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Captive Insurance Data Included in FIO Report on TRIP

US Treasury Building
July 06, 2016

A report released last week by the U.S. Department of the Treasury's Federal Insurance Office (FIO) concludes that the Terrorism Risk Insurance Program (TRIP) "remains an important mechanism in ensuring that terrorism risk insurance remains available and generally affordable in the United States."

The report is titled "Report on the Overall Effectiveness of the Terrorism Risk Insurance Program." It is called for by the Terrorism Risk Insurance Program Reauthorization Act of 2015.

"Viewed on a national basis, the coverage being made available is comprehensive and would likely not be possible in the absence of the Program," states part of the "Conclusion" section of the report. 

Data for the report was provided by all licensed commercial and surplus lines insurers, captive insurers, self-insurers, and other entities that receive direct earned premiums for TRIP-eligible lines of insurance. For the 2016 report, the data was provided on a voluntary basis.

TRIP-eligible lines in 2015 generated roughly $206 billion, or about 72 percent of all commercial direct earned premiums written by 796 insurers, many with multiple subsidiaries.

FIO received data from 52 captive insurers and 8 risk retention groups. The report found that  

... of the total TRIP-eligible premium reported by captive insurers, approximately 23 percent is for property coverage, 53 percent is for liability coverage, and 24 percent is for workers’ compensation. [Footnote omitted.] Within these amounts in the aggregate, 12 percent of all reported captive insurance premium is in connection with standalone terrorism risk policies—a greater percentage than the 2.5 percent indicated by the other reporting insurers.... Many captive insurers also purchased a substantial amount of reinsurance to cover terrorism risk. Approximately 88 percent of captive insurers reported the purchase of some amount of reinsurance that would cover an act of terrorism certified under TRIA.

Other report conclusions are as follows.

  • Despite some regional differences, premiums for terrorism risk insurance generally remained a relatively small percentage of total premiums for TRIP-eligible lines policies as a whole, and in many cases insurers reported that coverage was provided for a premium as low as $0.

  • Recent information from the credit rating agencies indicated that insurers have been seeking to lower net terrorism exposures. The data collected by Treasury is consistent with this observation. This reduction in concentration of exposure, coupled with the current structure of the Program, indicates that an extremely large terrorism event would be necessary to trigger federal payments under the Program that would not be entirely recovered through the recoupment mechanism.

  • No evidence indicates that coverage would be more available in the absence of the Program. Instead, costs would presumably increase and availability decrease in certain areas.

  • Continued evaluations will be made to focus on whether the terrorism risk insurance market is operating in a manner that allows coverage to be available and affordable to all commercial segments of the economy.

Treasury suggested that the observations supported by the data may change when more comprehensive data is obtained in the coming years. A proposed rule to require mandatory submission of information by insurers beginning in calendar year 2017 was published by Treasury in April 2016.

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