TRIA:
Political
Update & Long
Term Solutions
Glenn Pomeroy
Associate General Counsel
GE Insurance Solutions
May 16, 2005
Political Update
Two-year extension failed in 108th Congress
Key obstacles in 2004
>House Majority Leader Tom DeLay
>Senate Banking Chairman Richard Shelby
>Mandated Treasury Department study on marketplace
>Lack of Treasury Department and White House support
Outlook for 109th Congress...
>Push for two-year extension
>Accelerate consideration of a long-term solution
>Treasury Department marketplace study - due June 2005
>White House support critical
>Partisan distractions
Point: House Majority Leader DeLay (R. Tex.)
* * *
As a true believer in the power of the free market, I am disappointed
that the insurance industry has not come up with solutions to the
problem of insuring against terrorism as it said it would. I know some
people believe terrorism is unlike any other risk insurance companies face,
and they’re right. But I also understand that terrorism is a fact of life today.
The insurance industry is made up of creative and motivated thinkers who
have always been able to accommodate new risks, new challenges, and
new technologies. It took the wisdom of a remarkable thinker and one of
our founding fathers, Ben Franklin, to use the free market to develop a
solution to the threat that fire posed to the citizens of Philadelphia.
* * *
It is important for the industry to work with Congress to develop a
long-term solution that does not involve the federal government
serving as a reinsurer or permanent backstop. Nor can the government
become a funding mechanism for the insurance industry. That is not the
business of government, and that is not the philosophy of the Republican
Party.
Letter to PCIAA dated March 15, 2005
Counterpoint: Senate Minority Leader Reid (D.
Nev.)
*
*
*
*
*
*
Other views
"...the Terrorism Risk Insurance Act needs to be extended and now,
not later. Why the urgency? Because companies that are now
negotiating insurance policy renewals for next year and beyond are
finding that their terrorism coverage will be severely limited or dropped
altogether if TRIA is not extended."
-- U.S. Chamber of Commerce President and CEO Thomas J.
Donahue, March 17, 2005
"There are regrettable instances in which markets do not work, cannot
work. I have yet to be convinced [that the terrorism insurance market
can be made to work]."
-- Federal Reserve Chairman Alan Greenspan, February 17, 2005
“Congress should promptly act to extend TRIA for two years.”
--Acting Superintendent of Insurance New York Howard Mills,
April 14, 2005
Coalition to Insurance Against
Terrorism
www.insureagainstterrorism.org
American Bankers Association
American Bankers Insurance
Association
American Council of Engineering
Companies
American Gas Association
American Hotel and Lodging
Association
American Land Title Association
American Public Gas Association
American Public Power Association
American Resort Development
Association
American Society of Association
Executives
America's Community Bankers
Associated Builders and Contractors
Associated General Contractors of
America
Association of American Railroads
Association of Art Museum Directors
The Bond Market Association
Babson Capital Management
Building Owners and Managers
Association
Boston Properties
CCIM Institute
Century 21 Department Stores
Chemical Producers and Distributors
Association
Commercial Mortgage Securities Association
Cornerstone Real Estate Advisers, Inc.
CSX Corporation
Edison Electric Institute
Electric Power Supply Association
The Financial Services Roundtable
The Food Marketing Institute
General Aviation Manufacturers Association
Helicopter Association International
Hilton Hotels Corporation
Host Marriott
Hyatt Hotels
Independent Electrical Contractors
Institute of Real Estate Management
Intercontinental Hotels
International Council of Shopping Centers
International Franchise Association
International Safety Equipment Association
The Long Island Import Export Association
Marriott International
Mortgage Bankers Association of America
National Apartment Association
National Association of Home Builders
National Association of Industrial and Office
Properties
National Association of Manufacturers
National Association of REALTORS®
National Association of Real Estate Investment
Trusts
National Association of Waterfront Employers
National Association of Wholesaler-Distributors
National Basketball Association
National Collegiate Athletic Association
National Council of Chain Restaurants
National Football League
National Hockey League
National Multi Housing Council
National Petrochemical & Refiners
Association
National Restaurant Association
National Retail Federation
National Roofing Contractors
Association
National Rural Electric Cooperative
Association
The New England Council
Office of the Commissioner of Baseball
Public Utilities Risk Management
Association
Partnership for New York City
The Real Estate Board of New York
The Real Estate Roundtable
Society of American Florists
Starwood Hotels and Resorts
Taxicab, Limousine & Paratransit
Association
Trizec Properties, Inc.
Travel Business Roundtable
UJA-Federation of New York
Union Pacific Corporation
U.S. Chamber of Commerce
Westfield
(as of 9/24/04)
5 Reasons Why America Needs A Terrorism Insurance Backstop
1. The Unique Nature of the Risk
2. The State of the Insurance Market
3. The Proper Role of Government
4. A Matter of Fairness
5. Lack of Cover Already Hurting our Homeland's Economic Security
"Planning the day before for the day after an attack should be viewed
as equally important to protect ourselves against such an attack."
Robert Lowe, CEO Lowe Enterprises, Chairman of Real Estate Roundtable and CIAT
Spokesperson, Senate Hearing April 15, 2005
Legislative Options
Clean 2-year extension
2-year extension w/transition to public/private
partnership
Redefine govt. backstop – (e.g., $25B per year
for mega-catastrophes)
Develop long-term solution
Post-TRIA Alternatives
> Rely on Private Markets
– Capacity of Private Reinsurance Market
– Capital Markets - Capacity/interest?
– Pre-Funded Tax-Free Catastrophe Reserves
– Voluntary Pools
> Problems:
– Insufficient capacity for large losses
– High prices/few buyers
– NBCR not covered
– Expectation of post-event government funds –
reduce incentive for voluntary purchase
– Regulatory restrictions – Exclusions allowed?
SFP? Workers Compensation? Adequate
Pricing?
Post-TRIA Alternatives
> Government/Private Market Shared Risk
– TRIA Extension without modification
– TRIA Expansion
– TRIA Roll-back
– Mandatory Government Sponsored Insurance
> Problems:
– Subsidized rate, but many remain uninsured
– NBCR uninsured
– Domestic terrorism, Life, and Personal lines risks retained
– Exposure is capped, but retention levels a solvency threat
for some insurers
Post-TRIA Alternatives
> Government Direct Compensation
– Partial Recovery
– Full or Near-Full Recovery
> Problems
– High taxes and substantial bureaucracy
– Determining fair compensation amounts
Post-TRIA Alternatives
Concepts Under Consideration by Primary Industry
Modified TRIA – 2 program components
> NBCR (WMD) – U.S. government first dollar coverage
> Conventional Coverage – modified TRIA
– Increase post-event surcharges, lower deductible, and/or
allocated/split deductible
Modified TRIA – private pool & federal catastrophe cover
> Federal catastrophe layer excess of $40 billion
> Industry retention of $40 billion – private pool/program
– Insurer co-participation at 5% of losses
– 95% first dollar quota share reinsured by Pool
– Pool funded by premiums, private reinsurance, post-event bond
issue, post-event surcharges to re-pay bonds
– Federal tax exemptions and contingent
guarantees to support bond offering
Non US Government Programs
Consorcio de
Compensacion de
Seguros (CCS) (Spain) –
Government reinsurance
GAREAT (France) –
Reinsurance pool for
commercial property and
business interruption losses
with government backstop
Pool Re (United Kingdom)
– Pool reinsurance on an
XOL basis with a
government backstop
Extremus AG (Germany)
– Primary insurance for
commercial property and
business interruption
Oesterreichischer
Terrorpool (Austria) –
Per event and per risk
reinsurance pool with a
government backstop