#AceFinanceNews- says back in November 13 2013 the Coalition to Insure Against Terrorism (CIAT) met together with a number of people to thrash out aspects of Terrorist Risk. This was a “Statement in Conjunction with House Financial Services Subcommittee Hearing on Terrorism Risk Insurance Act (TRIA)”
According to WASHINGTON, Nov. 13, 2013 /PRNewswire-USNewswire/ — The following letter is being issued on November 13, 2013, by the Coalition to Insure Against Terrorism (CIAT):
The Honorable Randy Neugebauer The Honorable Michael Capuano
Chairman Ranking Member
Subcommittee on Housing & Subcommittee on Housing &
Committee on Financial Services Committee on Financial Services
United States House of United States House of
Washington, DC 20515 Washington, DC 20515
Statement as Follows:
Dear Chairman Neugebauer and Ranking Member Capuano:
Thank you for convening this important hearing to further examine the Terrorism Risk Insurance Act (TRIA). CIAT is a broad coalition of commercial insurance consumers, formed immediately after 9/11 to seek a way to restore availability of commercial terrorism insurance for American businesses and the broader economy. CIAT’s diverse membership represents, among others, commercial real estate, banking, energy, construction, hotel and hospitality, entertainment, manufacturing, transportation, the major league sports, as well as public sector buyers of insurance including colleges and universities. CIAT is the true consumer voice on terrorism risk insurance, as we are comprised of the principal policyholders of commercial property and casualty lines of insurance in the United States.
CIAT strongly supports the TRIA program. For more than a decade, TRIA has made it possible for businesses to purchase the terrorism risk coverage they need at almost no cost to the taxpayer. TRIA brought stability to a marketplace that was severely paralyzed following 9/11, and it remains a critical component of ensuring economic continuity following another large-scale terrorist attack.
It is imperative that TRIA be extended beyond 2014. A recent study by Fitch Ratings concluded that it is “unlikely that substantial private market capacity would arise as a substitute” were TRIA to expire(1). Bloomberg Government’s analysis concurs, indicating “there is no reason to assume that reinsurers will re-enter the market if the TRIA program expires, and every reason to assume that the availability of coverage will fall.”(2)
We remember all too well what happens when terrorism coverage is not available: commercial borrowers lose their ability to get financing – or go into technical default on financing covenants, billions of dollars in real estate-related transactions stalled or cancelled, hundreds of thousands of jobs lost. Simply letting TRIA expire is not a realistic option.
Under TRIA, all insurance against terrorism risk is written in the private marketplace with no upfront federal liability. All losses recognized in the TRIA plan go first through the private insurance mechanism where much of the loss is retained by design. In the absence of TRIA, which ensures industry participation, the federal share of such a disaster could well be larger. TRIA replaces government exposure with private capital, since insurers retain the cost of all but the largest terror incidents.
As a coalition of primarily commercial entities, we instinctively prefer private market solutions. However, the unique characteristics of terrorism (e.g., adaptive, intentionally driven to inflict catastrophic damage, can strike anytime/anywhere, etc.), significantly hampers the reliability of traditional actuarial risk models, thus necessitating a program like TRIA. To this end, we believe one of the strengths of TRIA is the manner in which it utilizes the private insurance marketplace to manage terrorism risk – indeed, as mentioned above all exposure under TRIA starts with private insurance contracts and, due to both significant retentions and the recoupment mechanism, the ultimate risk-bearers under TRIA are the policyholders and the private insurers. We are always willing, however, to consider ways to further limit taxpayer exposure under the program, which we know is your focus as well.
Overall, we support the current structure of TRIA and are wary of major structural changes. We are open to modifications so long as they do not have the effect of restricting the availability of terrorism insurance. The current retrospective pooling arrangement, nevertheless, has advantages over various “pre-funding” mechanisms because:
— the retrospective pooling arrangement avoids the need to set
contribution rates based on some guess as to how much in terrorism
losses there will be
— a pre-funded pool poses temptation to spend the funds on other purposes
— the uncertain nature and timing of large terrorist attacks leads to the
risk that a pre-funded pool could be either insufficient or
With respect to the various private sector retention levels under TRIA (i.e., the program trigger, insurer deductibles, etc.), we remain concerned that increasing these levels too much too quickly could restrict the availability of terrorism insurance. We understand, after all, that reinsurance capacity for even the existing retention levels under TRIA is limited.(3) This fact alone demonstrates that TRIA is not “crowding out” the private sector.
Lastly, reasonable measures to attract greater reinsurance and other private sector capacity to the terrorism insurance marketplace are to be encouraged. To date, however, we see no evidence that creative private sector capital alternatives such as CAT Bonds and insurance link securities are sufficiently developed to inject meaningful private capital into the terrorism insurance marketplace. Ultimately, it is important that Congress find ways to incentivize this without impairing TRIA to ensure that terrorism insurance remains available in the event that private sector capacity does not develop to the degree assumed.
We are committed to working with you as you craft a solution to extend TRIA beyond 2014, and we again thank you on your leadership on this critical issue.
The Coalition to Insure Against Terrorism
American Bankers Association
American Bankers Insurance Association
ABA Securities Association
American Council of Engineering Companies
American Gaming Association
American Hotel and Lodging Association
American Public Gas Association
American Resort Development Association
American Society of Association Executives
Associated Builders and Contractors
Association of American Railroads
Building Owners and Managers Association International
CRE Finance Council
Cornerstone Real Estate Advisors, LLC
Financial Services Roundtable
The Food Marketing Institute
Helicopter Associates International
Host Hotel & Resorts, Inc.
Institute of Real Estate Management
InterContinental Hotel Group
International Council of Shopping Centers
International Franchise Association
International Safety Equipment Association
International Speedway Corporation
Long Island Import Export Association (LIIEA)
Mortgage Bankers Association
National Apartment Association
National Association of Chain Drug Stores
National Association of Home Builders
National Association of Manufacturers
National Association of REALTORS
National Association of Real Estate Investment Trusts
National Association of Waterfront Employers
National Basketball Association
National Collegiate Athletic Association
National Council of Chain Restaurants
National Football League
National Hockey League
National Multi Housing Council
National Restaurant Association
National Retail Federation
National Roofing Contractors Association
National Rural Electric Cooperative Association
New England Council
Office of the Commissioner of Baseball
Public Utilities Risk Management Association
The Real Estate Board of New York
The Real Estate Roundtable
Securities Industries and Financial Market Association
Self Insurance Institute of America
Starwood Hotels and Resorts
Taxicab, Limousine & Paratransit Association
University Risk Management and Insurance Association
U.S. Chamber of Commerce
U.S. Travel Association
UJA Federation of NYC
(1) Fitch Ratings U.S. Terrorism Reinsurance: Looming Uncertainty of Program Renewal, 1 (2013).
(2) Bloomberg Government, Extending Terrorism Insurance: The case is strong for maintaining a federal backstop in a market too risky for private sector alone, 5 (2013).
(3) According to Eric Smith of Swiss Re, “Based on the most recent estimate, the total amount of reinsurance capacity available for terrorism in the United States is approximately $6-10b — well below the $27.5b insurance marketplace aggregate retention under TRIA and the $34-35b cumulative insurer loss retentions.” The Terrorism Risk Insurance Act of 2002; Hearing Before the H. Comm. on Financial Services, 113th Cong. (2013) (statement of J. Eric Smith, President & CEO, Swiss Re Americas, at 4).
SOURCE Coalition to Insure Against Terrorism (CIAT)
Coalition to Insure Against Terrorism (CIAT)