Life Without TRIA: Zurich, ACE Execs Debate Terror Coverage Strategies

Two weeks before the Senate introduced legislation to extend the federal terror insurance backstop, carrier executives revealed opposing plans for offering coverage to customers exposed to terror risks in the absence of TRIA reauthorization.

“At Zurich, we’re waiting, and we’re actually prepared to continue writing our policies. And we’re not writing short-term policies,” said Dan Riordan, CEO of Zurich Global Corporate in North America, during a panel discussion at the Advisen Casualty Insights conference held in New York City late last month.

“This is not a commercial for us, but we actually feel comfortable with the risks that we’re writing [and] the aggregations that we have,” said Riordan, speaking to an audience that included many risk managers of large companies with locations in New York City, who are having difficulty securing coverage from carriers that are uncertain about TRIA’s renewal.

“It’s part of our discipline—knowing what we have,” Riordan said, referring to the concentrations of risk. He noted that Zurich continues to offer policies without shortening the term to coincide with the Dec. 31, 2014 date that would mark the end of the Terrorism Risk Insurance Act if lawmakers do not agree to renew the act. (Riordan made similar remarks at the same conference last year. See related 2013 article, TRIA Won’t Be Extended, P/C Carrier CEOs Say.)

The short-term strategy was one of two that Tony DeFelice, managing director of the National Practice Group of Aon, said carriers are putting into practice.

The other action is to put an endorsement on the policy that states that if TRIA is not renewed, then the carrier reserves the right to change the premium, DeFelice told the audience at the Advisen conference.

“That can only mean one thing. The premium is going up,” DeFelice said.

While the broker said his firm was able to secure coverage for one client in the audience with a concentration of risk in potentially exposed locations, “unfortunately, for another one of our very large insureds, we’re sitting with an eight-month policy right now.”

“Certain carriers are issuing short-term policies, and they need to do that to protect the balance sheet of their company. If [TRIA] is not renewed, and there is an event, they have no backstop to rely on.”

DeFelice went on to report that insureds who may have had a Plan B in mind—to turn to a state fund if its carrier would not renew past Dec. 31—are finding that’s not a possibility anymore either. “The State Fund, even though by charter they have to take in all risks, they’re only issuing short-term policies as well—to 12/31 as it stands now,” he said.

“So it’s quite the dilemma. As a risk manager, you want to know that you have coverage as of 1/1. And everybody is scrambling to find coverage.

“Unfortunately because of the size and the location and modeling of some risks, it’s very difficult to get anything beyond 12/31,” DeFelice said, going on to urge risk managers to lobby Congress to act “sooner rather than later.”

“This is a matter of absolute national importance, not just local importance,” he said, expanding his advice to risk managers outside of New York.

Riordan said that Zurich is optimistic that “something will get done [in Congress] by the end of the year.”

(Following the introduction of Senate legislation last week to renew the backstop, industry trade groups express cautious optimism that the legislation would ultimately pass both houses of Congress. See related article, Senate TRIA Renewal Bill Elicits Cautious Industry Optimism From Industry Trades.)

“But we think even if it doesn’t, we’re going to continue to be comfortable satisfying the needs of our policyholders,” he said, noting a look of surprise that he thought he saw come over DeFelice’s face.

DeFelice responded immediately to say that he had an account for Zurich to insure.

“Wow!” exclaimed Christopher Maleno, president of ACE USA, watching the makings of a potential placement deal taking shape on stage between co-panelists DeFelice and Riordan.

“Don’t take it for granted that this thing is going to get passed,” Maleno said.

“If they [lawmakers] really understood it, they would have already done it—because all of us are negotiating annual contracts, or trying to negotiate annual contracts. So waiting until Dec. 20 doesn’t really help people when most carriers and state funds with major concentration risks are going to have a very difficult time making that decision to put their companies at risk for one or two clients.

“They’ve got a whole portfolio of clients that they’ve made promises to,” he said.

“Our company is going to do what it can to protect shareholders first [and] make sure we’re viable for all of our customers…I am not going to bet the company on [the assumption] that the U.S. government might make a decision on 12/25 or 12/31,” Maleno said.

“We’re going to be a little thoughtful about it” in working through short- and long-term solutions with clients and brokers who have supported the carrier, he said.

Also speaking at the session was Andrew Marcell, CEO of the U.S. operations of reinsurance broker Guy Carpenter, who said that primary insurers are finding coverage for the terror exposure they do accept from the reinsurance market.

“We have seen a lot of activity in the last six months buying standalone terrorism covers for our clients created by the uncertainty of the change in coverage,” Marcell said, suggesting that insurance companies are able to redeploy some of the dollars they are saving from their property-catastrophe reinsurance placements to buy standalone terror reinsurance coverage.

He also reported that Guy Carpenter has been able to secure cyber catastrophe reinsurance protection for carriers—”taking all the losses that aggregate in a particular event and putting them into a vertical tower, the same way that you get in a property-cat program.”

“Uncertainty for the reinsurance market and the brokers creates opportunity, and we’ve been active in that,” Marcell stated.

DeFelice countered. “But where is the reinsurance market on the workers comp side? That’s the question. And it’s conspicuously absent. There are not a lot of limits you can put together. I know folks like [Maleno] have trouble with that,” he said.

“And then in terms of putting terrorism coverage together, NBCR is one of the things that they [reinsurers] specifically want to exclude on the reinsurance treaty,” DeFelice said, referring to nuclear, biological, chemical and radiological risks.

The Advisen conference took place two weeks before New York Democratic Senator Charles Schumer and a group of bipartisan co-sponsors introduced legislation to extend the government’s financial backstop of terrorism insurance for seven years. While extending the backstop, the Senate bill proposes to raise private insurers’ co-payments to 20 percent from 15 percent.

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