S&P mandates specific terror questionnaire for rated (re)insurers

Standard & Poor's has said today it is mandating a new terrorism questionnaire for all of its interactively-rated clients. The rater said the updated process is partly a response to the increased insurance retentions under the two-year extension of the Terrorism Risk Insurance Act (TRIA) of 2002, and it is also to quantify further the exposure and risk-management capabilities of the insurance industry. The process change will affect insurance and reinsurance companies globally and is consistent across sectors, as we will be using the same approach and questionnaire for all property/casualty companies. A new questionnaire specific to terrorism risk will be distributed in the second quarter of 2006 to Standard & Poor's interactively rated insurance companies. The questionnaire will solicit the data necessary to make an evaluation of gross and net terrorism exposure (by line of business), with specific questions regarding various types of events and within various ring distances (such as between an insured location and a potential target). In the case of stand-alone terrorism policies, full limit detail is also requested as well as details on single-address exposure. The questionnaire also requests premium data and has a significant number of qualitative questions focused on evaluating each company's risk profile and underwriting focus. Currently, Standard & Poor's charges terrorism risk within the premium and reserve factors applied within the risk-based capital model, so terrorism risk is not separated out individually with stand-alone terrorism premium or reserve charges. S&P said that at this point, this new questionnaire is only an update to its data-collection process, but there are no changes to its capital model risk charges used to measure the capital adequacy ratio. As part of the ongoing rating review process and surveillance, Standard & Poor's expects each company to provide it with this additional data and have detailed discussions regarding this process change. Standard & Poor's expects minimal rating changes to occur as a result of this process change and data-collection enhancement. However, this new terrorism questionnaire will highlight the companies that have better risk-management systems, capabilities, and controls for measuring terrorism risk, and this will be factored into the rating qualitatively. Nevertheless, Standard & Poor's has been qualitatively evaluating terrorism risk for companies, so this risk has largely been factored into ratings already