If It’s December, It Must Finally Be Time for Congress to Do Something About TRIA

It looks like Congress is finally turning its attention to reauthorizing the Terrorism Risk Insurance Act (TRIA).  The statute will sunset on December 31st unless action is taken before then.

Addressing our nation’s urgent problems at the last possible minute has become a Congressional hallmark in recent decades, and TRIA is no exception.  We ran a post explaining how the statute works in early May, and we optimistically titled it “Congress Moves Towards Reauthorization of TRIA.”  We should have known better.  TRIA was enacted in 2002 with a sunset date of December 31, 2005.  It has since been reauthorized twice – for two years by the Terrorism Risk Insurance Extension Act (TRIEA) in 2005 and then again for seven years by the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) in 2007.  TRIEA was sent to the President’s desk by Congress on December 22nd while TRIPRA was sent to the White House even closer to the wire, on December 26th.  Congress is at least consistent.

shutterstock_177862862The House of Representatives’ Financial Services Committee sent a reauthorization bill to the House floor on June 20th, but it was never voted on by the full chamber.  It had been passed out of the committee on a partisan 32-27 vote, and its sponsors evidently felt that it reduced the federal government’s backstop role too drastically to have any chance of passing the Senate.  The upper chamber then passed a reauthorization bill of its own on July 17th by a 93-4 vote and sent it to the House, but it languished there until recently as TRIA’s expiration date grew ever closer.

In recent weeks, extensive negotiations between Senator Charles Schumer (D.-N.Y.) and the Chairman of the House’s Financial Services Committee, Representative Jeb Hensarling (R.-Tex.), finally broke the bill free, and the House approved an amended version of the Senate’s TRIPRA of 2014 on Wednesday of this week.  The vote was an overwhelming 417-7, and the amended measure now heads back to the upper chamber.

Every time TRIA has been reauthorized, Congress has chosen to  decrease the federal role.  Both House and Senate versions of TRIPRA are no exception.  When TRIA was initially enacted in 2002, the annual aggregate retention level was $15 billion, meaning that industry-wide commercial and worker’s compensation claims from a terrorist attack had to exceed $15 billion before TRIA kicked in.  That figure has been $27.5 billion for the last seven years, and it will step up to $37.5 billion under the new legislation.  In addition, the original co-pay was set at 90/10; above the retention level, the federal government paid 90% of the loss and the insurance industry paid the remaining 10% up to a cap of $100 billion.  That has been 85/15 since 2007, and it will now become 80/20.

There are two principal TRIA-related differences between the House and Senate measures that must still be ironed out.  First, the upper chamber’s bill extends TRIA for seven years while the House version would sunset in six.  Secondly, the House chose to increase the size of the necessary triggering event.  TRIA is activated once an event has been certified as an “act of terrorism” by the State, Treasury, and Homeland Security Departments.  To qualify, such an event had to do $5 million in insured damage in 2002, $50 million since 2005, and $100 million since 2007.  The House version steps that up to $200 million beginning in 2016.

Characteristically, there is another potential snag that may cause significant problems for some Democratic senators.  The House bill includes a proposal unrelated to TRIA that would tweak the Dodd-Frank Act to allow what are called “end users,” such as energy and agricultural companies, to avoid having to post collateral on transactions conducted with swaps dealers and financial institutions under certain circumstances.  This was evidently tacked on by Representative Hensarling and was not part of the Financial Services Committee Chairman’s negotiations with Senator Shurmer.  It may well imperil the legislation’s chances of approval in the Democratic-controlled Senate.  The White House has also gone on record with “serious concerns” about the provision, though President Obama has not expressly threatened a veto.  It seems certain, therefore, that Congress will not be setting any new records for reauthorization this time around.

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About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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