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29–462 PDF 2006

THE FUTURE OF TERRORISM INSURANCE

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 NINTH CONGRESS

FIRST SESSION

JULY 27, 2005

Printed for the use of the Committee on Financial Services

Serial No. 109–49

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

BARNEY FRANK, Massachusetts 

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 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED

ENTERPRISES

RICHARD H. BAKER, Louisiana, Chairman

JIM RYUN, Kansas, Vice Chair 

CHRISTOPHER SHAYS, Connecticut 

PAUL E. GILLMOR, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

SUE W. KELLY, New York 

ROBERT W. NEY, Ohio 

VITO FOSSELLA, New York, 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

MARK R. KENNEDY, Minnesota 

PATRICK J. TIBERI, Ohio 

J. GRESHAM BARRETT, South Carolina 

GINNY BROWN-WAITE, Florida 

TOM FEENEY, Florida 

JIM GERLACH, Pennsylvania 

KATHERINE HARRIS, Florida 

JEB HENSARLING, Texas 

RICK RENZI, Arizona 

GEOFF DAVIS, Kentucky 

MICHAEL G. FITZPATRICK, Pennsylvania 

JOHN CAMPBELL, California 

MICHAEL G. OXLEY, Ohio 

PAUL E. KANJORSKI, Pennsylvania 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

STEVE ISRAEL, New York 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

ARTUR DAVIS, Alabama 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

July 27, 2005 ..................................................................................................... 1

Appendix: 

July 27, 2005 ..................................................................................................... 73

WITNESSES 

WEDNESDAY, JULY 27, 2005

Csiszar, Ernst N., President and Chief Executive Officer, Property Casualty 

Insurers Association of America ......................................................................... 54

Harper, Edwin L., Senior Vice President, Assurant, Inc., and Chairman, 

Group Life Coalition ............................................................................................ 60

Heck, Warren, Chairman and Chief Executive Officer, Greater New York 

Mutual Insurance Company, on Behalf of the National Association of Mutual Insurance Companies ................................................................................... 58

Hunter, J. Robert, Director of Insurance, Consumer Federation of America ..... 51

Maurin, James E., Chairman, Stirling Properties, on Behalf of the Coalition 

to Insure Against Terrorism ................................................................................ 25

Mills, Howard, Superintendent, New York Insurance Department .................... 15

Mirel, Lawrence H., Commissioner, Department of Insurance and Securities 

Regulation, District of Columbia ........................................................................ 18

Pritzker, Penny S., President and Chief Executive Officer, Pritzker Realty 

Group, L.P. ........................................................................................................... 62

Schupp, Jason M., Vice President and Senior Assistant General Counsel, 

Zurich Financial Services Group, on Behalf of the American Insurance 

Association ............................................................................................................ 56

Sinnott, John T., Vice Chairman, Marsh and McLennan Companies, Inc., 

on Behalf of the Council of Insurance Agents and Brokers .............................. 23

Stiglitz, William G. III, Hyland, Block and Hyland, and President-elect, Independent Insurance Agents and Brokers of America .......................................... 21

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 74

Kanjorski, Hon. Paul E. ................................................................................... 76

Ryun, Hon. Jim ................................................................................................. 78

Sessions, Hon. Pete .......................................................................................... 79

Csiszar, Ernst N. .............................................................................................. 81

Harper, Edwin L. .............................................................................................. 89

Heck, Warren .................................................................................................... 100

Hunter, J. Robert .............................................................................................. 108

Maurin, James E. ............................................................................................. 132

Mills, Howard ................................................................................................... 145

Mirel, Lawrence H. ........................................................................................... 153

Pritzker, Penny S. ............................................................................................ 157

Schupp, Jason M. .............................................................................................. 162

Sinnott, John T. ................................................................................................ 168

Stiglitz, William G. III ..................................................................................... 218

Page

VI

ADDITIONAL STATEMENTS SUBMITTED FOR THE RECORD

Association of American Railroads .................................................................. 228

Trust for America’s Health .............................................................................. 232

National Association of Realtors ..................................................................... 244

(1)

THE FUTURE OF TERRORISM INSURANCE 

Wednesday, July 27, 2005

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 10:00 a.m., in room 

2128, Rayburn House Office Building, Hon. Richard Baker [chairman of the subcommittee] presiding. 

