The House Financial Services Committee is expected to file the TRIA
Reform Act of 2014 in the very near term. A copy of a “Discussion Draft” of the
bill has started circulating with Members of the Committee and has been
provided to industry stakeholders, although it has not been made public at this
time. NAPSLO is currently reviewing the draft and its impact on the surplus
lines insurance industry.
NAPSLO previously reported that the Senate Banking Committee approved a
TRIA reauthorization bill that made few changes to the current TRIA program.
The proposed House bill goes further and would make several substantive changes
to the program. Some key substantive changes are in the following areas:
- Extension: The TRIA program
would be extended for a period of five years, through December 31, 2019.
- Certification of TRIA Event:
The current program’s $5 million threshold
for terrorism events has been eliminated, and the Treasury Secretary would be
required to certify an event as an act of terrorism within 90 days of the
event.
- Bifurcation of NBCR and Non-NBCR Terrorism Events:
The program coverage and triggers will be split and handled differently for
Nuclear, Biological, Chemical and Radiological (NBCR) events and non-NBCR
events. We believe this is a strong signal the House is evolving the TRIA
program to one that may only cover NBCR events after December 31, 2019. NBCR is
defined in accordance with the ISO form definition. While NAPSLO has encouraged
the Committee to include cyber terrorism within a category of the program’s
coverages and triggers that will apply to NBCR events, cyber terrorism would be
considered a non-NBCR event in the proposed program.
- Program Trigger: For NBCR
events, the program trigger will remain $100 million in insured losses;
however, for non-NBCR events, the triggers will increase from $100 million to
$500 million in insured losses over the course of the five years ($200 million
in 2016; $300 million in 2017; $400 million in 2018 and $500 million in 2019). There
is also a minimum threshold of $50 million in insured losses in order for any event to be considered and aggregated
as multiple acts of terrorism to reach the program’s trigger.
- Co-Payments: For NBCR
events, the program’s federal co-payment will remain at 85% but the non-NBCR
co-payment will reduce to 80% incrementally over the five year extension period
(84% in 2016; 83% in 2017; 82% in 2018 and 80% in 2019).
- Federal Recoupment: The
Treasury’s mandatory recoupment rate will increase from 133% to 150% of
government payments for losses under the aggregate retention amount. The industry’s
aggregate retention will increase from $27.5 billion to the lesser of the sum
of insurer deductibles and the aggregate amount of insured losses during the
program year.
- Small Insurer Opt-Out:
Requires the Treasury Secretary to develop regulations that would allow small
insurers to opt-out of the “mandatory offer” of the program.
The above is not an exhaustive list of the proposed changes in the
bill, but highlights the House’s approach to the reauthorization of the TRIA
program. It clearly demonstrates the Committee’s intent to reduce reliance upon
the Government and increase reliance on the private insurance market to cover terrorism
risks. NAPSLO will continue to review the bill and report on the progress as
both chambers address the reauthorization of the TRIA program.
