Congress Takes First Step To Extend Terrorism Reinsurance Cover

Congress last week took the first concrete step for renewal of the Terrorism Risk Insurance Act, laying the groundwork through its annual budget resolution process to extend the federal reinsurance backstop for up to five years.

The language gives the go-ahead for “various committees to act to ensure a continuing federal role in the continued availability of terrorism insurance” as long as it doesn't add to the budget deficit.

The budget document sets forth the appropriate budgetary levels through 2012 for all programs.

While only advisory, it will allow for expedited handling of legislation renewing TRIA, which expires Dec. 31.

However, in a clear compromise that reflects the lack of consensus on the issue at this time–at least in terms of making TRIA permanent–the document gives “various committees” authority to extend the program only as far as 2017.

This addresses the fact that conservative Republicans and the White House don't want the program extended permanently, due to concern they would be creating another unfunded federal liability, while some House Democrats–mainly from New York–believe TRIA should be extended for 10 years or more.

Agreement on the budget reconciliation document was reached on May 16. Sen. Kent Conrad, D-N.D., chair of both the Senate Budget Committee and the committee that reconciled the differing House/Senate versions, told reporters he expected Congress to approve the bill late last week, as this edition went to press.

That will be none too soon for members of the House Financial Services Committee. Key subcommittee chairs, including Rep. Paul Kanjorski, D-Pa., chair of the Capital Markets Subcommittee, are already soliciting industry comments on what an extension of the program should look like.

Legislation renewing the program is now being drafted in the House Financial Services Committee and could be unveiled within the next month, according to industry lobbyists.

Indeed, Senate congressional staffers expect the House Financial Services Committee to act on a bill by mid-June.

The House Democratic leadership has voiced support for renewing the program for up to five years, while Sen. Chris Dodd, D-Conn., chair of the Senate Banking Committee and a presidential candidate, has suggested permanent renewal.

INDUSTRY SPLIT

TRIA renewal has been cited as the top legislative priority for property-casualty insurance industry groups.

However, the insurance industry is having difficulty coming up with a consensus on what it wants in the extension bill, with small insurers insisting that the claims they pay before federal help kicks in–the so-called “retention levels”–be reduced from the 20 percent figure contained in the current legislation.

The industry is also trying to resolve differences that were created when the American Insurance Association entered into an agreement with the Coalition to Insure Against Terrorism–which represents policyholders–to support legislation that would require the government to provide specific coverage for nuclear, biological, chemical and radiological risks, while mandating that insurers make the coverage available to their policyholders.

Trade groups representing smaller insurers say providing such coverage is beyond their limited means, and they want the AIA to back off from support of such a provision.