Ratings agency Fitch has warned that failure to renew the federally backed Terrorism Risk Insurance Program could have a significant impact on the availability and pricing of workers compensation and commercial property insurance coverage.

Insurer credit ratings and the commercial mortgage backed securities (CMBS) market would also be affected.

The report comes as at least 19 U.S. embassies and consulates in the Middle East and North Africa remain closed through the week after the State Department issued a global travel alert to U.S. citizens due to potential terrorist threats.

Fitch notes that workers compensation insurers could be particularly vulnerable to large losses if an extreme terrorist event takes place without the federal terrorism reinsurance program in place:

Recognition of this vulnerability may lead to a withdrawal of insurer’s underwriting capacity from the workers’ compensation market, particularly in industries and geographic areas with greater perceived risk of terrorism-related losses. Reduced workers’ compensation coverage availability would generate broader economic consequences for employers.”

Another major line of business that is highly sensitive to changes in the terrorism risk insurance program is commercial property insurance.

Fitch says withdrawal of the federal backstop without readily available substitute coverage would likely move commercial property insurers to exclude terrorism from property coverage.

Fitch notes that demand for private market terrorism insurance protection will inevitably increase and premium rates will significantly rise if the terrorism risk insurance program is not extended beyond its December 31, 2014 expiration, or coverage is materially reduced.

The private market is unlikely to duplicate the coverage limits available under the current federal program if renewal is unsuccessful, Fitch says.

PC360 has more on this story.

Check out the newly updated Insurance Information Institute (I.I.I.) paper Terrorism Risk: A Constant Threat.