Guy Carpenter & Company commissioned a new report which concluded that while recorded incidents of terror around the world remain at historically high levels and terrorism remains a serious risk to the re/insurance industry, the industry continues to meet the current demands for terrorism risk transfer. 

The report also found that despite an estimated $6 billion to $8 billion of terror reinsurance capacity currently available in the US market – and an over-supply of terror reinsurance globally – the re/insurance industry remains vulnerable to a major terrorism loss, since a major market-moving event could quickly shift the current supply/demand dynamic.  

“Reinsurance capital allocated in support of terror risk is likely to continue to be limited and defined given the uncertain nature of this peril,” it added.

David Flandro, Global Head of Business Intelligence, Guy Carpenter & Company  added: “Since the catastrophic events of September 11, 2001, global terrorism has had a profound impact on the re/insurance market. Although the nature of the threat is very different today from what it was ten years ago, terrorism remains a constant and serious threat. It is forever evolving as terrorist groups and individuals adapt their tactics to counter-terrorism measures and global events. This report seeks to provide a better understanding of how that threat is changing, the varying risks in different regions of the world and what developments are likely in 2011 and beyond.”

The report, Terrorism: Terror Market Continues to Provide Abundant Cover, said the global terror threat had “become increasingly diverse and dispersed in nature, shifting to softer targets and more localised attacks and plots”. The number of terrorist attacks peaked at more than 14,400 in 2006, with only a slight dip in frequency over the past five years.

“The dynamic nature of terrorism, and the uncertainty in identifying the targets and frequency of attacks, requires a different approach to risk management and thus a different approach to transferring risk to the reinsurance market,” added Guy Carpenter’s Head of Terror Risk Specialty, Paul Knutson. “Compared with natural hazards such as hurricanes and earthquakes, the underlying analytics supporting terrorism risk management are still in the early stages of their evolution.”