Modeling the Solvency Impact of TRIA on the Workers Compensation Insurance Industry

The enterprise in a rating bureau risk model is the insurance industry. This paper describes how statewide or national loss exceedance curve output from a catastrophe model for workers compensation losses from terrorist attacks can be combined with insurance industry financial data in a basic model to estimate the financial impact on the United States workers compensation insurance industry. Many different metrics of impact on the industry are calculated for different percentile levels for the loss size of a single terrorist attack. The model is run with and without consideration of recoveries to insurers from the Terrorism Risk Insurance Act (TRIA) in order to assess the impact of this law on industry solvency. qualitative results that indicate that TRIA does provide a very high level of protection to the industry are discussed.