On May 1, the Chairman of the US House Financial Services Subcommittee on Housing and Insurance, Rep. Randy Neugebauer (R-TX), gave committee Republicans a draft proposal outline, since publicly circulated by media, describing the concepts and terms under which he is prepared to reauthorize the Terrorism Risk Insurance Act (TRIA). Chairman Neugebauer released only this draft outline and has not yet circulated proposed bill language, although many expect such language to be introduced within the next two weeks.

The proposal, entitled The Terrorism Risk Insurance Modernization Act of 2014 (TRIM), has the support of House Financial Services Chairman Jeb Hensarling (R-TX) and is said also to have the support of key members of the House Republican leadership, including Majority Leader Eric Cantor (R-VA). The outline proposes a three year reauthorization of TRIA, which is set to expire on December 31, 2014, and other changes to the current program including increasing the trigger limit and reducing the annual government assistance cap. The most significant change would provide different levels of federal coverage for nuclear, biological, chemical and radiological (NBCR) terrorist acts than for non-NBCR terrorist acts. The proposal also would establish a capital reserve fund with premiums collected by insurers. Thus, the House Republican proposal would represent a significant change in approach from prior TRIA reauthorizations that largely extended the duration of the then existing TRIA program without making significant changes to the program's terms.

The House Republican committee draft comes two weeks after Senator Charles Schumer (D-NY), with the bipartisan support of eight other senators, introduced a bill (S. 2244) that would extend the current TRIA program for an additional seven years through December 31, 2021, increase the aggregate retention amount by $2 billion per year from the current level of $27.5 billion until it reaches $37.5 billion and otherwise essentially extend the current TRIA program. The House Republican outline already has been sharply criticized by Financial Services Committee Ranking Member Maxine Waters (D-CA) and other Democrats who want to see the current TRIA program extended without delay for a term of anywhere from seven to ten years.

Chairman Hensarling has repeatedly expressed his intent to scale back TRIA and 'facilitate a transition to a viable market for private terrorism risk insurance.' Notwithstanding the skepticism of Chairman Hensarling and a number of other House Republicans about the wisdom and advisability of reauthorizing TRIA and their assertions that the program's continuation has had the effect of preventing the private sector from assuming responsibility for insuring against the risks of terrorism, the outline's release is a clear acknowledgement by the House Republican leadership that TRIA needs to be reauthorized in some form for at least for some period.

The timing of the outline's release also reflects a recognition of the need for both the House and Senate to move forward promptly on passing their respective versions of TRIA reauthorization bills to allow adequate time for the likely differences to be reconciled in a conference committee if the Congress is to pass and the President sign a TRIA reauthorization before TRIA expires at the end of this year. To that end, many expect the Financial Services Committee to mark up its version of a TRIA reauthorization bill as early as the last week in May, or when the House comes back into session the second week of June. The leadership of the Senate Banking Committee has indicated its intention to mark up its version of a TRIA reauthorization bill soon after it completes its markup of the Johnson-Crapo GSE reform bill.

Thus, with the outline's release, the question of whether House Republicans will agree to reauthorize TRIA seems to have been resolved. The debate will now shift solely to questions of the length of a TRIA reauthorization and the terms under which the program will be reauthorized.

Draft Outline Overview

  • A three year program extension through December 31, 2017.
  • Changes the terrorist act certification process and the timeline for making such certifications.
  • Allows a voluntary small insurer opt-out of TRIA coverage.
  • Changes the aggregate retention amount to be equal to the sum of the insurer deductibles for the preceding program year for all participating insurers beginning in 2016.
  • Changes the rate of recoupment of taxpayer funds from 133 percent to 150 percent beginning in 2016.
  • Reduces the annual liability program cap beginning in 2017 to $75 billion, from $100 billion.
  • Provides different levels of insurance coverage for NBCR and Non-NBCR terrorist attacks.

