A Bush administration recommendation that insurers should bearmore risk if the federal backstop provided by the Terrorism RiskInsurance Act is renewed is open to negotiation, Treasury SecretaryJohn Snow told Congress last week.

“Nobody is talking about ending that backstop,” Sec. Snowsaid.

“What we're talking about is revamping. The issue is can we makesome improvements to the program to give the private sector more ofa role to play.”

Coming in the wake of the transportation system attacks inLondon, Sec. Snow's remarks–an apparent softening of the WhiteHouse's initial stance–were delivered during testimony before theHouse Financial Services Committee last Wednesday. The testimonyconcerned proposals for substantial changes to TRIA that hisdepartment had made when it released a report evaluating TRIA onJune 30.

TRIA is due to sunset at year's end.

Sec. Snow also testified before the Senate Banking Committee onThursday, where his softer message was juxtaposed against hardeningpositions from Senate Democrats, who indicated they would pushstrongly for TRIA's renewal.

During his testimony at the House Financial Services Committeehearing, Sec. Snow characterized the proposals for TRIA changes,which he had previously outlined in a letter accompanying the June30 report, as “recommendations” from the administration forimproving the program, not unequivocal demands.

In the June 30 letter to Committee Chairman Michael Oxley,R-Ohio, which had accompanied the Treasury's 142-page reportassessing TRIA, Sec. Snow had called for a sharp increase indeductibles if the measure is to be renewed.

He wrote that the administration “would accept an extension onlyif it includes a significant increase to $500 million of the eventsize that triggers coverage, increases the dollar deductibles andpercentage co-payments, and eliminates from the program certainlines of insurance, such as commercial auto, general liability andother smaller lines, that are far less subject to aggregation risksand should be left to the private market.”

While Sec. Snow reiterated that exact same message in writtentestimony presented to the House committee last week, during thecourse of the hearing he said the $500 million figure was open todiscussion in response to questions from several members of thepanel. The members noted that smaller attacks, such as those thatoccurred in London recently, would not meet the administration'sproposed threshold.

“We can debate” the $500 million figure, he said in response toa question from Rep. Arthur Davis, D-Ala. “This is a bestjudgment.” Additionally, Sec. Snow said that the $500 millionproposal was for an aggregate annualized figure, meaning that ifseveral small attacks occurred within one year, their damages wouldbe counted as a total for the purposes of triggering governmentpayments under TRIA.

Rep. Richard Baker, R-La., who expressed overall support forTreasury's proposals, also expressed some concern regarding the$500 million threshold.

Reaching such a threshold, he said, would involve a far largerevent in his district in Louisiana than would have to occur in NewYork City. Despite that concern, however, he suggested that theTRIA program was designed in haste and has shown the need for somerevisions.

“We created this remedy out of whole cloth,” he said. “What'shappening now is the suit is sagging in some place and we need tomake some alterations.”

Rep. Paul Kanjorski, D-Penn, indicated that the administrationcould also face significant opposition if it attempts to includecivil litigation reform provisions in TRIA extensionlegislation.

In his opening statement, Mr. Kanjorski expressed concernregarding the administration's call for “reasonable” legal reforms.“I am very concerned that such a posture could once again stalllegislative efforts, as it delayed consideration of the originallaw,” he said.

Later in the hearing, he cautioned Sec. Snow that if theadministration seeks to make the TRIA legislation an engine fortort reform, “that's dead on arrival.”

Overall, the secretary said that the administration'srecommendations were being proposed because the TRIA program hadlargely taken the place of the terrorism reinsurance market andwas, in effect, preventing the market from adapting and creatingnew products to cover post Sept. 11 terrorism risks.

On Thursday, Senate Democrats reacted.

“Any notion that TRIA has helped create this problem is not justmisguided. It is dead wrong,” said Sen. Chris Dodd, D-Conn.,responding to observations in Treasury's June report that TRIA “iscrowding out the private reinsurance market.”

Sen. Dodd, who played a key role in drafting the original TRIAlegislation, said, “I have yet to see anything in this report,empirical or anecdotal, showing this.” In fact, there are nocomments “at all from reinsurers, just primary insurers,” hesaid.

“TRIA, in my view, has done nothing to crowd out the market forreinsurance. In fact, it is the opposite. There is not enoughreinsurance,” Sen. Dodd said. If reinsurers are not going to writeterrorism coverage, “failure to extend TRIA would only exacerbatethe problem,” he said.

During the hearings, leaders of both the Senate Banking andHouse Financial Services Committee, Sen. Richard Shelby, R-Ala.,and Rep. Oxley pledged to work toward TRIA renewal.

Rep. Oxley promised “to deliver a bill on the House floor by theend of this year.”

“Nobody is talking about ending [the] backstop. What we'retalking about is revamping. The issue is can we make someimprovements to the program to give the private sector more of arole to play.”

Treasury Secretary John Snow