially 

from those of other coverages, in accordance with TRIA. A relatively small market also exists for specialized 

“standalone” insurance policies covering terrorism risk, which is described below.

1. Embedded Market

Policyholders of insurance for terrorism risk overwhelmingly purchase coverage that is “embedded” in TRIPeligible commercial P/C insurance policies. Marsh and Aon report that 95 percent129 and 80 percent130 of 

clients that purchased some form of terrorism risk insurance protection for property risks, respectively, did so 

through the embedded market. The standalone market, discussed below, is an important complement to the 

embedded market.

Aggregate DEP for TRIP-eligible lines – for which TRIA requires insurers to make coverage of terrorism risk 

available – was approximately $184 billion in 2012.131 Of the approximately 900 insurers that reported DEP 

126 See Comment to the PWG Notice from the Cato Institute (September 2013); The Terrorism Risk Insurance Act of 2002: 

Hearing before the H. Comm. on Financial Services, 113th Cong. (September 19, 2013) (statement from Steve Ellis, Vice 

President, Taxpayers for Common Sense), available at http://financialservices.house.gov/uploadedfiles/hhrg-113-

ba00-wstate-sellis-20130919.pdf. Staff consulted with the Consumer Federation of America (CFA) regarding TRIA. 

Although the CFA did not submit a comment in response to the PWG Notice, the PWG understands that its views 

are consistent today with its earlier reports advocating TRIA’s expiration. See, e.g., Consumer Federation of America, 

Weaning the Insurance Industry and Large Commercial Policyholders from Taxpayer Subsidies under the Terrorism Risk Insurance Act

(July 26, 2005), available at http://www.consumerfed.org/elements/www.consumerfed.org/file/finance/TRIA_

Report_072605.pdf. 

127 Comment to the PWG Notice from the Cato Institute, 13 (September 2013). 

128 See, e.g., Hearing before the H. Comm. on Financial Services, 113th Cong. (September 19, 2013) (statement from Steve Ellis, 

Vice President, Taxpayers for Common Sense, at 3-4), available at http://financialservices.house.gov/uploadedfiles/

hhrg-113-ba00-wstate-sellis-20130919.pdf. 

129 Marsh 2013 Report at 10. 

130 Comment to the PWG Notice from Aon plc, 9 (September 2013). 

131 SNL Financial LC (November 2013). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

23

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

for TRIP-eligible lines in 2012, fourteen insurers accounted for 50 percent of the market DEP; 58 insurers 

accounted for 80 percent of the market DEP; and 376 insurers constituted 99 percent of the market DEP.132 

Estimates of the capacity in the embedded market are approximately $14 billion of coverage on a per-risk basis, 

a moderate increase from the $13.5 billion estimate provided in the 2010 PWG Report.133 Less capacity may 

be available in areas prone to natural catastrophe perils.134 For example, terrorism risk insurance capacity for 

policyholders also requiring protection from catastrophic perils such as hurricanes, earthquakes, and floods may 

drop to between $2 and $4 billion.135 

2. Standalone Market

For some insureds, the embedded market is not sufficient to meet coverage needs for terrorism risk. For insureds 

with the highest risk profiles in particular, “standalone” insurance policies can provide additional or alternative 

terrorism risk insurance coverage. Such coverage generally is written on customized terms, and is outside the 

scope of TRIA’s coverage mandate and provisions for a government share of loss exposure.136 For example, 

standalone policies may provide coverage of non-certified acts of terrorism, or coverage limits that are higher 

than those available in embedded policies. Standalone terrorism risk insurance typically is sold to policyholders 

with large or complex exposures that may be perceived as being more susceptible to losses from acts of 

terrorism.

The cost of standalone terrorism risk insurance can be as much as five to ten times that of embedded (TRIPeligible) coverage.137 Even with the ability to charge higher rates, insurers continue to limit available coverage, 

particularly in high-risk locations.138 The tables in Figures 4 and 5 indicate the capacity that may be available 

from insurers writing standalone terrorism risk insurance. 

132 SNL Financial LC (November 2013) (aggregating DEP for TRIP-eligible lines of insurance, as reported for 2012). 

“Insurers” in this case are identified at the “SNL Groups” level (i.e., insurance groups, as opposed to legal entities). 

133 Comment to the PWG Notice from Aon plc, 8 (September 2013); PWG 2010 Report at 15.

134 Comment to the PWG Notice from Aon plc, 8 (September 2013). 

135 Id. 

136 Standalone coverage may also be accessed via reinsurance. See Comment to the PWG Notice from Aon plc, 6 

(September 2013).

