Advisory Committee on Risk Sharing 

Mechanisms (ACRSM)

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ACRSM Executive Summary

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ACRSM Background

 Formation & Purpose: Established by Terrorism Risk Insurance Program 

Reauthorization Act of 2015 to provide advice and recommendations to FIO 

regarding creation and development of non-governmental, private market risksharing mechanisms to protect against losses arising from acts of terrorism

 Membership: directors, officers, or other employees of insurers, reinsurers, or 

capital market participants that are participating / desire to participate in the 

non-governmental risk-sharing mechanisms described above. Current members:

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• Mike Sapnar, TransRe (Chair) • Wendy Peters, Willis Towers Watson

• Kean Driscoll, AIG • John Seo, Fermat Capital

• John Lupica, Chubb • Keith Wolfe, Swiss Re

• Emil Metropolous, Guy Carpenter • Keith Bell, Travelers
ACRSM Activities

 Committee Investigative Efforts: 

 9 meetings held from February 2016 through February 2020

 Members arranged for and heard presentations from various sources, including 

ACRSM members themselves, trade associations, insurance companies, risk 

modeling companies, academics, U.S. government agencies, and the UK’s Pool Re.

Division of further investigative efforts, with each member heading up a 

subcommittee to take the lead on a different area of concern

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ACRSM Findings

 Major Findings of the Subcommittees To-Date:

Insurance industry needs a cap on liabilities for losses arising from terrorism events in 

order to properly price and provide coverage

There has been and will continue to be a major transference of terrorism coverage from 

the government to the private sector

There remain questions and uncertainty about the certification process and timing

There is a loophole to access TRIP with advantageous financial terms by Captive Insurers

The Mandatory Recoupment and the growing IMARA can lead to unintended results

Cyber coverage is a major concern

Total available limits, both public and private, for NCBR coverage and recoveries remain a 

concern

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Issues That Merit Further Study

The Program Cap remains static at $100B while insured values, premiums, and potential losses 

continue to increase

Industry Marketplace Aggregate Retention Amount (IMARA) continues to increase resulting in the 

erosion of the federal backstop and, in 2027, assuming a 4% CAGR in premiums, a trended 9/11 

Scenario is no longer covered by the federal backstop.

After recoupment, Treasury could collect a greater amount than it pays

Captives with minimal surplus and revenues can often access the program at low retentions and cost 

when their sponsors have significant financial resources

Cyber exposures are unquantified and global. Clarification is needed around whether incidents 

occurring outside the U.S. with impacts outside the U.S. might be covered and the certification 

process of such events.

NCBR - there are a meaningful and increasing number of modeled events that would results in greater than $100B in losses, raising concerns about the amount and timing of recoveries

No Prefunding = less robust risk management around assessment, mitigation, financing, and post- event resiliency

Certain aspects of the Certification Process remain unclear to industry participants

Certain Non-Profit Organizations (mass shootings and events below the trigger and program minimum)

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Recommendations

As part of an upcoming TRIA Effectiveness Study, Treasury / FIO should consider incorporating a study on the following issues:

 Program Cap: What are potential implications of a change in the cap, including investigation into what levels of protection make TRIA most effective (i.e., working layer vs. extreme tail risk layers)?

 IMARA: Assuming the original 2 goals of TRIA still apply, what is the appropriate IMARA; should other aspects of the program should be indexed if the IMARA continues to be indexed?

 Recoupment: What is the appropriate recoupment and should there be a cap or other mechanism to prevent situations in which the government profits from terrorist attacks?

 Captives: Examine ways to close loophole allowing captives to shift virtually all of their terrorism risk to other private market participants, including calculating deductibles and co-shares from a number other than Direct Earned Premium for 

captive insurers

 Cyber: Treasury /FIO should evaluate the evolving cyber market in the context of the Program, including the issues set forth 

on slide 23 of this report.

 NCBR: Explore (i) whether bifurcation of the cap, IMARA, and deductibles for NCBR is appropriate; (ii) if not, how to address growing uninsured NCBR risk above the $100B cap; and (iii) consideration and analysis of NCBR fire following laws and 

exclusion/inclusion statistics

 Prefunding Approaches: Invest in FIO staffing, including small dedicated analyst team focused on terrorism risk modelling with ability to partner with private industry; collect from participating insurers data on exposure and mitigation efforts; 

explore ways for U.S. Treasury to facilitate risk transfer to global risk markets, including the effect pre-funding mechanisms might have on such risk transfer.

