NEW YORK CITY—Even as industry groups from the Real Estate Roundtable to NAIOP and NAREIT expressed relief that the Senate quickly followed the House of Representatives' example in renewing the Terrorism Risk Insurance Act of 2002, Standard & Poor's pointed out Thursday that the reauthorization does mean some changes. Smaller insurers may be hard-pressed by the doubling of the industry-event trigger in the TRIA bill that now goes to President Obama, and more broadly there's still the question of managing the impact of non-conventional terrorist attacks.

S&P sees the major phased-in changes in the reauthorized TRIA—including co-insurance moving to 20% from 15% over five years; the industry event trigger doubling to $200 million from $100 million; and the mandatory recoupment surcharge to policyholders rising to $37.5 billion from $27.5 billion over a five-year period beginning in in 2016—as “not significant enough to affect the insurance markets' overall function or how much terrorism risk most insurers assume. Therefore, as was the case with the short-term lapse of TRIA coverage, these should not affect our ratings on insurers."

However, S&P says, “these changes raise a question for small insurers, as they may not see any TRIA reimbursements with the doubling of the industry event trigger. Their overexposure to terrorism risk that is less than their TRIA deductibles and within their co-insurance could be exacerbated by this amendment to the earlier program.” S&P generally does not rate smaller insurers.

Along with the doubling of the industry event trigger, the mandatory recoupment will increase, although S&P notes that it will be no more than about 5% to 6% of premiums. Yet on its own, the ratings agency says, “this would not be large enough to cause a disruption, particularly because a relatively hard market would likely follow a larger terrorism event, and this recoupment may be spread over multiple years.”

Another concern is whether the industry could manage the effects of a non-conventional attack. “We believe that the industry could assume the risk for conventional terrorist attacks” during the six-year reauthorization period of TRIA, S&P says. Yet the “infrequent and evolving nature” of the risks posed by non-conventional attacks “may not be captured in probabilistic terrorism models.”

Yet some consequences of lawmakers' failure to renew TRIA after it lapsed at year's end would have been felt with or without attacks. For example, Kroll Bond Rating Agency reported in December that master servicers were likely to force-place terrorism insurance on certain properties if TRIA lapsed for an extended period of time or was not renewed at all.

“Should coverage be force-placed, special servicing transfers and/or litigation costs may arise, as has happened in CMBS 1.0,” according to KBRA. “The related costs impacted the trusts, including rated securities on single-borrower transactions, which lack the benefit of pooling as well as a first loss piece.”

KBRA identified 27 single-borrower securitizations within its rated universe that faced the prospect of force-placed insurance. In these securitizations and more generally, the ratings agency said, “The question will be, as it was in the past, 'Will the insurance be attainable at rates the borrower is willing and/or able to pay?' ”

In the newly passed TRIA reauthorization, S&P sees clues about the potential direction of future or additional legislation. Among the key points: Congress requesting studies for the certification process; terrorism up-front premiums for the purpose of creating a reserve fund; establishment of an advisory committee on risk-sharing mechanisms with the private market; terrorism data reporting; and an annual study of small-insurer market competition.