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Given that several years have elapsed since the September 11 US attacks and the year 2003 terrorist attacks in London , a superficial view might suggest that the risk of terrorism has diminished. On the contrary, there are facts that suggest that there has been a significant increase in terrorism activity globally in the past ten or so years and global terrorism landscape has also changed considerably. The threat from terrorism globally has undergone significant change since the attacks of September 11, 2001.

The lack of serious incidents reflects the success of the counter-terrorism agencies, rather than a reduction in the activities of the terror groups.

Terrorism is an omnipresent hazard that always needs to be taken into account in whatever we do.

The September 11 attack amongst other things, proved that terrorism can present the Insurance Industry with losses that were never envisaged and of a magnitude well in excess of anything previously experienced. These losses further illustrated the fact that terrorism is fundamentally different and cannot be predicted in the same way as other perils. There is no scientific data or past loss experience to base any future predications.

There has been a tremendous improvements in the intelligence and counter-terrorism operations around the world in recent times, and this has somewhat weakened the threat posed by the core terror groups. US Military operations in Afghanistan and Pakistan and the killing of several key terrorist operatives, have reduced the influence of the groups and prevented other spectacular attacks on the scale of September 11, 2001.

Despite the heightened and more effective counter-terrorism activities , terrorist attacks have never the less been experienced all over the World , including the ones carried out in New York and Washington D.C. as well as the Boston Marathon attack in April 2013. Other attacks include Indonesia (2002), Madrid (2004), London (2005) and Mumbai (2008), amongst many others. The terrorist groups and affiliates, along with individuals inspired by the movement, still pose a significant threat to business interests as recent events have shown.

More recently, several high-profile domestic attacks have included fatal bombings and shootings in Russia, Northern Ireland and Norway. The Fuerzas Armadas Revolucionarias de Colombia (FARC) insurgent group also stepped up military operations and terrorism activity across Colombia in October 2013. In addition, a recent study by the US Congressional Research Service shows that domestic terrorists have been responsible for more than two dozen incidents in the United States since 2004.

In the war against terrorism, technological advancement has cut on both sides. Whilst enhancing the fight against terrorism on one hand it has given terrorist organizations relatively new vehicles to promote their ideology, recruit new members and incite attacks, whether it is by utilizing the internet or communicating via email, social networking, chat rooms or mobile applications. The expansive reach of the internet and social media has made it easier for extremist groups to spread their message, recruit new members and incite attacks.

The greatest threat from extremism however is currently likely to come from individuals or cells that have fought elsewhere and returning to their home countries. Such individuals are well trained in the use of weapons and explosives.Their modus operandi is to launch attacks on their own or with the tacit approval of the groups operating in the country.

Another major change is that the threat from the terrorists has shifted to softer targets with attacks and plots becoming more localized. The groups and individuals have been urged by their so called leaders to execute unsophisticated attacks in their home countries and regions. A heightened focus on inflicting civilian casualties and the targeting of assets such as government buildings and personnel, shopping malls and nightclubs has resulted. This trend has been reflected in developments over the last 18 months as individuals and cells have carried out relatively low capability but high profile attacks in several cities around the world. A number of other unsuccessful attacks perpetrated by lone attackers have also taken place.

All of these attacks (realized and attempted) emphasize that the threat from terrorism remains, and the attacks can result in significant property damage and high losses to the (re)insurers.

In addition, to the (re)insurers, these events have pointed out some of the limitations of standalone terrorism insurance coverage and resulted in increased demand for political violence cover as companies look for comprehensive protection to ensure that claims are dealt with swiftly and effectively in today’s unpredictable socio-political environment.

