Despite broad bipartisan support for extending the Terrorism Risk Insurance Act (TRIA) beyond its 2005 deadline, the debate continues over the most efficient means of providing affordable insurance on large commercial properties.
As it currently stands, TRIA, a federal reinsurance program passed in November 2002 to limit potential terrorism-related losses to insurance carriers, will expire Dec. 31, 2005. Last week, legislation was introduced by Reps. Sue Kelly (R., NY), Richard Baker (R., La.), Pete Sessions (R., Texas) and Eric Cantor (R., Va) that would extend the program through 2007.
"This is an important bridge at a time when it's difficult to know whether or not we need TRIA on a permanent basis," said Patrick Corcoran, head of CMBS research at JPMorgan Securities. "Do we need government involvement at the first loss level, or is their room for the private sector to do more? The jury is still out."
Erick Gustafson, senior director at the Mortgage Bankers Association, said that judging from support for the program on Capitol Hill, the legislation will likely go through. A recent letter to the Bush administration extolling its virtues garnered 189 signatures, he noted. However, there is still room for adjustments. "By taking this step, these lawmakers believe they can buy additional time for Congress to weigh all the issues associated with terrorism insurance," Gustafson said. "Most within the industry believe that TRIA is largely a good thing, but there could be amendments."
JPMorgan's Corcoran said that while his firm has been supporting the movement to extend TRIA, support does not rule out the possibility of tinkering with the program to allow for a greater private sector role in the future.
Meanwhile, in response to intensive lobbying efforts by real estate industry groups, U.S. Secretary of the Treasury John Snow recently elected to extend the "make available" provision of TRIA through the end of 2005. The provision in question, which was set to expire in December of this year, requires all commercial property and casualty insurers who write polices for commercial properties to offer terrorism insurance policies on a par with those for other catastrophic events.
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