137 Marsh 2013 Report at 19.

138 Id.
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

24

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Figure 4: Standalone Terrorism Insurance Market Capacity

Terrorism Insurance Market Capacity

Underwriter Normal ($) maximum Line Absolute ($) maximum Line 

Various Syndicates at Lloyd’s 925,000,000 1,195,000,000

AIG / Lexington 100,000,000 250,000,000

Arch Insurance Company (Europe) Ltd 5,000,000 5,000,000

Ace European 50,000,000 50,000,000

Axis Specialty 150,000,000 200,000,000

Hannover Rückversicherungs-Aktiengesellschaft 15,000,000 50,000,000

Hiscox USA 100,000,000 100,000,000

Lancashire Insurance Company UK Ltd 100,000,000 200,000,000

Montpelier Re 50,000,000 50,000,000

Validus/Talbot US 100,000,000 100,000,000

Total 1,595,000,000 2,200,000,000

National Indemnity Company 500,000,000 1,000,000,000

Total incl Berkshire 2,095,000,000 3,200,000,000 

Source: Comment to the PWG Notice from Aon plc (September 2013)

Figure 5: Standalone Terrorism Insurance Market Capacity (in $Millions)

Terrorism Insurance Market Capacity (in $Millions)

INSURER/REINSURER CAPACITY

Chartis $1,500 

Berkshire Hathaway $1,000 

Lloyd’s $900 

Lancashire Insurance Group $200 

AXIS Specialty $150 

Hiscox USA $100 

Validus $100 

Western Re $85 

ACE Global Markets $50 

Montpelier Re $50 

Transatlantic Re $50 

Beazley US $50 

Torus $40 

IRI/Westport $40 

Aspen Re $30 

Inter Hannover $25 

Source: Marsh 2013 Report (May 2013)

The amount of coverage for terrorism risk offered by the standalone market is influenced by a number of 

factors and can decrease to $750 million or less in high-risk locations.139 Bermuda and European insurers (or 

U.S. subsidiaries), including Lloyd’s of London, contribute significantly to standalone terrorism risk insurance 

capacity in the United States.140 

139 Id. 

140 See id. at 11.
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

25

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

The standalone terrorism risk insurance market has grown following 9/11 and the passage of TRIA. The 

market’s current per-risk capacity is more than twice the 2006 capacity of $685 million per-risk.141 Per-risk 

capacity has increased for several reasons, including the availability of new capital to the market, and the 

profitability of the standalone terrorism risk insurance in light of the absence of material terrorist attacks in the 

United States.142 

3. Workers’ Compensation Market

Workers’ compensation insurance provides wage replacement and medical benefits to employees who are 

injured in the scope of employment, as well as death benefits to surviving spouses and dependents. Workers’ 

compensation is a statutorily-mandated product; under state law, employers must provide it, and insurers may 

not exclude or limit liability for losses that result from certain perils. Workers’ compensation insurance often 

receives special attention in discussion of terrorism risk insurance because by state law the coverage cannot 

exclude losses resulting from acts of terrorism (including NBCR). A workers’ compensation insurer wishing to 

avoid terrorism exposures in a given jurisdiction would have to cease writing such business altogether. Thus, 

the availability of commercial workers’ compensation insurance in some localities may wholly depend upon the 

existence of TRIA and its coverage mandate, federal backstop, and Program Cap. 

Aon’s submission in response to the PWG Notice, for example, states: “We are confident that without TRIA (or 

similar reinsurance capital) the cost of workers’ compensation insurance will be significantly higher, if available 

at all.”143 Marsh offered similar observations in its comments: “Without [TRIA], some insurers have indicated 

to us that they could be forced to withdraw from geographical areas that have the greatest need for terrorism 

coverage or they may even exit certain lines of business, such as workers’ compensation or commercial property 

in high profile jurisdictions in the event that they are unable to limit their exposure to terrorism.”144 In January 

2014, Marsh reported that in light of the pending expiration of TRIA, insurers have begun endorsing workers’ 

compensation renewals to advise policyholders that the premium may change at December 31, 2014, and that 

some insurers are setting policy expirations at that date.145 

D. Affordability of Terrorism Risk Insurance 

Affordability of insurance for terrorism risk refers to the ability of policyholders to purchase coverage when it 

is offered. Policyholders able to afford terrorism risk insurance may nonetheless decline coverage for reasons 

unrelated to the price (e.g., a policyholder has a high risk tolerance or a low perceived risk from acts of terrorism). 

Nonetheless, the insurance sector generally references the following terrorism risk insurance affordability 

metrics: (1) terrorism risk premium as a percentage of property insurance premiums; (2) terrorism risk premium 

as a percentage of total insured value (TIV);146 and (3) the percentage of policyholders purchasing terrorism risk 

coverage, known as the take-up rate. Such metrics are applicable to the embedded market. 

141 See id. at 9.

142 See id. at 10. 

143 Comment to the PWG Notice from Aon plc, 27 (September 2013). Aon expressed further that the cost impact 

would affect all companies, not just those that present particularly high terrorism risk exposure. Id.

144 Comment to the PWG Notice from Marsh, 1 (September 2013). 

145 Marsh Risk Management Research, Pending TRIPRA Expiration Impacts Workers’ Compensation Industry (January 21, 

2014), available at http://usa.marsh.com/NewsInsights/MarshRiskManagementResearch/ID/34179/PendingTRIPRA-Expiration-Impacts-Workers-Compensation-Industry.aspx.

