Terrorist threats are constantly evolving, making life for insurers particularly difficult. Exclusive Analysis presents a snapshot of terror trends around the globe and what they could mean for insurers and reinsurers.

Exclusive Analysis is a strategic intelligence company that forecasts violent and political risk around the world. The insurance community uses the results of these forecasts to help understand the risk environment affecting policies it writes. Specifically, reinsurance companies use the analysis to assess the aggregate risk in an insurance book. The following is an overview of current and future terrorism risks and trends worldwide and how these threat profiles could affect insurers and reinsurers.

Africa

Africa is affected by significant terrorism, war and unrest risks. Natural resource terrorism by politically and criminally-motivated militants in the Niger Delta has escalated in 2007 and resulted in the shut down of around 25% of Nigeria’s oil output. Militants have high-speed seagoing boats, which give them access to the Delta’s rivers and creeks, and puts offshore installations and support vessels at risk.

The militants’ superior knowledge of the terrain and collusion with security services and local politicians means the government is unlikely to be able to achieve an effective security solution. The Movement for the Emancipation of the Niger Delta is only one of a large number of militant groups whose motives range from profit and political power to resource control. This makes a durable solution difficult to negotiate.

Associated claims for terrorism, political violence, business disruption and property damage from clients operating in the Nigerian energy sector are likely over the next 6 to 12 months. Attacks against French and Chinese mining assets by separatists in Ethiopia and Niger underline the potential for the trend to spread to other countries. Civil unrest is likely to result in increased claims for insurers and reinsurers with exposure to Guinea and South Africa where industrial action has led to production stoppages during much of 2007. Violent risks in Cote d’Ivoire will likely increase, given the fragility of the peace agreement between the government and new forces rebels. Any violence resulting from disagreements over the implementation of the Ouagadougou Accord (Ivorian peace deal) and elections will likely affect cargo (especially cocoa) transport through northern and western Cote d’Ivoire.

Asia

While the rest of Asia, in particular Southeast Asia, has seen a decline in terrorism risks, there has been an increase in Pakistan and Afghanistan, including risks to commercial property and aviation. Islamist and tribal groups in Pakistan along the border with Afghanistan are increasing their attacks on Pakistani security forces, creating a risk of collateral damage to civilian assets.

In Afghanistan, the incidence of suicide bombings has increased and the insurgents have demonstrated surface-to-air missile capability. However, it is unlikely that the militant groups in either country will be able to mount an attack that could have a substantial impact on the insurance market. There are also notable terrorism risks in India, with attacks by Islamist groups on public spaces and transport, aiming to cause maximum loss of life. In addition, there in an increase in Maoist rebel activity in the country, although these groups have yet to develop the capability to carry out a large-scale terrorist attack.

Rebel groups in northeastern India, which have previously targeted energy infrastructure, pose less risk after recent Army operations there. Authorities in the Philippines have recorded counter-terrorism successes, but a recent upsurge in violence in southern Philippines looks likely to derail peace talks between the government and the Moro Islamic Liberation Front, indicating terrorism risks there are potentially on the increase.

Eurasia

In the Eurasia region, the risk of asset damage and business disruption comes primarily from organised-crime networks. Organised crime groups have an especially strong presence in Russia, Ukraine and the Balkans, and normally employ intimidation, extortion, targeted property damage, and in extreme cases, targeted assassinations against competitors, including foreign investors.

Established terrorist groups, on the other hand, operate mainly in Turkey (PKK and DHKP-C), the Caucasus region (militants in Chechnya, Ingushetia), Uzbekistan (the Islamic Movement of Uzbekistan) and Bosnia (Wahhabi cells). These militant organisations are most likely to target state officials and state property, including transport infrastructure.

In Turkey, the threat of terrorism comes from Kurdish militants and leftist groups, which are likely to target transport hubs and corporate assets in the tourism sector. In Russia, terrorist groups are based primarily in the North Caucasus and currently have limited resources to expand their operations to Russia proper, at least in the two-year outlook. However, we note a recent shift in terrorist activity away from Chechnya and toward the republics of Ingushetia and Kabardino-Balkaria (all in the North Caucasus). Most insurers are already aware of the significant terrorism risk in the North Caucasus and are wary of writing risks here. Therefore, we assess that the violence in this area will not dramatically impact the insurance market.

Latin America

Two countries in Latin America stand out as facing serious terrorism threats: Colombia and Mexico. However, as long as underwriters are selective, there is scope to write business there. In the case of Colombia, the country is increasingly featuring on underwriters radar because of the marked increase in security since 2002. President Uribe’s policies have put left-wing guerrillas on the defensive, while kidnapping and criminality have fallen sharply.

