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THE NEED TO EXTEND THE

TERRORISM RISK INSURANCE ACT

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS,

INSURANCE, AND GOVERNMENT

SPONSORED ENTERPRISES

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 5, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–8

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MARSHA BLACKBURN, Tennessee 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED

ENTERPRISES

PAUL E. KANJORSKI, Pennsylvania, Chairman

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

DEBORAH PRYCE, Ohio 

RICK RENZI, Arizona 

RICHARD H. BAKER, Louisiana 

CHRISTOPHER SHAYS, Connecticut 

PAUL E. GILLMOR, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

SHELLEY MOORE CAPITO, West Virginia 

ADAM PUTNAM, Florida 

J. GRESHAM BARRETT, South Carolina 

BLACKBURN, MARSHA, Tennessee 

GINNY BROWN-WAITE, Florida 

TOM FEENEY, Florida 

SCOTT GARRETT, New Jersey 

JIM GERLACH, Pennsylvania 

JEB HENSARLING, Texas 

GEOFF DAVIS, Kentucky 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

(V)

C O N T E N T S 

Page 

Hearing held on: 

March 5, 2007 ................................................................................................... 1

Appendix: 

March 5, 2007 ................................................................................................... 47

WITNESSES 

MONDAY, MARCH 5, 2007

Bailey, Donald J., Chief Executive Officer, Willis NA .......................................... 29

Bloomberg, Hon. Michael R., Mayor of New York City ........................................ 13

Dinallo, Eric R., Acting Superintendent, New York State Insurance Department ...................................................................................................................... 16

Ferguson, Roger W., Chairman, Swiss Re America Holding Corporation .......... 19

Graves, Steven K., Chief Operating Officer, Principal Real Estate Investors, 

on behalf of the Mortgage Bankers Association ................................................ 27

Green, Stephen L., Chief Executive Officer, SL Green Realty Corporation, 

on behalf of the Coalition to Insure Against Terrorism .................................... 23

Heck, Warren, Chairman and CEO, Greater New York Mutual Insurance 

Company, on behalf of the National Association of Mutual Insurance Companies .................................................................................................................... 25

Kelly, Edmund F., Chairman, President, and Chief Executive Officer, Liberty 

Mutual Group ....................................................................................................... 31

Lieber, John N., Senior Vice President, World Trade Center Properties, LLC .. 21

Schumer, Hon. Charles E., a United States Senator from the State of New 

York ....................................................................................................................... 10

APPENDIX 

Prepared statements: 

Bailey, Donald J. .............................................................................................. 48

Dinallo, Eric R. ................................................................................................. 61

Ferguson, Roger W. .......................................................................................... 76

Graves, Steven K. ............................................................................................. 79

Green, Stephen L. ............................................................................................. 96

Heck, Warren .................................................................................................... 105

Kelly, Edmund F. ............................................................................................. 116

Lieber, John N. ................................................................................................. 126

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Statement of the Independent Insurance Agents & Brokers of America, 

Inc. ................................................................................................................. 134

Statement of the National Association of Professional Insurance Agents ... 142

‘‘Looking Beyond TRIA: A Clinical Examination of Potential Terrorism 

Loss Sharing’’, Howard Kunreuther and Erwann Michel-Kerjan, The 

Wharton School, University of Pennsylvania, dated February 2007 ........ 145

(1)

THE NEED TO EXTEND THE 

TERRORISM RISK INSURANCE ACT 

Monday, March 5, 2007

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT

SPONSORED ENTERPRISES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10 a.m., in the 

City Council Chambers, New York City Hall, 131 Duane Street, 

New York, New York, Hon. Gary Ackerman [member of the subcommittee] presiding. 

Present: Representatives Ackerman, McCarthy, Velazquez, Bean, 

Sires, Perlmutter, Murphy; Pryce, King, and Garrett. 

Also present: Representatives Maloney, Crowley, Weiner, Israel, 

and Fossella. 

Mr. ACKERMAN. [presiding] I would like to call the subcommittee 

to order, and to welcome the members of the Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee to 

New York City. I would also like to thank our many distinguished 

witnesses, who will be introduced publicly shortly, for taking time 

out of their busy schedules to appear at our hearing on a very critical topic: ‘‘The Need to Extend the Terrorism Risk Insurance Act,’’ 

also known as TRIA. 

I would like to take a moment at the outset to indicate that the 

chairman of the full committee is Congressman Barney Frank, and 

that the chairman of this subcommittee is Paul Kanjorski, who is 

unable to join us this morning due to an unexpected conflict, which 

brings me to the chair. I am Gary Ackerman, and I represent the 

Fifth District of New York. 

On behalf of the subcommittee, I would like to express our gratitude to Chairman Kanjorski for arranging this important field 

hearing today, and for his strong support and his stewardship of 

a fair and comprehensive reauthorization of TRIA. 

I would also like to thank the New York City Council and Speaker Christine Quinn for allowing the subcommittee the use of their 

beautiful chamber this morning, and we are happy to have our 

landlady with us today, at least for this part of City Hall, the distinguished Madam Speaker, and we are getting used to saying 

Madam Speaker, with us; and for those of our colleagues who find 

it sometimes difficult to deal with a bunch of irascible New Yorkers 

down in Washington, imagine what it is like to deal with a chamber full of them. 

2

So if I can ask and recognize the Speaker, Madam Speaker. 

Ms. QUINN. Thank you very much, Chairman Ackerman, and we 

would like to think we set a trend here in the New York City Council as it relates to Madam Speakers. 

Just for the record, when you said beautiful chamber, what you 

really meant was beautiful chamber in need of a face lift and a 

clean-up job, and I know that the Mayor agrees with that sentiment in full. He and I will be discussing that later. If anyone trips 

over anything or feels plaster on their head, please feel free to 

mention it to the Mayor on the way out. If you visit his side, it is 

much nicer, but we are working as a team on this matter. 

Seriously, I want to very much thank everyone on the subcommittee for being here today, and to thank Chairman Ackerman 

for holding this hearing here today. We were very, very excited and 

so happy to open up the chamber to the Congressional subcommittee, because, obviously, the renewal of TRIA is central and 

critically important to all of us in New York City, and we wish it 

wasn’t so relevant that this hearing happened in Lower Manhattan, but it is, and we were very grateful that all of you saw fit to 

use our chambers to have this hearing, which I hope sends a clear 

and strong message about the need to renew this Act in a fair and 

comprehensive way. 

So I want to thank you for reaching out to us, and to say that 

our chambers are always open to this subcommittee or any other 

Congressional subcommittee that wishes to use them. We are very 

excited about all of the opportunities that lie ahead for the Congress and the City of New York to strengthen our connection and 

deepen the commitment of the Federal Government to New York 

City. 

I know today’s hearing, particularly with the witnesses you have 

today, Mr. Dinallo, our great Mayor, our great senior Senator, will 

help in that effort of strengthening the connection between Congress and the City of New York, and just urge everyone that we 

really move as quickly and thoroughly as we can to make sure that 

TRIA is renewed. It is central to our ability to move forward and 

fully complete the recovery that we have begun and sought so 

hard—worked so hard on since September 11th. So thank you all 

for being here, and again you are welcome to always come back, 

and thank you for thinking of using the City Council’s chambers. 

Mr. ACKERMAN. Thank you very much, Madam Speaker. I hope 

nobody trips in the room. If anybody is concerned, maybe we can 

find somebody who might be willing to provide some insurance. 

New York City is indeed the ideal setting for the hearing of this 

subcommittee on this topic, New York City being originally the 

home of the Congress, and it was not unusual for Congress to have 

meetings and committee meetings here, because that was the only 

place we had them. 

In addition to the enormous loss of human life on September 

11th, the value of which cannot be measured, the terrorist attacks 

on that infamous day caused catastrophic economic losses to this 

City and to our Nation as a whole. The attacks of 9/11 resulted in 

$30 billion of insured losses, the largest catastrophic insurance loss 

in the history of the United States, larger than any tornado, blizzard, or hurricane. 

3

As a result, insurers and reinsurers began to worry about the 

likelihood and the cost of a future terrorist attack. Worrying about 

risk and then monetizing that risk is the key to the insurance industry, which itself is an essential element in a modern, dynamic 

economy. As businesses with legitimate concerns about their solvency, insurance and reinsurance firms started to withdraw from 

the City of New York’s market. 

As the supply of terrorism insurance rapidly decreased, New 

York City developers, who were required to be insured against terrorism, were put in a very precarious position; they needed terrorism insurance to avoid defaulting on their loans, but the market 

for insurance, quite simply, didn’t have enough capacity to meet 

their demand. Similar shortages began occurring throughout the 

country. In simple terms, in this case there was a market failure. 

It was out of this dilemma and the critical need to address it that 

the original version of TRIA was born. TRIA increased the availability of terrorism insurance coverage by creating a Federal backstop that would share the burden of losses caused by any future 

act of terrorism with the insurance industry. 

In the wake of 9/11, we had hoped that a temporary, 3-year program would provide enough of a shield to allow the market to fully 

recover. By late 2005, however, the Financial Services Committee 

and others in the Congress realized that TRIA had not resulted in 

as quick or as robust a recovery as was initially hoped. TRIA was 

extended for an additional 2 years, and is currently set to expire 

on December 31st of this year. 

Failure to extend TRIA would itself be a disaster. It would certainly result in the destabilization of the insurance industry and, 

in all likelihood, the national economy. Every type of large scale 

enterprise, and small, would be at risk, and the threat to our national economic health would be immense. Congress has no greater 

domestic obligation than to ensure the safety of the American people, and this obligation extends to both acts of terrorism and to 

foreseeable and preventable economic turmoil. 

It is my view, and the view of many within the financial services 

industry, that a long term extension is necessary. It is a cliche, but 

9/11 did indeed change everything. The real increased potential for 

terrorists to commit not just a heinous but a catastrophic act will 

continue to influence the market’s assessment of risk for years. 

In the new world in which we live, nuclear, biological, chemical, 

and radioactive or NBCR coverage must be included in the TRIA 

program. The Government Accountability Office report in September 2006 found that ‘‘any purely market driven expansion of 

coverage for NBCR is highly unlikely in the foreseeable future.’’ 

A study simultaneously undertaken by the President’s Working 

Group came to the same conclusion. Without a significant market 

expansion for NBCR coverage, the Federal Government must step 

in and provide coverage. 

There is a debate as to how long the reauthorization period 

should be; whether the trigger, deductible, recoupment, or co-payment levels of existing authorization should be amended; and 

whether group life insurance provisions should be added to TRIA’s 

framework. I hope that some of the witnesses who appear before 

4

the subcommittee today will address these specific, contentious 

areas. 

There are many different perspectives on these questions and 

many different interests and equities that are at stake. This subcommittee hearing is just the first step in what will be a long but, 

I hope, successful journey toward TRIA reauthorization. 

We hope to travel down that long road very quickly. Beginning 

our work here in New York City shows how serious the Financial 

Services Committee and the Congress are about this vital question 

to our economy. And now let’s get down to business, as we say in 

New York. 

We are going to hear from the ranking member of this subcommittee, the very distinguished Honorable Deborah Pryce. 

Ms. PRYCE. Thank you so much. I appreciate the opportunity to 

be here and the gracious way that New York City has hosted us 

since we got into town. Thank you all. What a great place to continue this discussion in the new Congress. 

After the brutal terrorist attacks of 9/11, America’s economy and 

financial security was certainly at risk. Thousands of innocent people were victimized, and the financial markets were threatened by 

the largest catastrophic loss in our Nation’s history. 

Along with the incomprehensible devastation and the loss of life, 

New York jobs and economic growth were jeopardized by a crippling of the insurance marketplace. The President immediately 

called on Congress to pass legislation that would prevent economic 

destabilization caused by a lack of available terrorism insurance, 

and the House Financial Services Committee sprang into action, 

produced a bipartisan solution, and established the framework for 

the current terrorism insurance program. 

According to reports by the Treasury Department, the Government Accountability Office, and others, TRIA has been a great success, providing American consumers with the protection against 

terrorist attacks and continued availability of insurance to protect 

our economy everywhere. 

Since its enactment, the insurance market has become healthier 

than ever. Insurers have regained lost surplus, diversified risks, 

and developed increasingly sophisticated terrorism loss modeling. 

Reinsurance availability for terrorism coverage has also grown, 

with some recent estimates of $6- to $8 billion available for specific 

reinsurance, growing by $1- to $2 billion per year. 

The private insurance marketplace is also able to manage an increasing level of exposure, and with the right combination of TRIA 

reforms such as tax reserving and regulatory reform, the terrorism 

insurance marketplace will continue to strengthen and expand. 

I have caucused with my Republican colleagues on the committee, and we are committed to extending TRIA this year. I cosponsored the House TRIA extension bill last year, which included 

language creating a commission on terrorism risk insurance that 

was explicitly directed to report back to Congress with specific recommendations for a long term program with the appropriate reforms. 

Unfortunately, this commission and several other critical reforms 

in the House bill were not ultimately adopted, leading members on 

5

both sides of the aisle to comment that we are merely kicking the 

can down the road. 

Some of the specific reforms that were included in the bipartisan 

bill that passed overwhelmingly in the committee and in the House 

last Congress included a number of regulatory reforms, such as 

streamlining of the surplus lines market, a more efficient speed-tomarket review of policy forums, more competitive freedom for sophisticated commercial consumers, and encouraged use by all State 

regulators of a nationwide single point filing approval system to 

bring better insurance products to consumers. 

The bill also removed the tax penalty on long term terrorism reserves to enable insurers to grow dedicated terrorism surplus that 

would help maintain the stability of the marketplace, if another 

event occurred. 

While the bill increased the responsibility of insurers to manage 

risk over time with slowly increasing retentions, it also included a 

reset mechanism to bring the private exposure back down below its 

current level, if terrorist losses began to accumulate. 

The current TRIA program has no reset mechanism and does not 

aggregate losses from multiple attacks, meaning that we are back 

to square one if the terrorists return, with insurance pulling out of 

the marketplace once again. 

Perhaps most importantly, our bill last year created a market for 

nuclear, biological, chemical, and radiological terrorism losses, with 

a separate silo, granting a more generous Federal backstop. I really 

think that is important as we consider this bill. 

So let’s quit kicking the can and get the job done. We need to 

include appropriate reforms and make appropriate adjustments to 

the program, make it more dynamic to allow the Federal safety net 

to contract or expand over time, as the terrorist threat evolves. 

Once again, I want to thank my New York colleagues for 

chairing this hearing and for planning it. There is no more appropriate place than Lower Manhattan to begin this discussion. We 

will continue to do our part as a committee. This is one of the most 

important issues facing our Nation. Thank you. 

