While our industry owes sincere and earnest thanks to many ofour colleagues as well as members of Congress who worked sodiligently at the end of last year to extend the Terrorism RiskInsurance Act of 2002, time is already running short on finding amore permanent solution.

Although a revised version of the original federal legislationhas been signed into law reauthorizing the program until the end of2007, it is imperative that we all understand the Terrorism RiskInsurance Extension Act of 2005 provides only one clean renewalperiod during which terrorism coverage will be guaranteed.

The future outlook will be very bleak unless we begin toformulate the basis for a long-term solution with all duehaste.

TRIEA and its predecessor, while not perfect, have provided theterrorism insurance market with tremendous benefits in terms ofincreasing capacity and decreasing the price for terrorismcoverage.

This public/private partnership has served us well in theabsence of a realistic private solution, but it is reasonable toassume that pricing for the finite amount of terrorism insurancecapacity will increase in response to TRIEA's expiration, withsubstantially increased industry retentions.

The commercial insurance market has already made it clear that,faced with rating agency pressure, potentially devastating lossexposures and scarce (as well as highly priced) reinsurancecapacity, most of the market will revert to its pre-TRIA stance andexclude the risk if not forced to offer coverage.

The less insurance risk-transfer, the greater the exposure tothe economy in general if another catastrophic terrorist attackshould occur.

The United States is the largest insurance market in the world,and it is arguably the largest potential target for terroristattacks. Whether directly or indirectly, the federal governmentwould pay the price of additional terrorism losses, so it is toeveryone's best advantage to work toward a solution.

Aon Corp., working in collaboration with several industryorganizations, has proposed a viable long-term solution to thiscomplex problem, centering on a mandatory terrorism reinsurancepool.

In brief, the pool would be structured to fund up to two $40billion events, with the U.S. government to attach 100 percentexcess of $40 billion, up to $100 billion, with losses above thatamount to be reviewed by Congress.

Losses up to $40 billion in excess of cash accumulated in thepool would be funded through the issuance of bonds. The bonds wouldbe repaid by assessments levied on all polices from covered linesduring the life of the bonds.

The Aon Plan shares features with the current TRIEA backstop,while addressing the need for the private insurance market to funda substantial industry backstop to minimize taxpayer exposure tocatastrophic terrorism losses.

In addition, the post-event issuance of bonds addresses one keycapital market hurdle to handling terrorism risk--modelingterrorism event frequency and severity.

Further, federal government financial exposure is limited to therole of purchaser of last resort for bond issuance--the bondpurchaser receives a competitive yield on a long-term financialinstrument, encouraging capital market participation in therisk.

While the Aon Plan might not address every facet of theterrorism debate, it does create a conceptual platform formeaningful discussion on potential replacements for TRIA after2007.

As with any long-term solution, many of the concept's keyrequirements would entail significant federal governmentlegislative action--similar to the federal mandate and override ofindividual state insurance regulation introduced with TRIA.

This will take time, making it even more critical that actiontoward building a solution not be delayed. Using the conceptoutlined above, the funding cycle for the long-term pool couldbegin in 2006, providing the industry--and the economy--with astart toward transitioning to a permanent solution for terrorismrisk in the United States.

Clearly, investigation of the alternatives must rise to fullforce very quickly. The risk of terrorism remains a reality, andwhile we cannot change that reality, we can mitigate the risk.