Terrorism Risk Insurance Act Legislative Update Midwestern Actuarial Forum September 23, 2004 Debra Ballen American Insurance Association TRIA - Background 9/11 terror attack = largest insured loss event ever ($30B to $35B). Commercial insurance industry capital base ≈ $100 B. Plausible catastrophic terrorism scenario = $250 B or more. If terrorism insurance market collapses, US economy is exposed to financial devastation from terrorist attacks. Terrorism Risk Insurance Act (TRIA) signed into law 11/26/02, with 12/31/05 sunset. Public Policy Agenda Insurers, reinsurers, and policyholders are united in seeking a two-year extension of TRIA. To avoid/minimize market disruption, legislation must be enacted ASAP. Two-year extension will allow time to complete Treasury study (due in June of 2005) and consider longer-term alternatives for managing terrorism risk. Where does the Issue Stand? • • • • Bills have been introduced in House and the Senate. House Committee mark-up scheduled for 9/29. Challenges: Short Congressional calendar; Election-year politics; Bill does not expire until the end of next year; Despite wide, bipartisan support, some opposition from consumer groups and fiscal conservatives. The TRIA Reauthorization Campaign Coalition to Insure Against Terrorism (“CIAT”) is leading policyholder effort to extend TRIA. Grassroots coalitions are in place in key states to stress need and urgency. Recent economic study by Dr. Glenn Hubbard demonstrates broad economic need. All efforts directed at finding a vehicle and moving a bill. Economic Issues Hubbard study demonstrates that TRIA is working to stabilize insurance markets. TRIA is “crowding in,” not “crowding out” private sector capacity. Absent TRIA, GDP will be $53 B (.4%) lower, household net worth will be $512 B (.9%) lower, and 326,000 fewer jobs will be created. Study can be found at www.aiadc.org (research section). How Can Actuaries Help? American Academy of Actuaries has published several papers on uninsurability of terrorism risk (www.actuary.org). Individual actuaries should urge Congress to extend TRIA (www.extendtrianow.org). Mobilize your friends, colleagues, communities to push for TRIA extension. Prognosis Passage of extension before October 8 is an uphill battle. A lame duck session is very possible and provides another opportunity prior to December 31. AIA and others will continue to push for extension of TRIA and consideration of long-term alternatives.