Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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9/28/2006 Insurers Providing Certain Types of Terrorism Coverage May Be Downgraded by Rating Agencies, GAO Report Finds

In investigating why many property/casualty insurers are not covering risks of nuclear, biological, chemical, and radiological attacks by terrorists, the GAO has found that in addition to the catastrophic cost of such events, another disincentive was the prospect of receiving a low rating from a rating agency. The GAO interviewed three rating agencies for its report, Terrorism Insurance: Measuring and Predicting Losses from Unconventional Weapons Is Difficult, but Some Industry Exposure Exists, Two of the rating agencies interviewed viewed nuclear, biological, chemical, and radiological terrorist attack risks as not insurable, and one representative of a credit rating agency said his company considered such risks when analyzing commercial property/casualty insurers and might have to downgrade ratings due to the magnitude of potential losses. Given that the Terrorism Risk Insurance Act is set to expire at the end of 2007, this is a worrying finding regarding the future provision of certain types of terrorism risk coverage. The GAO Report and some related issues will be discussed in the December issue of the Monitor.

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