"We are committed to the notion that the Terrorism Risk Insurance Act was and is a temporary program, and we believe the private market will adjust better if the government can get out of the way," said Emil W. Henry Jr., named last month as assistant secretary for financial institutions.

He said the administration is "trying to maintain our principles that this is a program that should be temporary and should not crowd out private initiatives. To the extent something is permanent, it serves to dampen innovation in the private markets."

The clock is ticking on TRIA, due to expire on Dec. 31. Congress–especially the Senate–is aiming to finish its work for the year and go home by Thanksgiving Day.

Mr. Henry confirmed the report in last week's edition of National Underwriter that the administration is pushing inclusion of language in the Senate TRIA extension bill that would bar payment of punitive damages in lawsuits stemming from a terrorism act in which the government is involved.

Such a position almost killed the original bill when it came up on the House floor in November 2002, and its resurrection jeopardizes extension because of stiff opposition by Democrats.

"We believe and the administration has long stated that punitive damages should be excluded from any TRIA reform program," Mr. Henry said. "The administration has long stated its distaste for government dollars being paid for punitive damages."

He added that Treasury Secretary John Snow sent a letter to Congress on June 30, "where he said specifically that current litigation rules would allow unscrupulous trial lawyers to profit from a terrorist attack and would expose the American taxpayer to excessive and inappropriate costs."

If there is an extension, he said, "we would like to see directionally a smaller program, a tighter program, and an extension where the private market's skin in the game continues to go up while taxpayer exposure continues to go down. Those are essential elements of any program, in our view."

In addition, Mr. Henry confirmed that the administration is not supportive of proposals that would create different levels of government retention for different lines of business–so-called "silos"–because it would make the program "too complex." (See NU, Oct. 24.)

However, asked if the administration is leaning toward the greatest government backing for the workers' compensation and property lines, with lesser levels of support for other lines, Mr. Henry said "not necessarily," adding that "we would like to see greater simplicity and fairness than there is currently in TRIA."

He admitted that commercial auto "would fall into the definition" of lines the administration would not like to see supported in a federal reinsurance program, but added that "the Senate and House are going to have to work out the details."

In general, he said, "we just want fewer lines and a smaller overall program."

He confirmed the administration would like to see a $500 million trigger for government participation in paying claims from a terrorism event, but cautioned that this position is sometimes misunderstood. (The trigger in the current law is $5 million.)

In explaining the administration's definition of "trigger," he said the aggregate cost of an event would have to be $500 million before the government would become involved. Once that level is reached, government payments would be above so-called threshold levels–which under the current law would mean anything above 15 percent of a claim. An insurance company insuring the loss would pay the first 15 percent. "A lot of people misunderstand that," Mr. Henry said.

At the same time, small and medium-sized insurers have been telling Congress ever since the Treasury Department issued its TRIA report in June that a high trigger could potentially wipe them out before the government became involved.

Warren W. Heck, chairman and CEO of Greater New York Mutual Insurance Company, made that point clear in a letter to the leadership of the Senate Banking Committee last week.

"Without TRIA–or by re-enacting TRIA with a $500 million trigger and 20-to-25 percent deductibles, which from the market's perspective effectively amounts to the demise of TRIA–stand-alone terrorism reinsurance would either vanish or cost too much for all but the largest and most profitable companies to buy," he warned.

Infographic: With pix of Bush signing TRIA in 2002

Flag: The Skinny

Head: Bush Sets His TRIA Terms

A new Treasury Department official, Emil W. Henry Jr., laid out the conditions under which President Bush could live with an extension of TRIA, due to expire Dec. 31. A renewal bill would have to:

o Be a temporary extension. "We believe that the private market will adjust better if the government can get out of the way," said Mr. Henry.

o Have much higher triggers, so that "the private market's skin in the game continues to go up while taxpayer exposure continues to go down."

o Bar payment of punitive damages in lawsuits stemming from a terrorism act in which the government is involved. "The administration has long stated its distaste for government dollars being paid for punitive damages."

o Limit the risks covered. "We just want fewer lines and a smaller overall program."