Lloyd’s Market Association Bulletin

Current TRIA “expiry”

The Terrorism Risk Insurance Act of 2002 (TRIA), as extended by the Terrorism Risk Insurance Extension Act of 2005 (TRIEA 2005) and reauthorized by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA 2007) and subsequently the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA 2015), is scheduled to expire on 31 December 2020. The Terrorism Risk Insurance Act of 2002 (TRIA) set up the “Terrorism Risk Insurance Program” (TRIP). We refer to these collectively as “TRIA”.

TRIA Reauthorization Act 2019

TRIPRA 2019 was enacted on 20 December 2019:

• On Thursday 19 December 2019, the US Senate passed bill H.R. 1865, the ‘Further Consolidated Appropriations Act 2020’, which included the seven-year ‘clean’ TRIA extension (the text of the TRIA legislation is located on page 1233 of the wider Further Consolidated Appropriations Act).
• President Trump signed the bill containing the TRIA extension into law on Friday 20 December – the US President had to sign the bill before midnight on 20th December in order to prevent at least a partial government shutdown.
• The bill is now Public Law 116-94. (i.e. 94th law passed by the 116th Congress).

Terrorism Risk Insurance Program (TRIP)

Whilst it has been “renewed” early, unlike the position which occurred in previous years where the re-enactments of TRIA were at the eleventh hour, the current Program (TRIP) enacted under the previous TRIPRA 2015 doesn’t actually expire until 31 December 2020.

The reauthorized Program will take effect from 01 January 2021 (extending TRIA to expire on 31 December 2027).

The 2019 reauthorization of TRIA was a “clean” seven-year reauthorization, meaning none of the program elements, such as deductibles, co-pays, and the make available requirements, were altered (they remain as stated under the expiring 2020 year):

• Federal backstop “trigger” – the Federal backstop/program is “triggered” by losses exceeding USD200 million (Note: this was USD100m at 01 January 2015 and increased under TRIPRA2015 by USD20m each year from 01 January 2016 to reach USD200m in 2020).
• Per Insurer company deductible / retention – each Insurer must then retain a (annual aggregate) deductible amount before federal assistance kicks in, this remains at 20% of Direct (Earned) Premium (calculated on gross premiums earned for all qualifying property and casualty classes for the previous calendar year).
• Government Share – Excess of Retention – the Federal Government share remains at 80% of losses after exhaustion of the Insurer deductible, (i.e. Insurers coinsurance of 20%). • Program Cap – a “program” aggregate liability limit applies of USD100 billion per calendar year (capping the total liability of the program and of insurers, including insurers’ participation and deductibles).
• “Make Available provision” – all eligible insurers must “make available”, in respect of all commercial property and casualty policies, cover for insured losses from “Acts of Terrorism” (as defined by TRIA) that does not differ materially from terms, amounts and other cover limitations applicable to non-terrorist acts.
• “Clear and conspicuous disclosure” requirement to expressly include disclosure of the USD100 billion aggregate cap to policyholders.

“Make Available” requirements

As the 2019 reauthorization of TRIA was a “clean” reauthorization, meaning none of the program elements were altered, the make available requirement will always still need to be complied with. Therefore, even if a policy “spans” two different TRIA reauthorizations (TRIPRA2015 expiring 31 December 2020 and TRIPRA2019 running 01 January 2021 to 31 December 2027), the “make available” requirement remains.

In the Lloyd’s Market, managing agents have generally demonstrated “compliance” with the “make available” requirement by issuance of a TRIA “Notice” to the policyholder, and the existing LMA model “Notices” (e.g. LMA9104) specifically reference the expiry of the current program (31 December 2020).

Existing risks renewing during 2020 that extend beyond 31 December 2020 (TRIPRA2015 expiry) effectively “span” two TRIA reauthorizations and technically the “make available” requirement (at the same policy terms and conditions) under the reauthorization (TRIPRA2019) will still need to be complied with for the policy period between 31 December 2020 (current TRIP expiry) and expiry of the individual policy in question.

The easiest way to ensure that the “make available” provision has been fully complied with is to issue a new Notice to the Insured/policyholder referencing the new program expiry (31 December 2027).

A new Notice referencing the new program expiry does not necessarily need to be issued to all existing policyholders, only those who purchased TRIA.

Lloyd’s US Counsel have indicated that, if the existing notice was fully compliant with TRIA requirements at the time the policy was issued, from a policyholder perspective it could be argued that their TRIA coverage was extended beyond 31 December 2020 by an act of federal law/act of Congress and it does not require new language in all existing contracts in order to bring this extension to life.

So, whilst managing agents may not technically need to issue a new Notice to all existing policyholders to extend their TRIA coverage, to achieve absolute clarity and contract certainty, the LMA is recommending that managing agents do issue a new Notice to policyholders to extend their TRIA coverage, especially where a pro rata TRIA premium has been charged and managing agents would now like to collect additional premium.

For all new business, underwriters should use a notice that recites the new 2027 expiration.

In addition, as there will be no “gap” in any of the program elements this time around (unlike the 2015 reauthorization), managing agents should be able to indicate the “annual” premium on the Notice, even if the policy spans two different TRIA reauthorizations, as TRIA is accounted on program year basis (now specified within the TRIA legislation as “calendar year”) and the TRIA premium should be due/payable at inception of the policy. As none of the statutory program elements are changing from 2020 to 2021, there is no need for any special accounting of the premium.

When we get towards the end of 2026 and managing agents start reviewing policies renewing/incepting in 2027, that will expire after the program expiry of 31 December 2027, the premium in the TRIA notice at that stage should be pro-rated to 31 December 2027 (and this should be clearly referenced on the TRIA notice provided to the insured).

LMA Model Clauses

The LMA has published the following model Notices and endorsements, to assist Insurers (Underwriters) with adherence to the “make available” provisions:

Reference	Title	For use	Old Clause Equivalent
LMA9183	Policyholder Disclosure Notice of Terrorism Insurance Coverage (TRIA)	For use on policies “in force” with cover running beyond 31 December 2020	LMA9103
LMA9184	Policyholder Disclosure Notice of Terrorism Insurance Coverage (TRIA)	For use on new/renewal policies with cover incepting on/after 01 January 2021	LMA9104
LMA9185	Policyholder Disclosure Notice of Terrorism Insurance Coverage (TRIA)	For use on policies which already provide terrorism cover wider than TRIA	LMA9105
LMA5388	U.S. Terrorism Risk Insurance Act of 2002 as amended In Force Business Endorsement	Policy provision, for use with Notice LMA9183, where TRIA has been purchased	LMA5217
LMA5389	U.S. Terrorism Risk Insurance Act of 2002 as amended – New & Renewal Business Endorsement	Policy provision, for use with Notice LMA9184, where TRIA has been purchased	LMA5218
LMA5390	U.S. Terrorism Risk Insurance Act of 2002, as amended (TRIA) – Not Purchased Clause	Policy provision, for use with Notice LMA9184, where TRIA is not taken up	LMA5219

These models are also available on the Lloyd’s Wordings Repository.

LMA Wordings Guidance Underwriters should be familiar with the existing TRIA “process”.

A Notice was provided to the policyholder at ‘offer’ or ‘renewal’ stage to make TRIA cover available and the policy was subsequently endorsed if the Insured elected to purchase Terrorism cover or declined.

To aid Insurers (Underwriters) in the use/application of the new model LMA clauses, the LMA has produced a flowchart [link to attachment] to indicate which clauses to use for policies ‘in force’ at 01 January 2021 and/or which span two TRIA reauthorizations and inceptions/renewals on/after 01 January 2021.

Download here