Insurers should prepare for termination of the US Government terrorism reinsurance backstop at the end of 2020, AM Best says.

The Terrorism Risk Insurance Program Reauthorisation Act (TRIPRA) took effect in 2015, further extending cover introduced after the September 11 2001 attacks.

AM Best says the lack of permanency and the decline in protection at each TRIPRA renewal remains a concern for many insurers, while the scope of terrorism is changing.

“Although TRIPRA could help minimise the loss impact on an insurer’s capitalisation, AM Best believes over-reliance on it is not a substitute for sound risk management,” the ratings agency says in a report.

Small and some medium-sized insurers are unlikely to amass sufficient gross losses to satisfy the $US160 million ($206 million) trigger this year and have less room for reduced government support and involvement.

AM Best says it uses enterprise risk management evaluation, stress tests and capital considerations when assessing an insurer’s exposure to terrorism risk.

“Those companies that rely heavily on TRIPRA should be prepared to present detailed plans to AM Best if the backstop is not renewed,” it says.