Match the following financial mechanisms and thresholds established under the Terrorism Ri… — Insurance Producer License Exam

Match the following financial mechanisms and thresholds established under the Terrorism Risk Insurance Act (TRIA) to their accurate statutory definitions.

Program TriggerThe minimum aggregate industry insured losses (currently $200 million) required for the federal backstop to begin providing financial assistance.
Insurer DeductibleThe initial loss amount an individual company must absorb, calculated as 20% of its direct earned premium for commercial property and casualty lines.
Federal ShareThe 80% portion of covered insured losses compensated by the government after a company meets its initial financial retention.
Program CapThe statutory $100 billion annual maximum limit on combined liability for both the government and the insurance industry.

Answer

Program Trigger pairs with the

200 million aggregate industry loss minimum; Insurer Deductible pairs with 20% of direct earned premium; Federal Share pairs with the 80% government compensation portion; and Program Cap pairs with the

100 billion annual liability limit.

The correct pairings accurately reflect the current statutory parameters of the Terrorism Risk Insurance Act (TRIA). The Program Trigger is the

200 million industry-wide threshold. Once met, individual insurers pay their deductible (20% of direct earned premium). After the deductible is met, the Federal Share covers 80% of remaining losses, up to a combined industry and government Program Cap of

100 billion.

Step-by-Step Solution

Identify the threshold required to activate federal involvement.

The Program Trigger is the $200 million aggregate industry loss mark.

Federal funds are not disbursed until the insurance industry as a whole suffers this minimum level of loss from a certified event.

Determine the individual responsibility of the insurance company before federal assistance applies.

The Insurer Deductible is 20% of the insurer's direct earned premium.

TRIA requires each carrier to absorb a proportional initial loss based on their commercial P&C premium volume.

Identify the coinsurance proportion paid by the government.

The Federal Share is 80% of the losses exceeding the insurer's deductible.

This backstop mechanism ensures the government takes on the bulk of catastrophic losses above the retention layer, stabilizing the market.

Identify the absolute maximum liability established by the law.

The Program Cap is $100 billion.

TRIA caps the total annual exposure for both the private market and the federal government at this strict statutory limit.

Key Concept

TRIA Financial Structure and Statutory Thresholds

Estimated Time:1m 30s

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