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On January 12, US President Barack Obama signed into law a six-year reauthorization of the Terrorism Risk Insurance Act (TRIA). Clearing the way for the president’s signature, the House and Senate passed the act on January 8, after the preceding Congress failed to do so prior to adjourning in late December. This left the Federal backstop to expire on December 31, 2014.

What is TRIA?
Established following the events of September 11, 2001, TRIA provides a US government backstop for traditional insurers and US-based captive insurers for extreme, high-level terrorism losses. It has helped to create and maintain a stable market for terrorism coverage.

What Does This Mean for Your Insurance Program?
The law amends the prior TRIA expiration date from December 31, 2014 to December 31, 2020. This alleviates the uncertainty surrounding conditional policy language that allowed for cancellation, exclusion, or re-rating in the event of a TRIA non-renewal on December 31, 2014.

What Does This Mean for the Insurance Industry?
The law:

  • Increases the total loss amount required for TRIA to assist from $100 million to $200 million, at a rate of $20 million each year beginning in 2016
  • Raises the federal government’s mandatory recoupment from $27.5 billion to $37.5 billion, at a rate of $2 billion each year beginning in 2016
  • Raises the private industry recoupment total for all events from 133 percent of covered losses to 140 percent

While TRIA’s December 31, 2014 expiration was unexpected, most carriers avoided any knee-jerk reactions in favor of exhibiting patience and confidence that the new Congress would act. The industry had spent months preparing for the changes contemplated in previously proposed legislation such as an increased financial trigger for government reimbursement and higher carrier retentions. The general sentiment is that capacity and pricing will remain stable with the Act’s passage into law.

How Lockton Can Help
Lockton has dedicated experts prepared to address any unique circumstances and coverage needs relating to this issue. The official extension of TRIA mitigates the financial burden borne by insurers and US-domiciled captives, but it does not eliminate the risk of an event itself. Clients are encouraged to continue to be mindful of terrorism exposure and to consult with their Lockton team.