According to data supplied by IHS Aerospace Defense & Security, a leading public source of defense and security information worldwide, the increasingly diverse and dispersed threat has seen terrorist activity around the world rise since 2009 as shown in table 1 below. There has also been a considerable rise in the number of fatalities from terrorist attacks during this period

Table 1


 Date  Country  Event Insured property loss (USD Millions) Fatalities 
 September 11,2011  United States  World Trade Center bomb attack  24,721  2,982
 April 24, 1993  United Kingdom  IRA bomb attack in London  1,193  1
 June, 15 1996  United Kingdom  IRA bomb attack in Manchester  980  0
 April 10,1992  United Kingdom  IRA bomb attack in London  883  3
 Feb 26th, 2013  United States  Attacks in New York and Washington DC  822  6
 July 24, 2001  Sri Lanka  Tamil Tiger attack at Colombo Airport  525  20
 Feb 9, 1996  United Kingdom  IRA bomb attack in London  341  2
 April 19, 1995  United States  Oklahoma city Bombing  192  116
 April 11, 1992  United Kingdom  IRA bomb attack in London  127  0
 September 21,2013  Kenya  Mass shooting at the Westgate Mall, Nairobi.  115  72

Source: Insurance Information Institute, Swiss Re, U.S. Bureau of labor Statistics.

All losses adjusted to 2013 US Dollars.


 The volatile landscape in Northern African countries raises important questions about the future of the international terrorist threat. The instability in the region has created opportunities for militants to launch attacks and target Western interests in Africa and beyond.

In Africa, terrorist activity over the last 18 months has reflected the changing terrorism landscape. Several important developments have occurred since the beginning of 2013, starting with French military intervention in Mali in January 2013 to prevent the country from becoming a failed state and base for jihadist terrorists. This was quickly followed by a terrorist attack in Algeria that targeted the In Aménas gas plant operated by the Algerian state oil company, Sonatrach, along with BP and Statoil. The attack resulted in the death of at least 39 foreign workers. Although (re)insurers escaped significant losses from the attacks, the event demonstrated the threat existing threat in the region.

The resilience of the terror groups was also demonstrated when terrorists conducted its highest profile transnational attack in September 2013. The militants armed with assault rifles, machine guns and grenades attacked the Westgate shopping mall in the Kenyan capital city of Nairobi. The Westgate mall was likely to have been selected as a high profile, soft target popular with wealthy Kenyans and foreigners. The attack resulted in the death of at least 67 people, inflicting significant damage to the building and causing the largest terrorism-related loss to the (re)insurance sector for a number of years.

Events in the Middle East and North Africa also have important consequences on the future of the international terrorist threat. More than four years after the beginning of the Arab Spring, countries at the center of the movement such as Tunisia, Libya, Yemen, Syria and Egypt continue to experience political instability and violence.

Although there has been no sustained campaign of violence in Tunisia since the ousting of President Zine El Abidine Ben Ali in early 2011, a suicide attack in the tourist coastal town of Sousse in October 2013 (blamed by the government on the radical Islamist group Ansar al-Sharia Tunisia) demonstrated the growing capability and intent of militant groups to carry out attacks in the country. There are also fears that AQIM is looking to exploit tensions in Tunisia.

The security vacuum in Libya left in the wake of Colonel Muammar Gaddafi’s overthrow in 2011 has also left the country vulnerable to extremist militant groups exploiting the instability. Security in Yemen also remains perilous. Initial gains made against AQAP in southern regions in 2012 were short-lived and the group continues to destabilize Yemen by conducting large-scale and destructive operations. As explained earlier, AQAP also remains a global threat as it continues to pursue spectacular attacks against the West.



Al-Shabaab is the most prominent insurgent group in Somalia and is known to have successfully recruited American and European Muslims. It is reported to have enlisted 200 foreigners, with up to a quarter coming from the United Kingdom. The group declared it had merged with al-Qaeda in February 2012.

Despite being forced to retreat from Somalia’s capital of Mogadishu in 2011 and their southern stronghold of Kismayo in 2012 by Somali and African Union forces, al-Shabaab proved its transnational capability remains intact by launching the attack on the Westgate shopping mall in September 2013. It had also previously carried out a suicide attack in the Ugandan capital of Kampala on July 11, 2010, which killed more than 70 people.

The al-Shaabab, however, has so far been limited it’s activities to launching attacks against countries contributing troops to the African Union force in Somalia, which includes Kenya, Uganda, Ethiopia and Djibouti.


