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TRIA’s 9/11 backstop faces an unresolved cyber terrorism test
Morningstar DBRS says insurers’ credit strength under TRIA depends on coverage scope and claim timing, but cyber losses can spread quickly across borders and across multiple lines at once.
Morningstar DBRS marks 25 years since the September 11 attacks with a warning that the federal terrorism backstop set up afterward has held up for conventional terrorism risk, but cyber terrorism remains an untested frontier. The report argues that government backstops can support insurer credit quality, but their value depends on practical details like what is covered, what insurers retain, and how promptly claims are paid.
The report points to how interconnected digital infrastructure can transmit losses across borders and, crucially, how cyber events may trigger correlated losses across insurance portfolios. It highlights that in 9/11, the synchronized nature of the attacks activated multiple lines insurers had typically priced separately, including property, liability, workers' compensation, aviation, business interruption and life, which produced the sharpest earnings and capital pressure industry-wide.
Using 9/11 as a case study, Morningstar DBRS notes that nearly 3,000 people were killed and insured losses totaled about $60 billion in today's dollars, with reinsurers absorbing roughly two-thirds and distributing the shock internationally. It also cites Swiss Re’s 2001 results, which showed CHF2.95 billion in September 11 claims against a CHF165 million group net loss for the year.
The report also describes how the uncertainty was compounded by litigation over policy interpretation, including a dispute about whether the World Trade Center collapse was one occurrence or two, only resolved by a $2 billion settlement in 2007. It adds that after 9/11, reinsurers withdrew capacity and primary insurers introduced exclusions or sharply higher pricing, prompting Congress to pass the Terrorism Risk Insurance Act in November 2002, a program currently in effect until December 31, 2027.