Mr. ACKERMAN. I thank the distinguished ranking member. We 

will try to conduct as efficient and expeditious a hearing as is possible. We have two great panels, and we have a lot of members 

present. 

After discussions with the ranking member, we are going to limit 

opening statements of members of the subcommittee. We will try 

to keep this to 8 minutes on the minority side and 8 minutes on 

the Democratic side, rather than just go back and forth, because 

we seem to outnumber you, if not in quality, certainly in quantity. 

But we will yield you as much time as we have, so that you might 

divide that among yourselves. 

We will ask members on our side, those who wish to make opening statements, to limit them to 1 minute, and encourage anybody 

who would consider passing on an opening statement to do that in 

the interest of saving time; and to call the attention to members 

of the media or the public, there are some members and some witnesses who have their opening statements or remarks in packets 

that are in the back of the room on your right, our left. 

6

Without objection, all opening statements will be made a part of 

the record. 

Now the first of our two distinguished panels that we will hear 

from are seated. We will begin with opening statements by members. You may pass, if you like. You are greatly encouraged to do 

that. I intended to repeat myself. 

First, the distinguished gentlewoman from Long Island, Carolyn 

McCarthy. 

Ms. MCCARTHY. Thank you, Mr. Chairman, and I will be very 

brief. I just want to remind everyone, even though we are having 

this hearing in New York, and certainly a number of us have been 

down to where the Twin Towers were, this is a Federal issue; because what we have learned on 9/11, as far as the insurance and, 

certainly, for the economy, not just for New York, but it is for all 

of the Nation, and that is why we on the Federal level need to 

make sure we get this done. 

With that, I yield back the balance of my time. 

Mr. ACKERMAN. Thank you, very much. We will next go to Representative Nydia Velazquez. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. I am going to make 

this very easy; I ask unanimous consent for my entire opening 

statement to be entered into the record. 

Mr. ACKERMAN. Without objection. 

The representative from Long Island, Peter King, the former 

Chair and now ranking member of the Homeland Security Committee of the House and a former member of this committee. 

Mr. KING. And a current member. 

Mr. ACKERMAN. And you have returned. 

Mr. KING. Returned. 

Mr. ACKERMAN. We have noticed. 

Mr. KING. Being in the minority does wonders for you—for me. 

Thank you, Mr. Chairman, and Ranking Member Pryce. It is a 

privilege to be here today. I am proud to be a member of this committee, because it is addressing such serious issues as terrorism 

risk insurance and its extension in a bipartisan manner. It is essential that we go forward. 

This is really a confluence of homeland security, national security, and economic stability. New York has made extraordinary recovery from September 11th because of the leadership of its officials, including, of course, Mayor Bloomberg, who is here today, but 

also because of the assistance it did receive from the Federal Government, and it is absolutely essential that assistance be continued 

with the terrorism risk insurance. 

I look forward to the hearing. I look forward, as Congresswoman 

Pryce said, to getting this resolved so we can resolve this once and 

for all. With that, I yield back the balance of my time. 

Mr. ACKERMAN. Thank you, very much. Next, the distinguished 

Representative Melissa Bean of Illinois. 

Ms. BEAN. Thank you, Mr. Chairman. I will pass on an opening 

statement. I am just to honored to be here, and I look forward to 

hearing the testimony. Coming from Illinois, I just want to reiterate that this is important legislation for the entire Nation, not 

just New York. Thank you. 

7

Mr. ACKERMAN. A recent addition to our delegation from New 

Jersey, Representative Albio Sires. 

Mr. SIRES. Thank you, Mr. Chairman. I will waive my comments, 

but I would just like to say that this is a regional, as well as a Federal approach. So thank you very much, Mr. Chairman. 

Mr. ACKERMAN. Thank you, very much. From Connecticut, new 

member Chris Murphy. 

Mr. MURPHY. Thank you, Mr. Chairman, and thanks to the subcommittee and to the hospitality of the New York delegation for 

having us all here from Connecticut, only about an hour away. I 

associate myself with the remarks of Mr. Sires, that this is a national issue, a regional issue and, obviously, an issue of particular 

importance to the City we sit in today, and I thank the members 

for being so gracious to allow us to be here. 

Mr. ACKERMAN. The distinguished representative from New Jersey, Scott Garrett. 

Mr. GARRETT. Thank you, Mr. Chairman, and I thank the ranking member as well. I join Albio as a member from the other side 

of the river where we live in the shadows of the Twin Towers, and 

a number of our constituents worked and died and suffered 

through the tragedies here. 

The point that we are discussing today, TRIA obviously was a 

necessary element at the time, and it has worked. It was not at the 

time intended to be a permanent fix, but it did stabilize the market. It has been successful, and the President’s Working Group, 

after our re-fix to TRIA, has found that, despite what some people 

thought at the time, scaling back some of the indicators, as the 

ranking member indicated, has to continue to work. Insurers have 

got into the market, and I think our job here is to see what we can 

do to potentially scale down the market—scale down the program 

even further, so that there is still a successful program. 

Thank you. I yield back. 

Mr. ACKERMAN. Thank you. Now the distinguished additional 

member from New York, someone who has worked long and hard 

on this issue, Carolyn Maloney. 

Ms. MALONEY. Thank you, Mr. Chairman. Some of the members 

of the committee began our day by touring the site at Ground Zero, 

and we are making progress, but the engineers made clear that we 

need at least 15 years of extension in order to get the financing in 

place to continue the building of the Freedom Tower and all the 

other aspects, the pools and so forth, at Ground Zero. 

I want to thank all of my colleagues for supporting New York 

during our time of need with $20 billion, but I have to say that an 

important part of our national security, our homeland security, is 

our economic security; and there is no more urgent link in our economic security than putting TRIA in place. 

We are much better off as a Nation having a plan in place, in 

case, God forbid, we are attacked again, so that we can quickly respond. Many people come up to me, and they think that TRIA is 

for insurers, and I want to make clear to the audience, my colleagues and the residents of New York and across this country that 

the purpose of TRIA is not to protect insurers. 

8

The purpose is to make sure that our economy, our national 

economy, can respond in an orderly fashion in the event that we 

have a tragic occurrence. 

So I want to thank Chairman Barney Frank, Representative 

Paul Kanjorski, Ranking Member Pryce, and Representative Gary 

Ackerman from the committee for coming to New York to see firsthand, to hear from our Mayor, our Governor’s representative, the 

Superintendent of Insurance, Mr. Dinallo, our Senator who fights 

on this. We thank all of you for being here, and thank you, Mr. 

Mayor, for hosting us so beautifully last night. Thank you. 

Mr. ACKERMAN. The distinguished representative from New 

York, representing Staten Island and Brooklyn, Vito Fossella. 

Mr. FOSSELLA. I have nothing to add. 

Mr. ACKERMAN. You have set the record. 

All members of the subcommittee having had the opportunity to 

make opening statements, we will turn now to three other Members of the Congress who—oh, I’m sorry. They put you out of order 

here. The distinguished gentleman from Colorado, the person coming the longest distance to be with us today, Ed Perlmutter. 

Mr. PERLMUTTER. Thanks, and Mr. Chairman, I know you 

skipped me, because we now have the Democratic National Convention in Denver, and that is why you wanted to overlook me. It 

is not here in New York. But I do want to say thank you for the 

hospitality we have been shown on this trip so far. 

I have two questions I would like either committee members or 

the panelists to answer. How much does this cost the Federal Government? If the actuaries can’t estimate how much this is going to 

cost insurance companies, how much are we looking at as a backstop? The second question is: in 2005 why wasn’t this extended for 

a greater period? 

So if someone could answer that for me, I would appreciate it. 

Thank you. 

Mr. ACKERMAN. Thank you very much, and I greatly appreciate 

your adding method to my madness in overlooking you. 

Now the members of the subcommittee having had the opportunity and having done that in so expeditious a fashion, we will afford a moment—a minute each to three other Members of Congress 

who have blessed us with their presence today. First, Joe Crowley, 

from Queens and the Bronx. 

Mr. CROWLEY. Thank you, Mr. Chairman. It’s great to be able 

to— 

Mr. ACKERMAN. Former member of the committee. 

Mr. CROWLEY. That is right. Thank you. And some have suggested that I have gone to greener pastures. I don’t necessarily 

think that is the case, but I appreciate serving on the Ways and 

Means Committee. 

Senator, good to see you, Commissioner and Mayor. Thank you 

for participating in the hearing today. 

As an original co-sponsor of the TRIA legislation in the House 

and an original conferee—they never met, although my colleague, 

Mr. Israel—I think it is incredibly important that we are holding 

this hearing today and that we are taking this show on the road. 

I think this is indicative of the new Congress as well. I don’t think 

we would have been here in the last—we weren’t here in the last 

9

Congress and, had there not been a change, I don’t think we would 

have been here in this Congress either. So thank you, Mr. Chairman. 

Mr. ACKERMAN. Thank you, very much. The distinguished representative of Brooklyn-Queens, with other desires, the distinguished gentleman, our colleague, Anthony Weiner. 

Mr. WEINER. Thank you, Mr. Chairman, and I appreciate the 

committee and the subcommittee meeting here today. You know, 

the extension of terrorism insurance is not an abstract economic 

issue. If TRIA is not extended, if terrorism insurance is not extended, banks will cease to provide loans, Ground Zero construction 

will end, and frankly, what is likely to happen is the single greatest engine for economic growth not only here in New York but 

around the country, the growth of the real estate community, will 

grind to a halt. 

As uncomfortable as some of us are advocating on behalf of the 

insurance industry, and mindful as we are that many insurers 

have acted in a way that has been borderline irresponsible in the 

way that they have resisted their commitments to rebuild parts of 

Ground Zero, it is absolutely essential that we not only extend terrorism insurance, but make this not a year-by-year contest on how 

much fear we can put into the market that Congress won’t act. 

It is an obligation, I think, on the part of the Nation as part of 

its responsibilities for accepting a Federal role in the attacks of 

September 11th, is to permanently extend terrorism insurance, and 

I appreciate my colleagues being here to make that point. 

Mr. ACKERMAN. Thank you, very much. Finally, the distinguished representative from Nassau and Suffolk Counties, a former 

member of this committee where he worked very hard on this legislation, and abandoned us for the Appropriations Committee, Steve 

Israel. 

Mr. ISRAEL. Thank you, Mr. Chairman. I did have to leave the 

Financial Services Committee to get on Appropriations. My heart 

is still very much with this issue and with the committee. My wallet is with the Appropriations Committee, however, and I do very 

much appreciate your including me in this hearing. I was one of 

the original sponsors of TRIA in the last Congress and was named 

to the conference that never met, and I look forward to continuing 

to work with you and our colleagues on this committee, Mr. Chairman. 

Mr. ACKERMAN. Thank you. This committee has now set a record 

for the period of time in which members made opening statements, 

and it is greatly appreciated, not just by the Chair but by the audience and the witnesses as well, I am sure. 

Now to our first panel. The first witness is the distinguished senior Senator from the State of New York, Charles E. Schumer, most 

recently a New York Times best selling author of the book, ‘‘Positively American.’’ I don’t know that copies of the book are in the 

folders in the back, but if you have one, the Senator will be happy 

to autograph it before you leave the chamber. 

A former member of this committee when he served in the 

House, Senator Schumer has moved on to bigger and maybe better 

things, as he currently serves on the Senate Committee on Banking, Housing, and Urban Affairs where he is the chairman of the 

10

Subcommittee on Housing, Transportation, and Community Development, the jurisdiction of which is, appropriately, urban development. 

We appreciate the Senator’s appearance here with us this morning, and hope he will be able to share both New York’s and the 

Senate Banking Committee’s perspective on the need for terrorism 

risk insurance. 

Senator. 

STATEMENT OF THE HONORABLE CHARLES E. SCHUMER, A 

UNITED STATES SENATOR FROM THE STATE OF NEW YORK 

Senator SCHUMER. Well, thank you, Mr. Chairman. It is great to 

be here. It is great to see you running this show with such precision and alacrity. It is a record. I did serve 18 years on the committee. In fact, had I stayed in the House, I would be chairman of 

the full committee right now, something that I am sure many of 

my— 

Mr. ACKERMAN. We appreciate the fact that you are in the Senate. 

Senator SCHUMER. Yes, exactly. I was going to say, something 

that my colleagues here would have very mixed opinions about, as 

you just showed, but you really ran it well. 

I am also glad to be here in the City Council Chambers, and 

hope we can avoid any terrorism of the falling plaster that might 

occur as well. But I thank you all for being here, and I want to 

thank particularly my colleagues from New York for being here, for 

demonstrating what an important hearing this is; because let me 

just say that this issue was a quiet issue, but it is an issue that 

is extremely important to New York. 

It is one of the top three or four issues that will face us in this 

session of Congress in terms of its effect on New York. It is of critical importance not only to New York, but as Congresswoman Bean 

brought out, and others, it affects the whole country. It affects any 

large target, whether it is in New York or outside of New York, and 

it is really vital to us. 

So let’s get straight to the point. Congress must act quickly to 

extend TRIA. It should extend it permanently, and if permanency 

is not possible, we should extend it for at least 15 years. That is 

how important this legislation is for us. 

We still live in the shadow of 9/11, and it is quite natural for insurance companies, who calculate risk, to look at the worst possible 

things that could happen and then measure how much insurance 

they will provide and at what price. 

If you think that this is not a danger, as some of my colleagues 

in Washington sometimes think, look at what just happened with 

the hurricane. Not only are many insurance companies pulling out 

of Florida unless they get some kind of permanent Federal backup, but as I am sure Congresswoman McCarthy and Congressman 

Israel can testify, they are pulling out of Long Island, in the remote 

eventuality that a Level 3, 4, or 5 hurricane would hit Long Island. 

Well, if insurance companies won’t write insurance for hurricanes, imagine their view of, God forbid, a terrible terrorist attack 

which would create much more loss of life, and much more property 

damage. 

11

So it is almost without doubt that, if we did not have terrorism 

insurance, one of two things would happen. Either insurance companies would not write insurance here at all in New York and in 

other large cities, and perhaps for other large enterprises like a 

Disney World or a Rose Bowl, and construction here in our City 

and in the country for large projects would come to a grinding halt. 

The insurance business is not supposed to be an eleemosynary 

business. That is how the free enterprise system works, and yet we 

have to look at the consequences of them looking at their bottom 

line. Their bottom line would affect our American bottom line, and 

that is that tens of billions of dollars of projects, hundreds of billions of dollars of economic activity would be gone if we didn’t have 

terrorism insurance. 

Maybe one day the fear of terrorism will be gone. That day is not 

today, and it is not 2 years from now or 5 years from now. Just 

last week we debated on the Floor of the Senate the ability to scan 

cargo ships so that, God forbid, a nuclear device wouldn’t be placed 

in one of those ships and exploded in one of our large cities. 