Present: Representatives Baker, Oxley, Shays, Sessions, Gillmor, 

Bachus, Kelly, Biggert, Fitzpatrick, Davis of Kentucky, Kanjorski, 

Frank, Maloney, Ackerman, Sherman, Capuano, Crowley, Israel, 

Miller of North Carolina, Scott, Bean, and Wasserman Schultz. 

Chairman BAKER. I would like to call this meeting of the Subcommittee on Capital Markets to order. 

I am advised that Mr. Kanjorski, the Ranking Member, is on his 

way. I will go ahead and proceed with my opening statement, and 

I wish to welcome those participants here this morning. 

The meeting today occurs on the subject of terrorism reinsurance 

and the need for and appropriateness of an extension of the current 

program now in effect. 

It also occurs pursuant to receipt of a report by the Department 

of the Treasury which performed a critical oversight and assessment of the current program. Although many view the report to 

have been negative in context, the conclusions reached are valuable 

because of the scope of the study and the findings and recommendations that are included. Specifically, that the committee 

should consider modifications to the current program before extending any conditional backstop. 

Further, Secretary Snow in appearing before the full committee 

in response to questions which I proffered to him indicated that, 

one, he felt that there was a need for an extension to be created 

before the year end, but that such extension should be modified 

pursuant to identified concerns contained in the report, more specifically retention levels perhaps should be adjusted, trigger levels 

should be adjusted, and repayment assurances made more clear to 

taxpayers. Those are perspectives with which I find agreement. 

Today, we have the good fortune to have experts in the field to 

express from their varying perspectives the appropriate manner in 

which the extension should be considered or in fact whether the extension should be granted at all. My concerns with the findings of 

the Treasury report go more specifically to a Louisiana view as to 

the $500 million trigger level that enables a claimant to seek asVerDate 0ct 09 2002 11:35 Sep 28, 2006 Jkt 029462 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 F:\DOCS\29462.TXT HFIN PsN: TERRIE
2

sistance from the Department of the Treasury. I am anxious to try 

to find an alternative triggering methodology that might be more 

appropriate to rural communities. 

Second, I also share the Treasury’s view with regard to what is 

now a conditional repayment of taxpayer advances of credit which 

today are discretionary in the eyes of the Secretary and may or 

may not be recollected. It is my view that a mandatory repayment 

provision would be extremely helpful. 

All of us have shareholders. Those in private business have clearly identified shareholders. Those of us in Congress have constituents, and it is our job to stand between our constituents’ checkbooks and those who make application to the Government for assistance, to ensure that any extension of taxpayer resources is not 

only warranted, but at the appearance of profitability and an ability to repay without detriment to the overall economy, that repayment be made on terms that are responsive to the identified needs. 

I do believe, however, that the Treasury has indicated a willingness to work with this committee and the Congress in general to 

seek a remedy perhaps over the August recess that could be considered in the month of September to meet the needs of the marketplace before the expiration of the current program. 

I have come to the conclusion that without a properly constructed 

reinsurance program, there will be market consequences that are 

not in everyone’s best interest. Accordingly, I look forward to working with other members and those experts who appear here today 

to seek out those remedies. 

At this time, I would recognize Mr. Ackerman for an opening 

statement. 

Mr. ACKERMAN. Thank you very much, Chairman Baker. 

I would like to thank our committee Ranking Member, Mr. 

Frank, and the subcommittee Ranking Member, Mr. Kanjorski, for 

arranging the hearing today to discuss the important and urgently 

needed extension of the Terrorism Risk Insurance Act. 

I urge that we work together on legislation to extend TRIA and 

that we move this legislation both through the committee and the 

Floor of the House this year. We must act to continue to provide 

TRIA’s Federal backstop. 