 Certification Process: Explore ways to resolve uncertainty over the certification process with FIO administratively rather than legislatively

 Non-Profits Availability & Affordability: Consider expanding the study called for under S.2877 to include additional non- profit charitable organizations

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TRIP Was Originally Designed With 2 Goals in Mind

Goal #1—TRIP, as originally designed, provided a framework for market stability to facilitate underwriting of terrorism insurance risk following the 

terrorist attacks of 9/11/2001

 The most effective feature of the program in this regard was the $100B program cap

o Defined the maximum loss

o Allowed for pricing of risk and underwriting

 Another key feature was the sharing of the maximum $100B loss spread among:

o The Federal Government (Federal Backstop) in the Discretionary Recoupment Layer

o The Insurance Industry in the Insurer Deductible and Copay Layers

o The Commercial Policyholder Community in the Mandatory Recoupment Layer

Goal #2—Continue to provide a framework for economic and insurance industry stability after a major terrorist attack

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Ways TRIP May No Longer Be As Effective in 

Meeting Goal #1

Goal #1— Provide a framework for market stability to facilitate underwriting 

of terrorism insurance risk, allowing for pricing of risk

ACRSM is tasked with recommending non-governmental, private market risk-sharing 

mechanisms to protect against losses arising from acts of terrorism

Captive Insurers:

Post-event forced-risk-transfer to policyholders is not in line with increasing non-governmental 

private-market risk transfer

This reduces the incentive for insurers to provide coverage at risk-based prices

Also creates moral hazard in that companies with captive insurers have almost no “skin in the 

game” and therefore reduced incentives to mitigate risk 

Closing this loophole may encourage those using captives to seek non-governmental 

insurance industry solutions, and insurers and brokers to work with those companies 

to find ways to meet their needs.

Discussion Draft
Ways TRIP May No Longer Be As Effective in 

Meeting Goal #2

Goal #2—Continue to provide a framework for economic and 

insurance industry stability after a major terrorist attack

Changes made over time during previous reauthorizations have 

significantly shifted risk away from the Federal Backstop

Risk is being transferred principally back to the Commercial Policyholder 

Community and to the Insurance Industry

With the clean reauthorization of existing law, this risk shifting accelerates 

and will continue to erode the viability of the program

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How TRIP Responds to a 9/11/2001 Scenario

(Then, Now, and in the Future)

Originally, TRIP could have substantially handled three 9/11/2001 attacks 

largely within the Federal Backstop

As of 2019, after recoupment, the Federal Backstop does not address even 

one 9/11/2001 attack, which may have been intended as it was contemplated 

that there would be risk-shifting to the private sector over time

Going forward (under clean reauthorization), at some point in the future 

Treasury is projected to actually make billions of dollars in profit under a 

repeat 9/11/2001 scenario; this may be an artifact of the Congressional 

Budget Scoring model, but nevertheless should at the very least be 

acknowledged and an attempt made to address the issue.

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Discussion Draft
RAA 2019 TRIP Legislative Model V1.2

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The Current Program Expires 12/31/2027

TRIP was extended through 12/31/2027 with the passage of the 

Omnibus Fiscal Spending Bill on 12/20/2019, which included a clean 

reauthorization of the existing program

TRIP is critically important in providing market stability and without it, 

a functioning insurance market for terrorism risk would not exist

Certain issues and program features should be studied in the future

Any recommended changes or solutions resulting from the studies can 

be made in any future reauthorization of the program

Discussion Draft
Program Cap

• Key feature of TRIA that enables insurers to underwrite and price risks that 

have the potential for extreme levels of catastrophic loss

• From initial passage in 2002 to present, $100 billion of total industry 

insured losses for all acts of terrorism within a single calendar year

• Not indexed, so cap has become increasingly relevant

• Future Concern: As IMARA increases and cap remains, more risk placed on 

industry and policyholders. With 140% mandatory recoupment surcharge, 

more risk placed on policyholders

• Recommendation: 

• Mandate Treasury study on potential implications of a change in the cap, including 

whether: (i) there should be a separate cap for NCBR and/or cyber risks; and (ii) 

investigation into what levels of protection make TRIA most effective (i.e., “working” 

layer vs. extreme tail risk layers) 

• Others?

