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TRIA Renewal 2014: the House bill vs. the Senate bill

Author SamanthaKimball , 10/9/2014

This guest post is by Alda Joffe, Executive Vice President for Operations at NAPCO.

Following the economic downturn resulting from the September 11 terrorist attacks, Congress passed the Terrorism Risk Insurance Act of 2002 (TRIA). The Act was reauthorized by Congress in 2005 and 2007. This last renewal is scheduled to expire on December 31, 2014. At this point, it’s been reported that passage of this bill has been pushed into a lame-duck session that will follow November’s elections. The House of Representatives has yet to move on an extension bill passed by the House Financial Services Committee in June. The Senate already has passed its own extension bill, but there are differences which will need to be reconciled before the program reaches its current expiration date. Below, we take a close look at the differences that need to be reconciled between the House Committee and Senate Bill:

Act duration

  • Current: Expires on December 31, 2014.
  • Senate bill: Renew for seven years (December 31, 2021)
  • House bill: Renew for five years (December 31, 2019)

Trigger and timeline to certify a terrorist act

  • Current: A terrorist act must cause at least $5 million in insured losses to be certified for TRIA coverage by the Secretary of the Treasury, in concurrence with the Secretary of State and the Attorney General.
  • Senate bill: No changes (leaving $5 million trigger in place). No certification timeline; treasury must report to Congress on whether a timeline is advisable.
  • House bill: Removes $5 million trigger to certify an event and establishes a 90-day timeline for certification of a terrorist act.

Trigger for federal share of losses

  • Current: The aggregate insured losses from a certified act of terrorism must be $100 million in a year for the government coverage to begin; An individual insurer must meet a deductible of 20 percent of its direct earned premiums for their government coverage to begin.
  • Senate bill: No changes (leaving $100 million trigger in place).
  • House bill: For non-NBCR (nuclear, biological, chemical, radiological), $100 million annual increase until $500 million in 2019 For NBCR, retains $100 million trigger (given the insurer’s policy does not otherwise exclude such events).

Federal share of compensation

  • Current: The government covers 85 percent of an insurer’s eligible claims, while insurer contributes a 15 percent quota share of their claims, due to certified terrorism (after insurer’s 20 percent of annual direct earned premium deductible), up to a cap of $100 billion for all event loss.
  • Senate bill: Reduces the federal share to 80 percent (from 85 percent) of the amount that exceeds insurer deductible. The federal share’s reduction in such payments takes place in one percentage point increments per year for five years.
  • House bill: Reduces federal share to 80 percent (from 85 percent) of the amount that exceeds insurer deductible for non-NBCR events. The federal share’s reduction takes place in one percentage point increments per year; however, the House bill retains the 85 percent federal compensation for NBCR events if such events are covered by the insurer’s policies and, therefore, constitute “eligible claims.”

Insurance aggregate retention

  • Within this retention, Federal payout under TRIA will trigger policyholder assessments.
  • Senate bill: The aggregate retention amount increases $2 billion per year to $37.5 billion (from $27.5 billion); for losses under this amount, the federal government recoups its payments from policyholders via a surcharge on future premiums.
  • House bill: Beginning in 2016, this will be benchmarked to aggregate insurer deductibles for the preceding year.

Federal recoupment of payments (via policyholder assessments)

  • Current: If aggregate insured losses from terrorism are under $27.5 billion, the government is required to recoup 133 percent of government outlays by the end of 2017. As insured losses rise above $27.5 billion, the government can recoup a progressively reduced amount of the outlays. At a certain high insured loss level, which will depend on the exact distribution of the losses (i.e., if overall losses exceed the industry retention level), the government would no longer be required to recoup outlays, but would retain the discretionary authority to do so.
  • Senate bill: Increases recoupment amount to 135.5 percent from 133 percent (i.e., for losses under the aggregate retention amount, federal government would recoup 135.5 percent of government payments).
  • House bill: Increase rate from 133 percent to 150 percent of either (a) the amount of Federal compensation, or (b) the aggregate retention amount; includes language making recoupment mandatory up to the industry retention level.

Maximum Federal Loss

  • Senate bill: No change (retains current cap of $100 billion).
  • House bill: No change (retains current cap of $100 billion).

Risk-Spreading Mechanisms

  • Senate bill: No pertinent provision.
  • House bill: Creates advisory committee composed of private sector market participants to encourage development of private market risk-spreading mechanisms.

National Association of Registered Agents and Brokers (NARAB)

  • This legislation is also included in these bills. It creates a uniform agent/broker nonresident licensure clearinghouse.
  • Senate bill: Would establish NARAB, but provision would sunset after two years.
  • House bill: Would establish NARAB on a permanent basis.
Clearly, with this many differences to be reconciled, getting a long-term renewal for TRIA is a difficult prospect. With so much uncertainty as to what the TRIA may look like if it is renewed, carriers that provide standalone terrorism policies are pursuing clients for their product since the TRIA renewal has no impact on their terrorism policies. Furthermore, many standalone policies tend to offer more comprehensive coverage and flexibility to insureds. For more information on a comparison between the TRIA and standalone terrorism programs, see our previous post on the topic.