Could Spitzer Probe Derail TRIA Extension?

His comments came to a roomful of many of the biggest players in the business at the 16th annual Executive Conference for the Property-Casualty Industry, sponsored by S&P and PricewaterhouseCoopers. "This will hinder the industry's legislative agenda," starting with passage of TRIA extension, he added.

"Unfortunately, the insurance industry's reputation now is less than sterling, right or wrong," said Maurice Greenberg, chairman and chief executive officer of American International Group, during his address to the conference. "That handicap will make it that much harder to gain momentum in Congress on TRIA."

However, Ramani Ayer, chairman, president and CEO of The Hartford Financial Services Group, said the federal reinsurance backstop provided by TRIA is so important to the health of both the industry and the overall economy that recent allegations of market manipulation against major brokers and carriers outlined by New York Attorney General Eliot Spitzer cannot be permitted to stand in the way of the program's extension by Congress.

"I sure hope we are able to separate the two, and quickly," he told the conference. "Responsible players in government should look at [TRIA extension] as an issue that's critical to the economy. We can't allow this controversy to distract or deter us. We have to stay focused on the bigger picture."

However, New York Insurance Superintendent Greg Serio, while expressing support for TRIA extension, chastised the industry for failing to come up with a more permanent solution for covering terrorism exposures. "Everyone seems to be waiting for something to happen with TRIA before seriously developing a long-term alternative," he said.

"There are long-term alternatives," countered Craig Berrington, senior vice president and general counsel of the Washington-based American Insurance Association, citing ideas floated about a private-sector pool, or the creation of a Federal Terrorism Reinsurance Corp. modeled after a similar facility in Europe. "But first things first–we need to extend TRIA now."

Earlier in the conference, Mr. Ayer conceded that TRIA was "always envisioned as a temporary bridge to a fully functional private terrorism insurance market," but he asserted that not enough time has passed to allow for a private market alternative to emerge. "We're still developing our market, but we're not ready to shoulder this overwhelming exposure alone."

Mr. Greenberg of AIG added that a long-term alternative to TRIA is not realistic in this political environment. "I don't think you can get Congress to write a 10-year bill," he said. "We're going to have to go through this dance every two-to-three years or even more frequently. TRIA seems to be the simplest solution. If we put multiple solutions on the table, we might end up getting nothing at all. We should stick with the TRIA approach."

Even if Congress seriously considers TRIA extension, the industry will still face a major battle over the conditions lawmakers will set for passage, he said. "What will it cover? What will the retention be?" he asked, suggesting that Congress will undoubtedly want the industry to absorb a bigger portion of potential terrorism losses than under current TRIA standards before the federal backstop can be triggered.