Greenspan TRIA Remarks Cheer Insurers

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By Arthur D. Postal, Washington Bureau Chief

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NU Online News Service, Feb. 17, 6:31 p.m. EST,Washington?Federal Reserve Board chairman Alan Greenspantold a congressional panel today that a reinsurance market forterrorism coverage has yet to be created.

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Insurance trade groups in reaction said the remark shouldspotlight the need for an extension of the Terrorism Risk InsuranceAct, which protects primary insurers when terrorist damage claimsreach certain threshold loss levels.

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Greenspan made his comments concerning the federal backstopmeasure that is due to expire this year, during testimony beforethe House Financial Services Committee

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Mr. Greenspan said he has "yet to be convinced" that a privatemarket for terrorism insurance can be made to work.

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His remarks came in response to questions from Rep. Sue Kelly,R-N.Y., who has voiced strong support for renewal of TRIA.

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Answering a question from the congresswoman about the viabilityof a private market for terrorism insurance separate from TRIA, Mr.Greenspan responded, "There are instances in which markets do notor cannot work, and?I have not been persuaded that this marketworks terribly well."

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Later in the day, Sen. Richard Shelby, R-Ala., chairman of theSenate Banking Committee, confirmed that a hearing on TRIA will beheld by his panel March 3. He did not name any witnesses.

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Carl Parks, senior vice president, federal government affairsfor the Property Casualty Insurers Association of America(PCI)reacted that, "Chairman Greenspan stated what insurers have knownfor years: a private market for insuring inherently unpredictablerisks of catastrophic size, such as terrorist attacks, cannot bemade to work without some level of federal involvement."

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Mr. Parks added that, "Terrorism is a national economic securityproblem. It requires a long-term, national response, which includesa federal role. PCI continues to work diligently with our membercompanies and members of Congress to find an appropriate solutionto the risk terrorism poses to our economy."

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Dennis Kelly, a staff official at the American InsuranceAssociation, said that AIA is working with its members,congressional leadership and the Bush administration to fashionlegislation that can be completed this year extending TRIA, whichexpires Dec. 31.

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"We are urgently calling for an extension of the federalbackstop for terrorism insurance after Dec. 31, 2005," Mr. Kellysaid. "We just can't get to Dec. 31 and face a cliff."

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An extension of TRIA, he said, would "allow time for publicpolicymakers to determine the most appropriate long-term solutionto the terrorism insurance crisis."

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Charles E. Symington Jr., senior vice president of federalgovernment affairs, at the Independent Insurance Agents of America,said, "Chairman Greenspan's comments reflect what we have beensaying all along, that terrorist attacks of this nature remainuninsurable and the private marketplace has not developed."

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Mr. Symington said it is "crucial that we renew this importantfederal backstop that would insure against these types of losses ina way that the private sector, at this time, simply cannot do."

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Businesses and insurers are starting to make decisions thatimpact operations beyond the potential sunset of the language andthe expiration of TRIA, Mr. Symington said.

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He continued, "The lack of terrorism insurance would impact oureconomic security by potentially threatening billions of dollars incommercial property financing,"

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If there ultimately is no federal backstop in place, Mr.Symington said, there is concern that adequate markets will notexist for this coverage and/or companies could not bear the highcosts that likely would be necessary to purchase this type ofcoverage, and thus would go uninsured,

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He said this could "create serious exposure issues in the eventof a catastrophic terrorist attack. Such an event's effects wouldbe likely to go well beyond the businesses affected and in factcould have serious repercussions for the nation's economy."

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It is also difficult for insurers to assess and adequatelyinsure this type of risk, given its unpredictable nature, henoted.

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"Chairman Greenspan's comments highlight our primary concernthat the market can't reasonably assess where a catastrophicterrorist attack may occur, and this uncertainty makes it nearlyimpossible to insure against it, leaving a serious void in theprivate marketplace. That is why we ask Congress to extend TRIA assoon as possible and continue to explore long term solutions," Mr.Symington

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