If the Congress is debating that issue as a real possibility and 

debating hundreds of millions of dollars that should be spent on it, 

how can we say that terrorism is not a worry; and given what we 

have seen the insurance companies do even when a hurricane occurs, how can we say that they will continue to write insurance 

here. 

Even if they were to write insurance, it would be at such a high 

price and on such a limited basis that economic activity would slow 

down dramatically, and millions, not tens of thousands, not hundreds of thousands, but millions of people would suffer. 

So I think there is very little doubt that we must extend terrorism insurance. We had trouble extending it in the last few 

years, because there were ideologues, basically, who said—they 

didn’t look at the facts, and they said we don’t want the government doing anything. The very same ideologues, when it comes to 

some kind of insurance for something in their communities, are 

often for it. But now we have a new Senate, and I can tell you, Mr. 

Chairman, in reference to your request, that the Senate Banking 

Committee is going to look very favorably on a long extension of 

terrorism insurance, if not permanency, and I know that the House 

under your leadership, Congressman Kanjorski, Chairman Frank is 

looking at the same thing. I have talked to all of them about it. 

So let me make three points that we ought to be aware of as we 

do it. First, as I said, the extension should be permanent and, if 

we can’t get permanency, a minimum of 15 years. Why? If you do 

it a year at a time, every year at this time projects slow down. 

Someone planning to build something will say, well, there won’t be 

terrorism insurance after December, so I better not build it. 

As we see some of our leaders in the real estate industry here 

in New York, they can tell you, the closer we get to the expiration 

date, the fewer new projects are planned, the fewer move forward, 

and to go through this fear pattern every year at great detriment 

to our economy makes no sense, when at the end of the day we extend it. So let’s just bite the bullet and do it once and for all. 

Second, we should provide the availability of nuclear, biological, 

chemical, and radiological coverage. I don’t know why one is difVerDate 0ct 09 2002 11:12 Jun 05, 2007 Jkt 035288 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\35288.TXT HFIN PsN: TERRIE
12

ferent than the other. These kinds of catastrophes, which could befall New York or any other large project, large agglomeration of 

people, will frighten away insurers just like an explosion would or 

any other kind of terrorism, and to not include them makes no 

sense whatsoever—makes no sense. 

I don’t know why we make a division. An insurer doesn’t look at 

how you are killed or how the property is destroyed. They just look 

at how much, and these are the kinds of things that could frighten 

insurers away. 

Third, we must ensure that there is sufficient insurance capacity 

for densely developed areas perceived as high risk. Without doing 

so, we could still be at risk of market disruptions because of a 

shortage of insurance under the program, and we have missed the 

whole reason why the program was created. 

According to one insurance company, Aon, even with the current TRIA extension in place, there is currently less than $750 million 

worth of coverage in the entire Lower Manhattan market. This is 

troubling as we work to rebuild the World Trade Center and the 

rest of Lower Manhattan. In fact, the lack of this provision in our 

terrorism insurance law could greatly slow down the redevelopment of Ground Zero and the re-burgeoning as is happening of 

Lower Manhattan. 

Finally, we should move quickly. Fourth, we should not wait 

until December 1st or December 15th to do this, because there is 

a December 31st deadline. Let’s get it done now. Let’s let people 

go ahead, plan their projects, insure their projects, and then move 

forward and employ people and build these projects. 

So in sum: first, permanency or at least 15 years; second, inclusion of nuclear, biological, chemical, and radiological coverage; 

third, sufficient capacity for densely developed areas that are high 

risk; and fourth, let’s do it quickly. 

Thank you, Mr. Chairman. I very much appreciate the committee 

coming to New York, which is the number one place affected by the 

lack or the halting nature of terrorism insurance, and look forward 

to working with your committee to get something done and get 

something done right, once and for all, on terrorism insurance. 

Mr. ACKERMAN. Thank you, Senator, and thank you for your 

statement. 

We will next turn to the gentleman in the middle of the panel, 

as he is in the center of everything that is good about New York, 

Mayor Michael R. Bloomberg. 

The 108th Mayor of the City of New York, Mayor Bloomberg 

brings a unique perspective to our hearing this morning. Aside 

from his role as Chief Executive of New York City, Mayor 

Bloomberg’s well documented background in the financial services 

industry makes him a most knowledgeable witness. 

In 1982, well before his election as Mayor of the City, Mayor 

Bloomberg’s financial information company, Bloomberg LP, revolutionized the way that Wall Street does business. 

The subcommittee very much looks forward to hearing Mayor 

Bloomberg’s extensive expertise in this area, and we are extremely 

fortunate that he is here with us this morning. We thank him for 

taking time to appear with us, for hosting us at dinner at the mansion last night, and for setting a national standard for how to get 

13

along without partisanship in governance. Thank you, Mr. Mayor. 

We are happy to hear from you. 

STATEMENT OF THE HONORABLE MICHAEL R. BLOOMBERG, 

MAYOR OF NEW YORK CITY 

Mr. BLOOMBERG. Chairman Ackerman, Ranking Member Pryce, 

and distinguished members of the committee, good morning. It is 

my pleasure to be here with Senator Schumer and Superintendent 

Dinallo, and thank you for inviting me to testify. 

Congressman Ackerman, let me first do some housekeeping here. 

Number one, for the record, the ceiling at this end of City Hall is 

no worse than the ceiling at the other end of City Hall, and it is 

functional and safe. 

Number two, Senator Schumer’s book and my book are both 

available on Amazon. We are not giving free copies away in the 

back. At least, I am not giving any free copies of mine away. 

Third, your opening statement where you promised an equal 

amount of time to both parties—I must warn you, it smacks of true 

bipartisanship, and if I were you, I would be very careful. You will 

win a lot of points with me on that, but whether from anybody else, 

I don’t know. 

Anyway, as Mayor let me also welcome all of you to New York. 

During your brief visit here, I think you will discover a city that 

really is facing its future with confidence. If you remember the 

days after 9/11, there were a lot of people who predicted the worst 

for New York. They were convinced that businesses were about to 

flee, our economy would tank and never recover, and crime would 

once again return to our streets. 

Instead, I think it is fair to say exactly the opposite has happened. Over the past 5 years, we have made the safest big city in 

the Nation even safer, and we have brought our economy back 

stronger than ever, and certainly stronger than anybody had expected. Last year, unemployment in our city hit an all-time low, 

and now we are in the midst of one of the biggest construction 

booms since the end of World War II. 

Protecting New York against terrorism has been a critical part 

of keeping the City strong, safe, and attractive to businesses. The 

NYPD has built an intelligence and counterterrorism operation 

that monitors and responds to threats worldwide as they arise, and 

I think it is fair to say also, they are recognized as models for local 

law enforcement around the Nation. 

We are determined to prevent another attack, and we are sparing no expense. For instance, in this year’s executive budget, I have 

proposed an initial investment of $15 million in the Lower Manhattan Security Initiative, which will help safeguard our bridges, tunnels, and other infrastructure downtown. 

But should the worst happen, we must also be fully prepared to 

minimize the impact on our 8.2 million citizens, as well as on the 

millions of commuters and tourists who come here every day, principally from outside of New York City and New York State and 

from the great States of New Jersey and Connecticut. 

This preparation includes not only strengthening rescue and recovery operations, but also taking preventive steps to stabilize the 

City’s economy in the event of an attack. The Federal GovernVerDate 0ct 09 2002 11:12 Jun 05, 2007 Jkt 035288 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\35288.TXT HFIN PsN: TERRIE
14

ment’s leadership in enhancing the availability of commercial insurance has been, and must remain, a crucial part of this strategy. 

After 9/11, Congress did a great service to our Nation by quickly 

passing the Terrorism Risk Insurance Act, or TRIA, which requires 

insurers to provide coverage against terrorism but caps their total 

liability, with the Department of Treasury responsible for claims 

exceeding that ceiling. 

This legislation, which was temporarily extended in 2005, is set 

to expire once again at the end of this year, and with no foreseeable end to the terrorist threats against our Nation, it is imperative that Congress not only renew TRIA but ensures that it is in 

place indefinitely. 

It is up to the Federal Government to continue bearing this responsibility for the simple reason that commercial insurers neither 

have the ability nor the capacity to provide the full level of desired 

terrorism coverage. 

The numerous factors at play, including the weapons, the methods, the targets and the timing of our enemies, are just far too difficult to predict, and if insurers can’t estimate the risk, they simply 

can’t price their product. That means that either they won’t sell insurance to many businesses in New York or they will sell it, but 

only at prohibitively high prices. 

Some might say that TRIA is a subsidy to successful developers 

and insurers, but that is not true. This is about government correcting a serious market failure caused by the threat of terrorism. 

Without a doubt, the Federal Government’s terrorism insurance 

program has been a critical part of New York City’s revival and is 

giving businesses the confidence to move forward with exciting new 

projects. At the Atlantic Yards in downtown Brooklyn, for instance, 

we are moving ahead on a dynamic commercial and residential development featuring the future home of the Brooklyn Nets, designed by Frank Gehry. 

In Long Island City in Queens, we are sowing the seeds of a 

major new central business district which will complement Midtown and Lower Manhattan. On Manhattan’s Far West Side, we 

are extending the subway line and transforming an old industrial 

zone into a vibrant new neighborhood, and here in Manhattan, new 

office towers and cultural centers are rising, as well as almost $10 

billion worth of mass transit projects. 

In total, these projects and developments will create hundreds of 

thousands of new jobs and up to 46 million square feet of new commercial space, as well as producing more than $10 billion in additional property tax revenue for New York City each year. Their importance to our economy can’t be overstated, but without terrorism 

risk insurance, none of them would ever get off the ground, and if 

projects like this are put in jeopardy, so will the future of our City, 

the global financial leader of America. 

The demand for terrorism insurance is clear, and the demand is 

urgent. Although the current program does not expire until December 31st, the insurance industry writes and renews its commercial 

properties policies many months in advance, meaning we need to 

reauthorize this vital legislation now, and I have come here today 

to pledge to do whatever it takes to get that done. 

15

Before closing, I want to raise two additional issues that must be 

addressed before the Terrorism Risk Insurance Act is renewed. 

First, this Federal program needs to eliminate its distinction between international and domestic terrorism. 

Currently, TRIA only covers an act of terrorism that is committed on behalf of a foreign person or interest. However, this distinction could be a very difficult one to discern if a domestic group 

contains at least one member from another country or maintains 

even minimal contact with other terrorism groups around the 

world. 

For instance, an attack like the one committed by homegrown extremists on London’s mass transit system in 2005, if duplicated 

here, would not be covered by TRIA, and that just makes no sense 

whatsoever. As long as TRIA excludes acts of domestic terrorism, 

every business and commercial enterprise continues to be at risk 

of suffering catastrophic financial losses. 

We are in this world together. The world, by Tom Friedman’s 

definition, is flat. There is no unit of any part of government or society that doesn’t act internationally in this day and age. We just 

could not make that distinction between domestic and foreign terrorism. 

My second concern is the lack of insurance coverage for what 

would be some of the most frightening weapons of mass destruction. TRIA currently protects consumers against events involving 

conventional explosives and the use of airplanes to cause widespread damage, but there is no protection against a potentially 

more destructive chemical, biological, radiological, or nuclear attack. 

By definition, commercial insurance is designed to provide peace 

of mind, so it is important that any Federal terrorism insurance 

program is a comprehensive one that addresses all major threats. 

We must not only be prepared for yesterday’s attacks. The 9/11 

Commission has statedthat the failure of preventing 9/11 was a 

failure of imagination. We need to be prepared for every possible 

attack, and not just the ones that have already happened. 

I appreciate the chance to be with you here today. Hopefully, this 

hearing will move us closer to ensuring the long-term and affordable solution that our economy needs to continue this growth. 

Let me add one other thing. I talk about New York, because I 

am the Mayor of New York City, but this is an issue for the country. This is an issue for the big cities that are likely to be attacked 

across this country, whether it is Chicago or Hartford, whether it 

is L.A. or Atlanta, whether it is Miami or Dallas. 

You can go around this country. There are big cities everyplace. 

Some of them are more at risk from international terrorism because they represent to overseas people what America stands for. 

They are our symbols. Our skylines matter to them. 

Some of them are targets for domestic problems, domestic terrorism, because that is where the domestic terrorists live and may 

find things that they don’t like and that they want to protest 

against. This is something not just for New York; this is something 

for America. 

Thank you for your time. 

Mr. ACKERMAN. Thank you very much, Mr. Mayor. 

16

We will next hear from acting superintendent Eric R. Dinallo, 

who has been nominated by Governor Elliott Spitzer to be the 39th 

superintendent of the New York State Insurance Department. 

Pending the New York State Senate’s confirmation, he serves as 

the Department’s acting superintendent. 

Acting Superintendent Dinallo has previously served as the general counsel for Willis Group Holdings, the third largest insurance 

broker in the world, and managing director and global head of regulatory affairs for Morgan Stanley. 

We are pleased to have him with us this morning and look forward to hearing his testimony. 

STATEMENT OF ERIC R. DINALLO, ACTING SUPERINTENDENT, 

NEW YORK STATE INSURANCE DEPARTMENT 

Mr. DINALLO. Thank you, Chairman Ackerman, Representative 

Pryce, and members of the committee. Thank you for inviting me 

to testify here today, and for the opportunity to share some of my 

thoughts with you on this important topic. 

I am the acting superintendent for New York State, and having 

only been in the office for 5 or 6 weeks, the ‘‘acting’’ is pretty well 

applied right now. So if I can’t answer all of your questions, I 

apologize, but I can guarantee you that the staff of the Department—which is a fantastic staff, with an incredible depth of knowledge—is there to help you and to answer any of the questions that 

you may have, if I am unable to do so today. 

A lot of the discussion that we have heard so far has made a convincing case that the threat of terrorism is still real, that although 

it is a threat to the entire country, it is especially an issue here 

in New York, and that here in New York, TRIA’s renewal is essential, but that is also true for the entire country. We need the national, long-term solution of TRIA. 

I am here to make two main points and end with some of the 

specific recommendations that you have asked to hear about. My 

first point is that TRIA fixes the blind pricing problem. I will explain what I mean by that in a minute, but I think it has been successful, because it fixes what I call the blind pricing problem. 

The role of insurance is to permit us to share or pool our risks. 

The industry has developed very sophisticated models to do this, 

but they rely on maximal information and data. The problem with 

terrorism, of course, is that it is very unpredictable and has extreme costs associated with it. Insurers set prices by looking at experience, and predicting future size and frequency, but they lack 

such information for terrorist attacks. 