146 Total Insured Value (TIV) is the total in dollars of covered property and associated insured interests. As used by 

Aon, TIV means insured physical assets and business interruption values. 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

26

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Terrorism risk insurance affordability data have been collected by both Aon and Marsh,147 and both indicate 

that terrorism risk insurance premiums, viewed in the aggregate, constitute between 3 and 5 percent of overall 

property insurance premiums. Pricing appears to have remained consistent, or even to have declined slightly, 

over the past several years. Recent trends, however, indicate that prices are increasing in anticipation of a 

potential expiration of TRIA. Finally, both Aon and Marsh report that, in the aggregate, approximately 60 

percent of policyholders elect to purchase coverage of terrorism risk, a figure which also has been relatively 

stable for several years.

1. Pricing Data and Illustrations

Overall, the price for terrorism risk insurance, viewed as a percentage of median property premiums, has 

declined by half from its 2002 peak. Aon’s data, illustrated in Figure 6, show that the figure has declined from 

nearly 7 percent to approximately 3 percent, with the lowest point being in early 2012.

Figure 6: Median Terrorism Premium as a Percentage of Median Property Premium

 Source: Comment to the PWG Notice from Aon plc (September 2013)

Median Terrorism Premium as % of Med. Property Premium

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 H1

% of Property Premium

Pricing of insurance for terrorism risk can vary on a regional basis. For example, an initial (i.e., after the 

enactment of TRIA) Insurance Services Office (ISO)148 grouping of U.S. cities into “tiers” according to expected 

commercial property loss potential from acts of terrorism included the cities of Chicago, New York, San 

Francisco, and Washington, D.C. in “Tier 1” (i.e., the group with the highest expected loss potential), and the 

cities of Boston, Houston, Los Angeles, Philadelphia, and Seattle in “Tier 2” (i.e., the group with the secondhighest expected loss potential).149 Insurers may reflect ISO’s assessment of expected loss potential by charging 

higher premiums for exposures located in high-risk tiers than for exposures in low-risk tiers.

147 Aon reported to staff that its survey relied on data collected from over 1,200 of its clients that resemble businesses 

of the size and complexity similar to those in the Fortune 2000. The Aon report reflects the twelve-month period 

ending on June 30, 2013, and is included with its comment to the PWG Notice. Comment to the PWG Notice from 

Aon plc (September 2013). The Marsh report was based on data relating to 2,558 of its clients with a median total 

insured value of $165 million. The Marsh data reflect the 2012 calendar year. Marsh 2013 Report at 27. 

148 ISO aggregates industry data and develops advisory prospective loss costs (projections of future claim costs and loss 

adjustment expenses), among other services, on behalf of its participating insurers. See About ISO, 

http://www.iso.com/About-ISO/Overview/About-ISO.html. 

149 ISO has since revised its terrorism risk insurance rating tiers, generally through refinements within tiers. Other 

service providers and individual insurers may assess risk tiers differently than ISO, based on proprietary models. 

See, e.g., Comment to the PWG Notice from Aon plc, 11 (September 2013).
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

27

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Marsh supplied Figure 7, which shows that terrorism risk insurance pricing generally is lower in the Midwest 

and higher in the Northeast. For 2012, median premiums ranged from $24 per million of coverage in the 

Midwest to $31 per million in the South and the Northeast.

Figure 7: Terrorism Insurance Pricing – Median Rates by Region (Rates per $1 Million of Coverage)

Source: Marsh 2013 Report (May 2013)

Terrorism Insurance Pricing – Median Rates by Region (Rates per Million)

$24

Midwest

$24

$26

$31

Northeast

$37

$31 $31

South

$30

$34

$26

West

$33

$27

l 2012 l 2011 l 2010

Terrorism risk pricing data are also available on an industry basis. Certain industries attract higher prices 

due to perceived risk exposure to terrorism.150 Construction, transportation and financial industries face the 

highest rate per million, with education, healthcare, retail/wholesale, and telecom industries at the lower end 

of the scale. Considered as a percentage of overall property premiums, however, the construction industry is 

at the low end, in the 2 to 3 percent range, with transportation, hospitality, and health care at the higher end 

on a percentage basis. Figures 8 and 9, based on data collected by Marsh, show pricing differences by industry, 

displayed both as cost per million dollars of coverage, and as percentage of premium by industry.

150 Comment to the PWG Notice from Aon plc, 21 (September 2013).
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

28

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Terrorism Pricing – Median Rates by Industry (Rate per Million) Terrorism Pricing as a Percentage of Property Premium by Industry

