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Private terrorism insurance coverage costs fall sharply amid competition

Rates down even in major metros


Buyers are seeing up to double-digit price declines in the private market for terrorism insurance and are buying more of the coverage when they renew amid plentiful capacity and competition for their business, sources say.

“Rates are down in nonmetro cities anywhere between 20% and 40%; it's really, really competitive,” said Jennifer Rubin, New York-based vice president and underwriting leader of war, terrorism and political violence coverage at Hiscox USA.

Even cities at the greatest risk of attack such as New York, Chicago and San Francisco — Tier 1 cities — are seeing stand-alone terrorism insurance prices that are roughly 10% lower, she said.

Tarique Nageer, New York-based senior vice president and head of terrorism placement and advisory at Marsh L.L.C., said Tier 1 cities are seeing private-market coverage that is 5% to 10% lower, with 10 % to 15% declines elsewhere.

The private market is “a little more aggressive than in 2104,” said Aaron Davis, managing director at Aon Risk Solutions in New York.

“The stand-alone markets are looking to diversify” the abundant capacity that built up in the run-up to the expiration and January reauthorization of the federal terrorism reinsurance backstop, Mr. Davis said.

“A lot of that additional capacity was going to be deployed under the theory that TRIA might expire,” he said. “Now, markets have to look at alternative means to deploy that capacity.”

There is between $3.5 billion and $4 billion of per-occurrence capacity available in the U.S. stand-alone terrorism insurance market.

That plentiful capacity is causing insurers to update their offerings and, in some cases, improve coverage terms and conditions.

“We are obviously in a softer market,” said Ben Tucker, New York-based head of U.S. terrorism and political violence crisis management business at XL Catlin, who puts rate reductions in the 5% to 15% range.

“We are seeing some flat renewals on higher-risk accounts. On the lower-risk accounts, we are seeing some rate reductions greater than 15%,” said Mr. Tucker, with Tier 1 cities off about 5%.

“The market is overcapitalized and very soft,” said Wendy Peters, Radnor, Pennsylvania-based executive vice president of the terrorism practice group at Willis North America Inc. “We have some major renewals we've just gone through, big portfolios, and we're looking at easily 10%, 15% down from last year on the rates,” she said. “It's quite aggressive.”

Some buyers are migrating from coverage through the federal backstop to the stand-alone market, much the way Verizon Communications Inc. did last year when it secured $1 billion in coverage just as TRIA was about to expire, gaining increased limits for about the same premium it paid via its captive insurer.

Tim Davies, war and terrorism underwriter in the political risk and crisis management division at Canopius Managing Agents Ltd. in London, said there were some buyers who gained “some relief” with private-market coverage when renewing TRIA was in doubt. Of those, very few have returned to the federal backstop given reductions in rates available in the private market, he said.

“We have seen some clients choosing to go to the stand-alone terrorism market,” said Marsh's Mr. Nageer. “It's not just the price; it's the coverage as well.”

“A large number of our clients at renewal chose to go the stand-alone route,” said Aon's Mr. Davis. “I would say there is definitely an uptick in that area relative to conversion to stand-alone.”

Terrorism rates have essentially followed the property market downward, and the January extension of TRIA means the private market must compete harder for market share, Mr. Nageer said.

Sarah Veysey contributed to this story.