Normally, insurers use curves of possible losses. The mean or average tells them how much to charge to cover possible losses and 

still make a fair rate of return. Terrorism has a very, very long 

tail, in statistical speak, with a small number of events that have 

huge possible costs. Without the backstop of TRIA, we are asking 

underwriters to do what is commonly thought to be the most difficult for them; that is, to price blindly. 

So the amount they would have to charge to cover all conceivable 

outcomes becomes prohibitively expensive, and this is across the 

board in asset management, all forms of underwriting, all forms of 

insurance. People will tell you that the far end of the curve, which 

17

I hope to show you in a second, is what drives the bell shape and, 

in fact, has a tremendous impact on the average pricing for all consumers. So it is not just a subsidy for the industry, as some people 

have affirmed, but it is also something that has a positive impact 

on a pricing breakdown and fixes what is, I believe, a market failure. 

If I could stand up, I could just show you this chart, if that is 

okay, if I have the permission to stand. 

Mr. ACKERMAN. Without objection. 

Mr. DINALLO. I don’t want to alarm anybody. 

I am just going to sketch a quick and simple bell shape curve 

where you have the number of events on the y axis, and that is 

zero events, and that is up to potentially infinite events. 

Then here you have the dollar value of those events, from zero 

to some amount, but in general underwriters and asset managers 

can begin to price this, and the price of insurance is going to be 

based on the average of having to cover the underside of the bell 

shaped curve, and the dollars go this way, and the number of 

events go that way. 

Asbestos, for instance—if you changed the time at the bottom, 

you would have it go out like this. But here is what it appears for 

terrorism, and I want to show you on this chart how TRIA affects 

the curve in a very positive way. 

Here, you’ve got the likelihood of the loss on this axis, and you’ve 

got the average policy loss under here, and it goes up on the x axis. 

By engaging a TRIA, you have permitted the underwriters to take 

away all of this as a pricing problem, and now they don’t have to 

price this in the blind manner that I talked about before. 

This, although it is a very small amount visually, is extremely 

expensive, and the NBCR events that we have heard talked about, 

some people think, could go as high as three-quarters of a trillion 

dollars. That is way out here. That dramatically changes the average on this curve. 

Current TRIA is set here at $27 billion. The World Trade Center 

attack, depending on how you calculate it, is $30- $40 billion, and 

it is appropriately placed in this quadrant, and the storms of 2005 

would be $70 billion, about here. 

When you put TRIA in place, you bring the mean, the expected 

average loss without TRIA, from here back to here, because now 

the underwriters can take this out, and they have certainty in the 

pricing across here. That results not only in the help to society that 

we have talked about but in a better rate of return for the underwriters, because they can do it more accurately, but now they can 

actually offer the insurance at a fair price to the consumers, because the average is brought down to a point that is affordable and 

can be priced. 

My second point is that TRIA is a form of a subsidy, but it does 

not encourage what is commonly called a moral hazard or a moral 

hazard conduct or uneconomic behavior. 

People do have a healthy skepticism about subsidies, but fear the 

government assistance will encourage bad behavior, and that is 

what economists often call a moral hazard. That is not what is 

going on here. 

18

I think that people living in dense cities, and New York City 

being the center of the financial services for the world, are good 

things that ought to be encouraged. TRIA, therefore, is not rewarding or encouraging any kind of a negative behavior, the very issue 

you would often have with a government subsidy, but it is simply 

permitting us to properly insure those who are living and engaging 

in work in a manner we choose to protect and appropriately reward. 

Those two points, the blind pricing problem, and that TRIA does 

not create a moral hazard, lead me to believe that TRIA is not 

some unacceptable subsidy to the private sector. TRIA permits rational pricing and the fixing of a market failure. TRIA does not replace the private sector. It makes private sector involvement possible. 

Okay. In conclusion, I would say that there are five specific recommendations for TRIA; three, we have already covered. We 

shouldn’t be renewing it every 2 years. It is too disruptive to the 

industry and the CEO’s I have talked to and the real estate industry. We need a long-term solution, not a permanent solution. 

Obviously, I agree that domestic terrorism should be covered. I 

don’t really see the reason for the disjunction. We should cover 

NBCR. 

The fourth point is that worker’s compensation is now covered 

appropriately by TRIA because of concentration issues in the workplace, and we should continue the workman’s compensation coverage, but also with similar logic extend it to group life insurance, 

where I think the same reasoning applies. 

Finally, Congress should consider permitting tax deferred reserves by underwriters, because that is a way to increase the 

amount industry can handle by itself. Otherwise, underwriters 

often surplus out dividends or otherwise the amounts that are collected at the end of each year, and I would think that permitting 

tax deferred reserving would encourage industry to develop a dedicated pool of capital for terrorism exposure. 

Thank you, very much. 

[The prepared statement of Mr. Dinallo can be found on page 61 

of the appendix.] 

Mr. ACKERMAN. Thank you, very much. 

Unless anybody has a compelling question to ask of anybody on 

this panel, the Chair would ask that you submit those questions in 

writing so that we could get to the very distinguished second panel. 

Does anybody have the need to ask a question of the Mayor or the 

Commissioner—the Superintendent? 

Seeing none, let me thank the distinguished panel for an excellent, comprehensive presentation to us. 

The Chair would ask the unanimous consent of the committee to 

submit for the record at the end of the testimony and the question 

period statements from the Independent Insurance Agents and 

Brokers, the National Association of Professional Insurance Agencies, and a paper from the Wharton Risk Center, as well as a paper 

from the Risk Insurance Management Society, and an article from 

Swiss Re. Seeing no objection. 

19

Our second panel this morning consists of industry experts as 

well as individuals representing firms that will be directly affected 

by the scope and period of extension of TRIA. 

We will hear from all of the witnesses, and then we will open it 

up to questions. Let me call the attention of this panel to the fact 

that, when you hear the high pitched note, it is not my Uncle 

Max’s hearing aid battery, but the indication that your 5 minutes 

has expired. Your entire statements, without objection, will be 

placed in the record, and we ask you to summarize within a 5-

minute time frame. 

Mr. ACKERMAN. First, we will hear from Dr. Roger W. Ferguson, 

who is the chair of Swiss Re America Holding Corporation and a 

former Vice Chairman of the Board of Governors of the Federal Reserve System. Dr. Ferguson is one of the foremost experts in the 

terrorism risk insurance field, and we are indeed very fortunate to 

have him with us this morning. We look forward to his testimony 

and thank him for appearing before the subcommittee at this field 

hearing. 

Dr. Ferguson. 

STATEMENT OF ROGER W. FERGUSON, CHAIRMAN, SWISS RE 

AMERICA HOLDING CORPORATION 

Mr. FERGUSON. Thank you very much, and I wish to thank 

Chairman Kanjorski and also Chairman Frank for holding this 

hearing on the need to extend the Terrorism Risk Insurance Extension Act, which I think of as a very important and successful public-private partnership. 

As you indicated, my name is Roger Ferguson. I had a period of 

time in public service, and now I am the chairman of Swiss Re 

America Holding located here in Manhattan as well as Washington, 

D.C. 

TRIA may be analyzed from many different perspectives. As an 

economist, I would like to share a few thoughts about why this 

public-private partnership is critical to an important segment of 

the U.S. economy. 

My argument has three parts. First, terrorism does not have the 

usual characteristics of an insurable risk. Second, industry capacity 

is insufficient to handle the losses that would arise from a major 

terrorist event. And third, the government has already created an 

implicit backstop. From those three points, I conclude it is better 

public policy to have an explicit Federal backstop for the terrorism 

insurance market. 

Competitive private markets generally lead to the most productive allocation of resources. Nonetheless, markets sometimes fail to 

function efficiently, creating a waste of resources and a loss of economic value. Terrorism insurance and reinsurance are businesses 

prone to market failure, because terrorism risk is largely uninsurable for three reasons: 

First, terrorism risk cannot be measured satisfactorily, because 

terrorist events are willful acts undertaken by parties who wish to 

confound those who study them. 

Second, terrorists’ coordinated large scale attacks can cause loss 

occurrences to be correlated over time and across business lines. 

20

Third, and finally, due to adverse selection, terrorism insurance 

may become unaffordable in the major urban areas where the need 

for coverage is greatest. 

After 9/11 highlighted these dimensions of terrorism risk, its unpredictability, its high correlation of loss occurrence, and the large 

scale of potential losses, insurers withdrew from the market. In a 

clear case of market failure, real estate projects, particularly those 

in target areas such as New York, were delayed or canceled, because insurance could not be secured. This economic domino effect 

ultimately resulted in the loss of jobs. 

Aside from the fact that a terrorist event does not have the usual 

characteristics of insurability, the potential scale of the risk makes 

it difficult for the private sector to manage on its own. Although 

the U.S. property/casualty sector has an aggregate surplus of more 

than $400 billion and writes nearly $500 billion in annual premiums, it lacks the resources to cover large scale terrorist events. 

Only a small fraction of industry premiums and surplus is available to cover terrorism losses, because this money must also be 

available to repay policyholders for losses due to other insured 

risks such as workers’ compensation, product liability, fires, and 

earthquakes. 

Many observers believe that the government would be forced to 

provide aid to individuals, insurers, and other businesses who suffer devastating losses from a terrorist event, even if they had not 

purchased insurance. Thus, even without an explicit terrorism risk 

backstop, the government provides an implicit backstop. Confusion 

and uncertainty about whether the government would step in is 

clearly not constructive. 

An explicit government terrorism risk backstop offers numerous 

advantages. First, it reduces ambiguity about pre- and post-event 

and enhances the transparency by making it clear who will pay 

how much for what, should an event occur. Second, a broader societal sharing of terrorism risks makes lower premium rates possible. Third, by reducing uncertainty, a backstop reduces the risk 

of financial market disruption in the wake of an attack. 

A viable terrorism insurance market with adequate capacity reduces the level of uncertainty before and after a terrorist attack occurs. 

In closing, insurers, Swiss Re among them, generally agree that 

TRIA has done a good job of stabilizing the terrorism insurance 

market. There are, however, several elements that undercut the 

law’s benefits. 

First is the distinction between certified acts of terrorism, which 

TRIA covers, and non-certified acts, which it does not. This distinction creates areas of ambiguity. 

Second is the law’s impermanence. Uncertainty regarding whether the backstop will be renewed every 2 years taxes the energies 

of lawmakers and insurers. 

A final point of note is the exclusion of group life from TRIA’s 

covered lines. Group life business, like worker’s compensation, contains a significant concentration of risk. Moreover, group life insurers are not free to manage their risk through terrorism exclusions. 

Most State regulators do not allow it. A very large scale attack can 

cause a massive number of mortality claims that threatens the staVerDate 0ct 09 2002 11:12 Jun 05, 2007 Jkt 035288 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\35288.TXT HFIN PsN: TERRIE
21

bility of even the leading group life insurers. In view of this, group 

life should be part of an effective Federal backstop. Group life insurers have asked that a separate recoupment mechanism be created for group life insurance. This seems to me both logical and 

reasonable. 

To help meet the threat of terrorism—that the threat of terrorism poses in a proactive, economically efficient manner, we ask 

this subcommittee to craft a permanent public-private response 

that builds on the strengths of the insurance industry and also the 

obvious strengths of the government. 

Thank you for the opportunity to express our views on this very 

important matter. 

[The prepared statement of Mr. Ferguson can be found on page 

76 of the appendix.] 

Mr. ACKERMAN. Thank you very much, Dr. Ferguson. 

Next we will hear from John L. Lieber, who is the senior vice 

president at Silverstein Properties where his primary responsibility 

is oversight of the rebuilding of the World Trade Center. We also 

note that Mr. Silverstein himself has joined us here today. We appreciate that. 

Mr. Lieber is also testifying this morning on behalf of the Real 

Estate Board of New York, and we look forward to his testimony 

now. 

STATEMENT OF JOHN N. LIEBER, SENIOR VICE PRESIDENT, 

WORLD TRADE CENTER PROPERTIES, LLC 

Mr. LIEBER. Thank you, Chairman Ackerman, Ranking Member 

Pryce, and distinguished members. As Congressman Ackerman 

said, I am here representing not only the Silverstein organization 

but also the Real Estate Board of New York, which is the premier 

trade organization of owners and developers in this great City, and 

you will hear from one of our leading members, Mr. Green, in his 

capacity as a leader of CIAT in a moment. 

As you know, Larry Silverstein leased the commercial office portion of the World Trade Center just 6 weeks before 9/11, and since 

then, and after many years of debate and public dialogue, which 

has been very productive, all parties, the State and City of New 

York, the State of New Jersey, and the Port Authority have come 

together on a plan and are fully united on what will be rebuilt at 

the World Trade Center when, where, and by whom. 

That means that the whole site is going to be rebuilt by 2012, 

and you saw the beginnings of that work when you visited the 

World Trade Center site today. 

Over the past few years since the enactment of TRIA, the private 

insurance market has rebounded, to a degree. However, in some 

areas—and I have to emphasize this point—especially densely developed areas perceived as high risk, like Lower Manhattan, there 

is, even with TRIA in place, simply insufficient insurance capacity, 

both terrorism insurance and other insurances that have a terrorism component, such as builder’s risk insurance. 

This is the situation that we are facing in Lower Manhattan and 

also, to a degree, in Midtown as well, and those two business districts comprise 450 million square feet of office space. 

22

As other speakers have said, the most important action that Congress can take to assure the availability of terrorism insurance for 

areas like New York City is to extend TRIA permanently. A long 

term program is just necessitated by the realities of how buildings 

are developed, financed, and insured. Lenders are looking at 

timelines well beyond a 2-year type extension. They need to know 

that the insurance is going to be there for the full life of the loan, 

and that is really a major factor that we have to deal with, and 

permanency would address them. 

There is another point that I think I have to emphasize which 

is slightly different than what you may have heard from others, the 

need for additional capacity to areas like New York City, these 

densely developed areas. All over the City, real estate owners and 

developers are struggling to obtain and maintain sufficient terrorism insurance. 

I spoke to a major owner of Lower Manhattan—a Lower Manhat- tan portfolio worth approximately $10 billion who has such trouble 

obtaining insurance that they have only a billion dollars of coverage. Another owner can only get $1 billion of insurance, of terrorism insurance, which is less than a third of the total value of 

their several buildings in the Rockefeller Center area; and our 

project, the World Trade Center rebuilding, really brings this problem into relief. 

The total cost of the project, as you may have been told, is rough- ly $13- to $15 billion, but as Senator Schumer pointed out, according to leading insurance brokers, there is only $750 million of capacity, of terrorism insurance capacity, available in Lower Manhattan. So there is a very serious disconnect. 

We strongly believe that a TRIA extension ought to address the 

capacity problem of densely developed urban areas branded as high 

risk, for example, Lower Manhattan, Times Square, and the Grand 

Central, and so on. 

