Insurers should prepare "for the inevitable disappearance of the Terrorism Risk Insurance Act" after its second expiration on Dec. 31, 2007, a leading Treasury Department official warned.

Treasury is asking for industry input on a study of the long-term availability and affordability of terrorism risk insurance, as an arm of the agency starts work on a report it must send to Congress by Sept. 30.

Comments last week by Emil Henry Jr., assistant secretary for financial institutions, clearly indicated that despite the mandate to file the report, the Bush administration wants to be done with the federal terrorism reinsurance program as soon as possible.

He said TRIA was designed to ease the market dislocation caused by the Sept. 11 terrorist attacks, and that President George W. Bush wanted TRIA to be only a temporary solution to help the market adjust. In his comments at an industry gathering in Washington, Mr. Henry cited statistics indicating that the private markets have indeed begun to adjust.

The Treasury Department's notice, which is scheduled for publication soon in the Federal Register, establishes a 45-day industry comment period.

TRIA mandates that the President's Working Group on Financial Markets write the report. The panel, chaired by the Treasury secretary, includes the chairs of the Federal Reserve Board, Securities and Exchange Commission and the Commodity Futures Trading Commission.

In his comments at an Insurance Summit in Washington, Mr. Henry urged those attending to comment. "Time is short," he said, adding that the "process will be transparent, and we are going to meet the consultation deadline."

TRIA requires the working group--in consultation with the National Association of Insurance Commissioners as well as representatives of policyholders and the insurance and securities industries--to analyze the long-term "availability and affordability of insurance for terrorism risk,including group life coverage and coverage for chemical, nuclear, biological and radiological events."

One industry official took the request for comments as a positive. "We're glad to see the President's Working Group on Financial Markets taking action on this vitally important study," said Dennis Kelly, a spokesman with the American Insurance Association. "AIA will be active participants in this study process."

State lawmakers have already started considering a marketplace without a federal terrorism insurance backstop. Indeed, joint efforts with state insurance regulators were proposed last week to craft a solution without help from Washington.

Lawmakers at the National Conference of Insurance Legislators meeting in Fort Lauderdale, Fla., heard pessimistic outlooks on the federal government's willingness to participate in a permanent solution for terrorism insurance once TRIA expires at the end of 2007.

The group was receptive to suggestions from both industry officials and Consumer Federation of America Insurance Director J. Robert Hunter--a TRIA critic--that NCOIL and the NAIC join forces to deal with terrorism risk insurance. Proponents of the notion argued this would demonstrate to Congress that it need not act to substitute federal control for state insurance regulation.

As for the presidential working group report on terrorism risk, "the chances are they won't come up with anything favorable, but this year that is the vehicle we have to work with," said Mike McCarter, an AIG actuary at the NCOIL meeting who represented the American Academy of Actuaries, which is planning a series of reports on terrorism exposure.

NAIC's director of research, Eric Nordman, said he thought regulators would prove receptive to joining with legislators in coming up with some sort of state solution, if one is possible. "I think it is very important that in the next six months we start to look at the post-TRIA era," he said.

Paul Donohue, NCOIL's Washington representative, said that in discussions with a top staff member of the House Financial Services Committee, his impression was the working group will not accomplish much in terms of a permanent solution. "As for state legislators, he suggested they might try and come up with their own mini-TRIAs," Mr. Donohue added.

wi/ Hour Glass and sand slipping away...

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