Discussion Draft
IMARA

• Previously, IMARA was a fixed amount that increased incrementally, starting at 

$10 billion in 2002 and increasing to $37.5 billion in 2019

• Beginning in 2020, the IMARA is “the sum of insurer deductibles for all insurers 

participating in the Program for the prior 3 calendar years . . . .”

• Future Concern: With 4% annual premium growth,1 the IMARA will be over $58 

billion in 2030.

• All of this would be subject to 140% recoupment

• Could lead to an increasing number of scenarios in which the government profits from a 

large-scale terrorist attack.

• Recommendation: Mandate that, with the goals of TRIA in mind, Treasury 

conduct a study on the appropriate IMARA and whether other aspects of the 

program should be indexed if IMARA continues to be indexed.

• Others?

1 4% is the P&C Compound Annual Growth Rate from 2011-2018 and is also the Congressional Budget Office’s nominal GDP 

forecast Discussion Draft
Mandatory Recoupment

• Money that is used to reimburse insurers pursuant to TRIA comes from 

government’s general revenue

• Recoupment is the post-event funding mechanism used to pass on the cost of the backstop to the P&C policyholders

• Mandatory recoupment is implemented below the IMARA by taking the 

lesser of the IMARA or the aggregate amount of insured losses for the 

calendar year, and subtracting the total amount of insured losses the 

backstop did not reimburse (because of the insurer deductible and insurer 

co-share)

• Discretionary recoupment is available above the IMARA.

Discussion Draft
Mandatory Recoupment Surcharge

• In the original legislation, there was no surcharge.

• With the 2007 renewal, a surcharge of 33% was added so that the mandatory 

recoupment became 133% of the amount to be recouped by Treasury.

• The 2015 renewal changed the mandatory recoupment surcharge to 140% .

• Future Concern: As the IMARA grows, there are in increasing number of scenarios in which the federal government would actually make money off of the P&C 

industry and policyholders after a large-scale terrorist attack.

• Recommendation: Mandate that FIO conduct a study on an appropriate recoupment surcharge and ways to cap the surcharge to avoid situations in which 

the government profits from terrorist attacks; if FIO concludes that there is no 

way to avoid situations in which the government profits from certified acts of 

terrorism under the current CBO scoring, the study can so state, and suggest 

ways, if any, that Congress might fix this issue.

• Others?

Discussion Draft
Captive Insurers Can be Used to Underprice 

Coverage and to Avoid Deductible

• Treasury has warned that the “post-enactment formation or utilization of a captive insurer that will 

only provide stand-alone, single-risk TRIA-only coverage for losses from acts of terrorism raises 

questions regarding the integrity of the Program,” and that an entity considering forming such a 

captive “should be strongly cautioned and advised against undertaking such proposed action if it is 

doing so in order to avoid the Act’s deductible requirements.”2

• Treasury also stressed that “a definitive determination of Captive’s status and its eligibility for any 

Federal share of compensation under TRIA cannot occur until a claim for federal compensation is 

actually made,” and that it will pay only if “[n]either the insurer’s claim for Federal payment nor 

any underlying claim for an insured loss is fraudulent, collusive, made in bad faith, dishonest or 

otherwise designed to circumvent the purposes of the Act and regulations.3

2 Interpretive Letter, March 2, 2004.

3 Interpretive Letter, October 19, 2006.

Discussion Draft
Captive Insurers Can be Used to Underprice 

Coverage and to Avoid Deductible

• Future Concern: Even if not designed specifically to avoid the deductible, a corporation can use a captive insurer to shift most of its terrorism risk to other policyholders in the P&C market, which would have the 

effect of decreasing premiums below market price, further reducing their deductibles; . See illustration 

on the following slide.