Today you heard from Senator Schumer, Mayor Bloomberg, Superintendent Dinallo, and others about a variety of different fixes 

that we all believe in, the NBCR issue, eliminating the foreign 

versus domestic distinction. Those are all urgently needed to increase capacity. But I should emphasize that, even if these important corrections are made, there will still be questions about 

whether there will be sufficient capacity in high risk areas. 

So we suggest that you give consideration, not wedded to any 

particular mechanism, that consideration ought to be given to some 

actions to alter the risk-reward equation so that insurers will be 

incentivized to come into these types of areas. 

There is one other step that Congress can take in the TRIA extension in order to free up terrorism insurance capacity. We urge 

that the TRIA extension clarify the scope of coverage by making it 

clear that the TRIA backstop supports all consequences of a terrorist attack, including a fire or a collapse following an attack, as 

well as the damages from the initial impact or explosion. 

Unfortunately, the scope of TRIA coverage is currently perceived 

as somewhat unclear and, therefore, terrorism risk, as perceived by 

the insurers, is bleeding into builder’s risk and property insurances 

and causing a shortage of capacity for those insurances, again especially in areas like Lower Manhattan. 

23

Finally in conclusion, the TRIA program is essential to give us 

any chance of obtaining the terrorism insurance which lenders and 

investors require. It has been a success and should be made permanent. However, we do need absolutely to deal with the issue of capacity for downtown. 

It would be a great disappointment to everyone here and everyone involved with the TRIA program if the redevelopment of the 

World Trade Center were seriously hindered by an inability to obtain terrorism insurance, and we need the leadership and creativity 

of this community—this committee and this community to assure 

that a new TRIA bill addresses that particular issue. 

Thank you. 

[The prepared statement of Mr. Lieber can be found on page 126 

of the appendix.] 

Mr. ACKERMAN. Thank you very much, Mr. Lieber. 

Steven L. Green is the chairman of the Board of Directors and 

the chief executive officer of SL Green Realty Corp., the largest 

commercial office landlord in the City of New York. SL Green owns 

approximately 24.5 million square feet of office space in New York 

City. 

The committee looks forward to hearing Mr. Green’s testimony 

about the impact that TRIA reauthorization and how that authorization is packaged will have on commercial properties in New 

York and other large cities. 

STATEMENT OF STEPHEN L. GREEN, CHIEF EXECUTIVE OFFICER, SL GREEN REALTY CORPORATION, ON BEHALF OF THE 

COALITION TO INSURE AGAINST TERRORISM 

Mr. GREEN. Good morning. Thank you, Chairman Ackerman, 

Ranking Member Pryce, and members of the subcommittee for 

holding this hearing in New York City and for allowing me to testify today. 

My name is Stephen Green, and my background you have gone 

over. So there is no point in repeating it, but I am also here as vice 

chairman of the Real Estate Board of New York. I am testifying 

today on behalf of the Coalition to Insure Against Terrorism, CIAT 

as it is referred to, which represents a broad range of businesses 

and organizations from across the United States, business that are 

the Nation’s principal consumers of commercial property and probably casualty insurance. 

Sometimes the subject of today’s hearing is characterized as an 

insurance industry issue. I respectfully suggest that it is not. It is 

really an issue of national economic security. It is an issue of jobs, 

and it is an issue of protecting the investment of pensioners, shareholders, bond holders, and individuals from across the Nation, protecting them from the potential economic devastation caused by a 

foreign enemy dedicated to the destructions of our economy, our 

property, and our institutions. 

As everybody has come here and stated, I also believe that it is 

a responsibility of the Federal Government to protect both its citizens and their property from foreign enemies. There is certainly 

strong precedent for this in the form of the War Insurance Corporation which was established by Congress some 6 days after Pearl 

Harbor. 

24

The War Insurance Corporation provided property owners in the 

United States with insurance protection against loss or damage resulting from enemy attack. Both fixed and movable property was 

insured. 

Since 9/11, this committee and our Congress, Republican or Democrat, we recognize, have worked hard to find solutions to the economic risks associated with terrorism. The terrorism insurance law 

you enacted certainly has been very welcome. I should say it is 

vital to our industry, but the current law, TRIA, set to expire in 

just 7 months, is creating an uncertainty in the market, and I assure you from my own experience that until either that law is extended or a permanent law is voted on, the insurance companies 

are not eager to provide us the insurance on a certain—with a level 

of certainty. 

Holding this hearing today in the shadow of Ground Zero recognizes the fact that—the essential facts that you understand what 

happened in 2002, and you want to continue the TRIA, the concept 

of TRIA. Terrorism continues to be an unpredictable threat today 

here in New York with obvious mammoth losses. Insurers continue 

to say terrorism risk is uninsurable due to lack of underwriting criteria and history. 

Our economy continues to need terrorism insurance in order to 

function, and our economy needs the mechanism the program provides to enable us to recover quickly and efficiently after a terrorist 

attack. I support market solutions to problems where possible, but 

the market in this case has failed due to lack of capacity and ample 

consideration, and it shows no sign of reviving itself. 

We need Congress to act as soon as possible, but we urge you to 

not simply extend the current law for a few years. We think that 

whatever is done must be put in place for many years to come. It 

should be made permanent. Obviously, what has gone on in the 

past 3 or 4 years, it seems quite evident that terrorism will be here 

for years to come, and our need for TRIA will be here for years to 

come. 

In addition, we respectfully suggest that the current terrorism 

insurance laws need to be modernized in a number of ways. While 

TRIA has been largely successful, there are huge and significant 

availability problems. For example, there are major markets today, 

particularly in high urban areas with fire-following laws, such as 

New York, where the combination of aggregation of risk, high retention rates for the insurers, and rating agency pressure on insurance companies are causing significant capacity problem for conventional terrorism coverage. 

In other words, some markets today, businesses, still cannot buy 

levels of terrorism insurance that are mandated by their mortgages. Moreover, the government today and the Government Accountability Office has identified weapons of mass destruction, 

what is known as NBCR. It is not available in the market today, 

notwithstanding the fact that TRIA backstops such insurance. 

Did I hear that buzzer? Okay, then I was told to say: In summation. In summation, firstly, I can’t read the rest of my remarks in 

summary. Most of it, you have heard. 

NBCR is vital, because the $100 billion cap that you have put 

on it today is not adequate, and insurance companies don’t feel it 

25

is adequate, and we cannot get NBCR. I would respectfully urge 

this committee to take that and make that as part of—create legislation that will require that kind of insurance like normal terrorism insurance. 

I thank you, and I look forward to your questions. 

[The prepared statement of Mr. Green can be found on page 96 

of the appendix.] 

Mr. ACKERMAN. Thank you very much, Mr. Green. Let me assure 

you that your entire written testimony as presented will be in our 

record and will be read by everybody as well. 

Warren Heck is the president and chief executive officer of 

Greater New York Mutual Insurance Company, a leading provider 

of commercial, multi-peril, and worker’s compensation products in 

the northeast and Mid-Atlantic States. We are glad to have you 

and look forward to hearing from you. 

STATEMENT OF WARREN HECK, CHAIRMAN AND CEO, GREATER NEW YORK MUTUAL INSURANCE COMPANY, ON BEHALF 

OF THE NATIONAL ASSOCIATION OF MUTUAL INSURANCE 

COMPANIES 

Mr. HECK. Thank you, Chairman Ackerman, Ranking Member 

Pryce, and members of the subcommittee. As you indicated, I am 

chairman and chief executive officer of Greater New York Mutual 

Insurance Company, a medium-sized insurer which is the fourth 

largest writer of commercial multi-peril insurance in New York 

State and one of the largest writers of commercial multi-peril insurance in New York City. 

While I am here today to discuss the experience of my own company, my perspective has also been shaped by my service as the 

chairman of NAMIC’s TRIA Task Force. I have no doubt that TRIA 

and TRIEA played a major role in preventing an economic catastrophe in helping to get New York City and the country back on 

its feet economically after 9/11. 

I am deeply concerned that, if Congress does not adopt a longterm, private-public terrorism risk insurance program, many of our 

citizens who need terrorism coverage to operate their businesses 

across our Nation will either be unable to get insurance or unable 

to afford the coverage that is available. 

The experience in New York City following the 9/11 tragedy demonstrates why Congress must extend TRIEA. Immediately after the 

terrorist attack, most primary insurance carriers began to nonrenew their large commercial property and worker’s compensation 

business or reduce their limits of coverage to levels below what was 

needed by the business community. The result was very harmful 

to the New York economy, leading to the postponement of many 

construction projects and significant increases in pricing of commercial multi-peril insurance. 

The few remaining insurers increased their prices because of the 

significant terrorism exposure, and many cut back when concentrations of values and employees became too large. TRIA reduced the 

fear that a worst case terrorist event could render my company insolvent. Without the passage of TRIA and TRIEA, our company 

could not have provided adequate levels of coverage for many of the 

26

existing policyholders in New York City and retained the insurance 

capacity needed to write new business. 

51⁄2 years after 9/11, with no other terrorist attack on U.S. soil, 

terrorism reinsurance availability remains limited, and the prices 

are extremely high. Without the government backstop, I believe the 

primary insurance market would have dried up in large urban centers, particularly in New York City. 

These and other problems flow from a simple and inescapable 

fact, and you heard it from other witnesses, that terrorism is a 

classic uninsurable risk. In order for the private market to function 

efficiently, it needs the availability, and I won’t go into that anymore. I think you have heard it enough. 

Though terrorism modeling can help individual insurers reduce 

their exposure by quantifying their risk, it cannot protect an entire 

industry and the economy against damages that could run into 

hundreds of billions of dollars. Only the Federal Government can 

do that. 

My experience tells me that without a Federal program, we 

would again find ourselves in the immediate post-9/11 situation, 

with insurers excluding terrorism unless required to offer it by the 

States. Insurers forced to write such coverage would have no choice 

but to either charge very high rates or decline to write the business, thereby inhibiting economic growth. 

Further, there is no evidence or reason to believe that the capital 

markets will replace the missing insurance capacity or that TRIEA 

has crowded out private market capacity. The capital markets take 

their cue from the reinsurance markets. 

Key players have indicated that the potential market for ter- rorism bonds is $1- to $2 billion at best over the next 5 years, and 

there is no appetite whatsoever for developing a bond market for 

NBCR events. 

Since the Federal Government has historically assumed the large 

responsibility for large natural catastrophes, it seems fair to conclude that the government would step in and help people harmed 

by a future terrorist event. Thus, the importance of a long-term, 

private-public terrorism insurance plan to the Federal Government 

is that it would reduce its exposure and provide for an orderly processing of claims. 

The insurance industry has been working to devise such a longterm program for Congressional consideration that would maximize 

private sector participation without threatening the economic viability of the industry. 

A critical consideration for my company and small and medium 

sized insurers that NAMIC represents is the event trigger. Too 

high a trigger would drive them from the market, because reinsurance costs would be too expensive, making primary coverage 

unaffordable. I think a $50 million trigger would be likely to assure 

the continued involvement of these insurers in the state of terrorism insurance. 

It is important to recognize that these insurers provide competition for larger insurers, and thereby lowering prices for policyholders, and really creating a competitive market. 

NAMIC also supports the creation of a federally chartered entity 

that would establish a reinsurance market to help companies manVerDate 0ct 09 2002 11:12 Jun 05, 2007 Jkt 035288 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\35288.TXT HFIN PsN: TERRIE
27

age their risks retained. With voluntary insurer participation, this 

middle layer of potential risk bearing capacity would provide the 

kind of private market test that some in Congress believe is needed. 

Finally, NAMIC supports a long-term program of at least 5 

years, and more than that would be very helpful to prevent the destruction in the market that took place as TRIA was about to expire in 2005. 

My written testimony contains a more detailed description of 

NAMIC’s views regarding a long-term program. I want to thank 

you once again for the opportunity to testify on this issue of vital 

importance. NAMIC appreciates your continuing leadership, and 

we stand ready to assist you in any way possible in developing an 

effective long-term terrorism insurance plan. 

Mr. ACKERMAN. Thank you very much, Mr. Heck, and I assure 

you as well as the other members of the panel that your full statements have already been distributed to all the members of the 

panel and will be carefully read. 

[The prepared statement of Mr. Heck can be found on page 105 

of the appendix.] 

Mr. ACKERMAN. Steven K. Graves is managing director and chief 

operating officer for Principal Real Estate Investors. Mr. Graves directs mortgage originations and mortgage servicing portfolios that 

include investment activities in more than 60 markets nationwide. 

While TRIA certainly had a significant impact on the City of New 

York’s market, we are looking forward to hearing from Mr. Graves 

about the impact that TRIA has also had on other markets as well. 

Mr. Graves. 

STATEMENT OF STEVEN K. GRAVES, CHIEF OPERATING OFFICER, PRINCIPAL REAL ESTATE INVESTORS, ON BEHALF OF 

THE MORTGAGE BANKERS ASSOCIATION 

Mr. GRAVES. Thank you, Chairman Ackerman, Ranking Member 

Pryce, and distinguished committee members, for inviting me here 

to speak this morning. 

My company, Principal Real Estate Investors, is one of the Na- tion’s largest commercial real estate lenders with $22 billion in 

mortgages under management and administration. Consequently, 

we are a major stakeholder in the future of the Terrorism Risk Insurance Extension Act. In fact, because of TRIEA, terrorism insurance is in place for over 90 percent of the commercial real estate 

mortgages that my company administers. However, with the expiration of TRIEA looming at the end of this year, Congress must 

take action to implement a long-term solution. 

TRIA and its subsequent extension has been an unqualified success for increasing the availability and affordability of terrorism insurance. This is true not only for high valued trophy properties located in high profile markets, but for the entire commercial real estate market. 

In fact, an MBA study revealed that 84 percent of all commercial 

real estate projects included in the study had terrorism coverage in 

place. In addition, the study revealed that the average property 

value for properties with coverage was just over $5 million. This is 

a far cry from what most would consider a trophy property. 

28

The chief factor behind the success of TRIEA is the ‘‘make available’’ provision which requires insurers to offer coverage in order 

to participate in the Federal terrorism reinsurance program. In 

fact, most currently available policies are directly conditioned to 

the TRIEA ‘‘make available’’ provision. 

Thus, if the ‘‘make available’’ provision was excluded from a longterm or permanent terrorism solution, a wide range of borrowers 

and commercial real estate loan servicers would be caught between 

their contractual obligations to have terrorism insurance in place 

and a lack of available terrorism insurance. Accordingly, MBA 

strongly encouraged Congress to include a ‘‘make available’’ provision in any TRIEA extension bill you consider. 

