S&P joins call for government-backed terrorism pool

Rating agency Standard & Poor’s has joined the voices of insurance industry bodies calling for the creation of a federal government-backed reinsurance pool for terrorism covers.In the aftermath of the September 11 terrorist attacks, several insurer associations and regulation bodies have proposed to U.S. Congress the creation of a terrorism insurance funding mechanism similar to the U.K.’s Pool Re. In response, the Bush administration recently unveiled an alternative proposal outlining temporary government insurance funding for insured terrorist losses. The U.S. government believes that the creation of a funding mechanism such as Pool Re would be too complex to regulate.In a media statement, S&P says that either of the proposed government funding schemes would serve the purpose of providing financial stability to the insurance market. The rating agency notes that insurance rate increases in the U.S. have thus far been tempered due to the fact that many insurers and reinsurers have withdrawn from terrorism coverage. "Virtually all insurers have already rewritten existing policies to exclude terrorism coverage or have announced their intentions to do so when premiums are renewed in 2002."S&P notes that, without the protection of a government-backed reinsurance plan for terrorism covers, global insurers have little choice but to exclude cover in a bid to protect their financial stability and ratings. "In the current environment, insurers offering terrorism provisions would unduly expose their capital bases and invite ratings downgrades, unless policies were written with some form of government protection," says S&P head of insurance ratings, Steve Dreyer.