Source: Marsh Global Analytics Source: Marsh Global Analytics

l 2012 l 2011 l 2010

Food and 

Beverage

$14

$25

$25

Education

$16

$17

$16

Health Care $17

$19

$18

$20

Manufacturing

$18

$19

$22 Retail/

Wholesale $24

$22

$24

Tech/Telecom

$25

$26

$29 Public Entity 

and Nonprofits $19

$31

$30

Life Sciences

$29

$26

$34

Real Estate

$40

$40

$38 Energy and 

Mining $15

$30

$41 Hospitality and 

Gaming $26

$31

$42

Transportation

$60

$53

$45 Financial 

Institutions $55

$54

$49

Chemicals

$48

$38

$50

Media

$44

$33

$53 Power and 

Utilities $46

$49

$63

Construction

$54

$60

l 2012 l 2011 l 2010

Energy and 

Mining

1%

1%

1%

Manufacturing

2%

3%

3%

Retail/

Wholesale

3%

2%

3%

3%

Tech/Telecom

4%

4%

3%

Construction

3%

2%

3%

Life Sciences

4%

4%

4% Financial 

Institutions 4%

6%

4%

Media

5%

5%

4%

Education

6%

5%

4% Power and 

Utilities 6%

5%

4% Food and 

Beverage 4%

3%

4%

Chemicals

4%

4%

5%

Real Estate

5%

5%

5% Public Entity 

and Nonprofits 4%

7%

5%

Health Care 4%5%

7%

Transportation

13%

6%

7% Hospitality and 

Gaming 12%

10%

When benchmarking total terrorism risk insurance premiums divided by TIV, Aon reports (as of June 2013) a 

general trend toward increasing prices on renewal across most industry subsectors.151 Terrorism risk pricing in 

general moves with the overall rates for property insurance. Natural catastrophe exposure (whether by industry 

or geography) and associated premium trends will similarly influence terrorism risk insurance premiums in order 

to maintain the same relative premium allocation. Thus, for example, the record natural catastrophe insured 

losses experienced since 2011 pushed up terrorism risk insurance pricing to some extent.152 Independent of such 

influences, however, commenters report upward price trends for terrorism risk insurance “as markets have begun 

to respond to the prospect of TRIA expiring at the end of 2014.”153

Marsh reports that median property terrorism risk insurance premium rates decreased for some industries in 

2012, notably financial products and services, food and beverage, and transportation, while rates increased 

151 Id. at 19.

152 Id. at 21.

153 Id. 

Figure 9: Pricing as a Percentage

of Property Premium by Industry

Figure 8: Median Rates by 

Industry (Rates per $1 Million of Coverage) 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

29

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

most significantly for the media industry, and less so for the chemicals, hospitality, energy, life sciences, and 

manufacturing industries.154

Figure 10 shows that policyholders in the transportation and health care industries purchase the highest limits – 

approximately $800 and $600 million, respectively.

Average Terrorism Limit by Industry Twelve Months Ending 6/30/13 Figure 10: Average Terrorism Limit by Industry Twelve Months Ending 6/30/13

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

$900,000,000

Natural Pharm-Chem Public Sector Real Estate Technology Transportation

Resources

Industrials & 

Materials

Financial Health Care

Institutions

Consumer Entertainment

Goods

Agribusiness 

and Food 

Systems

Source: Comment to the PWG Notice from Aon plc (September 2013)

Figures 11 and 12, from Marsh, show terrorism risk insurance pricing as a function of TIV – displayed as cost 

per million, and as a percentage of property premium.

Terrorism Insurance Pricing – Median Rates by TIV (Rate per Million) Terrorism Insurance Pricing as Percentage of Property Premium by TIV

Source: Marsh 2013 Report (May 2013) Source: Marsh 2013 Report (May 2013)

$49

<$100M

$54

$49

$25

$100–$500M

$27 $27

$20

$500M–$1B

$23

$19 $19

>$1B

$21 $21

l 2012 l 2011 l 2010

4%

<$100M

4%

3%

4%

$100–$500M

4% 4%

3%

$500M–$1B

5%

4%

5%

>$1B

6%

5%

l 2012 l 2011 l 2010

Figures 11 and 12 show that property terrorism rates tend to be relatively lower as the size of the insured risk 

increases. Median rates for smaller companies have declined somewhat in the last few years, but remain more 

than twice that of larger firms. Considered as a percentage of overall property premiums, the rates vary far less 

appreciably by TIV – ranging from 4 to 5 percent. 

154 Marsh 2013 Report at 13.

Figure 12: Terrorism Insurance Pricing as 

Percentage of Property Premium by TIV

Figure 11: Terrorism Insurance Pricing –

Median Rates by TIV (Rate per Million)
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

30

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

2. Take-Up Rate Data and Illustrations

The overall take-up rate for terrorism risk insurance is approximately 60 percent. Figure 13 shows that the 

aggregate take-up rate for U.S. terrorism risk insurance has not varied appreciably in nearly a decade.

Figure 13: Property Terrorism Insurance Take-Up Rate by Year Property Terrorism Take-Up Rate by Year

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

Terrorism Take-Up Rate Log. (Terrorism Take-Up Rate)

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 YTD

Source: Comment to the PWG Notice from Aon plc (September 2013)

Take-up rates are not uniform across industries, however. Figure 14 illustrates both take-up rate and annualized 

premium on an industry-by-industry basis for terrorism risk coverage, based on data collected by Aon. The real 

estate and entertainment industries have the highest take-up rates of approximately 80 to 90 percent. The 

take-up rate for the transportation industry is much lower, at roughly 50 percent.