With over $2.8 trillion in debt outstanding, the commercial 

multi-family real estate debt sector is an integral and large part of 

the Nation’s economy. This debt finances the vast majority of office, 

retail, industrial, and multi-family buildings. These buildings 

house the businesses that are the engines for the Nation’s economy. 

A lack of available and affordable terrorism insurance would not 

only impact the commercial real estate finance sector, but would 

ripple through the economy as buildings become more difficult and 

costly to finance and purchase. Available and affordable terrorism 

insurance is not only necessary for commercial real estate finance 

sector. It must also be an important part of our Nation’s response 

to the threat of terrorism. 

Typical commercial mortgages are highly leveraged. In addition, 

most commercial real estate lending is non-recourse, which means 

that in the case of default, the lender can only look to the underlying value of the property to recover its mortgage balance. As a 

result, lenders have an acute interest in preserving and protecting 

asset values. 

In order to protect their interest, lenders place paramount importance on requiring and verifying that uninterrupted insurance coverage, including terrorism insurance, is in place for the life of the 

loan. 

For these and other reasons, commercial real estate lenders mandate terrorism insurance be in place as a condition for funding a 

loan. Should terrorism insurance become unavailable, lenders 

would face a decision of violating their underwriting requirements, 

would no longer fund loans. 

A large scale cancellation of new construction projects and funding of new loans in the aftermath of September 11th strongly indicate that lenders would dramatically curtail their activity. 

MBA believes the Federal Government must act to achieve a 

long-term terrorist risk solution. An extension should include the 

following elements. 

Terrorism insurance needs to be widely available, requiring an 

extension of the ‘‘make available’’ provision in the current law. The 

bill should eliminate short term interruptions in terrorism insurance availability and price shocks when it is implemented. This 

will require at least a decade-long extension of the program. 

Terrorism insurance needs to be priced in an affordable manner 

and cover all perils, including nuclear, biological, chemical, and radiological threats from both foreign and domestic sources. 

29

Any long-term solution needs to preserve and implement the required notifications to loss payees and additional insurance of coverage lapses, gaps, and renewals. 

Once again, I appreciate the opportunity to provide our perspective on terrorism insurance to the subcommittee. As the Nation’s 

largest representative of commercial real estate mortgage lenders 

and servicers, the MBA stands ready to provide any assistance that 

you may require. 

We look forward to partnering with you, government agencies, 

and the insurance industry to help craft a long-term solution for 

terrorism insurance that makes terrorism insurance coverage inclusive, available, and affordable. 

Thank you very much for your attention in this vital matter. 

[The prepared statement of Mr. Graves can be found on page 79 

of the appendix.] 

Mr. ACKERMAN. Thank you very much, Mr. Graves. 

Donald K. Bailey is the chief executive officer of Willis North 

America, one of the largest risk management firms in the United 

States. Mr. Bailey is responsible for managing the company’s strategic direction throughout the United States and Canada. We appreciate his appearing before our committee this morning and look 

forward to hearing his perspective on terrorism risk insurance and 

the impact of TRIA. 

Mr. Bailey. 

STATEMENT OF DONALD J. BAILEY, CHIEF EXECUTIVE 

OFFICER, WILLIS NA 

Mr. BAILEY. Good morning, Chairman Ackerman, and Ranking 

Member Pryce. My name is Don Bailey, and I am the CEO of Willis 

North America, a unit of The Willis Group, the global insurance 

broker. It is a distinct pleasure and honor for me to join you this 

morning. 

Willis works with corporations, public entities, and institutions 

around the world on all matters of commercial insurance, reinsurance, risk management, financial, and human resource consulting. 

In addition to representing Willis here today, I am also speaking 

this morning on behalf of the Council of Insurance Agents and Brokers. The Council represents the Nation’s leading commercial property and casualty insurance agencies and brokerage firms. 

With our Willis North American headquarters located not far 

from where we are gathering this morning, we experienced firsthand the devastation wrought on New York City by the events of 

September 11, 2001. Since that time, we in the United States have 

been fortunate that we have not experienced another terrorist attack on our soil. However, if you look to London, Madrid, and other 

locations around the world, I think we can all agree that terrorism 

is a permanent problem for which we need a permanent or at least 

a sustainable solution. 

Regrettably, the question of another terrorist attack here in the 

United States is a matter of ‘‘when’’ and not ‘‘if.’’ We thank the 

committee for convening this hearing to explore the long-term solutions to terrorism risk insurance. 

Prior to September 11th, terrorism insurance was readily available. It was offered as an add-on to many policies at very modest 

30

prices, because the threat was perceived to be very low. Clearly, 

after September 11th, that paradigm shifted quite significantly. 

Terrorism insurance was almost entirely unavailable, and the 

small amount that was available was prohibitively expensive. 

Planes didn’t take off. Many construction sites in what we now perceive to be high risk zones, including those here in New York City, 

fell silent, and commerce in many cities came to a halt. 

Congress, realizing the dire need, acted quickly by passing TRIA 

and subsequently the extension to provide available and affordable 

terrorism capacity for U.S-based risks. The program has also allowed the private market to progressively increase its role in covering terrorism risks. 

The Federal funds provided by TRIA backstop have never been 

tapped. Not one taxpayer dollar has been spent on claims, but the 

program has been an unqualified success in stabilizing the insurance markets and allowing insurers to provide much needed terrorism coverage at affordable prices. Policyholders, the business of 

our economy, have not had to deal with extremely high and volatile 

terrorism insurance costs, and have been able to budget for their 

business plans. For many commercial policyholders, obtaining terrorism coverage means more than just peace of mind. 

It is essential to doing business. It may be required sometimes 

by State laws and regulations and often by contract, to obtain a 

mortgage, for financing of new construction, for the expansion of a 

business, or for a new entrepreneurial venture. Think of the impact 

none of those activities happening would have on the business of 

New York. 

Some suggest that the private market can handle the losses. Consider this: Estimates indicate that there is only about $6- $8 

billion in global terrorism reinsurance capacity available, but terrorism losses from a single attack could reach $100 billion. Industry numbers indicate that there is $1- to $2 billion in capacity available for nuclear, biological, chemical, and radiological 

coverage, yet the American Academy of Actuaries modeled the impact of a medium sized nuclear, biological, chemical, or radiological 

attack in New York City at in excess of $450 billion. 

Clearly, there is simply not enough capacity in the private market to cover losses due to terrorism, and the limits of such an attack, potentially exponentially beyond what we saw at the World 

Trade Center, are bound only by the imagination of terrorists and 

thought processes that are beyond the scope of models and calculations. 

Some contend that dealing with the risks of terrorism insurance 

is a matter for the industry to handle on its own: Collect the premiums; assume risk of a potential loss, as they do with other categories of risk. But consider that a terrorist attack is not perpetrated against a company or a building. The terrorists who flew 

planes into the World Trade Center and the Pentagon and the 

plane that crashed into the field in Pennsylvania—they were attacking our country. Could you imagine a scenario where the Federal Government knew an attack was going to happen and did not 

take steps either to prevent it or at least prepare for the aftermath? I suggest that not developing a long-term terrorism risk insurance program would be just that. 

31

The objectives of TRIA are clear: Harness private industry capacity to directly contribute to terrorism related losses; deliver Federal 

assistance in a fair and efficient manner; and repay the government for any outlays. Because of TRIA, the terrorism insurance 

market has largely stabilized. Terrorism coverage has been steadily 

expanding, and the price of coverage has become more affordable. 

Now is decidedly not the time for the Federal Government to withdraw its involvement in the terrorism insurance market. 

Terrorism threats facing our country remain significant and unpredictable. Our reinsurance industry still lacks sufficient capacity 

to address terrorism risks on its own, and the primary insurers are 

still not willing to expose themselves to enormous terrorism risks 

without charging prohibitively high prices. 

Allowing TRIA to expire at this time will certainly cripple, if not 

completely paralyze, a significant portion of our economy. TRIA is 

not about protecting the balance sheets of insurers and brokers. It 

is about protecting commercial policyholders and creating and sustaining a national economy that encourages investment and development. 

This is a matter that far transcends the insurance industry. It 

is a matter of our national economic security, and I thank the committee for your time this morning. 

[The prepared statement of Mr. Bailey can be found on page 48 

of the appendix.] 

Mr. ACKERMAN. Thank you very much, Mr. Bailey. 

Our final witness, Edmund F. Kelly, is chairman, president, and 

chief executive officer of Liberty Mutual Group, the sixth largest 

property and casualty insurer in the United States. So terrorism 

risk insurance is, obviously, a very important issue for Liberty Mutual Group, and we look forward to hearing Mr. Kelly’s perspective 

this morning. 

STATEMENT OF EDMUND F. KELLY, CHAIRMAN, PRESIDENT, 

AND CHIEF EXECUTIVE OFFICER, LIBERTY MUTUAL GROUP 

Mr. KELLY. Thank you, Chairman Ackerman, Ranking Member 

Pryce, and distinguished members of the committee. I also thank 

you for the opportunity to testify on what we view as one of the 

great challenges facing our Nation, the economy, our policyholders, 

and industry. 

As many of the members remarked, it is fitting that we meet 

here in New York, which bore the brunt of the cost of terrorism. 

We at Liberty Mutual are proud to insure such well known New 

York institutions as Macy’s, Morgan Stanley, New York University, 

and J.P. Morgan, Chase, as well as our role in insuring the private 

contractors who cleaned up the World Trade Center after the 

event. 

The economic security of this City is of great importance to us 

and the Nation, and I commend the chairman and ranking member 

for their commitment to extend TRIA, and look forward to working 

toward that end. 

The economic consequences of terrorism present a very difficult 

long-term challenge. In particular, it is important that we are assured the financial resources are available quickly to rebuild the 

lives and businesses that will be damaged by an act of terrorism. 

32

It is with great pride that we can look back—we in the insurance 

industry look back—at the events following 9/11 as we quickly, 

fairly, and sensitively met our legitimate obligation and paid every 

single legitimate claim quickly. We are proud of that record, and 

I stand here to reaffirm our commitment to do it again. 

Unfortunately, the possible scope of a terrorism act is too great 

for us to withstand. We need more permanence. The ranking member echoed former Chairman Mike Oxley in saying we can no 

longer kick the can down the road. We have been doing that now 

for too many years. 

Fundamentally, I would agree with the other panelists that the 

public-private partnership represented by TRIA is sound and has 

worked remarkably well. Look at the effect of the industry deductible. It is far from a gift to insurers. Under the current Act, our 

deductible, Liberty’s retention would be close to $2 billion before 

TRIA would kick into help us—$2 billion, hardly a handout to the 

industry. But because of those deductibles, we and our competitors 

have worked with the policyholders to increase the security and 

safety of their buildings and their employees. 

It is that role that we in the private sector can play so well. We 

understand risk, and we understand how to work with our policyholders to reduce that risk, so maintaining that deductible is critically important. 

Also the deductible allows some development of private market 

capacity to meet the terrorism risk. I say some development, because there is not enough private capital in the world to meet a 

large terrorism event. It is easy, very easy, to construct an event 

that would cost up to three-quarters of a trillion dollars, and yet 

as mentioned earlier, the entire P&C industry has only roughly 

$150 billion in capital to address the TRIA risks. 

So we do need an extension. However, there are several things 

we could improve on. People have all mentioned before permanency, the elimination of the distinction between foreign and domestic terrorism, and of course, increasing the overall cap from 

$100 billion, which would be meaningless in the case of a significant event. 

Others have mentioned the recovery surcharges. I urge you to 

think long and hard before assessing post-event premium surcharges. Those surcharges will not be borne by large businesses. 

Surcharges, mandatory charges, inevitably become a burden for 

small and medium sized businesses, as large and wealthy businesses increase their self-insured retention and reduce their premium, so it would be a tax on mid-size and small businesses. 

Second, we at Liberty Mutual are very encouraged by the discussion of tax deductible reserves. However, our public counterparts 

may have a problem with the gap accounting for such reserves. So 

there are technical issues to look at. However, we think it is a very 

good idea, well worth exploring. 

So in summary, we need TRIA. We need a permanent TRIA. The 

current structure worked basically very well. With a little bit of 

tweaking, it can work very well for the long run, and we at Liberty 

Mutual and the rest of the industry look forward to working with 

you as we address this significant issue. 

33

[The prepared statement of Mr. Kelly can be found on page 116 

of the appendix.] 

Mr. ACKERMAN. Thank you very much, Mr. Kelly. 

The Chair notes that, despite the seemingly unwieldy size of the 

witness table and the power therein represented, that you are 

probably one of the most disciplined panels that I have ever seen, 

keeping within the time constraints that we indicated. We appreciate that. 

The Chair, with the consent of the members, unless there is any 

objection, will limit to 3 minutes the questions of each member, 

and see where that takes us. I think, that way, we could possibly 

get out—that is for the question and answer—so that we can get 

out on time. 

I think most people at the panel referred to either permanency 

or long term. Nobody is advocating for mid-term or short term extensions, at least on this pretty diverse panel. Yet there is some 

controversy in the Congress as to the length of time of the extension, going anywhere from 3 years to a mid-range of 6 to 8 years, 

to 10 years, to 15 years and permanent. 

Anybody want to advocate other than—well, let’s just pick a 

number? What would be the barest minimum that you think would 

make any real sense for planning and other purposes? Maybe just 

a quick answer from each of the—anybody who would want. Let me 

put out that way. Mr. Green? 

Mr. GREEN. 10 years. 

Mr. ACKERMAN. 10-year minimum? 

Mr. GREEN. Yes, or until the threat is depleted, whichever occurs 

first. 

Mr. ACKERMAN. I know how to measure 10 years. Anybody else 

want to? 

Mr. GRAVES. The Mortgage Bankers Association favors a permanent solution, but 10 years, we would view, as a minimum. 

Mr. HECK. I would suggest—I said a minimum of 5 years, but I 

do think that 10 years is a better minimum, and the reason is that 

in the last year when the TRIA or the government backstop is running out, insurance companies have a dilemma, and they never 

know whether it will be extended, and they begin to non-renew 

business, and it really is very disruptive of the economy. So I think 

the longer, the better, and of course, 10 years is a minimum, and 

my hope is that it will be indefinite. 

Mr. KELLY. I believe in starting a football game inside the other 

team’s 10-yard line. So permanent is a minimum. That having been 

said, I think anything that is not double digit would be disruptive. 

So I believe that 15 years would be a target, 10 years would be acceptable, but anything less would be really disruptive. 

Mr. BAILEY. I think a lot of people struggle with the word permanent, that it’s something that can’t be undone. So I put in my remarks ‘‘sustainable.’’ I think you do start talking about 10 years, 

15 years-plus, but something that is sustainable is really what we 

are trying to achieve in the end. 

Mr. ACKERMAN. Mr. Lieber. 

