U.S. House of Representatives committee expected to file TRIA Reform Act soon

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.