Reject ISO TRIA Exclusions: CFA

Moreover, Mr. Hunter charged, Jersey City, N.J.-based ISO and the insurance industry "appear to be playing politics with this request."

He noted that Congress is now determining whether to renew the Terrorism Risk Insurance Act, which provides a federal reinsurance backstop for commercial losses caused by acts of terrorism.

"By requesting these broad exclusions, ISO and the insurance industry are undoubtedly attempting to frighten Congress into renewing TRIA by raising the specter of absolutely no terrorism coverage if the law expires."

Without an extension, TRIA will sunset on Dec. 31, 2005.

Christopher Guidette, ISO assistant vice president of corporate communications, responded that the requested conditional exclusions are "eminently responsible and necessary."

For one thing, he said, the threat of terrorism is as strong today as ever, and there is a real risk that a catastrophic loss could exceed the ability of insurance companies to pay claims.

Without a backstop, Mr. Guidette said, insurance companies would have to reevaluate their ability to provide coverage for terrorism exposure.

Moreover, he said, the period when insurance companies will be writing policies that continue beyond TRIA's current sunset date is fast approaching.

He cited as an example an insurance policy that takes effect on Feb. 28, 2005 and continues until Feb. 28, 2006. While terrorism coverage would be in effect for most of the term of that policy, Mr. Guidette said, the insurance company could face an exposure for the last two months.

The conditional exclusion, he said, gives the insurance company the option of not covering terrorism if there is no federal backstop.

Mr. Guidette added that this is entirely contingent on TRIA expiring. If TRIA is extended, he said, the exclusion would not apply.

The conditional exclusions, he said, address the uncertainty in the market while Congress considers the issue of TRIA extension.

But Mr. Hunter said in his letter that the request is "outrageous." Whether or not TRIA is renewed, Congress will undoubtedly attempt to create public policy that would encourage private sector coverage, he said.

"This preemptive exclusion would thwart such public policy decisions, even before they are made and analyzed by the regulators," he said. "This, in turn, makes limiting taxpayer liability under TRIA much more difficult."

The conditional exclusions proposed by ISO would give insurers the option to exclude all losses resulting from acts of terrorism; exclude losses resulting from nuclear, biological or chemical terrorism; or cover terrorism losses for an amount less than the full policy limit.

The exclusions would take effect if TRIA expires or if it is extended but increases insurers' share of losses from terrorist attacks.