Mr. LIEBER. If I may, just from our standpoint, I think 15 years 

is a minimum, and here is why, is that in large scale development 

projects, between the time it takes to get a project planned, deVerDate 0ct 09 2002 11:12 Jun 05, 2007 Jkt 035288 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\35288.TXT HFIN PsN: TERRIE
34

signed and approved, built and leased up to the point where you 

are going to be in a position to have takeout financing, could be in 

excess of—is very frequently in excess of 10 years, so 15 years for 

a large scale project is really what you need, because you need the 

construction lender to know terrorism insurance will be there. So 

there could be a takeout by a permanent lender, and all the other 

participants in the project. 

There is one other variable. It’s a little technical, but if you had 

an act of terrorism, clearly, there would be lawsuits about design 

defects and was the project physically designed well. The statutes 

of repose that affect those lawsuits go in—I think in the State of 

Nevada it is 12 years. In California it is 10 years. So you need the 

project to be built and for that statute of repose to expire before 

the exposure, the need to have terrorism backstop, goes away. So 

it has to be 15 years. 

Mr. ACKERMAN. Thank you very much. The Chair hears that his 

time is up. The distinguished minority leader. 

Ms. PRYCE. Thank you. I would love to be the minority leader, 

but today I am, I guess. 

Mr. ACKERMAN. You are today. 

Ms. PRYCE. The Mayor and others mentioned the distinction between international and domestic terrorism. Several of you did as 

well. I don’t think we need to look any further than Oklahoma City 

to see that we can home-grow our own forms of terror, and I don’t 

know where that distinction came from, and I am not sure what 

sense it makes. But if any of you could comment on that, why—

I think it came up in the Senate, did it not? Does anybody have 

any thoughts? Does anybody here think that it should be only 

international, foreign? I wouldn’t think so. 

The other thing that everybody has mentioned is NBCR, and you 

know, it is very, very hard to predict terror. It doesn’t lend itself, 

especially the NBCR component, to actuarial digestion or modeling, 

but my prediction is, if we don’t cover this in some way, that is exactly where we will be hit. These terrorists are intent on doing as 

much damage as they can, not only to human life, but to our economy if they see a hole in coverage or see an opportunity. I just 

think that there is absolutely no way we can go without addressing 

this. 

Does anybody disagree with that? 

Mr. KELLY. Distinguished Member, there are two ways to think 

of the insurance risk, and I think— 

Mr. ACKERMAN. Pull that a little bit closer. 

Mr. KELLY. I think the Superintendent did an excellent job with 

his diagram. There is the frequency risk and the absolute scale. 

The absolute potential loss from NBCR dramatically overwhelms 

the absolute potential loss from a physical—conventional, if one 

can think of conventional terrorism. 

When we think of hundreds of billions of dollars of loss, that is 

under either numerous coordinated traditional terrorist acts or a 

single NBCR attack, so we absolutely have to have NBCR coverage. 

It is unacceptable, if that is appropriate to say to Congress, but to 

me it would be unacceptable not to have significant coverage of 

NBCR. 

35

Ms. PRYCE. One other thing that intrigued me, Dr. Ferguson. 

You mentioned that there is a difference between a certified act 

and an uncertified act, and I don’t understand that. 

Mr. FERGUSON. I am sorry. That is the technical language being 

used in the Act for this foreign versus domestic story that you just 

touched on. 

Ms. PRYCE. Oh, okay. 

Mr. FERGUSON. I’m sorry. I knew as I was saying it that there 

might be some confusion, but this whole issue that you have raised 

is right. 

I should add that you raise another important issue that, as an 

economist, I have been thinking about, which is: If you leave open 

certain areas such as NBCR, that is obviously an area that our enemies could exploit in some way, and so in some sense closing these 

important risks such as NBCR or the group life issue, I think, is 

very important, just for the reasons you point out for the incentive 

effect. 

Mr. ACKERMAN. If the Chair might, under the existing Act it is 

the Secretary of the Treasury that certifies that indeed the incident 

was an act of international terrorism, rather than something else. 

The Act is currently silent on an act of domestic terrorism or some 

kind of combination of domestic terrorists inspired by international 

terrorists, which we don’t contemplate necessarily. 

We would have to add language, if indeed we do cover domestic 

terrorism, as to who would declare it, whether it is the Treasury 

Secretary or some other authority, but I think the consensus seems 

to be, starting with the Mayor, that it would make no difference 

who the attack was caused by. We just have to decide how to put 

the language in. Mr. Heck? 

Mr. HECK. Yes. I would like to say something on behalf of medium and small size companies with respect to NBCR. I suggest 

that NBCR should be covered by the government, but it should 

apply as a separate program, and it should apply—it should be covered by the government from first dollar. 

The reason that I suggest that is that it is such a serious and 

complete destructive event that the small and medium sized companies just could not afford to have that exposure for their retentions and for the co-insurance limit. 

Ms. PRYCE. Thank you. My time has expired. 

Mr. ACKERMAN. Thank you. Ms. McCarthy. 

Ms. MCCARTHY. Thank you. I would appreciate just a little bit 

of clarification on a number, and I hope I have my names down 

right on who said it. 

Basically, actually, it was Mr. Graves who was talking about the 

life of the loan. Now how long is the life of the loan when you are 

talking about the kind of monies I think we are talking about? 

Mr. GRAVES. The life of the loan can be—they range anywhere 

from as short as 2 to 3 years to as long as 20 or 25 years. So there 

is a wide range of loan terms available for commercial properties, 

and it usually depends on how the property is leased. I would say 

the most prevalent permanent loan in the market would be 10 

years. 

Ms. MCCARTHY. Really? So it is not like us paying off a 30-year 

mortgage? 

36

Mr. GRAVES. No. 

Ms. MCCARTHY. Because that is what, actually, I was thinking. 

If someone else could answer the question on building risk insurance. I am not exactly sure if I know building risk insurance. Is 

that at the process for like where we were down at the Twin Towers where it has been already spent a lot of money to get to where 

we are today? 

Mr. LIEBER. It insures against damages that may take place during the construction process, and what is happening, the reason I 

mentioned it, is that although you would get builder’s risk insurance without terrorism, and that is really the option that is mostly 

available to us, what is happening is that because in New York 

State a builder’s risk or a property insurer is liable for a fire following an event. 

Some of the builder’s risk insurers are, in effect, taking some terrorism risk, even though we don’t have—they are not selling us terrorism insurance, because they could theoretically be liable if there 

is an impact, and then subsequently a fire that causes damage, 

they could be liable, even though they haven’t sold this terrorism 

insurance. That was the reason I made the point that we should 

clarify the scope of TRIA to make it clear it covers all the consequences of an attack. 

Ms. MCCARTHY. Then just to follow up on one other question: Obviously, everyone is concentrating here on New York, because that 

is where it happened. That is where we are rebuilding. What do 

you see as far as other parts of the country on buying terrorist insurance? Have you seen, certainly, an uptick, and what are the cost 

analyses? Is it like other insurance, like if it was in the middle of 

Wyoming, are those costs cheaper than, say, here in New York? 

Mr. KELLY. Well, the costs vary a little bit, but it is not so much 

the cost. It is the mindset. I think it is not surprising. We have 

mandatory offer, which is part of the current law. We get roughly 

a 60- 62 percent take-up in New York, the Manhattan area, but a 

50 percent take-up outside Manhattan. 

So people outside the northeast, Manhattan—Manhattan and the 

northeast have a lot less concern, which, of course, is a political 

problem, too—have a lot less concern about the impact of terrorism. 

However, our modeling—and we work with various experts—indicate that some of the greatest exposures are, in fact, outside Manhattan, because people have done a good job of hardening buildings 

in Manhattan, and in Manhattan large buildings protect each other 

from events. 

Mr. GREEN. The biggest issue is, whether we want to or not get 

insurance and what is our appetite for risk is really beyond—it is 

not an issue here, because our mortgages in New York—you have 

a big office building. The mortgage holder will require you to have 

a certain amount of casualty, a certain amount of terrorism insurance. We don’t have a choice. 

Now when you go outside of New York, I don’t think the mortgage lenders are as extreme in requiring you to have terrorism insurance, so it is really not a level playing field at all. 

Mr. HECK. With regard to cost, there are really two different 

ways to look at it. The cost on the primary end when we sell an 

insurance policy to a business, the cost is kept down because of 

37

TRIA, and if TRIA wasn’t there, the cost—you would have a risk 

based cost. It would have to go up if the regulations would permit 

it. 

On the reinsurance end, and that is the insurance that the insurance companies buy, the cost is exorbitant. It is extremely high, 

and there is a limited amount of reinsurance available, and as Mr. 

Kelly said, I don’t see much distinction from city to city in that expense. It is very, very high. 

Ms. MCCARTHY. Thank you. 

Mr. FERGUSON. May I speak to this, as the only person here from 

the reinsurance industry. I think we ought to be a little careful. 

There are a range of products and services for sure. With TRIA in 

place, there seems to be sufficient capacity in the reinsurance industry to do backing. 

It is certainly true that the pricing may vary somewhat from location to location, but I would be cautious. I think the word exorbitant doesn’t fully describe all of the economics of this. So we should 

be a little cautious about being sure about the pricing between reinsurance and insurance. 

Mr. KELLY. One other thing. We keep talking about real estate 

and property, and that is a huge and important market to us and 

a very important good. But there is also worker’s compensation. 

There are people, and there is where it is important we understand it isn’t just a matter of protecting, albeit important—protecting the lender. We also have to make sure we protect the workers in the building and that we can put those workers back on 

their feet or take care of their families in case of disability or 

death. Let’s not lose sight of that hugely important part of TRIA. 

Mr. BAILEY. I would just chime in, actually in validation of that. 

That might be one of the greatest arguments for the fact that this 

is not just a New York City issue. We have clients all over North 

America, and where there is a concentration of risk relative to employees in a single location, it is very difficult for us to currently 

get worker’s compensation insurance. You take the backstop away. 

It would be almost impossible. 

Mr. ACKERMAN. Unless there is any objection, the Chair would 

ask the timekeepers to afford 4 minutes to our Republican colleagues, because to pass this we want to make sure that 

everybody’s questions are answered. Mr. King. 

Mr. KING. Thank you, Mr. Chairman. I want to thank all the witnesses for their testimony. I would like to direct my question to Mr. 

Lieber on the issue that you were talking about, the insufficient capacity, even with TRIA. 

Now if I could be clear, if we do resolve the issues regarding 

NBCR, regarding the foreign and domestic terrorism, and the issue 

of proximate consequences, how much would that cut into the problem of insufficient capacity? 

Mr. LIEBER. It is a very good question. It is impossible to foresee. 

Those will have significant positive consequences, we believe, as to 

capacity, permanency, NBCR and the other items that you mentioned. 

We believe there will still be—and again, it is based on input 

from experts and insurance brokers like Aon and Willis—that we 

are so far from having sufficient capacity that we ought to discuss 

38

some other steps that might be taken to incentivize insurance capacity to come into areas like Lower Manhattan. 

Mr. KING. I don’t know if this is the appropriate forum, but since 

Chairman Ackerman gave me 4 minutes, could you just expand on 

what you think those other steps would be? 

Mr. LIEBER. Well, one of the other members of the panel talked 

about reducing the trigger level where the TRIA Federal backstop 

kicks in, and you were talking about, I think, in the case of the 

small insurers, to incentivize them to come in. That, for example, 

might induce some small insurers who otherwise can’t play in this 

marketplace where you have to, under the current program, wipe 

out 20 percent of your capital before the Federal backstop kicks 

in—that might induce them to come in and participate in this marketplace. 

More broadly, you know, you could consider adjusting the retentions, the deductibles, for areas that are identified by Congress as 

high risk. 

Those are a couple of the suggestions that we think are worth 

considering as part of this result. 

Mr. KING. Thank you. 

Mr. KELLY. Congressman, I think we should take a hard look at 

the current tax structure as it relates to catastrophe bonds, particularly terrorism bonds. U.S. tax laws sort of end up forcing us 

to create bond structures overseas in better tax jurisdictions. 

If one could look at the tax laws to create—make it easier for us 

to work with the capital markets and through our reinsurers with 

them to create cat bond structures, it would fill that layer, that 

layer between the private sector and the government sector. I think 

that is an area we need to look at very closely. 

Mr. KING. Thank you. Mr. Kelly, sorry I had to jump up when 

you were answering the question. I just got a—MediGroup called 

my wife. Everything was fine. We were 50/50. So I will give you 

and Gary Ackerman the credit for that. Thank you. 

Mr. ACKERMAN. I’m glad you got good news. 

Mr. HECK. May I say something about the trigger? And just to 

explain why the trigger at $100 million is so difficult. My company 

insures buildings. We are a big building insurer in New York. We 

try to stay at $50 million, no larger than a $50 million building, 

but we do go up to $100 million on many of our risks. 

If we should have an incident with a direct hit to a building we 

insure that might be $90 million, TRIA does not apply. We would 

be in serious difficulty, because $90 million would represent a very 

significant part of our capital structure. So without TRIA, we 

would have to bring that $50 million way down. That is why it is 

so important. 

Mr. ACKERMAN. Thank you very much. Mr. Murphy, for 3 minutes. 

Mr. MURPHY. Thank you, Mr. Chairman. I wanted to explore 

with a little bit more depth the questions that Representative 

McCarthy started to query on the difference between this issue in 

New York City and in outlying areas, because I think politically it 

is obviously very important to make people understand the national implications here. 

39

I would open this up to whomever may want to answer it, but 

to talk a little bit more about the difference in capacity of the system to respond in New York and outside of New York, and also the 

willingness to write for terrorism absent TRIA in New York versus 

outside of New York. 

Mr. HECK. I could begin. One of the reasons that New York City 

is so vulnerable is that it contains the largest number of the largest buildings across the Nation, so it has more targets in New 

York. But I think that every large city is vulnerable, and there are 

some very big buildings in many cities. 

Mr. MURPHY. And I guess to maybe ask the question specifically, 

did we have a problem in the months following September 11th 

with insurers being unwilling to write for terrorism risk outside of 

New York as well as inside of New York? 

Mr. HECK. I think there was a problem all over. For example, 

pre-9/11 my company wrote up to $250 million on a single building. 

After 9/11 we took that limit down to $50 million, and that was 

true everywhere we did business, which is regional. We are a regional company. 

So I think that there is no question that that was an issue. After 

9/11, companies in New York withdrew, and even to this day—and 

you read a lot about the success of the insurance industry last 

year, and it had been one of the best years for many, many years 

for the industry, but we do not see more companies coming into 

Manhattan writing business. 