• Recommendation: Mandate that Treasury conduct a study to examine possible ways to close this loophole to prevent accidental or intentional abuse of TRIA, including but not limited to calculating 

deductibles from a number other than Direct Earned Premium for captive insurers that are not part of an 

insurance holding company system, such as:

• Earned Revenue: Since TRIP deductibles for insurance company are based on (i) earned premium of (ii) its affiliate group, one suggestion would be the base the deductible for a captive company on (i) earned revenue of (ii) the ultimate parent. The percentage of this number may need to be much lower than 20% (the percentage 

of Direct Earned Premium charged as a deductible to P&C insurers) and other adjustments may be necessary as 

well to arrive at a fair deductible for captive insurers.

• Others? methodologies could be explored, such as charging a percentage of policy limits, total insured value, 

etc.

Discussion Draft
NBCR Captive vs. Traditional Insurance Example

2019 Loss: Single NBCR Captive Example

NBCR Captive

Loss Limits/Policy Limits 5,000,000,000 

Captive's Premium at 2% ROL 100,000,000 

TRIP Max Deductible 20,000,000 

Concentrated Loss Scenario

Loss Amount (Total Policy Limits) 5,000,000,000 

TRIP Applied Deductible 20,000,000 

Captive's Copay Above Deductible 996,000,000 

2019 IMARA 37,500,000,000 

Federal Share 3,984,000,000 

Federal Share Discretionary Recoupment -

Federal Share Mandatory Recoupment 3,984,000,000 

Recoupment Surcharge 1,593,600,000 

Total Assessment to Policyholders 5,577,600,000 

Total Insurers' Share 1,016,000,000 

Total Federal Backstop -

Total Loss Incurred 6,593,600,000 

2019 Loss: Syndication of Traditional Insurers Example

Insurer 1 Insurer 2 Insurer 3 Total Insurers

Loss Limits/Policy Limits 2,000,000,000 1,500,000,000 1,500,000,000 5,000,000,000 

TRIP Lines DPE Nationwide 12,500,000,000 10,000,000,000 8,000,000,000 30,000,000,000 

TRIP Max Deductible 2,500,000,000 2,000,000,000 1,600,000,000 6,100,000,000 

Concentrated Loss Scenario Total Insurers

Loss Amount (Total Policy Limits) 5,000,000,000 

TRIPApplied Deductible 5,000,000,000 

Captive's Copay Above Deductible -

2019 IMARA 37,500,000,000 

Federal Share -

Federal Share Discretionary Recoupment -

Federal Share Mandatory Recoupment -

Recoupment Surcharge -

Total Assessment to Policyholders -

Total Insurers' Share 5,000,000,000 

Total Federal Backstop -

Total Loss Incurred 5,000,000,000 

Discussion Draft
Cyber Coverage

• 2016 Treasury guidance stated:

• Insurance lines regulated under TRIP that include cyberrisks are subject to the program

• Stand-alone cyber liability policies are also subject to the program

• Future Concern: There are certain elements of cyber risk that Treasury did not contemplate at the time regulations were promulgated

• As TRIA currently only covers damage within the U.S. except for some specific exceptions and 

cyber could impact U.S. interest in many areas outside the U.S., how would TRIP deal with 

unique situations in which cyber operations are be conducted from remote locales and occur 

outside the U.S., yet still have an impact on U.S. interests (e.g., NotPetya)?

• How would delays in attribution affect certification timelines?

• Recommendation: As part of an upcoming TRIA Effectiveness Study, Treasury could review the following cyber related issues and how they impact TRIA coverage and the evolving cyber market.

• (The topic areas on the following page are for the subcommittee to discuss and determine 

whether they should be put forth for further consideration and recommendation.)

