Csiszar, Ernst N., President and Chief Executive Officer, Property Casualty Harper, Edwin L., Senior Vice President, Assurant, Inc., and Chairman, Heck, Warren, Chairman and Chief Executive Officer, Greater New York Mutual Insurance Company, on Behalf of the National Association of Mu- Hunter, J. Robert, Director of Insurance, Consumer Federation of America Mills, Howard, Superintendent, New York Insurance Department Mirel, Lawrence H., Commissioner, Department of Insurance and Securities Regulation, District of Columbia Pritzker, Penny S., President and Chief Executive Officer, Pritzker Realty Schupp, Jason M., Vice President and Senior Assistant General Counsel, Zurich Financial Services Group, on Behalf of the American Insurance Sinnott, John T., Vice Chairman, Marsh and McLennan Companies, Inc., on Behalf of the Council of Insurance Agents and Brokers Stiglitz, William G. III, Hyland, Block and Hyland, and President-elect, Inde- THE FUTURE OF TERRORISM INSURANCE Wednesday, July 27, 2005 U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The subcommittee met, pursuant to notice, at 10:00 a.m., in room 2128, Rayburn House Office Building, Hon. Richard Baker [chairman of the subcommittee] presiding. Present: Representatives Baker, Oxley, Shays, Sessions, Gillmor, Bachus, Kelly, Biggert, Fitzpatrick, Davis of Kentucky, Kanjorski, Frank, Maloney, Ackerman, Sherman, Capuano, Crowley, Israel, Miller of North Carolina, Scott, Bean, and Wasserman Schultz. Chairman BAKER. I would like to call this meeting of the Subcommittee on Capital Markets to order. I am advised that Mr. Kanjorski, the Ranking Member, is on his way. I will go ahead and proceed with my opening statement, and I wish to welcome those participants here this morning. The meeting today occurs on the subject of terrorism reinsurance and the need for and appropriateness of an extension of the current program now in effect. It also occurs pursuant to receipt of a report by the Department of the Treasury which performed a critical oversight and assessment of the current program. Although many view the report to have been negative in context, the conclusions reached are valuable because of the scope of the study and the findings and recommendations that are included. Specifically, that the committee should consider modifications to the current program before extending any conditional backstop. Further, Secretary Snow in appearing before the full committee in response to questions which I proffered to him indicated that, one, he felt that there was a need for an extension to be created before the year end, but that such extension should be modified pursuant to identified concerns contained in the report, more specifically retention levels perhaps should be adjusted, trigger levels should be adjusted, and repayment assurances made more clear to taxpayers. Those are perspectives with which I find agreement. Today, we have the good fortune to have experts in the field to express from their varying perspectives the appropriate manner in which the extension should be considered or in fact whether the extension should be granted at all. My concerns with the findings of the Treasury report go more specifically to a Louisiana view as to the $500 million trigger level that enables a claimant to seek as sistance from the Department of the Treasury. I am anxious to try to find an alternative triggering methodology that might be more appropriate to rural communities. Second, I also share the Treasury's view with regard to what is now a conditional repayment of taxpayer advances of credit which today are discretionary in the eyes of the Secretary and may or may not be recollected. It is my view that a mandatory repayment provision would be extremely helpful. All of us have shareholders. Those in private business have clearly identified shareholders. Those of us in Congress have constituents, and it is our job to stand between our constituents' checkbooks and those who make application to the Government for assistance, to ensure that any extension of taxpayer resources is not only warranted, but at the appearance of profitability and an ability to repay without detriment to the overall economy, that repayment be made on terms that are responsive to the identified needs. I do believe, however, that the Treasury has indicated a willingness to work with this committee and the Congress in general to seek a remedy perhaps over the August recess that could be considered in the month of September to meet the needs of the marketplace before the expiration of the current program. I have come to the conclusion that without a properly constructed reinsurance program, there will be market consequences that are not in everyone's best interest. Accordingly, I look forward to working with other members and those experts who appear here today to seek out those remedies. At this time, I would recognize Mr. Ackerman for an opening statement. Mr. ACKERMAN. Thank you very much, Chairman Baker. I would like to thank our committee Ranking Member, Mr. Frank, and the subcommittee Ranking Member, Mr. Kanjorski, for arranging the hearing today to discuss the important and urgently needed extension of the Terrorism Risk Insurance Act. I urge that we work together on legislation to extend TRIA and that we move this legislation both through the committee and the Floor of the House this year. We must act to continue to provide TRIA'S Federal backstop. TRIA, as we know, was enacted in response to the events of 9/ 11, an event that caused over $30 billion in insured losses, and was enacted to help secure our economy against the devastation that might come from another terrorist attack. This was the primary purpose behind TRIA and it is the very reason this law needs to be extended. This high-level Federal backstop not only protects private commercial insurance interests, but also the long-term interests of the Federal Government, which would be ultimately responsible for funding both short- and long-term costs associated with recovering from a terrorist attack. Unfortunately, TRIA will sunset on December 31st of this year, and with Congress very soon to adjourn for the August recess, that deadline is fast approaching. The full 2-year extension proposed by Mr. Capuano's bill, H.R. 1153, will prevent destabilization of the insurance industry and, in turn, the national economy. This Con The Treasury Secretary's recent report on TRIA makes it clear that private markets will develop additional terrorism insurance capacity over time, but that still leaves us with a problem that must be addressed now. Whereas Secretary Snow indicates that the Bush Administration opposes the extension of TRIA in its current form, we do understand that this program may not be the long-term answer to protect all of the stakeholders here. I agree that in the end we must work to find private sector alternatives to address the liabilities created by the possibility of terrorist attacks. But with no such long-term solution currently in place and the sunset deadline of this protection soon approaching, a short-term extension must be enacted. Failure to extend TRIA with the uncertainties that still exist in the insurance marketplace would horribly exacerbate the already difficult task that insurers face in trying to accurately and effectively manage the risk of loss resulting from a terrorist attack. Failure to extend TRIA now would lead us back to the same highly uncertain business environment we saw before TRIA, an environment in which firms struggled to get needed coverage. TRIA has provided a short-term solution to successfully protect policyholders from bankruptcy, keep insurers from insolvency, and prevent the taxpayers from paying the full cost of a terrorist attack. Failure to enact the short-term extension makes no sense whatsoever. We are fortunate that there have been no terrorist attacks on U.S. soil since 9/11. Unfortunately, we have seen with this month's attacks in London that we still face a very real threat of terrorism and this threat will not go away when TRIA sunsets at the end of this year. We must act as quickly as possible, both in committee and with the entire Congress to avoid the premature expiration of TRIA's Federal backstop. Our security and future prosperity demand it. I thank the chairman. Chairman BAKER. I thank the gentleman. Mr. Ryun? Mr. RYUN. Mr. Chairman, thank you, and thank you for convening this hearing. It is an issue that has been in front of the committee for some time now. We have had numerous hours of testimony, and I believe that we have done a commendable job of helping to ensure that terrorism insurance continues to be available during perilous times. At the same time, we must not lose sight of the goal to return terrorism insurance to a market-based product. If we fail to establish a framework that begins to wean the industry off the Federal assistance, we will create a dependency that is almost impossible to reverse. However, it would be equally irresponsible to allow TRIA to expire if the market cannot bear the product on its own. I do believe that the industry is not to this point and therefore I believe that the committee should act to extend TRIA in some form. I am hopeful that we will be able to include meaningful reforms that accomplish the goals of holding taxpayers harmless over time, and ensure the availability of this product as it returns to the |