Two insurance trade groups are pointing to a new internationalstudy that says there are continuing gaps in terrorism reinsurancecoverage that would be revealed by another large attack. Thereport, the groups said, underscores the need for quickcongressional action to extend the Terrorism Risk Insurance Act,which expires Dec. 31.

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The report by the Organization for Economic Cooperation andDevelopment, released late last week, said that conditions onterrorism insurance markets have improved over the last severalyears but private markets are still not able to fully cover theextremely large losses that could result from terrorist acts in thefuture.

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David Snyder, a vice president with internationalresponsibilities at the American Insurance Association, who workedwith OECD and other international agencies over the last severalyears on terrorism risk and trade issues, said that the report "isglobal validation of the need to extend TRIA."

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The AIA was an active player in the Insurance Committee of theOECD's Terrorism Task Force, which prepared the report, Mr. Snydersaid.

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He noted, "After years of the most comprehensive work doneglobally on terrorism financing mechanisms, the OECD concluded, ina manner consistent with what we have been saying in the U.S., thatterrorism is a very different type of risk that is largelyuninsurable and that public-private partnerships are essential fora terrorist compensation system."

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The report confirms that "there is no real alternative to agovernment-insurers partnership," Mr. Snyder said. He went on tosay that "there are no alternative financing markets on the horizonthat are capable of picking up this risk."

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Mr. Snyder called the report "important," reflecting "as it doesthe views of the most highly developed democracies around theworld."

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David Winston, senior vice president of federal affairs at theNational Association of Mutual Insurance Companies, said "it isinteresting that the OECD is voicing at this moment many of theconcerns that NAMIC has raised. This is a very timely developmentas Congress will soon be examining whether or not to extend theTRIA federal reinsurance backstop that is scheduled to expire atthe end of this year."

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"All of the OECD countries have already come to the conclusionthat there must be a public-private partnership," Mr. Winstonadded, "and have rejected the idea that the private market canhandle this alone."

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Mr. Winston said it is "also important to underscore that theOECD countries are not concerned about government participationcrowding out the private market. Hopefully, the United States andthe OECD countries will benefit from each other in developing asolution."

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The OECD report concludes that:

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o Years after the 9/11 events, terrorism remains a majorchallenge for the insurance world because it is highly, andincreasingly, unpredictable. It is still more difficult to coverthan other catastrophic risks.

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o Terrorism risk modeling, though it has improved, falls shortof making the likelihood of future attacks more predictable. Also,it is very subjective and less reliable than the modeling of otherlarge risks.

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o Financial markets may in the future provide additionalcapacity, but they have so far shown little appetite for terrorismrisk and are not expected to increase market capacity substantiallyin the short term.

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o OECD member countries should rely, as far as possible, onprivate sector solutions to cover terrorism risks. However,government intervention may be needed to increase, or maintain,terrorism insurance availability at an affordable price, whereprivate markets lack capacity.

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