Figure 14: Property Terrorism Insurance Take-Up and Pricing by Industry

Twelve Months Ending 6/30/13 Property Terrorism Insurance Take-Up and Pricing by Industry - Twelve Months Ending 6/30/13

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

Take-Up

Real Technology Transportation

Estate

Public 

Sector

Natural Pharm-Chem

Resources

Industrials & 

Materials

Financial Health Care

Institutions

Consumer Entertainment

Goods

Agribusiness and 

Food Systems

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

Annualized Premium as % Total Program Premium

Take-Up Rate

% of Annualized Premium

Source: Comment to the PWG Notice from Aon plc (September 2013)

Marsh also reports terrorism risk insurance take-up rates by industry and region. As shown in Figure 15, of 

seventeen industries defined by Marsh, the media, education, and financial institution industries had the highest 

take-up rates in 2012 at 81 percent, 75 percent, and 75 percent, respectively. The industries with the lowest 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

31

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

take-up rates in 2012 were the chemical, energy and mining, and manufacturing sectors at 42 percent, 43 

percent, and 48 percent, respectively.

Figure 15: Terrorism Insurance Take-Up Rate by Industry

Source: Marsh 2013 Report (May 2013)

Terrorism Insurance Take-Up Rate by Industry

l 2012 l 2011 l 2010

Chemicals

42%

45%

43%

Energy and 

Mining

43%

51%

55%

Manufacturing

48%

42%

49%

50% Food and 

Beverage 55%

49%

55% Retail/

Wholesale 63%

61%

56%

Construction

52%

56%

59%

Life Sciences

55%

63%

60% Hospitality and 

Gaming 62%

63%

65% Power and 

Utilities 68%

68%

66%

Transportation

68%

73%

69%

Real Estate

76%

75%

69%

Tech/Telecom

59%

67%

71% Public Entities 

and Nonprofits 67%

68%

72%

Health Care 74%73%

75% Financial 

Institutions 76%

79%

75%

Education

76%

75%

81%

Media

82%

74%

Figure 16 shows that, considered by region, policyholders in the Northeast had a take-up rate of 77 percent in 

2012, while firms in the rest of the country had take-up rates between 53 and 63 percent. These observations 

are consistent with general risk perceptions, i.e., Tier 1 exposures in the Northeast.
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

32

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

Figure 16: Terrorism Insurance Take-Up Rate by Region

Terrorism Insurance Take-Up Rate by Region

Source: Marsh 2013 Report (May 2013)

58%

Midwest

59% 58%

77%

Northeast

74%

78%

63%

South

59%

63%

53%

West

56% 57%

l 2012 l 2011 l 2010

Marsh also analyzed take-up data against TIV. The highest take-up rates (60 to 70 percent) correspond to 

TIV of $500 million or more, while the lowest take-up rates (60 percent) correspond to TIV of less than $100 

million.155

3. Standalone Market

Aon commented in 2013 that “many [insurers] have begun to scale back capacity for terrorism risk.”156 Both 

Aon and Marsh have stated that pricing volatility in the standalone market had been expected to increase 

substantially during 2013 in view of uncertainty regarding whether TRIA will expire. According to Aon and 

Marsh, renewal pricing increases in the standalone market may be an early indicator of substantial decreases in 

capacity should the embedded category cease to exist, i.e., in the absence of TRIA.157

155 Marsh 2013 Report at 9. 

156 Comment to the PWG Notice from Aon plc, 6 (September 2013). 

157 Id. at 6-7; Marsh 2013 Report at 19. 

Terrorism Insurance Take-Up Rate by Region

Source: Marsh 2013 Report (May 2013)

58%

Midwest

59% 58%

77%

Northeast

74% 78%

63%

South

59% 63%

53%

West

56% 57%

l 2012 l 2011 l 2010
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

33

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

IV COMMETS 

TO HE TER

TRIA is scheduled to expire at the end of 2014, and Congress is considering whether and in what form TRIP 

may be reauthorized. In anticipation of its possible reauthorization, some commenters to the PWG Notice 

and other interested parties have offered views on potential modifications to TRIP, including modifications that 

could reduce federal taxpayer exposure under TRIP, clarify the scope of TRIP regarding losses from NBCR and 

cyber attacks, and enhance the process for certifying an event as an act of terrorism. Although an analysis of 

potential modifications to TRIP is outside the scope of PWG’s mandate to report on the long-term availability 

and affordability of insurance for terrorism risk,158 this section of the Report identifies issues commenters raised 

regarding those matters. 

A. Reducing Federal Taxpayer Exposure

Prior modifications to TRIP generally reduced federal taxpayer exposure. Some stakeholders argue that if 

TRIA is not allowed to expire, further reductions to federal taxpayer exposure are appropriate, including 

modifications to the insurer deductible, the federal share of insured losses above the deductible, or the Program 

Trigger, or the establishment of ex ante premium payments.159 However, most commenters favor a long-term 

reauthorization of TRIP without further material changes to the program.160 

1. Modifications to the Deductible and/or the Federal Share

The insurer deductible and the federal share of losses that exceed the deductible determine the amount of 

federal payments potentially made to insurers under TRIP. Supporters of further reductions to federal taxpayer 

exposure under TRIP express the view that private markets could support greater exposure, in part because of 

the P/C sector’s record-high aggregate surplus level and ability to insure against large-scale losses from natural 

catastrophes.161 Conversely, P/C sector representatives take the view that federal taxpayer exposure already has 

been substantially reduced,162 and that insurers are not positioned to bear additional increases to the deductible 

or co-share levels.163 

158 See TRIA § 108(e). 

159 See Comment to the PWG Notice from the Cato Institute, (September 2013); The Future of Terrorism Insurance: Fostering 

Private Market Innovation to Limit Taxpayer Exposure: Hearing before the H. Comm. on Financial Services Subcommittee on Housing and 

Insurance, 113th Cong. (November 13, 2013) (statement of Ernest N. Csiszar, Associate Fellow, R Street Institute, at 9), 

available at http://financialservices.house.gov/uploadedfiles/hhrg-113-ba04-wstate-ecsiszar-20131113.pdf. 