For NBCR certified acts

  • Retain the federal copayment share of 85 percent insured losses after the trigger and an insurer's deductible have been met.
  • The program trigger of $100 million per year before federal payments occur would remain in place.

For Non-NBCR events

  • There is a decreased copayment share of 80 percent of insured losses beginning in 2016 and an additional decrease to 75 percent beginning in 2017.
  • The program trigger would increase from $100 million to $250 million in 2016 and increase to $500 million in 2017.
  • Establishes a capital reserve fund, known as the Terrorism Reserve Fund (TRF), which would hold funds in a fiduciary capacity on behalf of the Treasury Secretary.
  • The TRF would be funded with 50 percent of the premiums collected and attributed to terrorism risk insurance coverage
  • The fund may be used by participating insurers to pay:

    1. Deductibles under TRIA;
    2. The insurer's losses not covered by the deductible;
    3. Any amounts recovered under recoupment; and
    4. The cost of risk-sharing mechanisms to reduce insurer and taxpayer exposure.
  • Participating insurers would be authorized to invest funds in certain permissible activities.
  • In the event of TRIA's termination, 90 percent of the funds would be returned to the insurer.

See below for a chart comparing key aspects of current law to the Schumer bill (S. 2244) and the House Republican Draft Outline

Terrorism Risk Insurance Program Reauthorization - Comparison of Current Law to the Schumer bill (S.2244) and the House Republican Draft Outline

Current Law (P.L. 110-160) Senator Schumer's bill (S.2244) House Republican Draft Outline (TBA)
Title Terrorism Risk Insurance Program Reauthorization Act of 2007 Terrorism Risk Insurance Program Reauthorization Act of 2014 The Terrorism Risk Insurance Modernization Act of 2014
Length of Reauthorization 7 years through Dec. 31, 2014 7 years through Dec. 31, 2021 3 years through Dec. 31, 2017
Mandatory Recoupment Rate 133 percent No change from current law Increases to 150 percent
Recoupment Time Period 3 years until Sept. 30, 2017 7 years until Sept. 30, 2024 Not addressed
Insured Loss Shared Compensation 85 percent-15 percent split with the federal government Insurers' share increases to 80-20 percent (an increase of one percent per year over 5 years from the current level) NBCR 85-15; Non-NBCR 80-20 (starting in 2016) and 75-25 (starting in 2017)
Program Trigger $100 million per year No change from current law NBCR events $100 million; Non-NBCR $250 million (2016); and $500 million (2017)
Annual Cap on Assistance $100 billion per year No change from current law $75 billion beginning 1/1/2017
Aggregate Retention Amount $27.5 billion through 2014 Increases amount by $2 billion each year until it reaches $37.5 billion Beginning in 2016, the insurance marketplace retention amount to equal the sum of the insurer deductibles for the preceding program year for all participating insurers
"Act of Terrorism" Definition For an act of terrorism to be covered under TRIA, it must be a violent act committed in an effort to coerce the U.S. civilian population or influence U.S. government policy. It must have resulted in damage within the United States or to a U.S. airliner or mission abroad. To qualify as a covered "terrorist act", it must be certified by the Secretary of the Treasury in concurrence with the Attorney General and Secretary of State. No change from current law Adds back previous language requiring that a covered act of terrorism be committed on behalf of a foreign person or foreign interest.
Certification An individual act of terrorism must be certified by the Secretary of the Treasury in concurrence with the Attorney General and Secretary of State. No change from current law To certify an "act of terrorism," the Treasury Secretary must consult with the Attorney General and the Secretary of Homeland Security (replacing the Secretary of State under the current law). Removes the current $5 million threshold for certifying acts of terror. Establishes a fixed, 90-day timeline for which the Treasury Secretary is to determine whether to certify an event as an act of terrorism.
Other Changes or Additions 1. Separate treatement of conventional terrorism from NBCR terrorism

2. Voluntary small insurer opt-out of TRIA coverage

3. Establishes a Capital Reserve Fund (CRF)

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