Sufficient capacity exists in private terrorism markets to allow for a withdrawal from the Australian Reinsurance Pool Corporation, according to Willis Re.

It comes after the Audit Commission reported “continued recovery in terrorism insurance markets” and suggested there is “scope for a gradual Commonwealth exit” from the corporation, set up in 2003 to tackle the unavailability of cover after the September 11 2001 attacks.

Willis Re Head of Broking Glen Riddell told insuranceNEWS.com.au he agrees with the commission, because “private markets have developed not only in capacity but in their ability to adapt to changing market conditions”.

“There is certainly a considerable amount of capacity available in the private market and typically in these circumstances additional capacity will flow into the market to meet demand,” he said.

“Globally, there is excess capital in insurance and reinsurance markets that can be deployed.”

He says insurance and reinsurance markets now place greater reliance on modelling, and terrorism is no exception.

“Today modelling enables underwriters to not only quantify their exposures but provide a greater level of confidence in their pricing of exposures.

“Over the past 13 years commercial markets have also matured and are much more flexible and innovative in their underwriting approach to terrorism.”

In the US there is a near-unanimous insurance industry view that the Terrorism Risk Insurance Act must be extended because without it coverage will be more expensive and scarce.

But Mr Riddell says the same arguments do not apply in Australia. “Both the size of the market and the level of terrorism exposure varies greatly between the US and Australia.”