AQIM is made up of two groups, a northern faction based near the Tunisian border and another group located in southern Algeria, southern Libya and northern Mali. A third faction, (thought to be responsible for carrying out the attack on the In Aménas gas plant), split from AQIM in 2012.

AQIM has a pan-regional agenda, meaning risks to Western interests are likely to be concentrated in the Maghreb region. Any move to launch attacks outside the area would likely initially focus on US or French targets (given the latter’s involvement in the region).


Boko Haram is a Nigerian militant Islamist group intent on overthrowing the Nigerian government and establishing an Islamic state in the country. It is thought to have been responsible for a number of recent operations in Nigeria, including a bomb attack at a bus station in the capital of Abuja that killed at least 71 people and the abduction of more than 200 girls attending boarding school in the Northeastern Borno state (both in April 2014). Although the group has developed ties with the al-Qaeda network, it has so far focused primarily on its domestic aims. The group’s international reach is currently limited to neighboring Cameroon and possibly Chad and Niger. There have been acts of bombing bus stations, bars, holding captives etc.


Despite being overshadowed by the transnational terrorist, a number of destructive and costly attacks have been carried out by domestic groups and individuals. Their actions have resulted in significant property losses for (re)insurers.


The spillover of violence from the Middle Eastern countries is a clear risk in 2014 and beyond.

The situation in Egypt is volatile following the ousting of democratically-elected President by the army in 2013 and the banning of his Political party. Violent clashes have continued between rivaling group’s supporters and police in 2014.

Following his removal, Militants have called for a holy war against security personnel, especially in the Sinai region. It has also persuaded some to take up arms rather than participate in the political process. This has culminated in an increasing number of terrorist attacks in Egypt, including an assassination attempt in Cairo on the country’s interior minister and a failed attack on a vessel passing through the Suez Canal.

Such attacks reflect the highly unstable situation in Egypt and the growing desire and intent of groups to target government and commercial entities that have strategic or economic importance.

Another potential threat emanates from Cyber terrorism and Cyber security. These have the potential to threaten countries’ national security. Critical infrastructure, including nuclear plants and other industrial facilities, is increasingly being targeted by cyber hackers intent on causing damage, disruption and potentially loss of life.


For (re) insurers with terrorism related risks on their books, it is important to understand the threat and how it is evolving, the varying risks, in different regions, and what developments and risks are likely to occur in the future.

Unlike some other perils, (re)insurers often struggle to quantify the risk posed by terrorism due to its unpredictable nature. The human element means the nature of the threat is forever changing as groups relocate and adapt their tactics in response to counter-terrorism measures.

When assessing the terrorism exposure, (re)insurers will always use their in house and contracted third party political risks expertise to understand local exposure. It is imperative to note that Global events can also import international issues into a territory

Monitoring the location and number of foiled attacks can help (re)insurers better understand terrorism risks in certain countries and regions. In 2013, for example, the epicenter of terrorist activity was located in the Middle East while parts of North Africa also saw a rapid rise in the number of attacks. According to IHS, the highest number of terrorist attacks occurred in Syria and Iraq in 2013. These two nations joined Pakistan, Afghanistan and India in making up the top five most attacked countries during the course of the year. The emergence of Islamist militant groups also saw terrorist activity spike in 2013 for countries affected by the Arab Spring movement, including Egypt, Libya and Tunisia.


Although there has been a significant increase in the number of terrorist attacks and fatalities around the world over the past five years, evolving capacity and the absence of a major terrorism loss for reinsurers have resulted in a softening terrorism reinsurance market particularly in areas perceived to be less risky. This reflects the wider reinsurance market’s environment of having adequate capacity and, for some countries, the presence and support of stable terrorism pools have enhanced this position.

Reinsurance buyers that have purchased terror cover in these countries have consequently benefited from rate decreases and improved terms and conditions in some instances, depending on where and what they write.

