Fitch Issues Warning over Terror Insurance Expiration

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The expiration of the Terrorism Risk Insurance Assistance program on Dec. 31 will have “repercussions” for the economy, according to Fitch Ratings.

Expiration of the insurance program would result in 20 rated transactions potentially trending negative, according to the ratings agency. Office properties with loans in commercial mortgage-backed securities would be affected in particular.

“Withdrawal of [the terrorism risk insurance program] protection without readily available substitute coverage will likely prompt insurers to exclude terrorism from property coverage so as to manage geographic risk aggregations in large metro areas,” the agency writes.

The House of Representatives passed an extension of TRIA on Dec. 10, but outgoing Sen. Tom Coburn of Oklahoma held up the bill over objections to government backing of private companies. The bill reauthorizing the terrorism insurance program effectively died Dec. 16, when the 113th Congress adjourned.

A bill reauthorizing the program, perhaps retroactively for any lapsed days of coverage, is likely to pass through Congress early next year thanks partly to the objections like Fitch’s raised by insurers, ratings agencies and property investors. Rep. Jeb Hensarling of Texas, chairman of the House Financial Services Committee, received pressure from the industry to make the deal that passed the House earlier this month.

According to Fitch, the bill would extend the program six years with insurer co-payments set to 20% of losses, an increase of 5% from 2014. Reinsurance coverage after an industry terrorism loss would be $200 million instead of the current $100 million.

“While there is a chance for legislative action in early 2015,” the report reads, “insurers must prepare for managing risk exposures without the terrorism coverage that has been in place in various forms since 2002.”

Article source: http://www.nationalmortgagenews.com/news/secondary/fitch-issues-warning-over-terror-insurance-expiration-1043401-1.html

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