Captive Industry Groups Respond to Possible Terrorism Backstop Changes

Terrorism and question marks typed on torn paper

January 13, 2021

Terrorism and question marks typed on torn paper

A group of captive insurance industry associations has submitted comments to the US Department of the Treasury suggesting that limiting captive insurance companies' access to the Terrorism Risk Insurance Program (TRIP) would run counter to the intent of the Terrorism Risk Insurance Act (TRIA).

The Captive Insurance Companies Association (CICA), the Vermont Captive Insurance Association (VCIA), and the Captive Insurance Council of the District of Columbia (CIC-DC) responded to a Treasury request for comment on proposals that would limit captive insurers' access to TRIP.

The associations' comments note that TRIA was created to "provide a framework for market stability to facilitate the underwriting of terrorism insurance risk following the terrorist attacks of 9/11/2001.

"Captive insurers have played a critical role in achieving this goal by providing insurance for terrorism risks for which coverage from other insurers is insufficient or wholly unavailable," the associations said in their comments. "Changes to TRIP that would limit the access of captive insurers to the Program would seriously undermine the stability provided by TRIA and be directly contrary to Congress's purposes in enacting and reauthorizing TRIA."

"We were pleased to partner with VCIA and CIC-DC and other leading industry experts on a collective captive industry response," CICA President Dan Towle said in a statement. "Captive insurers have played a critical role in achieving the market stability TRIP was designed to ensure by providing insurance for terrorism risks for which coverage from other insurers is insufficient or unavailable."

The comments from CICA, VCIA, and CIC-DC addressed several areas, including the following.

  • Modeling of insured terrorism losses done by the Treasury's Federal Insurance Office has shown that the coverage provided by captive insurers participating in TRIP is important to ensuring the effectiveness of the program, especially with respect to nuclear, biological, and chemical risks.
  • Limiting captive insurers' access to TRIP would seriously undermine the stability provided by TRIA and be directly contrary to Congress's purposes in enacting and reauthorizing TRIA.
  • Attributing captive parent revenues to captive insurers for TRIP deductible calculation purposes could make terrorism insurance provided by a captive insurer unaffordable for many insureds, thereby reducing capacity for terrorism insurance and threatening the stability of the market.
  • Singling out captive insurers for the disclosure of sensitive information would be detrimental to TRIP and contrary to the purposes of TRIA.

"We are concerned about a number of proposals identified by Treasury, including requiring captives to disclose confidential information," Joe Holahan, CIC-DC president, said in the statement. "Requiring public disclosure of sensitive information should not be a condition of participating in TRIP."

Ultimately, the organizations urged the Treasury not to enact new rules that would limit captive insurance companies' access to TRIP.

"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 the statement.

January 13, 2021