Discussion Draft
Possible Areas to Study within Cyber

Treasury could study the following cyber related items and

how they impact TRIA coverage and the evolving cyber market:

• Explore the various types of cyber operations and how they occur

• Identify the various types of economic loss associated with cyber operations

• Examine the effects and severity of cyber operations and the potential 

impact on certification

• Consider whether being unable to determine intent or attribution could 

impact certification

• Consider how certification would work for events occurring outside the U.S. 

that impact U.S. citizens and U.S. companies 

• Review current definitions of cyber liability and insured loss to ensure 

intended scope of coverage

• Explore aligning definitions of terrorism across various federal agencies

• Consider the impact war exclusions have on cyber coverage under TRIA

• Review the current certification regulations to determine if adequate 

transparency and certainty exists 

Discussion Draft
NBCR Coverage

• FIO Report Conclusions

• There are various exclusions / limitations to coverage under many insurers’ terrorism risk 

reinsurance, typically for exposures at particular locations and more generally for NBCR risks

• Because many insurers exclude NBCR risks under P&C policies (except Workers Compensation), 

the amount of direct insurance coverage for such risks may be substantially limited

• Regardless of the amount of direct coverage available for NBCR exposures, it is less likely to be 

supported by private reinsurance than conventional terrorism

• Primary Workers Compensation policies are required by statute to provide coverage for 

terrorism risk, and thus the effective take-up rate for this line is 100 percent

Discussion Draft
NBCR Coverage

• Efficacy of Private Market Capital for Terrorism

Discussion Draft
NBCR Coverage

• Future Concerns:

• As time goes on, there is an increasing likelihood of an NCBR event exceeding the $100B cap, resulting in a greater 

portion of such event being uninsured

• Aggregation risks presented by terrorism in conjunction with difficulty in modelling potential from NCBR exposure from 

both frequency and severity standpoint = limiting factor on development of private reinsurance capacity

• Recommendation:

• Explore whether bifurcation of the cap, IMARA, and deductibles for NCBR is appropriate and, if not, how to address 

growing uninsured NCBR risk above the $100B cap

• Explore and analyze NCBR fire following laws and exclusion/inclusion statistics based on TRIP Data Call to further the 

understanding of what portion of NCBR modeled losses may be insured and uninsured (by state)

• Others?

Discussion Draft
Lack of Prefunding Mechanism

• No upfront premium or charge means some insurers struggle with how to price terrorism 

risk fully and appropriately

• Erodes ability to adequately convey pricing signal for risk

• Negatively impacts ability to effectively communicate benefits of mitigation

• FIO/Treasury are left to administer TRIP without benefit of full risk and pricing information = 

difficult to assess required changes and respond appropriately after large event

• Future Concern: Acknowledging the established funding mechanism will not change in the near term, how can FIO & Treasury administer TRIP effectively and facilitate the private 

market’s understanding of terrorism risks and mitigation benefits?

• Recommendations

• Invest in FIO staffing, including small dedicated analyst team focused on terrorism risk modelling, with 

budget and scope allowing for the pursuit of modelling partnerships with private industry and foreign 

governments.

• Collect from participating insurers data on exposure and mitigation efforts

• Explore ways for U.S. Treasury to facilitate risk transfer to global risk markets, including the effect pre- funding mechanisms might have on such risk transfer.

• Others?

Discussion Draft
Certification Process

• To facilitate economic recovery, need a definitive determination whether 

an act of violence amounts to an act of terrorism

• However:

• No prescribed time period for a decision; and

• No requirement or timeframe in which Secretary of Treasury must declare that a 

particular act is not an act of terrorism

• Treasury conducted study and published interim final rule in 2016:

• “it would not be prudent to adopt . . . a timeline that includes strict deadlines”

• Reasoning: (i) investigation could take months or even years and (ii) insurance losses may take substantial time to develop

• Future Concern: Economic and insurance market instability may resurface 

post-event, counter to TRIP’s Goal #2

• Recommendation: Explore resolution of certification process with FIO administratively rather than legislatively

Discussion Draft
Availability and Affordability

• Previous studies have been mandated on availability and affordability of 

coverage for: “group life coverage” and NCBR (2005 extension); “specific 

markets” (2007 reauthorization); and small insurers, including State 

workers compensation carriers (2015 reauthorization).

• 2015 Reauthorization also mandated GAO study on: (i) viability and effects 

of assessing and collecting upfront premiums; and (ii) creating capital 

reserve fund (GAO-17-62)

• Current S.2877 calls for study on availability and affordability of coverage 

for “houses of worship”

• Perhaps expand the study called for under S.2877 to include non-profit 

charitable organizations organized under IRC s. 501(c)(3)

Discussion Draft