Study of Small Insurer Competitiveness in the Terrorism Risk 

Insurance Marketplace

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY

JUNE 2017
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Table of Contents
 

Introduction....................................................................................................1
 

The Terrorism Risk Insurance Program ....................................................4
 

The Data Collection Process .........................................................................8
 

Study of Small Insurer Competitiveness in the Terrorism Risk
 
 

Insurance Marketplace ...............................................................................10
 
 

A.	 Analysis of Changes to Market Share, Premium Volume, and Policyholder 
 
 

Surplus........................................................................................................................10
 

B.	 Market Differences between Small Insurers and Large Insurers in the Terrorism 
 

Risk Insurance Marketplace and Comparison to Other Perils ...................................14
 

C.	 Mandatory Availability Requirement.........................................................................20
 

D.	 Impact of the Increasing Program Trigger Amount ...................................................21 
 

E.	 Availability and Cost of Private Reinsurance for Small Insurers ..............................23 
 

F.	 Impact of State Workers’ Compensation Laws..........................................................27
 

Conclusion ....................................................................................................30
 
 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Glossary 
 

2015 Reauthorization 

Act 

.......... Terrorism Risk Insurance Program Reauthorization 

Act of 2015, Pub. L. 114-1, 129 Stat. 3 

2016 Effectiveness 

Report 

.......... “Report on the Overall Effectiveness of the 

Terrorism Risk Insurance Program,” U.S. 

Department of Treasury (June 2016) 

CMP .......... Commercial Multi-Peril 

DEP .......... Direct Earned Premium 

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

NBCR .......... Nuclear, Biological, Chemical, or Radiological 

P/C .......... Commercial Property and Casualty 

Program (or TRIP) .......... Terrorism Risk Insurance Program 

Program Cap .......... Annual exposure limit for the federal government 

and insurers under the Program 

Program Trigger .......... Minimum amount of aggregate industry insured 

losses resulting from an act of terrorism that must 

occur in a calendar year before any federal payments 

are made 

Study .......... This “Study of Small Insurer Competitiveness in the 

Terrorism Risk Insurance Marketplace,” U.S. 

Department of Treasury (June 2017) 

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

September 11 Attacks .......... Terrorist attacks occurring on September 11, 2001 

Small Insurer .......... An insurer as defined under 31 C.F.R. § 50.4(z) 

SNL Financial .......... SNL Financial, LC 

Treasury .......... U.S. Department of the Treasury 

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

TRIP (or Program) .......... Terrorism Risk Insurance Program 

TRIP-Eligible Lines 

of Insurance 

.......... Commercial property and casualty insurance subject 

to the Terrorism Risk Insurance Program pursuant to 

31 C.F.R. § 50.4(w) 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Introduction 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Prior to September 11, 2001, commercial property and casualty (P/C) insurance policies 

generally did not exclude coverage for losses resulting from terrorism. The events of September 

11, 2001 (September 11 Attacks) resulted in approximately $43 billion of P/C insurance losses,

1 

more than two-thirds of which were reimbursed by reinsurers to insurers.2  Thereafter, insurers 

and reinsurers began to exclude coverage for terrorism risk from P/C policies. 

Congress enacted the Terrorism Risk Insurance Act of 2002 (TRIA),3 in part, because the 

widespread unavailability of terrorism risk insurance “could seriously hamper ongoing and 

planned construction, property acquisition, and other business projects, generate a dramatic 

increase in rents, and otherwise suppress economic activity.”4 

 TRIA established the Terrorism 

Risk Insurance Program (TRIP or Program), which requires insurers to make terrorism risk 

coverage available within certain lines of commercial P/C insurance (TRIP-eligible lines of 

insurance).

5 

 To assist insurers with the potential financial exposure resulting from this required 

offer of terrorism coverage, certain insurance losses resulting from an “act of terrorism” as 

defined by TRIA are eligible for reimbursement through the Program.6  The Program is 

administered in the U.S. Department of the Treasury (Treasury) by the Secretary of the Treasury 

(Secretary) with the assistance of the Federal Insurance Office.7 

 

1 Insured losses shown in 2015 dollars. See Jayleen R. Heft, “9/11 attacks 15 years later: A look at losses by the 

numbers,” PropertyCasualty360 (September 7, 2016), available at 

http://www.propertycasualty360.com/2016/09/07/9-11-attacks-15-years-later-a-look-at-losses-by-th. 

2 “9/11 and Insurance: The Eight Year Anniversary,” Insurance Journal (September 11, 2009), available at 

http://www.insurancejournal.com/news/national/2009/09/11/103694.htm. 

3 15 U.S.C. § 6701 note. The provisions of TRIA, as amended (including the Terrorism Risk Insurance Program 

Reauthorization Act of 2015, Pub. L. 114-1, 129 Stat. 3), appear in a note of the United States Code, and, therefore, 

references to the provisions of TRIA or the 2015 Reauthorization Act are identified by the sections of the law (e.g., 

“TRIA § 102(1) (definition of an “act of terrorism”)”). 

4 TRIA § 101(a)(5). 

5 See TRIA § 103(c). The TRIP-eligible lines of insurance are defined as those lines identified for state regulatory 

purposes as follows: Fire, Allied Lines, Commercial Multiple Peril (non-liability), Commercial Multiple Peril 

(liability), Ocean Marine, Inland Marine, Workers’ Compensation, Other Liability (but not including Professional 

Liability, which is otherwise within this line for state reporting purposes), Products Liability, Aircraft, and Boiler 

and Machinery. 31 C.F.R. § 50.4(w). Some of these lines also contain personal property and casualty premium 

exposures that are not subject to the Program. There are also certain other defined exclusions within these lines, 

which are outlined at 31 C.F.R. § 50.4(w)(2). 

6 Further details concerning the operation of the Program are provided in Section II of this Study. 

7 31 U.S.C. § 313(c)(1)(D). 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

TRIA originally authorized the Program for a three-year period ending December 31, 2005. The 

Program has since been reauthorized three times,8 most recently in 2015 when the Terrorism 

Risk Insurance Program Reauthorization Act of 2015 (2015 Reauthorization Act) extended the 

Program through December 31, 2020.9 

 Changes enacted with each Program renewal have 

generally reduced potential federal exposure to insured losses. 

The 2015 Reauthorization Act provides that the Secretary shall conduct studies of small insurers 

participating in the Program, and identify any competitive challenges such small insurers face in 

the terrorism risk insurance marketplace.10 The first small insurer study is to be conducted in 

2017, and a second study in 2019. The 2015 Reauthorization Act also requires the Secretary to 

define the “small insurers” subject to these studies through regulation.11 

TRIA requires the studies of small insurers to include analyses of: 

(1) Changes to the market share, premium volume, and policyholder surplus of small insurers 

relative to large insurers; 

(2) How the P/C insurance market for terrorism risk differs between small and large insurers 

and whether such a difference exists within other perils; 

(3) The impact of the Program’s mandatory availability requirement under section 103(c) on 

small insurers; 

(4) The effect of increasing the trigger amount for the Program under section 103(e)(1)(B) on 

small insurers; 

(5) The availability and cost of private reinsurance for small insurers; and 

(6) The impact that State workers’ compensation laws have on small insurers and workers’ 

compensation carriers in the terrorism risk insurance marketplace.12 

The Secretary is required to submit a report to the Congress setting forth the findings and 

conclusions of each small insurer study. 

This Study addresses Treasury’s initial findings and conclusions on small insurer 

competitiveness. Based on data collected to date, and as described in the Study, Treasury has 

identified several areas for further investigation. As Treasury collects more data over subsequent 

 

8 Terrorism Risk Insurance Extension Act of 2005, Pub. L. 109-144, 119 Stat. 2660; Terrorism Risk Insurance 

Program Reauthorization Act of 2007, Pub. L. 110-160, 121 Stat. 1839; Terrorism Risk Insurance Program 

Reauthorization Act of 2015, Pub. L. 114-1, 129 Stat. 3. 

