Leading US captive associations highlight concerns over TRIP consultation

National Treasury Building, Washington DC, USA. Credit: Getty Images/Zurich.

The Captive Insurance Companies Association (CICA), the Vermont Captive Insurance Association (VCIA) and the Captive Insurance Council of the District of Columbia (CIC-DC) have expressed concern over proposals that would limit the access of captive insurers to the Terrorism Risk Insurance Program (TRIP) established under the Terrorism Risk Insurance Act (TRIA).

The associations have submitted comments to the Treasury Department in response to a request for public comment regarding the participation of captive insurers in TRIP. “We were pleased to partner with VCIA and CIC-DC and other leading industry experts on a collective captive industry response. 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,” CICA president Dan Towle said.

Rich Smith, VCIA president, added: “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.”

In their submissions, the associations state: “The role of captive insurers is especially important with respect to providing insurance for higher-risk properties and operations and for nuclear, biological and chemical risks (NBCR) risks, where coverage from other insurers is lacking or, in the case of NBCR, often entirely unavailable. We want to emphasise that the insufficiency of terrorism coverage in this respect is not limited to certain ‘trophy’ or ‘iconic’ properties. Rather, the problem extends to a variety of higher-risk geographical areas, including urban centres and areas in proximity to nuclear facilities or other high-risk facilities; various types of properties, including sports facilities and other public venues; and various industries, including transportation, telecommunications and utilities. Captive insurers play a critical role in providing coverage for all of these risks.”

In its consultation, the US Treasury asked whether, in light of the size and operation of captive insurers and the current structure of TRIP, captive insurers are likely to obtain larger payments under the programme in a large loss event as compared to traditional insurers that assume similar risk exposures. The associations respond: “It is unsurprising that captives insurers would account for a significant amount of claims in the modelled scenarios, particularly in the scenario involving an NBCR component, because they provide important capacity that is unavailable from other insurers.”

It also notes that modelling of insured terrorism losses done by the Federal Insurance Office (FIO) has shown that the coverage provided by captive insurers participating in TRIP is important to ensuring the effectiveness of the programme, especially with respect to NBCR.

The Treasury also asked whether the programme should attribute some amount of captive parent revenues to captive insurers for TRIP deductible calculation purposes. In response, the associations state: “We do not believe the programme should be changed to attribute captive parent revenues to captive insurers for TRIP deductible calculation purposes. Such a change 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.”

It adds: “Nor do we believe changes that would single out captive insurers for differential treatment would be consistent with the plain language of TRIA or Congressional intent. Under TRIA and the regulations implementing TRIP, captive insurers are insurers ‘licensed or admitted to engage in the business of providing primary or excess insurance in any State’, and therefore should be eligible to participate in TRIP on the same basis as other insurers.

“The participation of captive insurers in TRIP is essential to maintaining this stability and functionality. We urge [the] Treasury not to adopt measures that would limit the access of captive insurers to TRIP.”

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