TRIA Extension Wont Be Easy, Reps. Warn

Coverage could be broadened, but Congress might have to hike carrier retentions

Washington

Congress might be willing to expand the Terrorism Risk Insurance Act to cover nuclear, biological, chemical and radiological risks, but renewing the federal reinsurance program will be a hard slog in any case, key House members warned insurance industry representatives.

The price the industry may have to pay for including nuclear and other risks in federal coverage may be beyond what some insurers are willing to bear, one industry official with knowledge of the meetings said.

Rep. Richard Baker, R-Louisiana, who chairs the Capital Markets Subcommittee of the House Financial Services Committee, said adding such coverageperhaps in exchange for an increase in the deductible paid by insurers before federal reinsurance coverage kicks inis an option. “There is no hard-and-fast rule” as to what Congress will consider when it examines extending TRIA beyond its Dec. 31 expiration, Rep. Baker said.

He suggested that to include nuclear, chemical, biological and radiological risks as a package”a higher level of retention in return for broader coverage”is an option.

David Winston, senior vice president for federal affairs of the National Association of Mutual Insurance Companies, cautioned that raising the retention rate beyond the current 15 percent is “problematic.” He said that including the additional risks would constitute a meaningful improvement to the program, but cost is an issue. He noted his members have already said that even with the current 15 percent retention level, it is unlikely that any loss would be so high as to generate federal involvement.

Under pressure from the House Republican leadership and its own members, the American Insurance Association is considering a backup position on TRIA extension that would include greater industry retention of terrorism losses in return for long-term federal liability for nuclear, biological, chemical and radiological risks.

Julie Rochman, an AIA staff official, confirmed that at the request of its own members and leaders of the House and Senate, the AIA is reevaluating what it will accept in terms of TRIA renewal. “We do not have a specific proposal in mind,” she said, “but we have some flexibility in response to what our members are telling us.”

Ms. Rochman explained that “it is difficult to see how the insurance industry can get beyond Dec. 31, 2005 without some sort of public/private partnership that deals with catastrophic losses from a terrorism attack. We are particularly concerned with nuclear, biological, chemical and radiological risks, but nobody should interpret this as indicating we don't believe there should be a backstop for losses associated with a conventional terrorist attack.”

Both Rep. Baker and Rep. Mike Oxley, R-Ohio, the Financial Services Committees chair, appeared to be speaking in chorus when they said in separate venues on Capitol Hill that renewing the bill will not be easy under any circumstances.

Rep. Baker made his comments in an appearance at the annual Legislative Summit of the Council of Insurance Agents and Brokers. Rep. Oxley weighed in when he and other members of the House Republican leadership discussed their agenda and timetable with lobbyists.

Their remarks came amid signs that Sen. Richard Shelby, R-Ala., who chairs the Senate Finance Committee, will stick to his call for an early hearing on TRIAperhaps by the March 3 date he mentioned several weeks ago. Aides to Sen. Shelby confirmed that is the target date.

Rep. Baker told members of the CIAB some members of the House leadership are leery of extending TRIA because they dont want another unfunded federal liability, and that it will require some convincing that federal involvement is justified.

In his comments, Rep. Oxley said TRIA needs to be reauthorized. He said he met with Treasury Secretary John Snow several weeks ago about the status of the federal study the agency is undertaking as to the viability of the program and whether it should be reauthorized. The mandate for the Treasury study calls for it to be completed in June, but it might be available sooner, he noted.

However, Rep. Oxley warned the lobbyists, TRIA reauthorization will be a “heavy lift” no matter what the Treasury report concludes. One lobbyist who attended the meeting said Rep. Oxley added that the leadership of President George W. Bush “will be as critical to getting TRIA reauthorized as it was to getting TRIA passed in a lame duck session in 2002.”

Rep. Oxley also told the lobbyists that he is “disappointed” the reinsurance industry did not get back into the terrorism market post-Sept. 11 to the extent he had hoped it would.

Reproduced from National Underwriter Edition, February 18, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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TRIA Extension Wont Be Easy, Reps. Warn

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