http://www.bizjournals.com/boston/stories/2005/08/15/newscolumn2.html?from_r ss=1 INDUSTRY WRAPUPS >From the August 12, 2005 print edition Financial notebook
Terrorist attacks put reinsurance lobbyists on alert Edward <http://www.bizjournals.com/search/bin/search?t=boston&am=boston&q=%22Edward %20Mason%22&f=byline&am=120_days&r=20> Mason Journal Staff Terrorism seems to be on everyone's mind following the July 7 attack on the London underground. It is certainly on the mind of Massachusetts' insurance companies, which along with their national counterparts are lobbying Congress to extend the federal Terrorism Risk Insurance Act. Earlier this month, the Boston-based New <http://www.bizjournals.com/search/bin/search?q=%22New%20England%20Council%2 2&t=boston> England Council, area insurers and attorneys met with staff of the region's congressional delegation to lobby for renewal of the law. Commonly known as TRIA, the law is set to expire on Jan. 1. Passed following the Sept. 11, 2001, terrorist attacks, the law created a safety net for insurance companies so they wouldn't be discouraged from writing policies covering such attacks. To encourage companies to offer the insurance, the government would provide reinsurance (insurance on insurance) on those policies, also known as a backstop. The Bush administration feels insurers are ready to stand on their own and has proposed replacing TRIA with a plan that requires greater private-sector participation. However, insurers and business groups such as the New England Council worry that without federal assistance, terrorism insurance would dry up. And that could be disastrous for the economy, says John Phillips, an attorney at Day, Berry & Howard LLP in Boston. Phillips, who attended the congressional meeting, said one area that could get hit hard is commercial development. An estimated 94 percent of commercial real estate loans require terrorism insurance. If the TRIA safety net were removed, developers might find getting terrorism insurance difficult or prohibitively expensive. Those costs would be passed on to tenants, who would pass them on to customers, allowing for the expense to ripple through the economy. Insurance companies aren't asking for a government handout. As it is, terrorism insurance is a costly business because the deductibles are so high. Paul Mattera, senior vice president and chief public affairs officer at Boston's Liberty Mutual Group, said Liberty Mutual has to pay out $1.5 billion before it can cash in on its government reinsurance. "In a $35 billion event like the World Trade Center (attacks), Liberty's $1.5 billion deductible would very likely be exhausted," Mattera said. Moreover, it's not clear what future terrorist attacks could cost insurers. Insurers, Mattera said, are familiar with the outcomes of certain events they insure, like tornadoes or fires, whereas terrorist attacks are not as well understood. "Here, we have no sense of frequency or size," Mattera said. So insurers want stability. One alternative being discussed within the industry is forming a terrorism-insurance pool. Under a pool, insurers would pay into a fund based on a percentage of written premiums. In the event of a claim related to terrorism, companies would pay a deductible before collecting. The federal government would back up the pool. Liberty Mutual's Mattera said insurers would be unlikely to create a pool without congressional action. "A pool without a federal backstop is no protection for the industry because it doesn't increase the capital needed to meet the exposure to terrorism," Mattera said. And that brings the issue home to Bay State insurers. An insurer that gets whacked on terrorist-activity claims could see its capital position erode and its credit rating devastated. The Bush administration has said it would support extending TRIA only with changes that would reduce the government's exposure. Treasury Secretary John Snow has proposed a $500 million hike in the damages that would trigger TRIA and has suggested that deductibles and co-payments increase. Massachusetts lawmakers are supporting renewal. Congressman Michael Capuano has co-sponsored TRIA extension legislation, while Sen. Edward Kennedy has done the same in the Senate. Both bills would extend TRIA for two years. House Republicans are drafting their own version. Bay Staters could play a large role in shaping what TRIA-renewal legislation looks like. Capuano, Rep. Barney Frank and Rep. Stephen Lynch all sit on the House Financial Services Committee. Jim Brett, New England Council president and CEO, said he believes there is support for a continued federal role in protecting insurers. The question is what that support will look like. Wanted: Media tips For nearly five years, I've covered finance at the Boston Business Journal. Now my beat has been expanded to include the media business. If you have news or tips about Boston's newspapers, television and radio stations (mergers, sales, new publications, comings and goings, etc.), please give me a shout. EDWARD MASON reports on finance, government and media. He can be reached at [EMAIL PROTECTED] C 2005 American City Business Journals Inc. [Non-text portions of this message have been removed] ------------------------ Yahoo! Groups Sponsor --------------------~--> <font face=arial size=-1><a href="http://us.ard.yahoo.com/SIG=12h5e8q9q/M=362329.6886306.7839369.3040540/D=groups/S=1705323667:TM/Y=YAHOO/EXP=1124130370/A=2894321/R=0/SIG=11dvsfulr/*http://youthnoise.com/page.php?page_id=1992 ">Fair play? Video games influencing politics. Click and talk back!</a>.</font> --------------------------------------------------------------------~-> -------------------------- Want to discuss this topic? 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