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Federal backstop drives more captives to terror market

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Passage of the Terrorism Risk Insurance Program Reauthorization Act of 2015 helped spur an increase in the number of captives offering terrorism coverage, according to one of the authors of a new survey by Marsh L.L.C.

Marsh's “2016 Terrorism Risk Insurance Report” found that from 2014 to 2015, the number of Marsh-managed captives actively accessing TRIPRA increased 17%, to 109 from 93.

Tarique Nageer, leader of Marsh's terrorism placement advisory practice within the property practice in New York, linked the increase directly to TRIPRA's renewal. In an interview after the report's release last week. Mr. Nageer noted that TRIPRA extended the federal government's terrorism backstop — created by the Terrorism Risk Insurance Act of 2002 — through 2020. The extension provided a longer period of certainty for captives that participate in the federal program.

“Through a captive, organizations can avoid some of the common restrictions or exclusions in commercial property insurance policies, including coverage for nuclear, biological, chemical and radiological attacks and contingent time-element losses,” said the report.

The take-up rate for terrorism coverage in property insurance policies increased to 61% in 2015, according to the report. It had dropped to 59% in 2014 after having remained steady at 62% the two previous years.

But “terrorism insurance purchasing varies significantly when looked at by industry,” Marsh said in the report. “Differences are due in large part to some industries having exposure concentrations in central business districts and major metropolitan areas that are likely perceived as being at higher risk for terrorism.”

Marsh found that media companies had the highest take-up rates at 79%, while energy and mining had the lowest at 33%.

“With TRIPRA renewed, we expected to see it tick upwards,” said Mr. Nageer. But he added that the take-up rate has “sort of stagnated around 60%,” and “I'm not sure if that number's going to increase.”

Mr. Nageer also noted that the terrorism insurance market is “quite soft in terms of pricing,”

“Barring unforeseen changes in conditions, favorable pricing is generally expected for insureds through the remainder of 2016,” said the report.

Besides TRIPRA's reauthorization, the report attributes the favorable market to “significant surplus of underwriting capital in the insurance/reinsurance segments and a low level of attritional and severe catastrophe losses.”

“Most organizations have seen rate and premium decreases as well as coverage improvements, driven primarily by a competitive marketplace,” it says.