Swiss Re has produced a report identifying the “parameters of terrorism”. It also assesses terrorism risks, how risk has changed and how the risk community is dealing with those changes.

“Terrorism risks in property insurance and their insurability” also compares the insurability of terrorism before and after September 11 and takes a global perspective of countries’ risk minimisation initiatives.

While conceding that there are no simple answers or ready-made solutions, the report’s authors argue that terrorism follows its own, twisted logic. “Predicting both the frequency and severity of terrorist acts is extremely challenging,” according to Swiss Re America Chairman Jacques Dubois.

The report also addresses risk transfer, covering specific aspects of insurability and reinsurability in the context of terrorism risks in property and business interruption insurance. The authors conclude that losses resulting from terrorism in these lines of business are insurable given a set of mandatory criteria.

It says property and business interruption losses resulting from terrorism are insurable, provided that the following criteria are met:

• The additional premium for inclusion must be commensurate with the anticipated claims burden.
• The liability for losses caused by terrorism must be limited in normal property and business interruption policies, and reinsurance cover for theses types of policies must also be limited.
• The “risk community” should be extended where the number of risks threatened by the same peril is too small to obtain a reasonable premium rate.

The full report can be downloaded from www.swissre.com.