While the extension of the Terrorism Risk Insurance Act appears to have significant support on Capitol Hill, a House Financial Services Subcommittee hearing last week revealed there is still considerable debate ahead over how long the federal reinsurance program should last.

Rep. Paul Kanjorski, D-Pa., who chairs the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprise, acknowledged a strong need to extend TRIA beyond its current deadline at year's end.

However, he also said lawmakers should recognize the “delicate balance” between providing security to the market and spurring private insurers to write the exposure. Along those lines, he proposed extending the program for six-to-eight years.

Other members of the panel believed TRIA should be extended for a longer period. Rep. Gary Ackerman, D-N.Y., was among those in that camp, arguing that an extension of less than 15-to-20 years would be “insufficient.”

If the committee were to approve Rep. Kanjorksi's proposal, he said, the shorter extension would “almost certainly be compromised” as the House negotiated a final bill with the Senate.

Other lawmakers, including Rep. Gregory Meeks, D-N.Y., said any extension should run for 10 years, although he added that “15 would be better.”

Outside of the hearing, the American Insurance Association and the Property Casualty Insurers Association of America split over how an extended TRIA should be structured, with the impact on small insurers at the heart of the dispute. (See related story, page 7.)

But representatives of AIA and PCI were united in seeking a more distant sunset provision, responding to a question from Rep. Carolyn Maloney, D-N.Y., that any extension should last at least a decade.

Joseph Ditchman, appearing on behalf of the Coalition to Insure Against Terrorism, said it would be “wonderful” to have an indefinite extension, and called for continuing the program for at least 15 years.

But Rep. Kanjorksi balked at the idea of such a long extension, arguing that, given the likelihood that no current members of the committee would still be in office so far in the future, the “institutional memory” of the issues surrounding terrorism risk would be lost, and future lawmakers would effectively be starting back at square one.

Additionally, Rep. Kanjorski said that, under his more modest proposal, extension legislation would also call for an in-depth study of terrorism risk issues and the market itself, which would take as long as three years to complete.

Rep. Scott Garrett, R-N.J., also cautioned against a lengthy extension, arguing that lawmakers were able to successfully decrease the government's exposure in the last TRIA extension, which was passed in the waning days of 2005.

A longer-term extension, he said, would take away the committee's ability to conduct “periodic assessments” of market conditions for terrorism risk, and the private sector would “lose the incentive” to develop its own mechanism to handle those risks.

The issue, industry witnesses said, is that while the government would like the private market to develop its own mechanism for dealing with terrorism risk, it does not appear that will ever happen. “I don't see anything on the horizon,” said Brian Dowd, chief executive officer for ACE North America, appearing on behalf of AIA.

Vincent Donnelly, president and CEO of PMA Insurance Group, appearing on behalf of PCI, said that while Congress needs to establish a long-term extension, it should also change TRIA to ensure that small and medium-sized companies can participate by lowering trigger levels as well as company co-payments and deductibles.

Already, he said, the current program's trigger level of $100 million exceeds the total capital of many smaller and medium-sized companies. “In effect, TRIA provides no protection” for these companies, he said.

All witnesses called for the government to take on more of the exposure from an attack involving chemical, nuclear, biological or radiological weapons. “Insurers have almost no ability to spread CNBR terrorism risk to reinsurers or the capital markets,” Mr. Dowd said.

“While reinsurance for conventional terrorism losses remains scarce, the situation is far worse for CNBR terrorism risk,” he added. “A large-scale CNBR event could result in losses that would overwhelm an insurer's capital and surplus, and therefore its claims-paying ability.”

Moreover, he said, “a widespread CNBR event could paralyze the economy and shut down sources of outside capital that insurers might otherwise access to pay claims.”

CIAT's Mr. Ditchman testified that because of the difficulty in modeling for CNBR events, and the losses they would incur, such risks “belong in the hands of the federal government.”

Meanwhile, Janice Abraham, president and CEO of United Educators Insurance, called on lawmakers to expand the federal Liability Risk Retention Act to allow risk retention groups to offer property coverage, which would be reinsured by TRIA.

“The ability to expand into property insurance–using the principles of member-owned-and-controlled risk management, broad coverage, stable pricing and coordinated claims services–would help fill a significant need of educational institutions,” she said in her testimony.

Moreover, she added, it “will allow businesses and nonprofits with a federal government terrorism backstop to add much-needed capacity and competitiveness to the terrorism insurance market for many years into the future.”

RRGs, noted Ms. Abraham, provide coverage for some of the most difficult risks, including such areas as sports injuries, tenure disputes and sexual molestation cases.

Her own United Educators RRG, she added, provides coverage to many major universities, which she said are especially vulnerable to terrorism attacks given that they host large crowds during sporting events and also conduct much of the nation's scientific research.

None of the other witnesses on the panel expressed any concerns about expanding the ability of RRGs to offer property coverage, but Rep. Kanjorski announced his “considerable skepticism” about the issue.

He said any extension bill should be kept focused on terrorism risk alone, and should not be viewed as a “vehicle” for legislation addressing surplus lines regulation, catastrophe insurance problems, or other unrelated issues.

However, the subcommittee's ranking member–Rep. Deborah Pryce, R-Ohio–defended the role of RRGs, saying they often serve as “the insurer of last resort” for very difficult risks. That, she added, is “a category in which terrorism clearly belongs.”

One area of general agreement was the inclusion of group life insurance under the TRIA umbrella. Responding to a direct question from Rep. Maloney, none of the witnesses objected to extending the program to cover group life–and many lawmakers, including Rep. Kanjorksi, specifically endorsed the idea.

Special Reports /

Insurer Groups Want TRIA Extended For Long Term, But Resistance Persists

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