TRIEA LEGISLATIVE
DEVELOPMENTS
May 7, 2007
Casualty Actuarial Society
Kimberly M. Welsh, Esq.
Reinsurance
Association of America
1
Overview
• Current law, reinsurance capacity and evidence
of success.
• Insurance industry and policyholder efforts to
reach agreement on principles.
• Congressional legislative developments and
timetable.
2
Key Provisions of Current Law/
Where Changes are Likely
• Two-year extension through December 31, 2007 –
Congress must extend or program will sunset.
• Program Trigger - $100 Million in the U.S.
• Insurance company deductible – 20% (percentage
of prior year’s direct earned premium.)
• Annual Program Cap - $100 Billion.
• “Make Available” – all covered lines for certified
acts that “does not differ materially” – NBCR does
not apply.
3
Key Provisions of Current Law/
Where Changes are Likely cont’d
• RAA believes program is working/filling void for
lack of private reinsurance.
• RAA survey suggests $6-8 billion of private
terrorism reinsurance capacity.
• Approximately $1 billion of that for NBCR.
• RAA supports program extension.
4
Insurance Industry and Policyholder
Develop Principles for Long-Term
Program
Efforts ongoing since January 2006 for insurance
industry agreement on long-term solution.
No agreement on bill but industry did agree on the
following principles for a TRIEA-extension:
– Conventional
• TRIA structure for non-NBCR risk, including
individual insurer deductible and industry
retention.
5
Insurance Industry and Policyholder
Develop Principles for Long-Term
Program cont’d
– Consideration of incentives to facilitate
development of new private reinsurance and
capital market capacity.
– NBCR
• Increase Federal participation in management
of special exposure presented by NBCR risk.
– Commercial lines only (TRIEA lines).
– Foreign and domestic terrorism.
6
Insurance Industry and Policyholder
Develop Principles for Long-Term
Program cont’d
– Event trigger that provides meaningful
opportunity for small company participation.
– Preemption of rate and coverage requirements
where appropriate to maximize private market
participation.
– Make program permanent.
7
AIA Proposal - Program Design
Late April: AIA breaks ranks and reaches separate
agreement on principles with policyholder
community – seeking other insurer support.
Not likely, due to the following NBCR principles:
First Principle
• NBCR:
Reduce potential exposure and provide
certainty with respect to the role of private
insurers in managing NBCR terrorism risk by:
8
AIA Proposal - Program Design cont’d
1)
Clearly and affirmatively stating that the
federal government is solely liable for NBCR
terrorism losses above insurer’s individual
NBCR retentions, thus encouraging insurers
to provide more capacity.
2)
Lowering or eliminating insurer deductible
and eliminating the insurer co-pay for NBCR
to reflect consistent view of GAO, Treasury,
and PWG that markets are not working in this
area;
If private insurer role is consistent with these
principles, then enhance “make available” provision
to include endorsement covering NBCR terrorism
that would be excluded by the nuclear hazard or
pollution exclusion.
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AIA Proposal - Program Design cont’d
Small and midsize insurance companies do not
want to have to make NBCR available, would
prefer 1st dollar.
Second Principle
– AIA offers $100 million event trigger.
– Small companies want reduction to $50 million.
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Congressional Efforts and Timetable
–
Senate Banking Committee
–
House Financial Services Committee
– House Insurance Subcommittee
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Congressional Efforts and Timetable
cont’d
At April Hearing Subcommittee Chairman Kanjorski
announces 5 policy options for TRIEA renewal legislation.
1) TRIEA should not include extraneous legislation (surplus
lines/reinsurance, risk retention)
2) Duration should be 6-8 years
3) Including group life as covered line and eliminate
distinction between domestic and foreign terrorism
4) Address NBCR
5) Explore government’s role (should event size be lowered
and should insurers pay premiums for federal
reinsurance).
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Congressional Efforts and Timetable
cont’d
• House Republicans and Administration not likely
to support due to duration and addition of group
life.
• Senate consideration to occur after movement in
the House.
• TRIEA extension not likely to become law until
late summer/early fall at the earliest.
• Enactment possibly not until very end of the year.
13
Questions
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Kimberly M. Welsh, Esq.
Reinsurance Association of America
15