Best’s Commentary: TRIPRA Expiration Raises Potential for Rating Downgrades for U.S. Property/Casualty Insurers

Business Wire

OLDWICK, N.J.--(BUSINESS WIRE)-- Given the pending expiration of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) at year-end 2020, AM Best will begin discussions with its rated insurers that have material terrorism exposure and a significant reliance on this federal backstop over their response to a non-renewal of the legislation. Insurers that cannot provide a sufficient action plan to reduce exposures to terrorism risks could face negative rating pressure by year-end 2019.

Whether TRIPRA will be extended further past Dec. 31, 2020, and if so, under what terms and conditions, remains in doubt, particularly amid a hyper-partisan atmosphere in Congress. In a new Best’s Commentary, titled, “TRIPRA Expiration Raises Potential for Rating Downgrades for P/C Insurers,” AM Best states that key concerns with regard to terrorism are an insurer’s net loss exposures to terrorism, excluding the benefit of TRIPRA; aggregate exposures of risks in certain geographic areas; the number of locations in those areas; and the impact on risk-adjusted capitalization. Additionally, although TRIPRA helps with liquidity and reduces the financial impact of a terrorist event, over-reliance on such a mechanism is not a substitute for sound risk management.

Although private terrorism reinsurance is currently available, a rating concern will be the future availability and affordability of reinsurance if the federal backstop is eliminated or if it changes significantly. As a result, beginning mid-year 2019, AM Best will compile an internal list of rated insurers with terrorism exposure, and those insurers exceeding certain thresholds in AM Best’s view with regard to exposures or TRIPRA reliance will be asked to present their detailed contingency plans.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=285472.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.