S&P express concerns over US terrorism coverage

Standard & Poor's (S&P) has expressed concern over the knock-on effects of US federal terrorism cover on the insurance industry.

The ratings agency said the introduction of federal terrorism coverage could tempt insurers into taking on exposure irresponsibly and could perversely effect of ratings. "The concern is some insurers could use federal backing as a crutch," said S&P's Fred Loeloff.

While the agency backs government-backstop legislation, it said its importance to insurers has diminished because carriers have reduced their exposure to terror events.

He added: "From a ratings perspective, you need to have confidence in the exposure-management capabilities of the insurer, that it can properly assess and manage its risks, without depending on government backing."

Another concern is that those states which now permit insurers to exclude terrorism from policy contracts, could reverse themselves and require the coverage.