On September 11, 2026, Insurance Journal reported that the Terrorism Risk Insurance Act (TRIA), the federal backstop created after the 9/11 attacks, still has no Senate reauthorization path ahead of its December 31, 2027 expiration. The House passed an extension through 2034 in June 2026 by an overwhelming margin. In late July, a coalition including the American Property Casualty Insurance Association, the National Association of Mutual Insurance Companies, the Reinsurance Association of America, and the Vermont Captive Insurance Association wrote Senate leaders urging action, warning that “past delays have led to widespread conditional exclusions that eliminate terrorism insurance coverage for policyholders if the program has not yet been renewed.”
The Washington coverage will track the Senate calendar. The reserve question is different, and it mostly misses the admitted carriers the program was built for. A self-insured employer or a single-parent captive was never inside TRIA the way an admitted insurer is. The federal share flows to participating insurers above an insurer retention. For a pure self-insured retention (SIR) layer, or a captive whose retained loss runs straight through to the sponsor, there is no federal share behind the workers’ compensation terrorism tail at all. A lapse does not change that exposure. What changes is the market around it: the excess and reinsurance tower above the retention, the collateral a fronting carrier demands, and the credibility of a funding study that quietly assumed the tower responds.
What the program actually covers, and whose balance sheet it sits on
TRIA, originally passed in 2002 and reauthorized in 2005, 2007, 2015, and 2019, works as a federal reinsurance program for participating insurers. An event must be certified by the Secretary of the Treasury and cause at least $5 million in losses, per the Insurance Journal summary. The program does not activate unless industrywide insured losses exceed $200 million, and annual insured losses are capped at $100 billion, according to the NAIC’s May 2026 comment letter to Treasury on the program’s effectiveness. Each participating insurer must retain losses equal to 20 percent of its prior-year direct earned premium on eligible commercial lines as a deductible, and then keeps a 20 percent share of losses above that. The program has never been triggered by a certified event.
Run that structure against a single-parent captive writing the parent’s workers’ compensation. A captive with, say, $20 million in direct earned premium carries a $4 million deductible, and retains 20 percent of everything above it. A certified event at a concentrated location could produce losses that dwarf both numbers before the federal share meaningfully participates. Below any fronted program, the sponsor’s SIR layer has no federal participation whatsoever. The practical reality is that the WC terrorism tail was always the sponsor’s retained risk; TRIA’s existence mattered mainly for what it kept available and affordable in the layers above.
The WC wrinkle: an exposure you cannot exclude
The NAIC letter makes a point that self-insureds should read twice. Workers’ compensation has an effective terrorism coverage take-up rate of 100 percent “because terrorism losses cannot be excluded” in that line. State law generally does not permit terrorism exclusions in WC. A property or GL program can shed the exposure at renewal through a conditional exclusion; a WC program cannot. The exposure is statutory, uncapped in the way GL limits are capped, and it scales with payroll concentration.
That is why the NAIC warns that losing the program could mean “dramatic price increases in some workers’ compensation insurance markets at best, and destabilization of those markets at worst.” For an admitted carrier that is a pricing problem. For a self-insured employer it is a balance sheet problem, and it does not wait for a lapse. The NAIC’s core timing argument applies directly to funding studies: insurance and reinsurance contracts and capital decisions “are often arranged months, if not years, in advance,” so uncertainty affects underwriting, pricing, and capacity before the program ever expires. Renewal decisions for 2027 and 2028 program years are being made now.
The reserve mechanism: a concentration load, not a frequency assumption
A certified terrorism event is binary, not probabilistic at the claim level. It does not belong in your expected loss ratio or your development triangle. It belongs in the same part of the reserve file as a catastrophe load, and the lever it hits is the confidence level in the captive funding study.
Size the scenario concretely. Take a public entity, hospital system, or manufacturer with a single large campus holding, say, 40 percent of its WC payroll in one location. One certified event at that location produces a mass casualty claim cluster: death benefits, permanent total indemnity, and decades of medical care on claims that, in WC, carry no policy limit. The question for the reserve file is not the probability. It is what that scenario does to net IBNR at the funding confidence level, and whether the reinsurance above the retention responds to a certified event on current terms. If the funding study is built at, for example, the 80th percentile without a terrorism scenario, the study is answering a different question than the one the balance sheet is asking. Guidance on tail factor selection for captives and on funding at a confidence level both assume the tail being funded is the tail actually retained.
The fronting angle is where a lapse bites even if no loss ever occurs. If terrorism terms narrow in the casualty market, a fronting carrier may respond with higher collateral requirements or tighter covenants, which changes the captive’s liquidity position without moving the loss estimate a dollar. The mechanics of fronting, reinsurance, and net versus gross positions are where that shows up first.
Where this shows up in your reserves
Open last year’s funding study and find three things. First, the confidence level: is there a terrorism scenario in the WC model at all, or was the tail silently borrowed from a property catastrophe model with different exposure mechanics? Second, the net IBNR line: does it embed any catastrophe load, and does the accompanying documentation state the certification assumption, the scenario modeled, the reinsurance response, and the collateral posting? Third, the fronting reconciliation: what collateral does the agreement require today, and does the carrier have discretion to reset it on a terrorism-related market disruption? If the answer to the first question is that no scenario exists, that is the finding. In reviewing captive funding studies, the omission is almost always the same: the tail is funded at a confidence level that assumes reinsurance responds above the retention, and nobody wrote down what happens if it does not.
What this means for your next review
Put the terrorism scenario on the agenda for the next funding study or interim monitoring meeting, ahead of the January 1, 2027 renewal cycle. The decision that matters is made when the 2027 program year is papered, not when the Senate votes. If no bill moves before year-end, conditional exclusions in non-WC lines and tighter terrorism terms in casualty reinsurance become the base case for 2027 and 2028 program years, and the retained layer between your SIR and the excess tower is the piece that reprices.
Decision-maker checklist
- Ask your actuary whether the captive funding model includes a WC terrorism scenario, what confidence level it reaches without any federal share, and whether it assumes reinsurance responds above the SIR.
- Quantify single-site payroll concentration: what share of WC payroll sits at your largest location, and what does one certified event there produce in net retained loss?
- Pull the fronting agreement before renewal and confirm the collateral formula, any terrorism-specific terms, and the carrier’s discretion to reset collateral on market disruption.
- Ask your broker how the excess tower treats a certified event on current terms, and whether conditional exclusion language is coming at the next renewal.
- Document the certification assumption, the modeled scenario, the reinsurance response, and the collateral posting in the reserve file, so the next reviewer can see what was assumed and why.
An independent reserve review brings a second pair of eyes that’s free of the TPA’s or fronting carrier’s incentive structure. We’re working on a directory of independent reviewing actuaries. If you’d like to be considered, get in touch.
Sources
- Insurance Journal, “Federal Terrorism Insurance Backstop Prompted by 9/11 Still Waits for Reauthorization,” September 11, 2026
- Joint trades letter to Senate leadership urging TRIA reauthorization, July 2026
- Insurance Journal, House passage of TRIA extension legislation, June 30, 2026
- NAIC, Terrorism Risk Insurance Act topic page (program structure and state regulator positions, last updated July 30, 2025)