Law Aids Insurance Prospects

The Terrorism Risk Insurance Act has begun to have its intended effect, resulting in a drop in rates for terrorism coverage and broader coverage being offered by insurance policies, according to Moody's Investors Service.

In its report on the first-quarter performance of the U.S. commercial mortgage-backed securities market, Moody's says, "Rates for terrorism coverage have clearly abated from the sky-high levels of a year ago. Additionally, per occurrence language has returned vs. the more stingy aggregate limits that affected many policies immediately post- 9/11."

Also, coverage for domestic terrorism is beginning to reappear, the rating agency says, at reasonable or no additional cost.

Moreover, the market for terrorism coverage appears to be shifting away from standalone terrorism insurance policies, as evidenced by more high-profile borrowers purchasing terrorism coverage from their regular property and casualty carriers.

Even Manhattan office properties are seeing an improvement in the availability and affordability of terrorism insurance, Moody's reports.

Insurance brokers have reported terrorism insurance quotes ranging from 10% to 30% of the cost of a property's overall property and casualty insurance, which is "half or less of where they were one year ago," according to the rating agency.

However, "pricing for the very highest of the high-profile buildings is still very much on a case-by-case basis, with few data points available."

Rates quoted for higher profile properties are seen to be generally in line with the recommendations of the Insurance Services Office (an organization that recommends rates to over 800 insurance companies), Moody's said.

In the highest risk zone comprising all or a part of four cities - Chicago, San Francisco, Washington and New York - the ISO has pegged the maximum increase over the regular property and casualty rate at 25%. Properties in the lowest risk zone warrant an approximate 1% increase over the regular P&C rate, and for properties in the middle risk zone the ISO has recommended an approximately 10% rise.

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