9 Treasury has issued rules to implement changes to TRIA under the 2015 Reauthorization Act, and for other 

purposes. See 81 Fed. Reg. 88592 (December 7, 2016) (Certification Interim Final Rule); 81 Fed. Reg. 93756 

(December 21, 2016) (Program Final Rules except Certification). 

10 TRIA § 108(h). 

11 TRIA § 108(h)(1). The small insurer definition was adopted by Final Rule in December 2016. See 81 Fed. Reg. 

93756, 93757-59 (December 21, 2016). 

12 TRIA § 108(h). 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

years, enabling more sophisticated analysis of market changes, it will refine its observations and 

conclusions regarding competitiveness issues possibly faced by small insurers participating in 

the terrorism risk insurance marketplace. Treasury will also assess whether changes to the TRIP 

data call are warranted to provide additional information for its 2019 study. 

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The Terrorism Risk Insurance Program 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

The Program requires that each entity meeting the definition of an insurer make available 

coverage for insured losses resulting from acts of terrorism.13 This offer must “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” requirement applies only to 

TRIP-eligible lines of insurance.14 TRIA does not mandate that insurers offer terrorism risk 

insurance for any particular price,15 nor does TRIA require any policyholder to purchase 

insurance for terrorism risk.16 

Insurers are eligible for federal payments under the Program only for losses resulting from “acts 

of terrorism.” An “act of terrorism” is defined under TRIA as an act certified by the Secretary, 

in consultation with the Attorney General of the United States and the Secretary of Homeland 

Security: 

•	 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;17 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.18 

Additionally, the Secretary shall not certify an act that was either committed as part of the course 

of a war declared by Congress,19 or that does not result in P/C insurance losses exceeding $5 

million.20 If the Secretary certifies an act of terrorism, participating insurers may submit claims 

 

13 An insurer is defined under TRIA as 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 insurance entity 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). 

14 Reinsurance is excluded from the TRIP-eligible lines of insurance. TRIA § 102(11)(B)(vii). Issues concerning 

small insurers’ use of private reinsurance and the Program are discussed further below at Section IV.E. 

15 State insurance rating laws and regulations may affect the price that can be charged by insurers writing terrorism 

risk insurance subject to TRIA. 

16 In some circumstances, state law may require the purchase of (or limit the ability to exclude) coverage for 

terrorism risk, such as in the case of workers’ compensation insurance, discussed further below in Section IV.F. 

17 TRIA also provides that an act may occur outside the United States in the case of certain air carriers or vessels, or 

on the premises of a U.S. mission. TRIA § 102(1)(A)(iii). 

18 TRIA § 102(1)(A). 

19 This limiting clause regarding an act of war does not apply to coverage for workers’ compensation insurance. 

TRIA § 102(1)(B)(i). 

20 TRIA § 102(1)(B)(ii). 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

to Treasury and Treasury will determine whether, and in what amounts, insurers are eligible for 

payments under the Program.

21 

A participating insurer’s recovery under the Program is based on application of its individual 

insurer deductible, the Program Trigger, the federal share of compensation of an insurer’s losses, 

and the Program Cap. Treasury may obtain reimbursement of any payments of the federal share 

of compensation that it makes based upon the recoupment process. Finally, Treasury has 

adopted a definition of “small insurers” to guide its analysis of any competitive challenges that 

such small insurers may face in the terrorism risk insurance marketplace. 

Insurer Deductible 

Two pre-requisites must be met before an insurer is eligible for payments from Treasury under 

the Program: the insurer’s losses must exceed its deductible, and the Program Trigger must be 

satisfied. An individual insurer will not be eligible to receive federal payments unless its losses 

exceed its deductible, which is 20 percent of the insurer’s direct earned premium (DEP) in the 

TRIP-eligible lines for the prior calendar year.22 

Program Trigger 

The Program Trigger is the minimum amount of aggregate industry insured losses resulting from 

an act (or acts) of terrorism that must occur in a calendar year before any federal payments are 

made. The Program Trigger was $120 million in calendar year 2016;23 it increases by $20 

million per year thereafter until it reaches $200 million in 2020.24 

Federal Share of Compensation 

After an insurer meets its insurer deductible and the Program Trigger is satisfied, the federal 

government will pay a certain percentage of that insurer’s losses in excess of the insurer’s 

deductible. For calendar year 2016, the federal share of compensation was set at 84 percent of 

an insurer’s losses above its deductible, with the insurer responsible for the remaining 16 

percent. The federal share of compensation will continue to decrease (and the insurer share will 

 

21 Any determination by Treasury is made pursuant to the Program regulations. See 31 C.F.R. Part 50. 

22 TRIA § 102(7). 

23 The 2015 Reauthorization Act provided for certain changes in Program mechanics from the date of the 2015 

Reauthorization until the expiration date for the Program in 2020. This Study focuses upon the Program structure in 

place in 2016 because much of the Study’s analysis is based on the 2017 TRIP data call, which uses year-end 2016 

data. 

24 TRIA § 103(e)(1)(B). TRIA did not originally have a Program Trigger. This requirement was introduced in the 

2005 Program reauthorization. It was initially set at $50 million (for losses occurring in 2006), and increased to 

$100 million for losses occurring in 2007. When TRIP was reauthorized through 2014, no change was made to the 

Program Trigger, which remained at $100 million. The 2015 Reauthorization Act, however, provides for an annual 

increase in the Program Trigger beginning in 2016. 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

increase) by one percentage point per year through 2020, at which time the federal share will be 

80 percent and the insurer co-participation share will be 20 percent.25 

Program Cap 

TRIA limits the aggregate exposure of both insurers and the federal government arising from 

insured losses for an act or acts of terrorism. 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 any calendar year.26 If the Program Cap is 

reached, an insurer that has met its insurer deductible by making payments for insured losses 

subject to the Program is not liable for any portion of losses that exceeds the Program Cap.27 

Recoupment 

TRIA includes a mechanism for the Secretary to collect “terrorism loss risk-spreading 

premiums” from insurers if federal payments are made to insurers under the Program. Under this 

mechanism, a process known as recoupment, insurers writing TRIP-eligible lines of insurance 

may be required to collect funds from policyholders by placing a surcharge on insurance policies 

written in those lines. These surcharges must then be remitted to the Secretary.28 The 

requirement to collect, or recoup, terrorism loss risk-spreading premiums does not apply only to 

insurers that received federal payments under the Program, but rather applies to all insurers 

writing policies in TRIP-eligible lines of insurance. Surcharges are placed on insurance policies 

regardless of whether the policyholder elects to purchase terrorism risk insurance.29 

Small Insurer Definition 

Treasury adopted its small insurer definition as required by the 2015 Reauthorization Act30 to 

provide a benchmark for any study of small insurers that would help identify any competitive 

challenges such small insurers might face in the terrorism risk insurance marketplace.31 The 

small insurer definition specifically references the impact of the Program Trigger: 

 

25 TRIA § 103(e)(1)(A). 

26 TRIA §103(e)(2)(A). 

27 TRIA requires the Secretary to notify Congress if insured losses are projected to exceed the Program Cap and in 

that case to determine the pro rata share of insured losses to be paid by each affected insurer. TRIA §§ 

103(e)(2)-(3). 

28 TRIA §§ 103(e)(7)-(8). 

29 Depending on how any federal payments under TRIP that have been expended compare with the total insured 

losses paid by participating insurers, recoupment under the Program may be mandatory, or may be subject to a 

discretionary determination by the Secretary. See id. 

30 TRIA § 108(h)(1). 

31 Treasury’s small insurer definition should not be viewed as having relevance to any other definition of “small 

insurer” that may be used in other statutory and regulatory determinations, either at the federal or state levels. 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Small insurer means an insurer (or an affiliated group of insurers . . .) whose 

policyholder surplus for the immediately preceding year . . . is less than five 

times the Program Trigger amount for the current year and whose direct earned 

premium for the preceding year is also less than five times the Program Trigger 

amount for the current year. An insurer that has not had a full year of operations 

during the immediately preceding calendar year is a small insurer if its 

policyholder surplus in the current year is less than five times the Program 

Trigger amount for the current year. A captive insurer is not a small insurer, 

regardless of the size of its policyholder surplus or direct earned premium.32 

Significance of the Program Trigger for Small Insurers 

For an insurer above the small insurer size threshold, the Program Trigger has no practical 

impact. This is because once an insurer of this size has satisfied its insurer deductible, those 

losses will be sufficient to satisfy the Program Trigger as well. Such an insurer will be entitled 

to submit claims for the federal share of compensation for any amount in excess of its insurer 

deductible. 

