The Bush administration threw cold water on legislationintroduced last week providing a long-term extension of theTerrorism Risk Insurance Act, although it is not clear whether thePresident would veto the bill if its proposed 10-year term is notcut short.

"It is important that the program remain temporary andshort-term," David Nason, assistant secretary of the Treasury forfinancial institutions, testified before a House subcommittee.

"The following three elements are critical if TRIA is to bereauthorized for a second time--the program remains temporary andshort-term; private-sector retentions are increased; and there isno expansion of the program," Mr. Nason added. "Unfortunately, H.R.2761 does not meet these critical elements."

He concluded by warning, "Without these critical elements, wewould not be supportive of extending TRIA as, in our view, theprogram would be moving in the wrong direction."

H.R. 2761 "does not meet our objectives," he noted. "InTreasury's view, from both a market and economic perspective, itwould be better to have no TRIA than a bad TRIA."

Mr. Nason--appearing before the Capital Markets Subcommittee ofthe House Financial Services Committee--said the administration is"willing to continue to work with Congress toward finding anappropriately balanced solution and to establish the appropriateincreases in private-sector participation."

However, Mr. Nason did not say President George W. Bush wouldveto the legislation if the House bill--which calls for a 10-yearextension and adding coverage for nuclear, biological, chemical andradiological threats--makes it to his desk.

The legislation also includes special provisions relating toareas that have already sustained attacks--specifically NewYork--not contained in previous versions, that were added recentlyat the request of the entire 28-member New York delegation,according to Rep. Gary Ackerman, D-N.Y.

These provisions provide lower deductibles for insurers thatagree to write terrorism insurance for properties already affectedby terrorist attacks, and lower thresholds at which the federalgovernment would provide a backstop to insurance companies forsites that suffer subsequent acts of terrorism.

Jill Dalton, a managing director at Marsh Inc. and leader ofMarsh's terrorism specialty practice, touched on the issuesinvolved in her testimony. She explained that insurance brokers arefinding while take-up rates among buyers are high, not every clientis able to secure all the coverage they need or desire, especiallyin high-risk areas like New York.

She explained this is due to the market's still limited capacityand the concerns of insurers about exposure accumulations andfire-following laws in some states that require coverage for lossby fire even if the cause--such as terrorism--is excluded.

"[Insurers] will also, at times, depending on the exposure andtheir underwriting guidelines, decline to quote because they do notwant to be required to offer terrorism coverage as mandated byTRIA," Ms. Dalton testified.

Rep. Barney Frank, chairman of the House Financial ServicesCommittee, and Rep. Mike Capuano--both Massachusetts Democrats--arethe chief sponsors of the legislation, the "Terrorism RiskInsurance Revision and Extension Act of 2007."

The bill is opposed by small insurers, which fear that if theyare required to "make available" coverage for NBCR, one event couldwipe them out.

But the legislation does add an important sweetener for smallinsurers--reducing the level where federal aid kicks in for allinsurers from the current $100 million to $50 million.

The bill also provides greater federal coverage for NBCR eventsthan conventional attacks by reducing the deductible after whichfederal aid kicks in from the 20 percent in current legislation to7.5 percent for such attacks. The 20 percent threshold for non-NBCRevents would be sustained throughout the 10-year period in theHouse bill.

The 85 percent federal/15 percent private insurer ratio forpayment of claims that applies to conventional terrorist attacks isalso reduced for NBCR attacks under the proposed legislation.

It establishes a sliding deductible for NBCR claims that reducesindustry commitment to pay claims the closer the total losses nearsthe cap on claims of $100 billion. Under the existing bill and inthe proposed extension, payments beyond that would have to beappropriated by Congress.

The bill is expected to win overwhelming support in the House,but Senate support might be problematic.

"Eventually, I believe that there is a significant consensusthat the program is justified and necessary, and whatever finalpassage vote occurs in the committee and on the House floor, itwill be overwhelming and bipartisan," according to Joel Wood,senior vice president of government affairs for the Council ofInsurance Agents and Brokers.

"We are deeply gratified at the position the leadership of thecommittee has taken on this legislation and confident thatintra-industry circular firing squads won't rule the day," headded. "We think the committee has struck a good balance forcommercial insureds on the NBCR provisions."

Mr. Wood conceded that, "yes, there are some points ofcontention, but none rise to the level of threatening the bill'spassage."