Washington–The Treasury Department issued a report today givinglimited support for extension of a modified version of theTerrorism Risk Insurance Act that provides a federal backstop forinsurers.

The current bill expires Dec. 31 unless extended, and Congress,which mandated the Treasury examination of TRIA effectiveness, hasbeen looking forward to the report for guidance on how it shouldproceed.

Treasury's less than enthusiastic evaluation of the programduring its 31-month life implied that it will support an extensionfor even a limited period only if there is less governmentinvolvement going forward.

"It is our view that continuation of the program in its currentform is likely to hinder the further development of the insurancemarket by crowding out innovation and capacity building," theTreasury Department said in transmitting the report to the HouseFinancial Services Committee.

It added that, "Consistent with its original purpose as atemporary program scheduled to end on Dec. 31, 2005, and the needto encourage further development of the private market, theadministration opposes extension of TRIA in its current form."

Importantly, the report also outlines several cutbacks in thescope of the current program the Bush administration will demand inan extension, if any.

One of these is the need "to significantly reduce taxpayerexposure," the report said.

The administration's position outlined by the report is that itwill accept an extension only if it includes a significantincrease–to $500 million–of the event size that triggerscoverage.

It calls for increases in the dollar deductibles and percentageco-payments, and eliminates from the program certain lines ofinsurance, such as commercial auto, general liability and othersmaller lines, "that are far less subject to aggregation risks andshould be left to the private market."

The current threshold for event size is $5 million. The currentretention level for individual insurers is 15 percent, after risingfrom 10 percent in the first year of the program and 12.5 percentin the second year of the program.

The administration also made clear it would take a tough line onlitigation in any new bill, a view that insurance industryrepresentatives said would make extension of the program moredifficult.

Insurer group lobbyists said Democrats are likely to balk atlitigation limits in any legislation. Several of them noted thatdemands for tort reform language during talks on the prior billresulted in it being killed in 2001, in the wake of the 9/11attack, and delaying ultimate passage of the bill until November2002.

The report said, "It is also important to keep in mind that theprogram would cover damages awarded in litigation againstpolicyholders following a terrorist attack."

It argued that current litigation rules "would allowunscrupulous trial lawyers to profit from a terrorist attack andwould expose the American taxpayer to excessive and inappropriatecosts."

"The administration supports reasonable reforms to ensure thatinjured plaintiffs can recover against negligent defendants butthat no person is able to exploit the litigation system," thereport explained.

It made no recommendation concerning group life, which is notincluded in the present program.

"This was a report about how the law worked," said Jack Dolan,an American Council of Life Insurers staff official. "Group lifewas not part of the law." He said ACLI will "work diligently tocommunicate to Congress and the administration the criticalimportance of adding group life to the program."

Mr. Dolan said the ACLI will argue to Congress and theadministration that "lives, not just bricks and mortar, should beof central importance when Congress crafts an extension to thisprogram."