For a small insurer, however, the Program Trigger might pose a very significant consideration. 

This is because a small insurer may pay insured losses that are in excess of its insurer deductible 

that do not, in and of themselves, satisfy the Program Trigger. For example, if in 2016 an insurer 

had a deductible of $20 million (because its DEP in 2015 was $100 million), and paid total 

insured losses of $60 million, the insurer would not be entitled to payments under the Program 

for losses above its deductible (in this example, $40 million) unless total insured losses across all 

Program participants from an act or acts of terrorism were above the Program Trigger of $120 

million. If this hypothetical insurer were the only insurer that sustained insured losses, it would 

not be able to collect any portion of the $40 million above its deductible because the Program 

Trigger had not been satisfied. 

 

32 31 C.F.R. § 50.4(z). 

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The Data Collection Process 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

TRIA requires Treasury to collect data related to the Program.33 Treasury uses this data, among 

other things, to prepare required studies and reports concerning the effectiveness of the Program 

and small insurer competitiveness in the terrorism risk insurance marketplace. This Study is 

based primarily on the results of Treasury’s 2017 TRIP data call. In addition, Treasury 

performed qualitative research and sought input from stakeholders, including small insurers, 

other Program participants, state regulators, the National Association of Insurance 

Commissioners, and the general public.34 When analyzing certain market changes over time for 

this Study, Treasury also considered information reported by insurers to state regulators. 

The 2017 TRIP data call was mandatory for participating insurers,35 subject to an exception for 

small insurers that wrote less than $10 million in TRIP-eligible lines premium in calendar year 

2016.36 For the purposes of the 2017 TRIP data call and this Study, small insurers were 

considered to be (pursuant to the small insurer definition) insurers with a 2015 policyholder 

surplus of under $600 million and 2015 TRIP-eligible direct earned premium of under $600 

million, which is five times the 2016 Program Trigger of $120 million. 

Treasury collected information on a group basis from multiple affiliated companies because 

TRIP is generally administered on a group basis. The information collected included data 

concerning premium, policy exposures, and reinsurance. Treasury also collected data to evaluate 

policyholder take-up rates for terrorism risk insurance offered by small insurers. Treasury 

collected similar information from other industry segments, such as larger licensed insurers 

above the small insurer threshold (or “non-small insurers”), captive insurers, and alien surplus 

lines insurers. 

Treasury collected data through a third-party insurance statistical aggregator, as provided for 

under the 2015 Reauthorization Act. 37 The statistical aggregator provided results to Treasury in 

an aggregated, anonymous format that did not identify any particular reporting insurer. Treasury 

obtained most of the workers’ compensation insurance elements from the National Council on 

Compensation Insurance (providing data from the states in which it operates as well as on behalf 

of other independent state workers’ compensation rating bureaus) and the California Workers’ 

 

33 TRIA § 104(h). 

34 See 81 Fed. Reg. 95310 (December 27, 2016). 

35 Insurers that are not small insurers are subject to different reporting templates that request more information. In 

the 2017 TRIP data call, Treasury has permitted insurers that did not complete the small insurer template to report 

the balance of the information unrelated to this Study no later than October 1, 2017. 

36 Treasury estimates that insurers eligible for this reporting exception (approximately 400 in total) represent 0.5 

percent of the TRIP-eligible lines premium market, and 4.5 percent of the small insurer market segment. See SNL 

Financial (as of April 13, 2017). 

37 TRIA § 104(h)(3). The data aggregator for the 2017 TRIP data call was Insurance Services Office, Inc. 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Compensation Insurance Rating Bureau, thereby reducing the reporting requirements on the 

industry. 

Treasury is required annually to collect information relating to terrorism risk insurance from all 

participating insurers, including captive insurers38 and alien surplus lines insurers.39 Treasury 

specifically excluded captive insurers from the definition of small insurers, so such insurers were 

not subject to this Study’s analysis of small insurers.

40 Although alien surplus lines insurers 

were not excluded from the “small insurer” definition, they only participate in the surplus market 

where the coverages and policyholders insured on a surplus lines basis may differ significantly 

from risks placed in the admitted market.41 Therefore, to ensure that the issues identified in the 

2015 Reauthorization Act are appropriately addressed, this Study does not address how alien 

surplus lines insurers participate in the terrorism risk insurance marketplace, or how their 

participation compares with that of those small insurers that Treasury analyzed. 

Based on comparisons to data collected by state regulators, Treasury estimates that insurers 

reporting in the 2017 TRIP data call comprise at least 88 percent, by premium, of the insurer 

groups or companies expected to report on the small insurer data template, and at least 98 

percent, by premium, of the insurer groups or companies expected to report on the non-small 

insurer data template. Some portion of the amounts below 100 percent may be attributable to the 

fact that the analysis was based upon available state data that included certain premium that was 

not subject to the Program. Treasury will continue to analyze whether more detailed information 

is available. 

 

38 TRIA regulations define captive insurers as insurers licensed under the captive insurance laws or regulations of 

any state (31 C.F.R. § 50.4(g)); they are typically formed to insure the risks of parent or other affiliated entities. 

39 Alien surplus lines insurers are non-U.S. insurers that have been qualified by state regulators to participate in U.S. 

insurance markets on a surplus lines basis. Alien surplus lines insurers do not write in the admitted market, which is 

comprised of insurers licensed to do business in a particular jurisdiction and are subject to its laws and regulations 

concerning the provision of insurance coverage. This means that alien surplus lines insurers are only allowed to 

write insurance for risks that cannot be placed with domestic licensed insurers in the admitted market. See 31 C.F.R. 

§ 50.4(o)(1)(i)(B). 

40 See generally 81 Fed. Reg. 18950, 18952-53 (April 1, 2016); 81 Fed. Reg. 93756, 93757-58 (December 21, 2016). 

41 Although U.S. “small insurers” may also write insurance in the surplus market, only 7.5 percent of the individual 

insurers within the small insurer groups that reported in the 2017 TRIP data call identified as surplus lines insurers. 

In addition, because alien surplus lines insurers do not write in the admitted market, they do not participate in the 

market for workers’ compensation insurance, which is discussed in Section IV.F. 

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Study of Small Insurer Competitiveness in the Terrorism Risk 

Insurance Marketplace 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

As noted above, TRIA requires the studies of small insurers to include an analysis of each of the 

following six areas: 

A. Changes to market share, premium volume, and policyholder surplus of small insurers 

relative to large insurers; 

B. How the P/C insurance market for terrorism risk differs between small and large insurers 

and whether such a difference exists within other perils; 

C. The impact of the Program’s mandatory availability requirement under Section 103(c) on 

small insurers; 

D. The effect of increasing the trigger amount for the Program under Section 103(e)(1)(B) 

on small insurers; 

E. The availability and cost of private reinsurance for small insurers; and 

F.	 The impact that State workers’ compensation laws have on small insurers and workers’ 

compensation carriers in the terrorism risk insurance marketplace. 

This Study analyzes each of these areas. Treasury will continue to analyze these areas in its 

small insurer study to be issued in 2019. 

A. Analysis of Changes to Market Share, Premium Volume, and Policyholder 

Surplus 

This part of the Study examines changes to market share, premium volume, and policyholder 

surplus of small insurers relative to large insurers. For purposes of this Study, Treasury 

identified “large insurers” as those insurers larger than the small insurer size threshold and which 

completed the “non-small” data collection template. The Study analyzes the changes for small 

insurers from 2006 through 2016 because these are the years during which TRIP has been 

subject to a Program Trigger, which Treasury uses as a basis for defining small insurers.

42 

However, the 2017 TRIP data call, addressing 2016 year-end information, was the first year of 

mandatory data collection by Treasury.43 As discussed below, Treasury reviewed state reporting 

 

42 See above at Section II. Although the small insurer definition was not adopted until 2016, Treasury performed 

this analysis from 2006 to 2016 based on the number of insurers that would have been considered to be “small 

insurers” under the Program, if the “small insurer” definition had been in effect since 2006. 