“Terrorist attacks against North American targets are probable within the next three to five years

In Mexico, the July to September string of bomb attacks against oil facilities, a threat not seen before, is changing underwriters’ perceptions of security in the country. It is also changing the perception of local businesses that in the past paid little attention to terrorist threats. They are now revaluating risk and therefore are likely to consider insuring their assets.

Terrorism aside, damages to assets and threats to security in Latin America are mostly related to violent civil unrest and kidnapping. Civil unrest includes the threat of sabotage against company facilities in countries such as Ecuador, Peru and Bolivia, where local communities typically target foreign companies in order to garner attention from the central government.

Middle East and North Africa

Whilst war risks are highest in the Levant and Iraq, and increasing somewhat in Iran, the Gulf Cooperation Council states and North African states are largely unaffected. Terrorism is spread across the region but varies greatly in intensity; risks are particularly significant in Iraq, Yemen, Algeria, Lebanon and Saudi Arabia. The modus operandi of attacks and the target set have been inspired by the Sunni extremist/jihadist agenda propagated through media channels: suicide bombings targeting fixed assets, of which the most desirable are energy assets, government buildings and tourism-related assets, such as hotels. The choice of target is most strongly determined by an individual country’s political environment.

In Iraq, the principal target of the insurgency is multinational forces, with convoys in particular regularly hit by improvised explosive devices (IED). In Algeria, despite the Salafist Group for Preaching and Combat’s (GSPC) renaming to Al-Qaeda in the Islamic Maghreb, which has led to the use of suicide operations targeting foreign workers in the energy sector, the primary focus of the group is its battle with Algerian security forces and the government. Underwriters should therefore be cautious in writing risks in Algiers and north-eastern Algieria.

In Lebanon, individuals are the most likely terrorism target. Those most likely to be targeted are politicians from the “anti-Syria” camp who support or are part of the ruling March 14 coalition: journalists, broadcasters and other personalities with well known political views that are hostile to Syria. The most common method for assassination is through car bombs that are remotely detonated. Sunni extremist groups, such as Fatah al-Islam, and other cells claiming to be part of Al-Qaeda in the Levant also pose a growing terrorism risk in Lebanon in the one year outlook.

North America

Terrorist attacks against North American targets are probable within the next three to five years, but are not likely to reach the magnitude of September 11. While Sunni extremist groups have not been able to mount a successful attack since 2001, it appears some have established new capabilities and will likely try to launch an attack (on a scale nearer to the 1993 World Trade Center or Khobar Towers bombings) within the next three to five years.

Additionally, although we are not forecasting another 9/11-magnitude terrorist attack, an event of that size would be partially mitigated due to the Terrorism Risk Insurance Act (TRIA) legislation – assuming it is renewed. Also of concern are home-grown, self-radicalising Islamic terrorist cells, like those discovered in London and Madrid, who, despite often having little experience or capabilities, can use their anonymity to plan and conduct significant terrorist plots against public infrastructure. Both left and right-wing terror groups have witnessed substantial declines in membership and capabilities within the past five years due to increased domestic surveillance by federal authorities.

Recent arrests of Earth Liberation Front and Animal Liberation Front leaders have hampered these groups’ abilities to conduct small-scale acts of terrorism and vandalism. Therefore, we expect to see claims for property damage at construction sites, university laboratories and car dealerships to decrease. Yet, as both left-wing and right-wing terror groups tend to be decentralised, it is highly likely that limited terrorist activities, including arson and small-scale bombings, will still be a threat for the foreseeable future.

Western Europe

The most significant risk to the majority of Western European countries stems from the growing network of Islamic extremist groups. These groups are the most likely perpetrators of terrorist attacks across the region. High capacity venues such as transport hubs, financial centres or nightclubs are the most likely targets of any attack.

The country facing the most considerable risk from Islamic extremists is the UK. Whilst it is unlikely that a spectacular attack on the scale of September 11 will occur in the next year, the risk of collateral damage as a result of smaller bombings is significant.

France is also at risk of attack. The election of President Sarkozy in May 2007, who is seen as anti-Muslim immigrant, increased the likelihood that France will be more frequently targeted by Islamic extremists. This combined with the GSPC becoming more globally focused is likely to result in an increased number of plots to attack France. However, property damage, and thus claims made against political violence policies, in France is still most likely to be caused by civil unrest, such as riots and violent protests. Spain, while facing a threat from Islamic extremists, is also under threat from Basque terrorist group ETA. The abandonment of their ceasefire in March 2007 has led to an increased occurrence of small bombings, largely targeted government buildings, police and motorway petrol stations. The design of such attacks is focused on causing property damage and disruption to the Spanish economy, and is unlikely to abate in the next 12 months.