160 Twenty-eight of the 29 comments to the PWG Notice support a long-term reauthorization of TRIP. 

161 See, e.g., Comment to the PWG Notice from the Cato Institute, 7-8, 12-13 (September 2013); The Future of Terrorism 

Insurance: Fostering Private Market Innovation to Limit Taxpayer Exposure: Hearing before the H. Comm. on Financial Services 

Subcommittee on Housing and Insurance, 113th Cong. (November 13, 2013) (statement of Ernest N. Csiszar, Associate 

Fellow, R Street Institute, at 9), available at http://financialservices.house.gov/uploadedfiles/hhrg-113-ba04-wstateecsiszar-20131113.pdf. 

162 See Comment to the PWG Notice from the American Insurance Association, 6, 14 (September 2013) (arguing that 

the current balance of public and private exposure under TRIP provides for complete private market coverage of 

potential losses from conventional terrorist attacks, and that the industry manages a significant level of exposure 

under the current parameters of TRIP). 

163 See, e.g., id. at 2, 14; Comment to the PWG Notice from the Property Casualty Insurers Association of America, 2 

(September 2013) (arguing that the current insurer deductible and co-share levels are close to a “tipping point at 

which further increases will begin to threaten insurer solvency”); Comment to the PWG Notice from the National 

Association of Mutual Insurance Companies, 4 (September 2013) (warning that further increases to the insurer 

deductible or co-share amounts would force small- to medium-sized insurers out of the market for terrorism risk); 

Comment to the PWG Notice from the Coalition to Insure Against Terrorism, 8-9 (citing an Aon 2009 report as 

evidence that, if TRIA were allowed to expire or were materially altered, property owners would be largely unable to 

satisfy insurance coverage requirements). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

34

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

2. Modifications to the Program Trigger

TRIA prohibits federal payments to insurers under TRIP unless aggregate insured losses from a certified act of 

terrorism exceed the Program Trigger. As originally enacted, TRIA did not include a Program Trigger. TRIEA 

implemented a Program Trigger of $50 million in 2006, which increased to $100 million in 2007. The Program 

Trigger remains at $100 million today. 

Some commenters argue that because the P/C sector has demonstrated that it can support losses much larger 

than $100 million, the current Program Trigger should be increased substantially.164 Conversely, at least one 

commenter argues that evaluating the Program Trigger relative to aggregate industry surplus is misleading, and 

that increasing the Program Trigger would drive small or mid-size insurers from the market and “expose the 

federal government to greater costs in the form of post-disaster assistance.”165

3. Introduction of Ex Ante Premiums

Unlike conventional private sector insurance and reinsurance programs, TRIP does not require an up-front 

premium for the coverage provided.166 Commenters favoring ex ante premiums argue that TRIP is subsidizing 

the insurance industry and that ex ante premiums would reduce any subsidy to insurers and provide a pool of 

funds that could be available for future federal payments under TRIP.167 

164 See, e.g., Comment to the PWG Notice from the Cato Institute, 16 (September 2013); The Future of Terrorism Insurance: 

Fostering Private Market Innovation to Limit Taxpayer Exposure: Hearing before the H. Comm. on Financial Services Subcommittee on 

Housing and Insurance, 113th Cong. (November 13, 2013) (statement of Ernest N. Csiszar, Associate Fellow, R Street 

Institute, at 9), available at http://financialservices.house.gov/uploadedfiles/hhrg-113-ba04-wstate-ecsiszar-20131113.

pdf. 

165 Comment to the PWG Notice from the National Association of Mutual Insurance Companies, 5 (September 2013). 

166 TRIA § 103(e)(7). 

167 See Comment to the PWG Notice from the Cato Institute, 16 (September 2013). Congress considered and rejected 

insurer premiums for TRIP coverage when it passed TRIA in 2002, in part because of the perception that ex ante

funding would lead to a permanent program. See, e.g., Terrorist Risk Insurance: Hearing before the S. Comm. on Banking, 

Housing, & Urban Affairs, 107th Cong. 17 (2001) (statement of Sheila Bair, Assistant Secretary for Financial Markets, 

U.S. Department of the Treasury); id. at 76-77 (prepared statement of Paul H. O’Neill, Secretary, U.S. Department 

of the Treasury). 
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

35

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

B. Clarifying Coverage for NBCR and Cyber Attacks

TRIA requires an insurer to make available coverage for losses from acts of terrorism “that does not differ 

materially from the terms, amounts, and other coverage limitations applicable to losses arising from events other 

than acts of terrorism,”168 but does not explicitly address coverage for losses from NBCR or cyber attacks. 