43 Treasury performed a data collection in 2016; however, because it was the first year of data collection under the 

2015 Reauthorization Act, Treasury made participation in the collection voluntary to reduce the imposition of undue 

burdens on insurers. See 81 Fed. Reg. 11649 (March 4, 2016). Insurers representing approximately 41 percent of 

the entire terrorism risk insurance market (by premium) responded to the 2016 voluntary data call. Because of the 

more limited response in the 2016 data call, the Study does not compare results from the 2016 voluntary data call 

and the 2017 mandatory data call. For more information about the 2016 voluntary data call, see “Report on the 

Overall Effectiveness of the Terrorism Risk Insurance Program,” U.S. Department of Treasury (June 2016) (2016 

Effectiveness Report), available at https://www.treasury.gov/initiatives/fio/reports-andnotices/Documents/2016_TRIP_Effectiveness_%20Report_FINAL.pdf. 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

data to draw conclusions for the period from 2006 through 2016, and considered the extent to 

which this reporting data could be used as a proxy for information collected through a mandatory 

data collection. 

State insurance regulators collect information for P/C lines of insurance from insurers licensed in 

their respective jurisdictions. This collection by state regulators has not historically included 

information specific to the terrorism risk insurance component of P/C insurance policies. 

However, the information collected by state regulators does identify premiums collected by lines 

of insurance in the state insurance reporting lines. To the extent possible, Treasury has defined 

TRIP-eligible lines of insurance by reference to state insurance reporting lines; however, there 

are some differences between the TRIP-eligible lines of insurance and the same lines when used 

for state reporting purposes. This is because the state reporting lines include certain premium 

that is not subject to the Program. In the 2017 TRIP data call, the premium reported by small 

insurers to Treasury for calendar year 2016 was approximately 83 percent of the reported figure 

made by the same cohort of insurers in the TRIP-eligible lines for state reporting purposes.44 

This 17 percent difference represents premium that those small insurers reported to state 

regulators, across the various lines, that is not subject to the Program. 

The use of the state reporting data for this part of the Study allows for some comparisons to be 

made from 2006 to 2016; however, it also has some limitations. First, Treasury adjusted the data 

to account for the premium differential between the TRIP-eligible lines of insurance and the state 

reporting lines from 2006 to 2016. This was done by assuming that similar amounts of premium 

in the state reporting lines from 2006 to 2016 represented premium not subject to the Program 

but still reported for state purposes. Second, the state reporting data used in this analysis was not 

specific to terrorism risk. Third, the premium writings of small insurers reported in the 

TRIP-eligible lines of insurance that were not subject to the Program could vary 

disproportionately over time from the premiums reported in the lines as a whole. For purposes 

of this initial analysis, Treasury considers the data, as adjusted, to be instructive. Treasury will 

continue to analyze such market changes in the 2019 study, which will have the benefit of 

additional responses to future TRIP data calls. 

The analysis of market changes from 2006 to 2016 was also affected by the connection between 

the “small insurer” definition and the Program Trigger. From 2006 to 2016, the Program 

Trigger increased twice, which affects the number of insurers classified as “small insurers.”45 

The increase in the Program Trigger between 2006 and 2007 and between 2015 and 2016 caused 

the number of insurers classified as “small insurers” to increase because a greater number of 

insurers were below the policyholder surplus and DEP thresholds. This change in the Program 

Trigger corresponded with an increase in the market share of small insurers from 2006 to 2007 

 

44 SNL Financial (as of April 13, 2017) and 2017 TRIP data call. The principal differences are in: (1) the Fire, 

Allied Lines, and Inland Marine lines of insurance, which for state reporting purposes include personal lines 

exposures that are not subject to the Program; and (2) professional liability insurance, which is not subject to the 

Program, but is reported under the Other Liability line of insurance that otherwise is subject to the Program. 

45 See above at note 24. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Figure 1: Market Share by DEP of Small Insurers in TRIP-Eligible Lines (2006-2016) 

SNL Data TRIP Data Call 

Market Share (%) 

16% 

14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

9.1% 

13.5% 13.6% 14.9% 

13.2% 

12.3% 12.3% 11.9% 11.5% 

10.7% 

11.9% 11.7% 

2006200720082009201020112012201320142015

2016

(SNL)

2016

(TRIP Data) 

Year 

Source: SNL Financial and 2017 TRIP Data Call 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

and 2015 to 2016. This is exhibited by the cross-hatching for the columns indicating years 2006 

and 2016 in Figures 1 through 3, below. 

From 2007 through 2015, the Program Trigger (and the size classification identifying small 

insurers) did not change. Therefore, this part of the Study analyzes data regarding small insurers 

between 2007 and 2015. 

Figure 1 illustrates the market share (based on adjusted DEP) of small insurers writing 

TRIP-eligible lines of insurance, from the inception of the Program Trigger requirement in 2006 

through 2016. It highlights that the market share of small insurers as measured by publicly 

available data collected by state regulators (as adjusted for this analysis) was approximately 11.9 

percent in 2016. This figure compares to the market share figure based on the 2017 TRIP data 

call of 11.7 percent for small insurers. This market share is measured as a percentage of the total 

data reported by small and non-small insurers under the 2017 TRIP data call. 

Figure 1 also shows that, based on the data used in this analysis, the small insurer market share 

declined from 13.5 percent to 10.7 percent between 2007 and 2015. 

Figure 2 illustrates the premium volume comparison for TRIP-eligible lines for small insurers 

and non-small insurers from 2006 to 2016. As shown in Figure 2, small insurer premium 

receipts declined from 2007 to 2015 (from $23 billion to $21 billion). Non-small insurers had 

increased premiums over this period, which resulted in the gradual decline in market share for 

small insurers observed above. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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163 

Figure 2: Premium Volume Comparison for TRIP-Eligible Lines
 

Small Insurers vs. Non-Small Insurers
 

Small (SNL Data) Non-Small (SNL Data) Small (TRIP Data Call) Non-Small (TRIP Data Call) 

170 171 180 155 162 153 

20

 ­

Year 

Source: SNL Financial and 2017 TRIP Data Call Premium ($ bilions) 140

 120

 100

 80

 60

 40 

 160

2006200720082009201020112012201320142015

2016

(SNL)

2016

(TRIP Data)

23 23 23 20 19 20 21 21 21 23 19 16 

148 142 144 131 129 135 

 
 


 

Figure 3: Policyholder Surplus Comparison
 

Small Insurers vs. Non-Small Insurers
 

Small Non-Small 

Year 

Source: SNL Financial 2006

2007200820092010201120122013201420152016 

23 42 37 42 37 37 37 37 42 37 44 

506 522 

470 

519 

569 572 615 

676 700 706 

737

 ­

 100

 200

 300

 400

 500

 600

 700

 800 

Policyholder Surplus ($ billions) 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Figure 3 illustrates the policyholder surplus comparison for small insurers and non-small insurers 

from 2006 to 2016. During the 2007 to 2015 period, the policyholder surplus of small insurers 

was within the range of $42 billion to $37 billion. The policyholder surplus of non-small 

insurers generally increased over the same period. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

In the absence of specific historical terrorism risk insurance data from 2007 to 2015, this Study’s 

use of the state-reported TRIP-eligible lines data for the 2007 to 2015 period is only a proxy for 

market share information during this period. Based upon this information, however, the market 

share of small insurers (measured by TRIP-eligible lines premium) experienced a decline relative 

to the market share of non-small insurers. During the 2007 to 2015 period, the premiums 

received by small insurers declined, while the premiums received by non-small insurers 

increased. Policyholder surplus for small insurers during that same period also declined, while 

the policyholder surplus of non-small insurers increased. As it obtains additional information 

that is more specific to terrorism risk insurance from future TRIA data calls, Treasury will 

continue to analyze these areas in subsequent studies. 

