Captive insurance leaders in the United States have submitted comments to the Treasury Department outlining concerns about changes proposed to the participation of captives in the Terrorism Risk Insurance Program (TRIP).

The Terrorism Risk Insurance Act (TRIA) was originally introduced in the aftermath of 9/11 and has been reauthorised through to 2027 It provides a federal backstop for captives writing eligible lines of terrorism insurance.

On 10 November 2020 the Treasury requested comments in response to questions it posed regarding captives ongoing access to TRIP. Concerns from the Treasury include whether captives are likely to obtain larger payments under the Program compared to traditional insurers, if captive parent revenues should be attributed for TRIP deductible purposes, and to what degree information on participating captives should be made public.

The Captive Insurance Companies Association (CICA), the Vermont Captive Insurance Association (VCIA) and the Captive Insurance Council of the District of Columbia (CIC-DC) submitted their comments on 11 January. They pushed back on many of the suggestions in the Treasury document.

With regards parent revenues being taken into account, the letter stated: “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.

“We note that captive insurers, like other insurers, are required by state regulators to set premium rates in accordance with accepted actuarial principles and maintain the financial capacity to pay expected claims, including claims for losses resulting from terrorism. In addition, captive insurers have less access to reinsurance for terrorism risks than large, conventional insurers because they do not have the same spread of risks as these larger entities.”

The associations also stated they saw “no justification” for the Federal Insurance Office to make public the financial information of captives participating in TRIP.

“Singling out captive insurers for the disclosure of sensitive information would be detrimental to TRIP and contrary to the purposes of TRIA,” the letter explained.

“Congress intended to maintain the confidentiality of information reported by insurers, including captive insurers, in response to TRIA data calls by having a statistical aggregator collect the information and provide it to the Secretary of the Treasury in aggregate, anonymized form or otherwise in a manner that would protect the confidentiality of insurers submitting such information.

“Even if TRIA granted authority to the Secretary to disclose confidential information provided by captive insurers, we can see no benefit to be derived by doing so. Indeed, we are concerned that disclosing such information in anything other than an aggregate, anonymized form could present a security risk to policyholders who purchase terrorism insurance from captive insurers.”

Dan Towle (CICA), Rich Smith (VCIA) and Joe Holahan (CIC-DC) signed the letter and Towle said: “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.”