Commercial lines insurance policies generally exclude coverage for losses resulting from NBCR attacks. In 

2008, the GAO found that insurers limit NBCR coverage through “long-standing exclusions for nuclear and 

pollution risks, which already have been approved by state regulators,” and concluded that NBCR coverage was 

generally unavailable.169 TRIA is silent as to the presence or absence of an NBCR exclusion in an insurer’s P/C 

policy.170 

Insurance for cyber security risk is an emerging line of insurance that is gaining increasing attention. Premium 

volume in the U.S. cyber insurance market is estimated to be approximately $1 billion – a fraction of the 

$247 billion of direct premiums written for the total U.S. commercial lines insurance market in 2012.171 One 

commenter representing insurers argued that clarity is needed regarding the application of TRIA to losses from 

NBCR and cyber attacks.172 Another commenter, representing commercial insurance policyholders, argued that 

coverage of NBCR attacks should be mandatory under TRIA.173

C. Enhancing Transparency of the Certification Process 

Commenters also advocate enhancing transparency of the certification process under TRIP. Commenters 

suggest that increased clarity regarding how an event is certified as an act of terrorism could increase certainty 

for insurance markets and policyholders.174 

168 TRIA § 103(c). 

169 GAO 2008 Report at 14. 

170 Importantly, however, states generally prohibit NBCR exclusions in workers’ compensation insurance, and some 

states require “fire following” coverage consistent with the New York Standard Fire Policy.

171 Department of the Treasury, Report to the President on Cybersecurity Incentives Pursuant to Executive Order 13636, 24 (20

available at http://www.treasury.gov/press-center/Documents/Supporting%20Analysis%20Treasury%20Report%20

to%20the%20President%20on%20Cybersecurity%20Incentives_FINAL.pdf (citing The Betterley Report, Cyber/

Privacy Insurance Market Survey (June 2012) for the premium volume of the U.S. market for cybersecurity insurance). 

172 Comment to the PWG Notice from the Property Casualty Insurers Association of America, 12 (September 2013) 

(arguing for greater certainty regarding TRIA’s application to losses resulting from cyber terrorist attacks). 

173 Comment to the PWG Notice from the Risk Management Society, 5-6 (September 2013) (arguing for the inclusion 

of NBCR coverage in TRIP). 

174 See, e.g., Comment to the PWG Notice from the Property Casualty Insurers Association of America, 7-8 (September 

2013) (arguing for increased transparency in the certification process and increased objectivity in the definition 

of an act of terrorism); Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market, Hearing before the S. 

Comm. on Banking, Housing, & Urban Affairs, 113th Cong. (September 25, 2013) (statement from Robert P. Hartwig, 

Ph.D., CPCU, Insurance Information Institute, at 21), available at http://www.banking.senate.gov/public/index.

cfm?FuseAction=Hearings.Testimony&Hearing_ID=b9077dbb-2ae2-425a-89dd-793fcb049190&Witness_

ID=8f726a39-e80f-412f-9672-7afb49e64fb7 (arguing for a timeframe under which a certification of an event as an 

act of terrorism must be made).
PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

36

The Long-Term Availability and Affordability of Insurance for Terrorism Risk

TRIA does not impose a time frame on the process for determining whether an event should be certified as an 

act of terrorism, and Treasury declined to introduce such a time frame through regulation in 2003.175 Some 

insurers comment that the Secretary should be required to determine whether to certify an event as an act of 

terrorism within a certain time frame, because certification may affect an insurer’s assessment regarding whether 

losses caused by the event are covered under the terms of insurance policies.176 Moreover, state insurance laws 

or regulations may require an insurer to settle claims within specified time frames.177 One commenter notes that 

an insurer could be required to pay certain claims before ascertaining whether such claims reasonably may have 

been excluded as losses resulting from acts of terrorism.178 

175 Treasury previously offered the following view of a pre-determined time frame for certification (68 Fed. Reg. 41,252 

(Jul. 11, 2003)):

[T]here is no way to predict future events and ascertain a time frame that would be appropriate for all potential 

situations. Facts could be immediately available and, after consultation, present a clear basis for a quick 

determination by the Secretary; conversely, a determination could require more time to gather information 

and conduct an analysis of the act. Given this inherent uncertainty and the significance of an act of terrorism 

determination to all aspects of the Program, Treasury does not believe that it would be in the public interest to 

establish in advance a regulatory time frame that may later prove to be inappropriate or unattainable.

176 See, e.g., Comment to the PWG Notice from the Property Casualty Insurers Association of America, 7-8 (September 

2013) (arguing for increased transparency in the certification process and increased objectivity in the definition 

of an act of terrorism); Comment to the PWG Notice from the National Association of Mutual Insurance 

Companies, 5 (September 2013); Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market, Hearing before the 

S. Comm. on Banking, Housing, & Urban Affairs, 113th Cong. (September 25, 2013) (statement from Robert P. Hartwig, 

Ph. D., CPCU, Insurance Information Institute, at 21), available at http://www.banking.senate.gov/public/index.

cfm?FuseAction=Hearings.Testimony&Hearing_ID=b9077dbb-2ae2-425a-89dd-793fcb049190&Witness_

ID=8f726a39-e80f-412f-9672-7afb49e64fb7.