The current environment of adequate supply of capacity in the (re) insurance market has led some to question Government Involvement in providing cover for Terrorism. However, Government involvement is necessary in certain countries to support the Terrorism market‘s unique characteristics and requirements.

A recent study carried on availability of capacities by the (re)insurance sector have concluded that the Sector does not have the capital necessary to withstand certain high loss scenarios that involve nuclear, biological, chemical or radiological (NBCR) weapons.

Despite this increase in market capacity therefore, it is not sufficient on its own to provide comprehensive terrorism cover in Africa or elsewhere. Some form of Government participation is therefore is still needed to enhance capacity to higher risk areas.


Terrorism pools have been set up by governments in a number of countries to mitigate the withdrawal of (re)insurance capacity from the private market following significant terrorism events. The pools were established in reaction to specific threats faced within each country.

Example of Governments that providing compensation for terrorism are the UK, USA, Israel, Northern Ireland and South Africa (SASRIA). These schemes provide compensation for a broad range of violent acts, of which terrorism is just one.


 The UK Model:

Cover is available to the full extent of Sums Insured for losses that result from damage to property and includes chemical, biological, radiological and nuclear. Business interruption cover is offered subject to payment of additional premiums.

Surplus is used to build up reserves through purchase of Catastrophe Bonds.
Once the reserves are exhausted upon payment of claims, the Government would make funds available to pay further clams.

 The French Model:

The State is the Reinsurer of last resort:
The Reinsurers (Pool Members) provide first layer of cover and these acts as the Industry’s retention.
A layer of up to US $ 2.3 Billion. Above this, the French state provides unlimited layer.

 The US Model:

The Government sits above the individual Insurer’s retention. Each insurer has a deductible of 20% of their earned premiums. Once that is breached, they can recover 85% of their losses from Government, assuming the event is certified.
Aggregate limit of all losses is US$. 100bn.


The dynamic nature of terrorism and the uncertainty in identifying targets and the frequency of attacks requires a specialized approach to manage the risk.

To support the process of managing and underwriting the terrorism peril, (re)insurers utilize data management and modeling tools to analyze the risk. The dynamic nature of terrorism and the uncertainty in identifying targets and the frequency of attacks requires a specialized approach to manage the risk.


Modeling methodologies for terrorism have been continually refined and updated since the three major modeling companies – AIR Worldwide (AIR), EQECAT and Risk Management Solutions (RMS) – released their first terrorism models in 2002. Quantifying the economic, insured and human losses from a terrorist attack continues to pose major challenges for (re)insurers and alternative capacity providers. There are three main techniques to model terrorism risk:

< Probabilistic modeling estimates losses based on a large number of events. A key factor is the estimated frequency being attached to all the events that could occur. Due to the difficulty in predicting the probability of terror events, there is considerable uncertainty associated with probabilistic terrorism modeling.

Exposure concentration analysis identifies and quantifies concentrations of exposures around potential terrorist targets. Target-based accumulation assessments utilize predetermined targets (typically with high economic, human and/or symbolic value) and aggregate an insurer’s exposures in and around various distances from these targets.

Deterministic modeling represents a compromise between the lack of accuracy in accumulation analysis and the uncertainty surrounding probabilistic models. By imposing an actual event’s damage “footprint” at a specified target, a specific, yet hypothetical, scenario can be analyzed with some certainty. Major modeling firms offer an array of deterministic-analysis tools for conventional and NBCR attacks at defined target and non-target locations.

Compared to natural hazards such as hurricanes and earthquakes, terrorism modeling continues to be faced by unique challenges due to its lack of acceptance by rating agencies and some markets. Insurers, reinsurers and modeling companies are constantly refining their models and the assumptions that underlie their products, thereby increasing their ability to manage terrorism risk in an educated and more quantitative fashion. Currently, deterministic, scenario-based testing is the most common tool used by (re)insurers to assess their vulnerability to terrorism.


In the counter terrorism fight, it is emerging that Countries with often the highest exposures to terrorism are often usually the best equipped to counter the threat, particularly given the international collaboration that is undertaken around such events when they occur.




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