WASHINGTON—Warren W. Heck is chairman and CEO of GNYInsurance Co., a mid-sized insurance company based in Manhattan,which is the largest writer of terrorism risk insurance for theco-ops, apartment houses and condos that are the core of thehousing market in New York city.

Darwin Copeman is president and CEO of Jewelers Mutual InsuranceCompany, a niche insurer which is the largest writer used by thejewelry industry nationwide to insure their contents against lossand, yes, terrorism.

Its largest risk is the building at 47th St. and 5th Ave. in NewYork that is the heart of the U.S. diamond industry. It also hasmajor exposure through jewelry stores in Los Angeles, Chicago,Dallas and Toronto. It also insures the contents of jewelrywholesalers and manufacturers.

They are the face of the mid-sized insurers who are caught inthe political storm over reauthorization of TRIA. "We model ourexposure to the Diamond District based on a 5-ton truck parked atthe curb," Copeman said in an interview held as he attended theannual meeting of the National Association of Mutual InsuranceCompanies, which took place last week at National Harbor insuburban Washington, D. C. "In other words, how would our insuredsreact to a 5-ton truck completely destroying 47th St. and 5thAvenue?" Copeman asked. "This is a huge concentration of risk. Ourexposure in New York is $169 million," he said.

The frustration is evident in Heck and Copeman as they anxiouslyawait congressional action on reauthorization, now not expected tooccur until perhaps December. (See following story.) The currentauthorization sunsets Dec. 31.

"Our anxiety stems from the fact that there is so much supportfor the Terrorism Risk Insurance Act (TRIA) and such a need for itbecause all industry groups can't find an alternative to TRIA andTRIA has worked so well,' Heck said.

Adds Copeman: "At the moment, TRIA reauthorization is apriority. Many of our mutual policyholders are counting on us tocover their terrorism risk."

Heck said it is very frustrating to see that people in abipartisan Congress, very strongly in favor in the Senate and avast majority in the House to see that reauthorization is beingheld up by just a few people."

The bill is being held up by a group of conservative Housemembers led by Rep. Jeb Hensarling, R-Texas, chairman of the HouseFinancial Services Committee.

Hensarling and his allies want is to ultimately enactlegislation that phases out the current system over five years andreplace it with one that will provide a federal backstop after thatperiod only for nuclear, biological, radiological, and/or chemical(NBCR) events.

His plan is to then get a more conservative Congress conveningnext year to pass H.R. 4871, the TRIA Reform Act of 2014. That billcalls for gradually increasing the program trigger for allnon-nuclear, biological, radiological, and/or chemical (NBCR)events, from $100 million to $500 million by 2019, which industryofficials say effectively phases out the program for non-NBCRevents.

The Senate bill is S. 2244, the Terrorism Risk Insurance ProgramReauthorization Act of 2014.

The Senate raised the insurer co-pay from the current 15 percentto 20 percent and the mandatory recoupment from $27.5 billion to$37.5 billion [over five years].

Hensarling and allies are aware of the concern of mid-sizedinsurers such as Heck and Copeman. Lawyers at Steptoe & Johnsonsay that the House bill includes an optional limited opt-out forsmall insurers, exempting small companies from the mandatory offerrequirement provided they prove it would cause financial hardshipto meet the higher trigger requirement.

The lawyers at Steptoe said that, "This would put small insurersin a difficult position – either offer terrorism coverage subjectto the higher triggers, or prove financial duress."

The lawyers note that the incentive to opt out is high, however."Reports indicate that the higher trigger could cause hundreds ofmedium and small insurers to pay out more than 10% of their surplusafter a terrorist attack, subjecting them to ratings downgrades,"the Steptoe & Johnson lawyers said in their evaluation of thetwo bills.

"This has middle market commercial policyholders concerned thatfewer insurers offering terror coverage will negatively affectavailability and affordability of coverage," the note said.

Heck and Copeman are the face of that.

Heck notes that he was in business at ground zero during9/11.

His comments confirm the Steptoe and Johnson legal memo.

"The private market clearly can't absorb the risk," Heck said."The private market would like to absorb it and if there was anopportunity to do it, it would do it."

Heck said that, "there is a limited amount of stand-alonereinsurance available," adding that, "It is expensive, and if TRIAis not reauthorized, it will become very expensive and scarce."

Heck said that one of the concerns is that for the exposure inTier 1 risk areas, New York city, Philadelphia, Washington, D.C,"there will be a very limited amount of terrorism reinsuranceavailable.

"And it will be expensive and it will not be absorbed by theeconomy, by the business community," Heck said. "I believe thatthere will be a much lower takeup rate of terrorism risk insurancewithout TRIA, and the economy will be exposed."

He cited apartments and high rises, and noted that rents go upin high-risk areas.

"The best way to look at it is to look at what happened after9/11,' Heck said.

"The construction industry closed down, and mortgages were intechnical default because primary policies no longer coveredterrorism."

Heck added, "there will have a very strong impact on the economyif TRIA is not reauthorized."

Heck said that smaller insurers will "definitely get out of themarket" if TRIA is not reauthorized in its present form. He saidthat in 2013, there were 2,600 property and casualty insurancecompanies operating in the U.S. Of that number, 118 had $1 billionor more in surplus.

"If you compare that with the provisions of the House bill,which pushes the trigger up to $500 million over 5 years, it wouldbe virtually impossible for mid-sized and smaller insurancecompanies to stay in the market," Heck said.

"If you think about that, a good-sized mid-sized insurancecompany, with $500 million of surplus, which is probably a verysmall percentage of the 2,600, with a $500 million trigger, thatcompany, buildings in New York have high value, could have a lossof $450 million, which is not eligible for TRIA (under the Housebill in five years)," Heck said.  "Even if there wasenough capacity to cover it, the companies would have to pass offthe cost to customers, and we are not certain the regulators wouldallow us to pass on the cost," Heck said.

Heck said his company is the largest writer of insurance forco-ops, apartment houses and condos in New York city. "And, we area mid-sized company," he said

"An interesting thing that escapes the members of Congress, isthat if we left the market, those 118 very large companies wouldnot necessarily take on the additional exposure," Heck said.

He said all insurance companies manage their exposure, theirconcentration. "They already have a lot of exposure in New York,and they limit the amount of exposure they would want to take," hesaid.

As Copeman adds, "We are disappointed that Congress hascontinued to drag its feet [in reauthorizing TRIA]. This is anextremely important decision that needs to be made."