B. Market Differences between Small Insurers and Large Insurers in the 

Terrorism Risk Insurance Marketplace and Comparison to Other Perils 

Information collected through Treasury’s 2017 TRIP data call provided new information 

regarding the role of small insurers in the market for terrorism risk insurance. Based upon that 

information, this section analyzes premium, take-up rates, geographic scope of writings, and the 

lines of insurance in which small insurers are more heavily concentrated and comprise a larger 

share of the overall market. 

The price of terrorism risk insurance can be expressed as the percentage of the overall 

commercial P/C policy premium that is allocated to terrorism risk insurance. In some cases, 

terrorism risk insurance is provided under commercial P/C policies at no additional charge. 

Figure 4 shows, for both small insurers and non-small insurers, the percentage of overall 

premium charged for terrorism risk insurance. Figure 4 does not include commercial P/C 

policies where the insurer did not include any charge for terrorism risk insurance. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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0


 


 


 

Figure 4: Percentage of Overall Premium Charged for Terrorism Risk Insurance
 

(by Line of Insurance)
 

Small Insurers vs. Non-Small Insurers
 

Small Non-Small 

Percentage of Total Premium 14% 

12% 

10% 

8% 

6% 

4% 

2% 

0% 

12.3% 

6.1% 

5.1% 5.4% 

6.9% 

5.8% 

6.4% 

5.1% 

4.5% 

3.8% 

5.0% 4.5% 

3.2% 

2.3% 1.6% 2.2% 1.6% 

2.7% 

1.5% 1.3% 1.3% 1.9% 

2.3% 2.2% 

0.4% 0.7% 

Line of Insurance 

Source: 2017 TRIP Data Call 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Figure 5 shows the extent to which small insurers and non-small insurers did not include any 

charge for terrorism risk insurance. Figure 5 illustrates that, in most lines, small insurers were 

more likely to include no charge for terrorism risk insurance than were non-small insurers. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Figure 5: $0 Premium Charged for Terrorism Risk Insurance
 

Small Insurers vs. Non-Small Insurers
 

Small Non-Small 

11% 

61% 

45% 38% 41% 

91% 

44% 

53% 

35% 

64% 66% 

25% 33% 

47% 

32% 

41% 

24% 22% 

64% 

29% 

65% 

16% 

32% 

21% 22% 

28% 

Percentage of Industry Premium 100% 

90% 

80% 

70% 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

Line of Insurance 

Source: 2017 TRIP Data Call 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Based on the data received in the 2017 TRIP data call, Figures 4 and 5 illustrate that small 

insurers charged proportionally less premium for terrorism risk insurance than non-small 

insurers. As Figure 4 illustrates, when a premium is charged for terrorism risk insurance, the 

percentage of the total policy premium relating to terrorism risk premium for small insurers is, 

for most lines, smaller than the percentage indicated for larger insurers. Measured against all 

TRIP-eligible lines combined, small insurers charge a lower premium than non-small insurers. 

Figure 5 also demonstrates that small insurers are more likely than non-small insurers to charge 

no premium for terrorism risk insurance. However, it should be noted that the available data 

does not provide any information concerning the nature of the risks being insured, which will 

affect the premium being charged. 

Figure 6 illustrates the take-up rates for terrorism risk insurance for small insurers and non-small 

insurers. Figure 6 demonstrates the difference between small insurers and non-small insurers in 

the take-up rates for terrorism risk insurance by their policyholders. When measured by 

premium, the policyholder take-up rate for policies written by small insurers was generally 

lower, in most individual lines as well as in the TRIP-eligible lines of insurance as a whole, than 

that of non-small insurers. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Figure 6: Take-Up Rates for Terrorism Risk Insurance 

Small Insurers vs. Non-Small Insurers46 

Source: 2017 TRIP Data Call 

67% 

53% 

73% 72% 69% 65% 

32% 

55% 

35% 

50% 

55% 

44% 

65% 

75% 79% 79% 

60% 61% 

42% 

55% 

41% 

63% 

0% 

10% 

20% 

30% 

40% 

50% 

60% 

70% 

80% 

90% 

100% 

Line of Insurance 

Small Non-Small 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

______________________________________________________________________________ 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY 

17 

Figure 7 illustrates the geographic scope of written premiums for small insurers and non-small 

insurers, and reflects that small insurers insure risks within a smaller geographic footprint than 

larger insurers. Figure 7 compares the geographic scope of small insurers to that of non-small 

insurers. Based on the data, small insurers appear to operate on a regional basis in a smaller 

number of states than non-small insurers, even though they may have a significant presence in 

individual local markets.

47 

 

46 This figure includes take-up rates for all TRIP-eligible lines except workers’ compensation. As a matter of state 

law, workers’ compensation policies must provide coverage for terrorism risk, and the effective take-up rate for this 

line is therefore 100 percent. See Section IV.F (discussing workers’ compensation insurance). 

47 See Atlantic Charter’s remarks to the Advisory Committee on Risk-Sharing Mechanisms (March 31, 2017) 

(Atlantic Charter Remarks), p. 7, available at 

https://www.treasury.gov/initiatives/fio/acrsm/Documents/Presentation_Atlantic_Charter.pdf. 
______________________________________________________________________________ 

 


 


 

Figure 7: Geographic Scope of Written Premiums
 

Small Insurers vs. Non-Small Insurers
 

Total # of Small Non-Small 

Groups: 

186 48 16 14 10 5 7 9 7 28 83 

0% 

20% 

40% 

60% 

80% 

100% 

Market Shaare (%) 

1-5

6-10

11-1516-2021-2526-3031-3536-4041-4546-50

50+ 

Total Number of States Where Insurer 

Actively Writes TRIP-Eligible DEP 

Source: SNL Financial 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Figure 8 shows that the TRIP-eligible insurance of small insurers is more heavily concentrated in 

certain lines of insurance than is the case for non-small insurers, and as a result, such small 

insurers have a larger share of the overall market in these lines. Figure 8 illustrates that small 

insurers write a larger portion of their TRIP-eligible lines premium within: (1) the commercial 

multi-peril (CMP) lines; and (2) the workers’ compensation line, as compared to larger insurers. 

CMP products provide coverage for multiple lines of insurance within a single policy, and tend 

to be marketed towards small- to medium-sized businesses.

48 Workers’ compensation insurance, 

which is discussed in greater detail in Section IV.F below, provides insurance for workplace 

injury benefits available under state workers’ compensation systems. 

 

48 See generally “Understanding Business Owners Policies (BOPs),” Insurance Information Institute, available at 

http://www.iii.org/article/understanding-business-owners-policies-bops. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Percentage of Line 

Figure 8: Percentage of TRIP-Eligible Lines Premium Written within the CMP and 

Workers’ Compensation Lines
 

Small Insurers vs. Non-Small Insurers
 

Small Non-Small 

50% 46% 

45% 

40% 36% 

35% 

30% 26%
 

25%
 17%
 20% 

15% 11% 9% 10% 7%
 

5%
 

0%
 

Commercial Commercial Total Commercial
 Workers' 

Multiple Peril Multiple Peril Multiple Peril Compensation 

(liability) (non-liability) 

18% 

TRIP-Eligible Line of Insurance 

Source: 2017 TRIP Data Call 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

The information collected in the 2017 TRIP data call shows differences between the participation 

of small insurers and non-small insurers in the terrorism risk insurance marketplace. This 

information did not reflect any particular differences presented by other perils.49 However, for 

purposes of this comparison, it may be instructive to examine market share information for small 

insurers in the P/C lines of insurance that are not subject to the Program. 

Figure 9 provides the market share, by DEP, of small insurers and non-small insurers in P/C lines 

not subject to TRIP. Based on the data reported to state regulators, Figure 9 illustrates that the 

market share of small insurers measured by DEP in P/C lines of insurance not subject to the 

Program decreased from 7.4 percent in 2007 to 6.2 percent in 2015. 

