Terrorism Worries Hit Real Estate Anew

In the wake of the Christmas 2009 attempted terrorist bombing of a Detroit-bound Northwest Airlines flight, it's easy for Americans to remember the impact of two planes hitting the World Trade Center towers, the lives lost, and the resulting economic mayhem that ensued. GlobeSt.com recently asked whether commercial owners, lenders, and their corporate renters have reason for fresh concerns about terrorism as a real estate issue, noting that ratings agencies view terrorism insurance as an important component in ratings of commercial mortgage-backed securities.

Terrorism insurance? It's not new. To help protect the commercial real estate industry following the events of Sept. 11, 2001, the U.S. government created a program called the Terrorism Risk Insurance Act (TRIA), which provides an additional layer of federally funded insurance money so that insurers dealing with commercial real estate have additional coverage funds in the event of another real estate-debilitating act of terrorism.

TRIA, which was intended as a temporary measure while the industry develops its own solutions, was renewed a few years ago and remains in effect until 2014. The Center for Insurance Policy and Research explains TRIA's details.

In a recent release, Fitch Ratings stated that it "continues to believe that insurance coverage remains an important component of the U.S. CMBS market, as well as a vital structural protection for bondholders. As a result, Fitch expects all loans to include coverage against terrorism attacks as part of their standard all-risk insurance policies." Fitch Managing Director Bob Vrchota warned that the company "may decline to rate certain transactions with inadequate terrorism coverage."

The commercial real estate industry--and the insurers who work with it--need to get their ducks in a row with terrorism insurance, per Fitch's reminder. But that doesn't mean risk management types are losing sleep over the latest attempted terrorist attack.

Ron Kuykendall, a spokesperson for the Coalition to Insure Against Terrorism, an organization with corporate members who pushed for TRIA's passage, says his group isn't working on any new initiatives related to TRIA or terrorism response at present.

"TRIA is still in effect, and it's an effective federal backstop for insurers," Kuykendall says.

Read Full Story

Find a home

Powered by Zillow