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Guy Carpenter, Marsh’s reinsurance brokerage and risk assessment division, has published “Terrorism: Reinsurers Standing By.” It concludes that “insurers and reinsurers have become increasingly sophisticated in their use of expert advice to monitor the political climate and dynamic nature of the terrorism threat, even as reinsurance supply continues to outpace demand.”

The report, available at , takes a somewhat different approach to examining the terrorist threat that Aon’s report [See IJ web site –/news/international/2010/06/03/110401.htm]. It examines the evolving nature of terrorist threats around the world since the September 11, 2001 attacks, and summarizes recent events, concentrating on “major developments and trends in the terror reinsurance marketplace.”

Among the report¹s key findings are the following:
— A recent Guy Carp survey concludes that more than 80 percent of reinsurers are actively seeking new or expanded terror insurance business, though most prefer geographically discrete opportunities.
— Two-thirds of global markets now offer cover for nuclear, biological, chemical or radiological events ¬ a substantial shift in underwriting appetite from the period immediately following the September 11, 2001 attacks.
— Despite heightened interest from reinsurers and an expanded range of underwriting options, purchases of standalone terror coverages have decreased, underscoring an imbalance between supply and demand in the marketplace.
— A number of factors could result in a substantially tighter market for terrorism cover. These include a major terrorist attack, as well as the Obama Administration¹s proposed cut in federal backstop support for the Terrorism Risk Insurance Act of 2002 (TRIA)/Terrorism Risk Insurance Reauthorization and Extension Act of 2007 (TRIPRA), which has the potential to shift the global landscape towards a tighter market.

Guy Carpenter also analyzed the current state of terrorist activity as follows:
— Though global terrorist activity following military operations in Afghanistan, Iraq and neighboring Pakistan soared from 2004-2007, developed countries have suffered only a handful of major terrorist attacks since the events of September 11, 2001, as counter-terrorism measures implemented across the world have affected the ability of international groups, such as al-Qaeda, to orchestrate large-scale attacks.
— Overall, the terrorist threat has become far more localized, with attacks focusing on softer targets (e.g., transport networks and hotels), as seen in Mumbai, Madrid and London. Though terrorism insurance pools paid some of the claims in all three of those locations, the events highlighted the potential risk to (re)insurers, especially if larger assets had been targeted or if weapons of mass destruction (WMDs) had been used.
— Despite this shift in focus to softer targets, the threat of large-scale attacks remains. Approximately 60 major plots have been foiled in the United States and Western Europe since the attacks of September 11, 2001.

Chris Klein, Guy Carp’s Global Head of Business Intelligence, commented: “Terrorism remains a real and constant threat. A number of important measures have been taken to weaken organizations such as al-Qaeda, but terror incidents still remain at a high level, even as the focus has shifted from large-scale attacks to smaller targets. Insurers and reinsurers have been vigilant in responding to the threat, with the industry and federal programs playing a central role in ensuring that the market could sustain a major attack.²

“Though demand for terror cover remains soft, the market has become much more sophisticated than it was in 2001, with tools such as Guy Carpenter¹s i-aXs® allowing insurers to better quantify their exposure to potential incidents and highlight concentrated areas in their portfolios. A major new event or substantial changes in TRIA (TRIPRA) could lead to a tightening, but the terror reinsurance market is well placed to respond and adapt to changes.”

Source: Guy Carpenter

Topics Catastrophe Natural Disasters Reinsurance