"We all knew what they would say in advance--the only question was how bluntly they would say it," he added. "We all knew it wouldn't be too specific, but if you read between the lines, it says very clearly: 'We think the private market is working fine. We think TRIA is interfering with the market.'"

"They don't want TRIA," he concluded, referring to the White House and Treasury Department.

As a result, Mr. Gordon said, the real battleground as to whether a federal backstop will be sustained will be in Congress. He added that while the House will move promptly next year to extend the program, "what's the sound of one hand clapping? The pattern of the last two go-rounds will repeat itself because the Senate will wait until the very last second. They are going to suggest letting it expire or extend some very small portion--the nuclear, biological, chemical or radiation component, workmen's compensation, or some lines of coverage. It's unclear."

Indeed, according to Mr. Gordon, it is unlikely the Senate will go along with "creating a long-term solution that will create a viable private market and certainty in the marketplace."

Although the President's Working Group report did not make any recommendations regarding the implementation of a long-term terrorism risk solution, or what form any solution should take, the report noted that much of the industry has made progress in understanding the severity of terrorism risk.

However, it also identified some major deficiencies--specifically in projecting the frequency of terrorism risk, as well as the industry's ability to underwrite nuclear, biological, chemical and radiological exposures, which remain "problematic," the report said.

The PWG, mandated to conduct a study of the terrorism insurance market under legislation extending TRIA that was signed late last year, operates under the Treasury Department. In a letter to Senate Banking Committee Chairman Richard Shelby, R-Ala., Treasury Secretary Henry Paulson said that TRIA "has helped support a continued increase in private sector participation in the terrorism risk insurance marketplace."

However, he added, "TRIA was not intended to be permanent, but rather was intended to help stabilize the insurance industry. It has been successful in that regard, as the insurance industry is in a better position now than it was after Sept. 11, 2001, both in terms of financial health and understanding of overall terrorism risk exposures."

The improved understanding of terrorism risk and ability to model for such losses are among the major factors in the strengthening insurance market, the PWG noted.

On the other hand, "the greater uncertainty associated with predicting the frequency of terrorist attacks, along with what appears to be a general unwillingness of some insurance policyholders to purchase terrorism risk insurance coverage, makes any evaluation of the potential degree of long-term development of the terrorism risk insurance market somewhat difficult," the PWG concluded.

The PWG also cited a strengthening in the terrorism reinsurance market, contending that further progress is possible if insurers adapt. "Reinsurers have gradually allocated more capital to the terrorism risk due to improvements in the market (better understanding and modeling of the risk, primary insurers' management of accumulations, favorable loss experience, and pricing), and available capacity continues to increase year to year," the PWG concluded.

"Long term, if insurers were willing to pay higher reinsurance costs and were willing to pass along those costs to policyholders, additional reinsurance capacity would likely enter the market and alternative risk-transfer mechanisms might develop," the report added.

However, the Reinsurance Association of America said it was "very speculative" for the report to conclude that private reinsurance capacity will grow, and said no new capacity has been specifically raised to cover terrorism.

"The report's conclusion is premised on wishful thinking that...reinsurers will have more confidence in modeling this risk and that the claims environment will continue to be 'favorable,'" RAA said in its statement.

As a positive for buyers, the PWG cited a healthy group life market despite terrorism exposures, adding that, "based on what appears to be a highly competitive market today, there is no reason to expect that those market conditions will not continue in the long term."

However, the PWG also found a lack of development in coverage for NBCR-related terrorist attacks.

"In contrast to the overall market for terrorism risk insurance, there has been little development in the...market for [NBCR] risks since Sept. 11," the PWG found. "Given that insurance companies have historically excluded coverage for these types of losses--even if not caused by terrorism--there may be little potential for future market development."

The Property Casualty Insurers Association of America said it disagreed with that conclusion, and believes TRIA's federal backstop "is the single reason any private market whatsoever exists in this area."

The Independent Insurance Agents and Brokers of America said the PWG report, and one released a week earlier by the Government Accountability Office (see NU, Oct. 2), highlights the "need for a continued federal role for terrorism insurance" including NBCR.

Mark Racicot, president of the American Insurance Association, said NBCR risks "truly are acts of war, and easily could overwhelm all of the assets of the U.S. private property protection system."

The uniqueness of terrorism risk that led to the establishment of TRIA is unchanged, and the federal government must continue some form of help "for the foreseeable future," he added.

Carl Parks, senior vice president of government affairs at the National Association of Mutual Insurance Companies, said that after the Sept. 11 terrorist attacks, insurers "withdrew from a market they couldn't predict or price, and policyholders couldn't get the coverage they needed," adding that carriers "are convinced the same things would happen again if there is no private/pubic federal terrorism program."

However, Robert Hunter, director of insurance for the Consumer Federation of America, said the report's findings confirm CFA's own research and that of other independent analysts. "There is absolutely no reason for beleaguered taxpayers and consumers to continue to subsidize a well-off industry that has the ability to provide broad terrorism coverage on its own," he added.