Washington==President George W. Bush this afternoon signed without comment or fanfare a two-year extension of the Terrorism Risk Insurance Act, just over a week before the controversial federal reinsurance program was due to expire.
The bill signed by the President virtually tracked a scaled-down version of TRIA extension passed by the Senate the week before Thanksgiving, backed by the White House. The House of Representatives passed a much more ambitious approach that would have expanded TRIA's coverage and established different "silos" of insurer retentions depending on the line of business, but that bill was virtually dismissed out of hand in limited negotiations between House and Senate leaders.
The legislation will extend TRIA until Dec. 31, 2007, while cutting the scope of its coverage.
Commercial auto, burglary/theft, surety, professional liability and farmowners multiple-peril will no longer be covered under the program. The negotiators did agree to include general liability, which was left out of the original Senate bill, but group life–a big addition in the original House version==was not included in the final product.
Insurers will also have to shoulder a bigger portion of the losses from any future terrorism event, as the industry's retention level will rise from the current 15 percent to 17.5 percent next year, and 20 percent in 2007.
In addition, the law raises the program's trigger from an event of $5 million in insured losses, to one of $50 million effective April 2006, and $100 million in 2007.
In addition, a "President's Working Group" will be appointed to review how the program works and make recommendations for a longer-term solution.
The American Insurance Association said earlier in the week that one of the top issues on the industry's agenda next year would be to get involved with the working group.
Dennis Kelly, director of federal media relations at the AIA, said the purpose of the group is to do an analysis of market conditions for terrorism insurance. They will do this analysis in consultation with the National Association of Insurance Commissioners, representatives of the insurance and securities industries, and policyholder representatives, he noted.
The AIA, Mr. Kelly added, "will continue our focus and attention on analyzing potential long-term solutions. We're looking forward to engaging the President's Working Group as soon as possible. The problem has not been solved for the long term. As far as we are concerned, there should be a continuing federal role in dealing with catastrophic terrorism, especially when it comes to NCBR==nuclear, chemical, biological and radiation==events. Catastrophic terrorism remains uninsurable by the private market."
"This bill won't make terrorism risk disappear or make it any easier to insure without the participation of the federal government," according to Joseph Annotti, vice president of public affairs at the Property Casualty Insurers Association of America. "This extension gives us some breathing room that allows us to keep making this coverage available while we continue to work on a long-term, market-driven solution."
He also predicted that even though Congress just enacted a two-year extension, the issue will be back on the congressional agenda in the second half of 2006.
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