TRIA Excel Practice Problem 2

JBoyle

The solution worksheet states that the insurer in question is not eligible for TRIA coverage as its losses lie below $5M even though industry losses total $48B.

This appears to conflict with the Webel text, as well as other threads in the BattleActs forum; the $5M threshold for TRIA coverage certification is applied to industry losses rather than individual insurer losses in those sources.

Is there another reason that TRIA loss-sharing criteria are not met in this problem, or is the solution worksheet in error?

graham

I think I may have misinterpreted the Webel text when I created that problem. The text says:

1. a terrorist act must cause $5 million in insured losses to be certified for TRIA coverage
2. the aggregate insured losses from certified acts of terrorism must be $180 million in a year for the government coverage to begin (this amount increases to $200 million in 2020)
3. an individual insurer must meet a deductible of 20% of its annual premiums for the government coverage to begin.

In point 1, they refer to insured losses and in point 2 they refer to aggregate insured losses. Since the word "aggregate" was not used in point 1, I assumed it meant a single insurer. Upon further research however, I don't think that's the case. I think point 1 should more properly have also stated "aggregate insured losses".

So in that case, I will need to change the solution to that problem. And just for clarity, here is what I found when I researched this using other sources:

• The $5 million threshold: This threshold is part of the criteria for an act to be certified as an act of terrorism under TRIA. If an event results in at least $5 million in P&C insurance losses and meets the other certification criteria, the Secretary of the Treasury can certify it as an act of terrorism.
• The $200 million program trigger: This threshold determines whether federal coverage under TRIA is activated. If the total insured P&C losses from one or more certified acts of terrorism reach or exceed $200 million, federal coverage will be activated to share the financial burden of the losses with insurance companies.

I will make the necessary adjustments to that practice problem. Thank you for pointing that out.

graham

Update: @JBoyle

• The TRIA problems should now be updated appropriately.

JBoyle

Thanks, Graham!

ychen612

I realized that none of the loss-sharing practices sets industry losses over $100B. I imagined you would need more information like whether the single insurer loss is part of $100B aggregate losses. Then I started to wonder how does the govt determine it? What are the criterias? Maybe by the timing of losses? In addition, could a single insurer loss be partially part of and partially beyond $100B if this particular loss would max out the federal govt limit? I am just thinking out loud here.

I think it's prob very unlikely that on the exam it would provide you industry losses over $100B. However, I just wanna know whether I am on the right track of thinking it through.

Staff - AC

I expect that federal government is the party keeping tabs on the 100B limit. When they see that they have reached the limit, for any further loss reimbursement requests coming from insurers, government informs that the limit has been reached and that they are not responsible for compensating the amount on which they seek reimbursement.