Standard & Poor’s still sees terrorism risk as critical in assessment of an insurer’s financial strength

Standard & Poor’s continues to view terrorism risk as a critical component in its assessment of an insurer’s financial strength, saying a man-made catastrophe would most likely be a capital event rather than an earnings event.
Standard & Poor’s made the observation in a report released on Dec. 8 entitled, Ten Years Later, Terrorism Exposure Remains An Issue For U.S. Insurance Companies.
“Given the high severity and low frequency of terrorist acts, we believe a man-made catastrophe would be a capital event rather than an earnings event, meaning we would expect an affected company to lose more than one year’s earnings due to a sizable terrorism event,” S&P’s reported.
Nevertheless, S&P’s said the property and casualty industry as a whole has less exposure to isolated terrorist attacks “because we believe that most such acts are likely to occur in particular places, such as New York City and Washington D.C.”
Another terrorist attack on American soil (short of a nuclear attack) would affect only a few insurers very significantly, said Standard & Poor’s credit analyst Tracy Dolin.
“Although an infrequent, high-severity event poses the risk of negative rating actions to a few outliers, given the current levels of capitalization, we believe the industry will remain largely solvent,” S&P’s says. “Another event may increase pricing in high-risk geographic territories and affected lines of business, but we do not believe there would be any widespread hardening of rates across business lines.”