Zurich Begs To Differ On TRIA

To The Editor:

I read with great interest, and some concern, Gary Mogels June 9 overview of Moodys report on the potential impact of terrorism risk on property-casualty insurers (see “Moody's Surveys Insurers On TRIA, page 34).

Assessment of terrorism risk and the impact of the Terrorism Risk Insurance Act of 2002 for any individual insurer is, at best, a complicated exercise. The Moodys Investors Service ranking of insurer exposure to a terrorism event made a series of assumptions that mask the exposure-management strategies implemented by those insurers that are today preparing for the expiration of TRIA.

For example, in the chart accompanying the story, the Moodys analysis “assumes losses [would be] borne by indicated companies proportionate to their commercial lines direct premiums written market share.” This assumption ignores the ongoing effort, of which Zurich North America is a leader, to manage exposure accumulations.

Zurich North America has and continues to actively track and manage its exposures to ensure an adequate geographic spread of risk for the very purpose of preventing the scenario described in the Moodys analysis.

The chart in the Moodys analysis also “assumes insurance companies do not reinsure [their] retention or 10 percent co-insurance corridor with private reinsurance companies.”

While terrorism reinsurance remains expensive, insurers that have developed effective accumulation-management techniques find that it is increasingly available (as indicated in Moodys full report). The Moodys analysis, which only takes into account the TRIA backstop, overlooks private reinsurance that comprises a significant tool to manage terrorism exposure.

The Moodys analysis is a useful demonstration that the TRIA backstop alone may not be sufficient for insurers to manage terrorism risk. Congress did not intend that it would be. Instead, the backstop was established to provide stabilization in the market so that leaders in the industry could continue to develop and employ the exposure-management tools that the Moodys analysis relegates to footnotes.

Insurers with foresight, such as Zurich North America, are already practicing the sound exposure management strategies that all insurers will need to develop as the federal backstop sunsets at the end of 2005.

Robert M. Fishman

Chief Underwriting Officer

Zurich North America

Schaumburg, Ill.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 21, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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