 

49 For the reasons discussed in this Study, terrorism risk insurance presents a number of issues that are limited to the 

terrorism risk insurance marketplace, such as in the areas of aggregation of losses and workers’ compensation 

insurance. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Figure 9: Market Share (DEP) of Small Insurers in P/C Lines of Insurance Not Subject to 

TRIP (2006-2016) 

8% 7.4% 7.3% 7.0% 6.5% 6.5% 6.5% 7% 6.1% 6.4% 6.4% 6.2% 

Market Share (%) 6% 

4.7% 5% 

4% 

3% 

2% 

1% 

0% 

20062007200820092010201120122013201420152016 

Year 

Source: SNL Financial 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

C. Mandatory Availability Requirement 

This Study is an initial analysis of the impact of the mandatory availability requirement on the 

market competitiveness of small insurers. Treasury did not receive any formal public comments 

on this subject when it sought input for the Study in the Federal Register.

50 Treasury is not 

making conclusions regarding this issue in this Study, and will continue to evaluate whether the 

mandatory availability requirement is having any market impacts on small insurers in the TRIPeligible lines of insurance. 

The mandatory availability requirement under TRIA requires insurers offering certain lines of 

commercial P/C insurance for U.S. risks to “make available” coverage for terrorism risk on terms 

that do not differ materially from the terms, amounts, and coverage limitations applicable to 

losses arising from events other than acts of terrorism.51 TRIA does not place pricing restrictions 

on insurers,52 although state law rating requirements may define or limit what an insurer may 

charge for terrorism insurance. If the prospective policyholder does not accept the mandatory 

offer, the parties may negotiate a different arrangement for terrorism risk coverage which is not 

on the same terms as provided for other risks.53 To the extent an insurer does not regularly offer 

coverage for a particular risk under a line of insurance (for example, with respect to losses 

arising from Nuclear, Biological, Chemical or Radiological (NBCR) events), it is not required to 

offer coverage for these risks because of the mandatory availability requirement.54 Additionally, 

 

50 See 81 Fed. Reg. 95310 (December 27, 2016). 

51 TRIA § 103(c); 31 C.F.R. §§ 50.20(a), 50.22(a). 

52 See 31 C.F.R. § 50.22(a). 

53 31 C.F.R. § 50.21(c). 

54 TRIA § 103(c)(2); see 31 C.F.R. § 50.22(b). 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

as a condition for receiving federal payments under the Program, participants must meet certain 

documentation requirements under TRIA and its implementing regulations concerning 

compliance with the mandatory availability requirement. 

Because terrorism risk insurance must be offered in connection with P/C insurance lines subject 

to TRIP, the mandatory availability requirement could have an impact on the manner in which 

such insurance is underwritten. For example, one difficulty with insuring losses arising from 

acts of terrorism is the aggregation risk potentially presented by an act of terrorism. A 

large-scale terrorist event can have a significant impact across multiple lines of insurance, and 

affect a large number of insured risks within a limited geographic area. 

Among other options, insurers may tend to manage aggregation of the risk that they assume 

within a particular geographic area, or within proximity to a location considered to be a potential 

target for terrorist activity. Insurers of all sizes may employ this analysis when deciding whether 

to write policies that are subject to terrorism risk.

55 

Additional factors that are external to TRIA may also influence whether insurers offer terrorism 

risk insurance, irrespective of the mandatory availability requirement. First, in a number of lines 

of insurance and jurisdictions, terrorism risk insurance must be provided under state law.

56 In 

these situations an insurer must offer terrorism risk insurance – irrespective of the mandatory 

availability requirement. Second, the ability to offer terrorism risk insurance with other 

coverages may be important in order to compete in certain U.S. insurance markets, in particular 

those defined by large metropolitan areas. Take-up rates for terrorism risk insurance vary by 

jurisdiction and locality, and higher percentages of policyholders generally purchase terrorism 

risk insurance in major metropolitan areas.

57 

Treasury will continue to analyze this issue and report on the subject in 2019. 

D. Impact of the Increasing Program Trigger Amount 

This section considers the impact on small insurers of increasing the Program Trigger, and 

assesses this impact over time. 

Two thresholds must be satisfied before a participating insurer will be eligible for federal 

payments in connection with insured losses arising from an act of terrorism. First, an insurer 

 

55 See generally “Terrorism Risk Insurance: Market Challenges May Exist for Current Structure and Alternative 

Approaches (GAO-17-62),” U.S. Government Accountability Office (January 2017), pp. 18-19, available at 

http://www.gao.gov/assets/690/682064.pdf. 

56 The principal example here is the workers’ compensation line of insurance. See Section IV.F. 

57 See, e.g., “2016 Terrorism Risk Insurance Report,” Marsh & McLennan Companies (July 2016), p. 10 (a “higher 

percentage of companies in the Northeast (72%) purchased property terrorism insurance than in any other region, 

likely attributable to the concentration of large metropolitan areas, including Washington, DC, and New York”), 

available at https://www.marsh.com/content/dam/marsh/Documents/PDF/USen/2016%20Terrorism%20Risk%20Insurance%20Report.pdf. 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

must satisfy its TRIP deductible, which is 20 percent of its TRIP-eligible premium earned during 

the previous calendar year.58 Second, even if a particular insurer satisfies its individual 

deductible, the total aggregate insured losses across the industry must exceed the Program 

Trigger before any federal payments can be made. 

Thus, an insurer with a deductible lower than the Program Trigger could satisfy its deductible, 

but have its losses fall short of satisfying the Program Trigger. There could also be cases in 

which other participating insurers will also experience losses from the same act or acts of 

terrorism, and together their combined losses will satisfy the Program Trigger, such that a small 

insurer that has exceeded its own deductible will be able to obtain a recovery. Nonetheless, the 

Program Trigger requirement could operate to preclude recovery for one or more small insurers, 

in a way that larger insurers may not face. 

There are more than 200 domestic U.S. insurance groups subject to the TRIA data call that are 

currently classified as small insurers that could be subject to this exposure.59 Figure 10 provides 

a projection of the potential increase in the number of small insurers caused by the prospective 

increase in the Program Trigger through 2020.60 Figure 10 illustrates that an increasing number 

of insurers will be subject to this potential exposure over the next few years. As shown in Figure 

10, Treasury projects that the number of “small insurers” is likely to increase in the future based 

on the assumption that the Program Trigger will increase at a rate faster than likely market 

growth in TRIP-eligible lines premium and policyholder surplus. 

 

58 TRIA § 102(7); see Section II above. 

59 This analysis does not include those small insurers that write TRIP-eligible lines premium of less than $10 million 

that were excused from reporting. This subset of insurers also could be affected. 

60 This projection of the increase in the number of small insurers caused by the projected market growth of TRIPeligible lines DEP and policyholder surplus is based upon Treasury’s analysis of 2017-2020 Gross Domestic Product 

forecasts to model DEP and policyholder surplus changes for individual insurance groups writing TRIP-eligible 

lines premium. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Figure 10: Projection of Potential Increase in Number of Small Insurers Due to Increase in
 

Program Trigger
 

Count (Left Axis) Market Share (Right Axis) 

0% 

2% 

4% 

6% 

8% 

10% 

12% 

14% 

16% 

0 

50 

100 

150 

200 

250 

300 

Market Share 

Number of Insurers 

2016 2017 2018 2019 2020 

Year 

Source: SNL Financial 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Therefore, based on the projection that the Program Trigger is increasing at a rate faster than 

insurer deductibles are likely to grow in the future, more insurers over time could experience 

losses that satisfy their Program deductible, but do not satisfy the Program Trigger. These losses 

would remain ineligible for federal reimbursement. In addition, insurers currently classified as 

small insurers will be further removed from the Program Trigger over time because the 

difference between their deductibles and the Program Trigger will increase. Therefore, small 

insurers could be more likely to incur a loss in excess of their deductibles, yet not large enough 

to satisfy the conditions for federal reimbursement under the Program. 

Based on the 2017 TRIA data call, the Program Trigger has an impact on small insurers 

participating in the Program that is not faced by larger insurers. Commenters observed that this 

effect on small insurers, which could result in a “massive increase in their liabilities,” could 

ultimately limit “the insurance coverage [small insurers] are able to provide for main street 

businesses.”61 

E. Availability and Cost of Private Reinsurance for Small Insurers 

This section considers the availability and cost of private reinsurance for small insurers, in the 

context of information collected during the 2017 TRIP data call regarding their reinsurance 

purchases for terrorism risk insurance. 

