Terrorism risk has become a major threat to human lives and businesses around the world. In
an effort to make insurance against such risk available and affordable in the United States, the Terrorism
Risk Insurance Act (TRIA) was passed in 2002 to establish a public-private partnership and
to provide subsidies for insuring terrorism losses. Essentially, under TRIA, government subsidies
apply only to the insured losses above the market retention level. For those below the retention
level, the government will recoup any claim payments it initially shares plus a 40% surcharge. The
loss-sharing mechanism has been running untested for the past decade. The specification of its
recoupment process has never been clear and remains a challenge. We propose an easily implemented
recoupment scheme based on the geospatial risk of terrorist attacks. We use a geospatial
point process to model terrorism risk and its occurrences, estimated using the Global Terrorism
Database, and also illustrate our suggested recoupment for a hypothetical insurance portfolio.
