House Financial Services Committee Votes to Extend and Reform TRIA
Earlier today, the House Financial Services Committee (HFSC), by a party line vote of 32-27, approved H.R. 4871, the "Terrorism Risk Insurance Act (TRIA) Reform Act of 2014," that would reform TRIA and extend it for five years through 2019. HFSC Insurance and Capital Markets Subcommittee Chairman Randy Neugebauer (R-TX) introduced H.R. 4871 earlier this week, along with Rep. Lynn Westmoreland (R-GA), who is also a member of the HFSC. HFSC members Reps. Spencer Bachus (R-AL), Scott Garrett (R-NJ), Patrick McHenry (R-NC), Mick Mulvaney (R-SC), Ed Royce (R-CA) and Steve Stivers (R-OH) co-sponsored the proposal after it was introduced. At introduction, HFSC Chairman Jeb Hensarling (R-TX) indicated he supported the bill.
TRIA was enacted following the Sept. 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 Dec. 31, 2014. Passage of H.R. 4871 by the HFSC represents another critical step towards the reauthorization of TRIA prior to its expiration date at the end of this year.
NAREIT and its partners in the Coalition to Insure Against Terrorism (CIAT) appreciate the constructive effort put forward by Reps. Hensarling and Neugebauer and their staffs to develop this bill while considering the concerns from CIAT and the policyholder community. Based on the outcome of discussions held prior to the mark-up session and the desire to move the reauthorization process forward, CIAT released a letter urging the Committee to adopt H.R. 4871 and send it to the full House of Representatives for consideration in the near future. After the final vote, CIAT issued a statement in support of today's Committee action.
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. During the markup session, several HFSC members made strong statements highlighting the benefits of TRIA and expressed their support for the continuation of the program to promote economic growth and provide certainty for commercial property development and job creation in the U.S. Chairman Hensarling, for example, stated, "I have concluded that today there remains a need for a Federal backstop against heinous acts of terrorism that cannot be reasonably modeled, reasonably mitigated and whose catastrophic size truly impacts our economy." He concluded by saying, "[The] TRIA Reform Act [is] a bill that makes, I believe, needed reforms to a program that everyone hopes we never have to use."
As under current law, H.R. 4871 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. Such a determination must be made within 90 days of an event occurring with a preliminary certification notice after 15 days in order that policyholders will have certainty if their claims will be covered.
The bill would make several changes to the current TRIA program. First, the bill would separate the treatment of conventional terrorism from nuclear, chemical, biological and radiological (NCBR) terrorism, and it would increase the current aggregate insured loss amount required to trigger the program for all non-NCBR events from the current amount of $100 million to $500 million phased-in over a four-year period. The current program trigger for NCBR events would remain at $100 million. In addition, the federal government's share of insurers' losses for non-NCBR covered events over the next five years would be reduced from the current level of 85 percent to 80 percent. The HFSC proposal would also require the Treasury to issue rules to allow small insurers to petition state regulators for the option to opt-out of the current mandatory "make available" requirement. Further, H.R. 4871 would establish that the mandatory recoupment of federal payments for insured losses in any year would be benchmarked equal to the sum of the insurer deductibles for the preceding program year for all participating insurers. Were this to apply to 2014 (the change would take effect in 2016), the current aggregate marketplace retention level would increase from $27.5 billion to approximately $37.8 billion (based on the 2013 sum of insurer deductibles). This amount would continue to be recouped to the federal government through retrospective assessments applied to policyholder premiums.
During the Committee's consideration of H.R. 4871, several amendments were offered by the panel's members to modify the proposal's provisions on bifurcation, the program trigger and to lower the threshold for workers' compensation in the event of any terrorist event; however, each of them was eventually withdrawn. Ranking Member Maxine Waters (D-CA) and Rep. Michael Capuano (D-MA) offered as an amendment the bill Rep. Capuano introduced last year providing for a 10-year reauthorization of TRIA without any changes to the program. Their amendment was defeated, 27-31, along party lines.
While NAREIT is pleased the HFSC has adopted legislation reauthorizing TRIA, NAREIT remains concerned that the program changes contained in H.R. 4871 may upset the delicate balance inherent in the current program. Since 2002, TRIA has protected taxpayers and limited the government's exposure to only the most extreme terrorist events while preserving the availability of terrorism risk insurance in the current marketplace. NAREIT and CIAT will continue to work with lawmakers to improve H.R. 4871 as it moves forward to the full House for consideration later this summer.
Earlier this month, the Senate Banking Committee unanimously adopted legislation that would provide for a seven-year reauthorization of TRIA with two notable modifications to the program. "TRIA is critical to the U.S. economic stability and security and provides an invaluable safeguard against the devastating consequences of terrorism," commented NAREIT's President & CEO Steve Wechsler. "This law has played a vital role over the past dozen years since its inception. Without it, our economy – and American jobs – would be more exposed than they were after 9/11."
NAREIT commends Chairman Hensarling, Subcommittee Chairman Neugebauer, Ranking Member Maxine Waters (D-CA) and the members of the HFSC supporting H.R. 4871 for taking this positive step this week to move forward the reauthorization of TRIA by the 113th Congress before the end of the year. H.R. 4871 will now be sent to the full House for consideration, possibly prior to the August congressional recess period.
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.