 

61 Comments of Property Casualty Insurers Association of America on Small Insurer Study (February 27, 2017) 

(PCIAA Comments), p. 1, available at https://www.regulations.gov/document?D=TREAS-TRIP-2017-0002-0008. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

It is difficult to assess the availability and cost of private terrorism risk reinsurance for small 

insurers for several reasons. Since reinsurance is not a TRIP-eligible line of business, reinsurers 

are not considered Program participants, and thus are not subject to Treasury’s TRIP data calls. 

Reinsurance is neither subject to standard terms and rates, nor to the range of state-level 

reporting requirements applicable to admitted insurers. In addition, many factors affect the 

pricing of reinsurance – such as the reinsurance limits sought and obtained, the price of the 

underlying risk covered by the reinsurance, the amount of available information concerning that 

underlying risk, the prior claims history between an insurer and its reinsurers, and general market 

conditions when the reinsurance is purchased. Furthermore, reinsurance agreements often cover 

multiple risks, so it can be difficult to isolate and assess how reinsurance specifically responds to 

terrorism risks. 

A small insurer that is concerned about its ability to obtain recovery under the Program for losses 

above its deductible may attempt to cover this exposure by purchasing reinsurance. For 

example, a small insurer could purchase reinsurance that provides reimbursement for any losses 

experienced above the insurer’s deductible if an act of terrorism is certified but the Program 

Trigger is not met by aggregate industry insured losses. Whether purchase of such reinsurance is 

practical (assuming that it is available) will depend in part upon the cost of the reinsurance and 

the insurer’s assessment of its ability to bear the loss without reinsurance. 

Historically, reinsurance markets have been cyclical, and the broader market for reinsurance is 

currently characterized as “soft,” meaning that reinsurance premium rates are relatively low and 

availability is relatively high.

62 Although a range of macroeconomic factors play a role in the 

reinsurance market, current conditions are generally viewed as resulting from relatively benign 

catastrophe losses experienced by reinsurers in recent years, leading to significant traditional 

reinsurance market capacity, augmented by growing capacity from the capital markets, available 

to support risk transfer from the primary insurance market.63 

Treasury found that small insurers tend to transfer, or cede, a greater proportion of their direct 

premiums to reinsurers than larger insurers. Figure 11 illustrates the portion of premiums of 

TRIP-eligible lines ceded by direct insurers to reinsurers of small insurers and non-small 

insurers. 

 

62 See generally “IAIS Global Insurance Market Report (GIMAR) 2016,” International Association of Insurance 

Supervisors (January 31, 2017), p. 3 (“Non-life (re)insurance continues to be subject to soft market conditions. 

Premiums charged by non-life (re)insurers in the commercial lines, property and catastrophe markets remain under 

pressure, partly due to increasing competition, while investment yields are declining gradually. Competition is 

especially strong in the reinsurance market.”), available at https://www.iaisweb.org/file/64547/2016-globalinsurance-market-report. 

63 See, e.g., L. S. Howard, “Is Soft Market Bottoming? A.M. Best Points to Some Promising Signs,” Insurance 

Journal (January 10, 2017), available at 

http://www.insurancejournal.com/news/international/2017/01/10/438420.htm. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Figure 11: Proportion of TRIP-Eligible Lines Premiums Ceded by Insurers to Reinsurers
 

Small Insurers vs. Non-Small Insurers
 

Small Non-Small
 

40%
 

TRIP-Eligible Premium Ceded

to Reinsurers (%) 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

34% 34% 

32% 31% 30% 29% 28% 28% 30% 29% 

27% 

22% 23% 22% 22% 22% 

19% 20% 20% 20% 19% 19% 2006 2007 2008 2009 2010 2011 2012 2013 2014

20152016 

Year 

Source: SNL Financial 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Although the 2017 TRIP data call did not collect data from reinsurers, it did collect certain 

information from insurers concerning their purchases of reinsurance for terrorism risk. In this 

Study, Treasury compared the amount of such purchased reinsurance with the Program 

deductibles of small insurers to assess whether the private reinsurance would cover the possible 

exposure between the insurer’s deductible and the Program Trigger. Figure 12 illustrates the 

manner in which reinsurance purchases of small insurers provide protection for potential 

exposures within and above deductibles up to the Program Trigger. 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY
 

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Figure 12: Comparison between Small Insurer Deductibles and Reinsurance Purchases,
 

Illustrating Position between Reinsurance Limit and Program Trigger
 

Average Reinsurance Coverage Average Attachment Point
 

140
 

Reinsurance ($ Millions) 

120 

100 

80 

60 

40 

20 

0 

242 

0-5

5-10

10-1515-2020-2525-3030-4040-5050-60

+60 

Insurer Program Deductible ($ Millions) 

Source: 2017 TRIP Data Call 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Figure 12 illustrates the extent to which small insurers have obtained reinsurance for losses 

within their deductibles, as well as for amounts above their deductibles up to the Program 

Trigger. Based on the 2017 TRIA data, approximately 77 percent of small insurers have 

obtained reinsurance that may cover some portion of losses exceeding the insurer’s TRIP 

deductible. Therefore, when divided into categories by the size of their Program deductibles 

(horizontal axis), the 2017 TRIA data illustrates that average reinsurance purchases (vertical 

axis) are typically in excess, for most size categories, of the Program deductibles. Figure 12 

suggests that small insurers generally do not purchase reinsurance from “dollar one” of their 

exposure. Rather, the reinsurance is generally purchased to apply at some higher loss amount 

(beginning at the attachment point), below which the small insurer remains exposed to the losses. 

Figure 12 also reflects that a large percentage of small insurers face significant exposure between 

their TRIP deductibles and the Program Trigger which has not been addressed by private 

reinsurance. This is illustrated by the space in Figure 12 above the blue reinsurance purchase bar 

and below the red dotted Program Trigger threshold line. Only 11 percent of the reporting small 

insurers have closed this gap, and most of these small insurers are at the upper limit of the small 

insurer threshold. 

In general terms, and based on the 2017 TRIA data, Treasury finds that small insurers purchase 

significant amounts of reinsurance for losses up to their deductible obligation under the Program. 

In contrast, there is less reinsurance protection for losses between an insurer’s deductible and the 

Program Trigger amount. This differential could demonstrate that generally such coverage is not 

FEDERAL INSURANCE OFFICE, U.S. DEPARTMENT OF THE TREASURY 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

affordable or readily available.64 But it could also be based upon an insurer’s assessment that it 

is unlikely to sustain losses up to the Program Trigger, or that it can afford to sustain such losses, 

or that its portfolio of insured risks is such that in the event of a large loss situation caused by an 

act of terrorism the losses of unaffiliated insurers could satisfy the Program Trigger. Treasury 

will consider how to obtain and further analyze appropriate data providing additional information 

concerning the price and availability of private terrorism risk reinsurance for small insurers. 

Treasury will continue to analyze this issue and report on the subject in 2019. 

F. Impact of State Workers’ Compensation Laws 

The workers’ compensation system provides an important mechanism for the protection of U.S. 

workers from the consequences of employment-related injuries. To provide that protection, 

however, certain aspects of the system have the effect of increasing the aggregation exposures of 

insurers participating in this market to losses from terrorism, possibly presenting solvency issues, 

particularly because these policies provide coverage for workers’ compensation benefits as 

defined by state law and are not subject to express limits of liability. 

State workers’ compensation systems provide compensation, on a no-fault basis, for the 

workplace injuries of employees, including disability and death. The costs of medical care and 

treatment, rehabilitation, loss of wages, and other financial hardships resulting from the 

employee’s injury are covered.65 Because payments under workers’ compensation policies are 

limited only by the scope of workers’ compensation benefits available under state law to 

employees entitled to the payment of those benefits, payments under a workers’ compensation 

policy could be essentially unlimited.66 On the other hand, the ability of insurers to collect 

sufficient premium to cover potentially unlimited costs is limited. Workers’ compensation 

insurance is subject to specific pricing rules under state law, which may not allow for much 

pricing flexibility.67 As a result, a large-scale act of terrorism could create significant aggregation 

 

64 See Remarks to the TRIA Federal Advisory Committee by the Greater New York Mutual Insurance Company 

(May 31, 2017), p. 5 (noting that while direct insurance rates are regulated, reinsurance rates are not, such that small 

insurers might not be able to pass along such costs to policyholders which puts small insurers at a competitive 

disadvantage relative to larger insurers that may not require as much reinsurance), available at 

https://www.treasury.gov/initiatives/fio/acrsm/Documents/Remarks_GNY.pdf. 

