Worldwide terrorism continues to threaten the ability of all businesses across the globe to operate in a safe environment.
 Industries that have been most frequently targeted either for their symbolic value, economic impact, or high casualty potential include public transportation, major hotel chains, airports, and governmental facilities.
The countries that currently have the highest level of terrorism threat are Iraq, Afghanistan, Pakistan, and Somalia, with India, Indonesia, and the Philippines also being afforded higher rates due to their individual exposures.
From a North American perspective, premium and limit remain capacity driven. Areas that have seen a noticeable aggregate accumulation, such as Manhattan, Chicago, Los Angeles, and Toronto, continue to face higher rates and restricted capacity.
Ever since the atrocities of 9/11, the stand-alone terrorism market in London has continued to grow with a significant increase in underwriting capacity due to more capital being channeled to underwrite a book generating less than 5 percent loss ratios. Currently, the market capacity in London is circa $1.3 billion.
At the end of 2009, rates had finally reached a plateau. We are now again seeing a softening in the market, particularly with renewal business. The trend going forward is 5 percent to 10 percent rate reductions for the foreseeable future.
Pricing in the stand-alone terrorism market has changed dramatically since 2001. At the beginning of 2002, a well-known U.S. power corporation with values in excess of $10 billion bought a standard T3/T3a-based terrorism policy with a limit of $100 million, excess of large retentions for physical damage and business interruption. The premium was $6,500,000 annually. In 2010, the premium for the same account, for a limit three times the size and with significantly reduced deductibles, is now $300,000 annually.
Broader coverage is now also being afforded clients, with full Political Violence cover being bought on a more frequent basis. The market for terrorism insurance continues to benefit from exceptionally low loss ratios.
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Please contact your Lockton Representative for further information regarding any information contained in this
market update.
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