UK: Post-9.11 Regeneration and Another 31.12 Renewal: Any Better Security in Sight?

Last Updated: 13 January 2003

Article by Tim Hardy and Antony Sassi

Barely a day has passed since the events of 9.11 when minds have not been simultaneously directed to coping both with the aftermath of the perils of that day and providing against further potentially more devastating perils in prospect. As the second renewal season approaches we review how the coverage landscape has changed and what looms largest on the horizon.

Last year’s renewals were dominated by the posting of 9.11 reserves, strategic withdrawals, the acceleration of hardening reinsurance rates, freshly-drafted terrorism exclusion clauses and the calls for government-backing for those most squeezed by the lack or cost of available terrorism cover. Twelve months on, the aviation markets are coming to terms with the withdrawal of the Troika emergency package. Revised Pool Re provisions are heralded against a background of more fledgling national schemes facing an uncertain future. After many a dramatic twist on Capitol Hill, legislation has been passed ensuring a federal backstop for US property and casualty carriers providing terrorism cover. In the wake of these developments, legal issues still command attention.


On 8 October 2002 the European Commission announced that the latest extension to their moratorium upon their strict rules preventing member states providing back-up insurance for the aviation industry would be their last. The British government like most of their EU member state counterparts providing incremental relief – in their case by the Troika vehicle – withdrew coverage with effect from 31 October 2002.

UK airlines needing terrorism cover from the commercial market for the first time in over a year, led by British Airways, largely managed to obtain it without undue alarms. In Germany, Lufthansa recently obtained commercial terrorism coverage with Allianz in advance of the German government’s withdrawal of its state-backed scheme, at rates said to be cheaper than state cover.

As aviation insurance carriers seek to satisfy their own reinsurers that they can afford to recover their place in the aviation marketplace, they must at the same time beat stiff competition to provide coverage to many a cash-strapped airline still reeling from badly-hit revenue returns. Early signs are encouraging, but the present renewal round may determine how far careful selection of insureds and risks, but also prudent tailoring of their exposures may enable the commercial market to meet this challenge. Vigilance over exclusions and observance of protective provisions may more than ever be of paramount importance.

Various government-sponsored ideas for airline cover, developed over the last twelve months, such as Equitime, Eurotime and Globaltime, wait to be re-visited in the advent of trouble.


On 23 July 2002 when the British government announced its extension of the remit of Pool Re to help address the widespread post-9.11 withdrawal of UK terrorism cover, the changes were provided to take effect in two stages. With immediate effect cover afforded by Pool Re was no longer confined to damage resulting from fire and explosion, but extended to "all risks", accompanied by a doubling of existing rates, but changes neither to the existing war risks exclusion, the property covered nor – in the absence of any primary legislation being passed – to the definition of "terrorism" provided for in the original 1993 legislation.

As from 1 January 2003 market retention arrangements change with an increase from the previous £100,000 or so per head of cover. The maximum industry retention will be £30m per event and £60m per annum. Individual retentions are to be based upon market share. Insurers will now know in advance their maximum exposure in any one year. They will be free to set the premiums for underlying policies according to normal commercial agreements and to be able to seek commercial reinsurance to cover their retentions.

1 January 2003 was also the last date set for the deletion of the nuclear exclusion and the implementation of other announced changes. None of these involves any change in the definition of "terrorism" and all are to be reviewed in light of changing conditions in the insurance and reinsurance markets. With heightened security tensions over recent weeks and scares about novel forms of terrorist attacks directed at London, there is sure to be considerable continued concern either side of the coming renewal about gaps in or withdrawal of coverage.


A US federal terrorism backstop for property and casualty insurers was also, on 26 November 2002, at last given effect, by which the Federal government will share with insurers the risk of specified losses from future terrorist attacks. Mandatory for its first two years, the programme is effective until the end of 2005.

Under the Act, terrorism exclusion clauses are deemed null and void. Insurers have 90 days to advise of the change in cover and insureds a further 30 days to reinstate the exclusion or pay for the additional coverage. The programme will be triggered when it is certified by the Secretary of the Treasury, Secretary of State and Attorney General that an event satisfies the following definition of an "Act of Terrorism": "

(i) a violent act that is dangerous to human life, property, or infrastructure;

(ii) to have resulted in damage within the United States, or damage to an air carrier or US flagged vessel or a United States mission; and

(iii) to have been committed by an individual or individuals acting on behalf of any foreign person or foreign interest, as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States government through coercion".

The Act excludes an act of war declared by Congress and acts where losses do not exceed US$5m. Reinsurance or retrocession, financial guarantee, life or health insurance are all expressly excluded. Domestic carriers and reinsurers alike are this renewal season needing to come to terms with the implications of an Act heralded as protecting jobs in recession-hit corporate America.


These new English and US provisions, like their counterparts introduced in many other major jurisdictions, are likely to represent only the latest round of measures warranting careful attention by those entering another renewal season still seeking to provide against, contain or simply exclude the elusive mischiefs of the post-9.11 terrorist threat. In the battle against terrorism renewed cover needs to survive renewed hope.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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