April 11, 2014
Senate Banking Committee Senators Introduce a Bill to Extend and Reform TRIA
On April 10, 2014, Senate Banking Committee members Charles Schumer (D-NY), Dean Heller (R-NV), Mike Johanns (R-NE), Mark Kirk (R-IL), Robert Menendez (D-NJ), Jack Reed (D-RI) and Mark Warner (D-VA) introduced S. 2244, the Terrorism Risk Insurance Program Reauthorization Act of 2014. S. 2244, which was also co-sponsored by Senators Roy Blunt (R-MD) and Christopher Murphy (D-CT), would amend the Terrorism Risk Insurance Act (TRIA) and extend it for seven years through 2021. TRIA was enacted following the September 11, 2001 terrorist attacks as a federal plan for economic continuity and recovery after a severe terrorist attack on the United States. The law, which has previously been extended and modified twice on a bipartisan basis, will expire on December 31, 2014, unless Congress acts. Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Michael Crapo (R-ID) are expected to support S. 2244.
Since its inception, TRIA has not only facilitated the continued availability of terrorism insurance for policyholders that require such coverage, but it has also protected taxpayers in the event of another terrorist attack by providing a mechanism through which private sector capital would absorb the first losses before any taxpayer funds are advanced. Additionally, the plan requires that any federal funds that are allocated under TRIA be recouped from policyholders and insurers. Because of these provisions, the Congressional Budget Office (CBO) estimated that the last TRIA extension had no projected net cost to taxpayers.
S. 2244 represents an important step towards the reauthorization of TRIA. NAREIT and its partners in the Coalition to Insure Against Terrorism (CIAT) appreciate the bipartisan and constructive effort needed to develop this bill, and look forward to examining the legislation and providing detailed feedback related to the policy changes it proposes. CIAT issued a press release welcoming the introduction of S. 2244.
As under current law, S. 2244 would establish that no federal assistance would be provided under TRIA unless an event is certified by the Secretary of the Treasury as a terrorist act, and it results in at least $100 million in aggregate insured losses. Also, as under current law, insurers would be responsible to pay claims up to 20% of the insurer's direct earned premium of the prior year.
However, under S. 2244, the federal government's share of claims above the deductible would be reduced over the next five years to 80 percent from its 85 percent share under current law. Additionally, S. 2244 would establish that for any covered event resulting in aggregate losses up to $37.5 billion, the government would recoup its advances paid to reimburse damages suffered from the terrorist attacks from policyholders through retrospective assessments applied to their premiums. (Present law sets the maximum mandatory recoupment at $27.5 billion.) This increase would also be phased in over a period of five years. Details of S. 2244 are described in Senator Schumer's press release.
NAREIT and CIAT will continue to work with counsel, other experts and our members to study the possible impact these changes and other provisions may have on policyholders' access to terrorism insurance, and to work with lawmakers to address any challenges as the reauthorization of TRIA moves through the legislative process. Although the timing of when the Senate Banking Committee will consider the legislation is unclear, NAREIT and CIAT will continue to urge Congress to renew TRIA as soon as possible to allow policyholders to better execute their business plans beyond year-end.
Separately, today the RAND Corporation issued the second of its studies on terrorism insurance. This study explains how TRIA protects taxpayers following a covered terrorist attack. CIAT issued a press release welcoming the findings of the study.
If you have any comments or questions, please contact Robert Dibblee at email@example.com.