Captive groups assail proposed changes to terror risk program

Proposed changes that would limit the access of captive insurers to the federal backstop for terrorism insurance losses would “seriously undermine” the stability provided by the Terrorism Risk Insurance Act, captive insurance associations said in a statement Tuesday.

Their response followed a U.S. Department of Treasury notice issued Nov. 10, 2020, requesting public comment on proposed new rules under the latest version of the Terrorism Risk Insurance Program.

In a letter Monday to the U.S. Department of Treasury, the Captive Insurance Companies Association, the Vermont Captive Insurance Association and the Captive Insurance Council of the District of Columbia wrote that captive insurers have played a “critical role” in providing the market stability TRIA was intended to ensure.

This is “especially true with respect to coverage for properties and operations in higher-risk areas and for nuclear, biological, chemical and radiological risks,” the captive insurance associations said in the letter.

Questions raised by the Department of Treasury in the notice include whether captive insurers are likely to obtain larger payments under the current structure of TRIP in a large loss event compared to traditional insurers that assume similar risk exposures.

“It is unsurprising that captive insurers would account for a significant amount of claims in the modeled scenarios, particularly in the scenario involving an NBCR component, because they provide important capacity that is unavailable from other insurers,” the associations said in their response.

They also noted that attributing captive parent revenues to captive insurers for TRIP deductible calculation purpose could make terrorism insurance provided by a captive insurer unaffordable for many insureds, reducing capacity.

In addition, singling out captive insurers for the disclosure of sensitive information would be detrimental to TRIP and contrary to the purposes of TRIA, they said.

 

“Many of our members from all of our associations rely on captive insurers to obtain coverage for terrorism risks and are concerned about these proposals,” Rich Smith, VCIA president, said in a joint statement from the three captive associations.

 

The Terrorism Risk Insurance Program was reauthorized in 2019 and the Department of Treasury is seeking input on various aspects of the program including whether changes are needed to the timeframe and process by which Treasury certifies an event.

 

It also questions whether there should be coverage under TRIA for non-U.S. cyber-related terrorist events that cause damage in the U.S. The public comment period closed January 11.