A foiled plot to commit terrorist attacks in Ontario should not have a significant impact on the Canadian insurance market because Canada has long been viewed as a potential target and underwriters have priced their insurance products accordingly, observers say.

If demand for terrorism insurance increases as a result of the recent incident, however, that could lead to a tightening of capacity and a subsequent rise in premiums, they say.

On June 2, Canadian police and security forces arrested 17 individuals who allegedly were planning to commit a series of terrorist attacks against Canadian targets in southern Ontario. The authorities said the group took steps to acquire three tons of ammonium nitrate and other components that could be used to create explosive devices.

Canada has long been considered a potential terrorist target forseveral reasons including: the presence of Canadian troops in Afghanistan, the rise of home-grown fundamentalism, its traditionally open policy for immigrants--even those from countries known as sponsors of terrorism--and its proximity and economic relationship with the United States.

At this time, Newark, Calif.-based Risk Management Solutions Inc. has no plans to change its assessment of the terrorism risk in Canada, said Peter Ulrich, managing director of the terrorism risk modeling unit. "It doesn't change our view of risk in Canada because we've always believed there was risk in Canada," he said. "We're not going to run out and change the model because of this."

The ability of Canadian police and security forces to prevent the planned attacks shows they are up to the task of protecting the country, observers say. Canada is rated highly in terms of counterterrorism effectiveness--just below Israel and the United Kingdom and a notch above the United States, according to RMS.

"I think it shows that our system of security and intelligence is working," said Robert Patzelt, group corporate counsel and risk manager for Bedford, Nova Scotia-based Scotia Investments Ltd.

Canadian risk managers say they do not anticipate the incident will have much impact on the terrorism insurance market in Canada.

"I would expect (the foiled attacks) should really be no surprise to terrorism underwriters since they've always said Canada was a potential target," said Ed Martingano, director of risk management for Oxford Properties Group Inc. in Toronto.

"Presumably, they've already rated it accordingly. One event doesn't cause a trend and it shouldn't cause them to change their analysis," Mr. Martingano said.

"If I were underwriting terrorism risk in North America, I would have factored in the geographic and political issues already," Mr. Patzelt agreed. "The fact that you're probably catching a few (terrorists)doesn't alter that risk."

Underwriters say they have priced their terrorism insurance products in Canada appropriately and do not expect to increase premiums as a result of the incident. "I think it's been rated accordingly," said Stephen Ashwell, head of the war, terrorism and political violence division of Lloyd's of London managing agency Hiscox P.L.C. "I don't see at this stage a knee-jerk reaction."

After the Sept. 11, 2001, terrorist attacks in the United States, the pricing of terrorism coverage in Canada was prohibitive for most buyers because capacity was extremely limited. Over time, underwriters--particularly Lloyd's syndicates--began offering more capacity, driving down premiums. "We have been getting more inquiries from Canada over the last two or three years because of the reduction of premiums," said Alex Clayton, leader of the terrorism practice of Willis Group Holdings Ltd. in London.

While lower than previous years, rates for terrorism coverage are still relatively high, Mr. Martingano said. "I think everyone's going to have sufficient limits for their highest assets, but no one's going to buy astronomical limits because it's very expensive," he said.

Canada's major terrorism insurance buyers are real estate owners seeking to comply with loan covenant agreements that mandate the coverage. Certain other businesses, such as energy and manufacturing companies, also purchase terrorism insurance.

The demand for terrorism insurance tends to be limited to companies with properties in major metropolitan areas such as downtown Toronto. Parts of Montreal, Ottawa and Vancouver are, to a lesser extent, also considered potential targets.

Unlike the U.S. terrorism insurance market, the Canadian market functions without government reinsurance. Terrorism insurance is purchased on a stand-alone basis, primarily from foreign markets in London, Bermuda and the United States.

Although Canadian risk managers were aware of the risk of terrorism, the foiled plot may encourage insurance buyers to focus more on the risk and potential solutions. "I don't think it was that high on their radar, " Mr. Clayton said. "I think, though, Canadian risk managers are pretty aware that terrorism is a global phenomenon."

If the incident heightens awareness of terrorism risk in Canada, it could lead to an influx of buyers that would disrupt the supply/demand balance in the market, observers say.

"If more people are buying, specific areas will become difficult to write," Mr. Clayton said. "We might see premiums for terrorism increase, but only due to customer demand rather than the markets' perception. If demand remains static, then I don't think we'll see insurers increasing prices."

The concern from an underwriter's perspective is that an increase in purchases will cause a serious supply disruption, particularly in certain areas, that will inevitably place significant upward pressure on rates, said Gordon Kerr, regional executive for American International Group Inc. in Toronto.

"Will the industry be able to satisfy the needs of potential buyers out there?" Mr. Kerr asked. "Every company in some respects has accumulation issues in some pockets. It may circumvent available capacity in certain postal codes in Canada."

Businesses in certain sections of Toronto already are difficult to insure for terrorism because of the aggregation of risk, Mr. Ashwell said. "Outside of Toronto, there is plentiful capacity and if people want the coverage, they can definitely buy it," he said.

Whether demand for terrorism cover in Canada increases remains to be seen. "We haven't yet had enough time since the arrest to gauge that properly," Mr. Kerr said.