65 A summary of the U.S. workers’ compensation system is available in the 2016 Effectiveness Report, pp. 21-22. 

66 See Michael Dworsky and Lloyd Dixon, “The Impact on Workers’ Compensation Insurance Markets of Allowing 

the Terrorism Risk Insurance Act to Expire,” RAND Corporation (2014), pp. 5-6, available at 

https://www.rand.org/content/dam/rand/pubs/research_reports/RR600/RR643/RAND_RR643.pdf. 

67 See, e.g., Submission by the National Council on Compensation Insurance to the Advisory Committee on 

Risk-Sharing Mechanisms (June 5, 2017) (summarizing the development of terrorism loss costs controlling the 

premium charge for workers’ compensation insurance under state law), available at 

https://www.treasury.gov/initiatives/fio/acrsm/Documents/National_Council_on_Compensation_Insurance_June_20 

17.pdf. 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

risks for workers’ compensation carriers, particularly in the event of broad-based losses arising 

from an NBCR event.68 

Because insurers cannot decline to cover terrorism risk (including NBCR-related terrorism risk) 

in connection with workers’ compensation insurance, workers’ compensation carriers must find 

other ways to manage their aggregation risk – including by declining certain risks altogether. 

For example, insurers may avoid writing policies that could provide substantial accumulation of 

exposures in the same location. This could present challenges for insurers conducting business 

in large metropolitan areas with dense populations, as well as for employers seeking insurance 

coverage in those areas. 

To the extent a particular policyholder cannot obtain coverage from an insurer in the “voluntary” 

market, it may need to obtain insurance in the residual market, which must provide coverage to 

all applicants.

69 Such coverage generally comes with a higher premium. To remain in the 

worker’s compensation market, insurers could use reinsurance to help manage aggregation risks. 

The 2017 TRIP data call analyzed whether the reinsurance purchased by insurers to cover losses 

in TRIP-eligible lines included coverage for NBCR risks associated with workers’ compensation 

insurance. Based on the 2017 TRIP data call, a significant number of small insurers did not have 

reinsurance coverage for workers’ compensation losses caused by NBCR risks. However, the 

minority of small insurers that did obtain reinsurance coverage for this type of risk were 

generally able to do so at similar limits compared to their conventional terrorism reinsurance 

policies. More than 80 percent of small insurers reported that their reinsurance agreements did 

not cover NBCR risks for workers’ compensation. Of the remaining small insurers that obtained 

reinsurance for this risk, 45 percent were able to obtain the same or higher limits as the limits 

under their conventional terrorism reinsurance. The remaining 55 percent of insurers obtained 

this coverage at moderately lower limits than their conventional terrorism risk limits. On 

average, insurers obtained NBCR limits – in those circumstances in which reinsurance was 

obtained for NBCR risks – that were approximately 90 percent of their conventional terrorism 

limits. 

 

68 See, e.g., “Terrorism Risk Insurance: Report of the President’s Working Group on Financial Markets,” 

(September 2006), pp. 72-73 (noting estimates of modeled NBCR event exposures up to $158 billion in property 

losses and $484 billion in workers’ compensation losses), available at http://www.pciaa.net/docs/defaultsource/default-document-library/pres_wkg_grp_rpt_9-06.pdf; Charles Meade and Roger C. Molander, “Considering 

the Effects of a Catastrophic Terrorist Attack,” RAND Corporation (2006), pp. 6-7 (estimating potential losses 

arising from explosion of 10-kiloton nuclear bomb in a shipping container as exceeding $1 trillion), available at 

http://www.rand.org/content/dam/rand/pubs/technical_reports/2006/RAND_TR391.pdf. 

69 A residual market exists to provide insurance coverage for those who cannot obtain coverage in the regular, or 

voluntary, market. Insurers operating in a particular jurisdiction are usually required to participate in residual 

markets as a condition of doing business in the voluntary market. The extent of their participation in the residual 

market is generally based upon their share of the voluntary market. Depending upon the jurisdiction, insurance costs 

in the residual market may be higher, or may effectively be subsidized through assessments on taxpayers or insurers, 

which may then be passed on to all policyholders in the jurisdiction. See, e.g., PCIAA Comments, p. 2; Atlantic 

Charter Remarks, p. 8. 

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Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

In contrast, although a much higher percentage of non-small insurers (approximately 49 percent) 

held reinsurance coverage for NBCR risks associated with workers’ compensation coverage, the 

limits under this reinsurance were much lower than the limits for conventional terrorism risk 

(approximately 52 percent on average). 

If large workers’ compensation losses fall disproportionately upon a small number of 

participating insurers, TRIP provides a backstop that operates as a risk-spreading mechanism 

across the industry. In this circumstance, as observed in Treasury’s 2016 Effectiveness Report, 

the Program could be the determining factor in ensuring an insurer’s solvency.70 The Program 

operates in this fashion irrespective of the size of the insurer participating in the workers’ 

compensation market, but may be more critical for those insurers falling into the “small insurer” 

category, which may have less policyholder surplus available to face the unpredictable workers’ 

compensation losses that could arise from an act of terrorism. 

 

70 “TRIA effectively allows insurers to continue to participate in the workers’ compensation insurance markets 

when, in the absence of a government backstop for the terrorism risk, they might be forced from the market 

altogether.” 2016 Effectiveness Report, p. 22, note 69. 

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Conclusion 


 


 

Study of Small Insurer Competitiveness in the Terrorism Risk Insurance Marketplace (June 2017) 

Small insurers are a significant component of the market for terrorism risk insurance in the 

United States. 

While the market share of small insurers subject to the Program has gradually decreased over the 

period where the Program Trigger remained constant, this decline is generally consistent with the 

analysis of market share information for P/C lines of insurance not subject to TRIP. There has 

also been a decline for small insurers in the premium received and policyholder surplus in TRIPeligible lines of insurance. Small insurer market share, premium, and policyholder surplus will 

potentially increase in the future because of the annual increase in the Program Trigger through 

2020. 

Based on the 2017 TRIP data call, small insurers charge less than non-small insurers for 

terrorism risk insurance, and are more likely to charge no premium for such coverage. 

Additionally, the take-up rate for terrorism risk insurance of small insurers’ policyholders is 

lower than the take-up rate of larger insurers’ policyholders. Small insurers tend to operate on a 

regional basis, in fewer states than larger insurers, and their insurance writings are more heavily 

concentrated than those of larger insurers (such that they have a larger share of the overall 

market in those lines) in the commercial multi-peril and workers’ compensation lines of 

insurance. 

This Study is not making conclusions regarding the impact of the mandatory availability 

requirement on the market competitiveness of small insurers. Treasury will continue to evaluate 

whether the mandatory availability requirement is having any market impacts on small insurers 

in the TRIP-eligible lines of insurance. 

The Program Trigger requirement can operate to prevent reimbursement for small insurers that 

sustain terrorism losses in excess of their Program deductibles. Small insurers may purchase 

private reinsurance to avoid this potential challenge. The 2017 TRIP data call indicates, 

however, that most small insurers do not purchase sufficient private reinsurance to address this 

issue. Although small insurers may otherwise be protected by the existence of losses of other 

insurers that satisfy the Program Trigger, this will vary from case to case, depending on the size 

of insured losses arising from the act or acts of terrorism. 

Terrorism risk insurance must be provided as a component of workers’ compensation insurance 

under state law. Therefore, this potential risk for small insurers of unreimbursed losses in excess 

of Program deductibles could be more pronounced in connection with this line of insurance. 

Small insurers have a larger share of this market, which is subject to potentially unlimited losses 

and significant aggregation risks. 

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