As a matter of fact, the longer we are here writing business, the 

higher our concentrations, and then we have to refine those concentrations by reducing coverage and non-renewing some business, 

because all of the companies that are in New York now geo-track 

everything we write. We know what we have in each building, how 

many employees reside in the building, and we have to keep track 

and not permit these aggregations to get too large. 

So there is no question about it. It limits the market, and it limits availability. 

One of your questions was about how much there is. Recently, 

I was involved in a single risk on a very, very large building in 

New York, a very large building, where the risk required $1.3 billion in coverage. The most they were able to get was $700 million 

with terrorism, with TRIA. 

I was called. My company couldn’t participate in that; it was too 

big for us. We wrote a good part of the account, and the producer, 

the broker, called me to ask whether I had any ideas, and I told 

him I would try some of the large reinsurers. He had been dealing 

with insurance companies. 

I called the large reinsurers. They seemed interested. They later 

got back to me to say that they were supporting the primary companies, so they had no more capacity. 

What the broker did do was to go offshore and was able to form 

some sort of an offshore arrangement to get access to TRIA. Then 

I said to him, ‘‘Well, what are you going to do at the end of this 

year?’’ He said, ‘‘I have no idea.’’ 

So there is really a distinct small limit of coverage available on 

an individual building basis. 

40

Mr. KELLY. There are two thoughts here. Unlike natural catastrophe where there is more than ample insurance and reinsurance 

coverage to meet anything we can foresee, and that will be solved 

easily in the private market, but with some bumps along the way. 

With terrorism, it is the absolute scale that scares us—after September 11th, it wasn’t in property insurance that shortage was 

found. It was in worker’s compensation insurance. We are not allowed by any standard to exclude any act from workers’ coverage. 

All acts, all causes of damage, they must be mandatorily covered 

by worker’s compensation. It is in the insurance of people that the 

most harmful immediate impact of a lack of TRIA would be felt. 

Mr. ACKERMAN. Thank you. Mr. Perlmutter. 

Mr. PERLMUTTER. Thanks, Mr. Chairman. Just a couple of questions, gentlemen, and thank you very much for your testimony 

today. 

Mr. Heck, you mentioned on the nuclear, biological threat that 

you would like to see dollar one. So in effect, no insurance, just 

something picked up by the Federal Government. Does the rest of 

the panel join in that? So basically, you are not selling insurance 

for that. It is just something that we pick up as a whole? 

Mr. HECK. I will say that right now the insurance policy for property excludes nuclear. That was excluded sometime in the 1940’s, 

and it has been a complete exclusion since then. The reason for it 

is that it is certainly uninsurable. There is no way to cover it, and 

it is complete. If, God forbid, there is a nuclear event, it is a very 

complete situation, and it is something that none of us can really 

deal with. It should not really be a private insurance matter. 

Mr. PERLMUTTER. I mean, I am new at this. So at this point in 

TRIA, there is nothing that talks about nuclear. Are you all held 

responsible in the event of a nuclear event? 

Mr. HECK. Under worker’s compensation, there is no exclusion 

for nuclear, and as Mr. Kelly said, the carriers would be responsible for that, so it is a really sensitive subject. The best way to 

handle it would be to keep it out of TRIA as a separate government 

program. 

Mr. BAILEY. Just a point of clarification. Nominally now, NBCR 

is within the scope of coverage, but you can’t get the coverage; it 

is just not available. It is an automatic exclusion from any coverage, even terrorism coverage. 

Mr. PERLMUTTER. So then at this point, the mortgage bankers 

aren’t demanding it of the real estate developers, who then have 

to go get the insurance company to provide it? 

Mr. GRAVES. We would like it available. It is a risk. It is a risk 

that we are not being paid for as a lender, so we would strongly 

encourage the inclusion of that. 

Mr. PERLMUTTER. Just one last question. I can’t remember who, 

maybe it was you, Mr. Lieber, or somebody mentioned that group 

life insurance is not being covered at this point. Dr. Ferguson, 

maybe that is what you were addressing? 

Mr. FERGUSON. Well, it is exactly the same point you have heard 

with worker’s comp. It is again a very large concentration of risk. 

The exclusions do not exist, and I am not sure of the history of why 

worker’s comp and group life were treated differently, but it would 

seem they are very, very similar kinds of risk and should be treatVerDate 0ct 09 2002 11:12 Jun 05, 2007 Jkt 035288 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\35288.TXT HFIN PsN: TERRIE
41

ed consistently, and it is just that straightforward an argument. 

But it is extremely important, for the reasons that my friend from 

Liberty Mutual has talked about in terms of just covering life is 

very important. 

Mr. PERLMUTTER. The last thing, and I know that the Federal 

Government operates—doesn’t account quite the same as all of you 

must do your accounting, but any sense of what this is a cost to 

the Federal taxpayers in establishing a reserve? 

Mr. FERGUSON. First let’s get the facts. As you well know, it has 

cost absolutely nothing at this stage. It is a backstop. Secondly, the 

way I would think about it, in addition to this budget scoring issue 

which, obviously, is fairly complicated, is should an event occur, the 

government would undoubtedly be involved anyway. 

So I think the challenge from a budgeting standpoint is in some 

sense you create certainty up front by having this backstop. You 

leave uncertainty with the real probability that, should a very large 

event occur, the government would step in anyway. 

So while it is not in any sense unimportant how the budget scorers account for it, as I think about it as a former government policymaker, it is one of these events where, frankly, because there is 

so much market failure, the government has to step in. So I think 

there is really no way to get around that fundamental issue of why 

the government is required and why I am sitting here today. 

Mr. ACKERMAN. Mr. Garrett, 4 minutes. 

Mr. GARRETT. Thank you again, Mr. Chairman. You know, I 

think the first panel and then the members of this panel also made 

the comment with regard to the number of projects that are out 

there potentially at risk, and if we don’t move forward that they 

would be certainly subject to risk. 

I can assure you from both sides of the aisle that we want to do 

nothing that would put these projects that are on the board or potentially on the board at risk. 

On the upside of all this, you know, both the testimony I have 

heard today and also from the President’s Working Group, you 

would see that both in the original TRIA and the subsequent extension that you have seen some positive sign from it. 

The PWG found that insurers have a better understanding of the 

geographic mix and the concentration issues that they have to deal 

with. They are better able to make underwriting and pricing decisions, as testimony has already indicated, and there is more terrorism insurance sold year to year, and financially it indicates in 

the report that most insurers have policyholder surplus levels that 

are exceeding those levels of 2001 and, as the report said, that certain industries, certain carriers, are doing pretty well with the 

profits. 

They found that with the extension, the revision of TRIA, that 

when it was scaled back, the private sector capacity increased, premiums fell, and overall policy purchases called takeup grew as 

well. 

So we have the upside of both the original and revised version 

of TRIA. One of my findings in government is that we don’t do anything unless, especially on complicated issues such as this, unless 

we are compelled to, either through tragedy or through time. Obviously, we did something right after 9/11, because that was tragedy. 

42

We did something after the 3-year first period time, because that 

was a time constraint, and we pushed it off—we did it for a 2-year 

period of time. 

I am concerned that, if we do as the bottom line number that the 

panel comes here with 10 years—others say 15 years; others say 

a permanent level—that we will not be compelled to come back like 

we did after the first 3 years and make some improvements to it, 

and what we are about to do right here is make some improvements to it. 

Mr. Lieber, you mentioned also some other ideas of potential improvement besides those. Once we fix a problem, Congress doesn’t 

usually go back and re-fix it unless those issues come up again. I 

have a feeling that Mr. Lieber and others may come up with ideas 

3 or 4 years down the road to re-fix it again in a positive way. 

So I am wondering why should we be reauthorizing for 5 times 

what we just did in this last time, and can’t we do it still in this 

manner? 

Secondly, tied to that, if we do do a permanent solution or a long 

term solution, wouldn’t this take away some of the incentives that 

are currently on the industry to be creative and innovative and try 

to address some of the problems, as they have done over the last 

3- and then 2-year period? 

Mr. LIEBER. I will take a crack at that as probably the person 

at hand who is least expert in insurance matters, technical insurance matters, but I will tell you this. I believe that, if you had a 

permanent solution, if you had the stability of knowing what the 

box was, what the rules of the game were, where the Federal backstop was, and that you knew it was in place for a substantial period of time, that would give the opportunity for private sector creativity to come in and help us to resolve some of the shortfalls of 

capacity, to develop new products, to work on the pricing and the 

actuarial issues. 

So, Congressman, our hope and expectation is that, if you had a 

stable framework, and we think that it ought to be 15 years—you 

have heard other views on that—that you would have a lot of creativity and a lot of improvement over time as a result of the insurance industry working with its customers. 

Mr. GREEN. If I could just take it back on that a little bit. I have 

spent my career in the insurance industry and have probably 

learned a couple of things. Insurance companies, carriers, are not 

big fans of government involvement in what they do and, too, I 

would tell you that they are very innovative and creative, and if 

they can find a way to make a profit on something, they will do 

it. They will innovate. 

In this situation, you have carriers begging for government involvement, because they have not found any way to generate a reasonable profit in this area. So the thought that the private market 

is somehow going to come up with a solution to this, if we just get 

rid of TRIA, I think, is just naive. It is not out there. 

Mr. KELLY. Congressman, the current Act has led to creativity, 

because there is significant retention of risk by the industry. The 

impermanence of the current Act has militated against creativity, 

because our policies, as Mayor Bloomberg indicated—are not coterminous with the Act. 

43

So we are frozen in place, effectively, starting January of this 

year. In fact, the impermanency militates against creativity. It is 

the exact opposite of what you would expect. I believe that with 

permanency and with the significant retentions we have right now, 

you will see the private sector continue to work, whether it’s real 

estate customer or employers, to make the workplace safer and to 

meet whatever is needed in the capital markets below the government involvement. 

Mr. HECK. I would also like to add that, at least in New York 

City, the availability of terrorism coverage other than the coverage 

that is required under TRIA has not increased in any significant 

way since 2002. What has improved is the takeup rate, because I 

think it takes time for the consumers and the business community 

to get adjusted. 

You know, let’s face it. On the primary side, we are not charging 

a lot of money for terrorism because of TRIA. Second, the retentions have gone up, because TRIEA required higher retentions. But 

in terms of more carriers coming into the market to provide, you 

know, like reinsurance availability, it is just not there. 

Mr. GARRETT. Thank you. 

Mr. ACKERMAN. Thank you, Mr. Garrett. Ms. Maloney for 3 minutes. 

Ms. MALONEY. Thank you, Mr. Chairman, and I would like to 

thank all of the members of the panel for your really important 

contribution. You all represent important stakeholders in this industry, and what you have said today will help us craft a bill. 

We are all working on it now. Chairman Frank and Subcommittee Chairman Kanjorski have indicated that they would like 

a bill drafted and considered by the end of April so that the Senate 

and the Executive Branch would have time to respond and get an 

appropriate law in place. 

I would like to ask Mr. Green: Since we enacted TRIA, it has 

proven that it works. Takeup rates for terrorism insurance have increased from 23 percent in early 2003 to 64 percent at the end of 

2005, and these are numbers cited by the President’s Working 

Group on Financial Markets. 

So my question is: Would this growth, or rather regrowth of terrorism risk insurance have happened without TRIA? And as a follow-up to you and other members of the panel, what is the appropriate role for the private sector in a long term solution? 

Mr. GREEN. Let me, in answer to your question, give you a story, 

real life, it happened, rather than talk about concept and philosophy. 

We had a policy. Our total terrorism policy, casualty policy, was 

expiring on October 31, 2005. If you remember, at that time TRIA 

was set to expire December 31, 2005. August, early September, we 

had gone around to many of our insurance companies, Chub, AIG. 

These are big companies. We have a great relationship, and they 

have insured us over the years. 

At that time, sometime in September—I may get the names 

wrong, but I believe Senator Phil Gramm from Texas, Secretary 

Snow was making speeches about the possibility that we needed a 

free enterprise system to work, and maybe the government should 

not be part of this solution. Then there was, I think, the chairman 

44

of the Banking Committee in the Senate from Alabama—I forgot 

his name—Selby was making speeches to this extent. 

So all of a sudden, in September, all of our insurance companies 

would not give us terrorism insurance, because they felt that TRIA 

was going to end come December 31st. They weren’t sure. There 

was an uncertainty. 

We needed it because of our mortgage requirements. We went 

around to the world, literally to the world. There was one company 

who came back. I won’t mention the name of the company. It is of 

no value, but a major, major United States, an icon of corporate 

America came back to us and said they gave us 24 hours. If we did 

not adhere to what they wanted, which was a $10 million increase 

to the premiums we were paying then, $10 million more, 24 hours, 

they would allocate it to somebody else. 

We had no choice. We didn’t quite say thank you in those terms, 

but we had to take that insurance. That will give you a real life 

perspective of what happened with uncertainty that the TRIA 

backstop was going to be renewed. 

Mr. ACKERMAN. Thank you, very much. 

Ms. MALONEY. And if anyone would comment on the appropriate 

role for the private sector in a long term solution, anyone, Mr. 

Green. 

Mr. ACKERMAN. Briefly. 

Mr. GREEN. I think Mr. Lieber had a good recommendation. We 

believe in competition, Democrat, Republican. We love the free enterprise system to work. That is our goal. And if you want the free 

enterprise system to work and insurance companies to come into 

this market, reduce the $100 million deductible so that companies—this gentleman, I think, said it well. 

His company—if you can only do a $50 million building in New 

York, you can’t insure very many buildings. I think, if you reduce 

that, smaller companies would come in, and you would have increased competition and increased product. 

Ms. MALONEY. Thank you. 

Mr. ACKERMAN. Thank you, very much. 

With great appreciation to all involved, let me just add one thing 

to the mix that we all are going to give some consideration to, and 

that is post-event occurrences. 

If indeed we do positively consider the chemical, biological, and 

radiological losses that might occur, we don’t know exactly what we 

are talking about because of things that could happen, depending 

on what kind of weapons might be used in the attacks, new things 

that come along, and how and when they manifest themselves. 

We are all going to have to give some considerable thought to 

that. Is there something like in the medical profession where they 

have tail insurance that months or years or years or more years 

after an event people start getting sick from something that we 

don’t even know about today, the results of the unknown, about the 

unknown and how we deal with that. 

This is something that we may have to take up. This is something that you may want to think about. In the meantime, we 

promised to have the committee out of here and on buses and other 

transportation before one o’clock. 

45

I want to thank this very distinguished panel. You have each individually and collectively lent to the base of knowledge that we 

have as we ponder what we are going to do with the reauthorization of this bill. 

I thank you for participating. The panel is dismissed with the 

thanks of the Chair and the Congress, and this hearing is adjourned. 

[Whereupon, at 12:25 p.m., the hearing was adjourned.] 

(47)

A P P E N D I X

March 5, 2007

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