177 See Comment to the PWG Notice from the Property Casualty Insurers Association of America, 8 (September 2013). 

178 Id. Some commercial insurance contracts may use policy forms developed by ISO which provide that a policyholder 

declining the mandatory offer of coverage for terrorism risk may retain coverage for an act of terrorism that is not 

certified. 
V. 

The factors examined in this Report regarding the long-term availability and affordability of terrorism risk 

insurance center around indicators of private market per-risk capacity (i.e., the amount of coverage insurers 

can make available) and demand for coverage. In summary, private market per-risk capacity for terrorism 

risk insurance coverage has increased only moderately since 2010. Policyholder take-up rates have remained 

stable overall, and prices of terrorism risk insurance have been fairly steady, although the market appears to be 

tightening in anticipation of a potential expiration of TRIA. Policyholders who wish to obtain terrorism risk 

insurance evidently are able to do so, although some in higher risk industries and some in key urban locations 

pay relatively higher prices.

Challenges continue to exist regarding the ability of the private market to provide terrorism risk insurance 

without a federal backstop, particularly with respect to the ability of insurers to model the frequency and severity 

of losses that could arise from acts of terrorism. Also, reinsurers and the capital markets appear reluctant to 

provide further support to the terrorism risk insurance market.

Private reinsurance does not appear to be a sufficient substitute for the market certainty provided by TRIA. 

Despite the 2007 reauthorization of TRIA, private property reinsurance generally continued to exclude acts of 

terrorism committed by those who are “domestic” agents, as well as all losses caused by NBCR attacks. This 

suggests that the private terrorism risk insurance market would be different in the absence of TRIA. Comments 

submitted to the PWG state that insurers would offer significantly less coverage or exit the market altogether 

without the “make available” requirement and a viable means to cede risk and limit exposure. The existence 

of only a relatively small standalone terrorism risk insurance market is consistent with this view. Absent TRIA, 

terrorism risk insurance, particularly for high-value exposures, may become a smaller, specialty market if such 

coverage remains available at all.

Data and comments provided to the PWG highlight market uncertainty surrounding whether TRIA will be 

renewed in any form before it expires at the end of 2014. For example, Marsh – whose submission in response 

to the PWG Notice provided much of the data cited in this Report – published a briefing in January 2014, which 

states: 

Coupled with increasing claims costs, historical unprofitability, and a continued weak interest 

rate environment, the uncertainty around [TRIA’s] future is leading to less availability of 

workers’ compensation capacity and rate increases for risks located in major urban areas.179

Most commenters generally describe TRIP as an appropriate public-private shared risk model that: (1) ensures 

that terrorism risk coverage is available to all commercial P/C insurance buyers; (2) makes $100 billion of 

aggregate private and federal capital available to fund the recovery costs of a potential terrorist attack; (3) 

provides an overall limit on industry exposure; and (4) includes a recoupment mechanism in the event Treasury 

makes any payments. 

179 Marsh Risk Management Research, Pending TRIPRA Expiration Impacts Workers’ Compensation Industry (January 21, 

2014), available at http://usa.marsh.com/NewsInsights/MarshRiskManagementResearch/ID/34179/PendingTRIPRA-Expiration-Impacts-Workers-Compensation-Industry.aspx. The Marsh article emphasizes that employers 

should “review and consider the potential impact on workers’ compensation pricing and capacity” when making 

decisions regarding real estate plans in major metropolitan areas. 

PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

37

The Long-Term Availability and Affordability of Insurance for Terrorism Risk
Relatively few comments in response to the PWG Notice argued against TRIA on grounds of public policy 

or efficiency. Comments from insurers and policyholders generally shared the view that, in the absence of 

TRIA, terrorism risk insurance would be less available and/or less affordable due to insurers’ reluctance to 

maintain exposure to terrorism risk in the face of potentially unlimited losses and unpredictable loss scenarios.180 

Nevertheless, the industry share of exposure to terrorism risks has steadily increased since enactment of TRIA 

without significant adverse effects on price or availability. Further gradual increases to the industry share 

appear unlikely to cause significant market disruptions assuming some level of a federal government backstop is 

maintained.

180 See Comment to the PWG Notice from Marsh, 1 (September 2013) (“Although there has been relative stability in this 

segment of the market in recent years, this has largely been due to (a) the lack of large subsequent events following 

September 2001, and (b) the presence of government support through” TRIA); Id. at 10 (“Without some form of 

backstop to manage the uncertainty of extreme terrorist attacks, our conversation with our (re)insurance suppliers 

and clients suggest that the current supply of terrorism capacity will contract, the cost ... will increase, and certain 

geographic zones most in need of the protection may not be able to find adequate supply”).

PRESIDENT’S WORKING GROUP ON FINANCIAL MARKETS 

38

The Long-Term Availability and Affordability of Insurance for Terrorism Risk