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Reinsurance capacity “not nearly enough,” RAA


October 5, 2006   by Canadian Underwriter


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The Reinsurance Association of America (RAA) commends the President’s Working Group (PWG) on Financial Markets for its Terrorism Risk Insurance report and its contribution to the assessment of the private terrorism insurance market.
The RAA says the report builds on the numerous important databases in both the public and private sectors addressing the insurability of terrorism risk.
With respect to the study’s comment on the long-term availability and affordability of reinsurance, the RAA believes that certain key statements require a different perspective.
The PWG report references reinsurance capacity growth since 2001 and cites the RAA as the source of reinsurance market capacity at zero following September 11; US$4- to US$6 billion before the extension of Terrorism Risk Insurance Act (TRIA) in 2005 and US$6- to US$8 billion in 2006.
“Technically there has been an increase, but far short of the industry deductible ((US)$36 billion)” the RAA says in its statement. “Reinsurance capacity has gone from zero to “not very much” to “not nearly enough.”
The report states that some terrorism risk capacity may be emerging from capital market participants but the RAA says that while capital markets have expressed interest, there has been no financial commitment to assume terrorism risk or finance recovery.
The RAA explains that since September 2005, (US)$23 billion of new capacity has entered the reinsurance market. However, none of this capital has gone to support terrorism risk, according to the RAA. Instead the RAA says it has been allocated to natural catastrophe exposure and to replenish capital lost from 2001, 2004 and 2005 extreme events.


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