TRIA, as we know, was enacted in response to the events of 9/ 11, an event that caused over $30 billion in insured losses, and was 

enacted to help secure our economy against the devastation that 

might come from another terrorist attack. This was the primary 

purpose behind TRIA and it is the very reason this law needs to 

be extended. 

This high-level Federal backstop not only protects private commercial insurance interests, but also the long-term interests of the 

Federal Government, which would be ultimately responsible for 

funding both short- and long-term costs associated with recovering 

from a terrorist attack. 

Unfortunately, TRIA will sunset on December 31st of this year, 

and with Congress very soon to adjourn for the August recess, that 

deadline is fast approaching. The full 2-year extension proposed by 

Mr. Capuano’s bill, H.R. 1153, will prevent destabilization of the 

insurance industry and, in turn, the national economy. This Congress has no greater domestic obligation. 

3

The Treasury Secretary’s recent report on TRIA makes it clear 

that private markets will develop additional terrorism insurance 

capacity over time, but that still leaves us with a problem that 

must be addressed now. Whereas Secretary Snow indicates that 

the Bush Administration opposes the extension of TRIA in its current form, we do understand that this program may not be the 

long-term answer to protect all of the stakeholders here. 

I agree that in the end we must work to find private sector alternatives to address the liabilities created by the possibility of terrorist attacks. But with no such long-term solution currently in 

place and the sunset deadline of this protection soon approaching, 

a short-term extension must be enacted. 

Failure to extend TRIA with the uncertainties that still exist in 

the insurance marketplace would horribly exacerbate the already 

difficult task that insurers face in trying to accurately and effectively manage the risk of loss resulting from a terrorist attack. 

Failure to extend TRIA now would lead us back to the same highly 

uncertain business environment we saw before TRIA, an environment in which firms struggled to get needed coverage. TRIA has 

provided a short-term solution to successfully protect policyholders 

from bankruptcy, keep insurers from insolvency, and prevent the 

taxpayers from paying the full cost of a terrorist attack. 

Failure to enact the short-term extension makes no sense whatsoever. We are fortunate that there have been no terrorist attacks 

on U.S. soil since 9/11. Unfortunately, we have seen with this 

month’s attacks in London that we still face a very real threat of 

terrorism and this threat will not go away when TRIA sunsets at 

the end of this year. 

We must act as quickly as possible, both in committee and with 

the entire Congress to avoid the premature expiration of TRIA’s 

Federal backstop. Our security and future prosperity demand it. 

I thank the chairman. 

Chairman BAKER. I thank the gentleman. 

Mr. Ryun? 

Mr. RYUN. Mr. Chairman, thank you, and thank you for convening this hearing. It is an issue that has been in front of the 

committee for some time now. 

We have had numerous hours of testimony, and I believe that we 

have done a commendable job of helping to ensure that terrorism 

insurance continues to be available during perilous times. 

At the same time, we must not lose sight of the goal to return 

terrorism insurance to a market-based product. If we fail to establish a framework that begins to wean the industry off the Federal 

assistance, we will create a dependency that is almost impossible 

to reverse. However, it would be equally irresponsible to allow 

TRIA to expire if the market cannot bear the product on its own. 

I do believe that the industry is not to this point and therefore 

I believe that the committee should act to extend TRIA in some 

form. I am hopeful that we will be able to include meaningful reforms that accomplish the goals of holding taxpayers harmless over 

time, and ensure the availability of this product as it returns to the 

market-based system. 

4

I want to thank the witnesses for being here today and I look forward to the testimony. I hope we can move quickly toward a responsible reform and extension of TRIA. 

Thank you, Mr. Chairman. I yield back my time. 

Chairman BAKER. I thank the gentleman. 

Mr. Kanjorski? 

Mr. KANJORSKI. Mr. Chairman, as you already know, I strongly 

believe that we now need to extend the Terrorism Risk Insurance 

Act. This law is critical to protecting our economic security. I am 

therefore pleased that we are meeting today on this important matter. 

After the terrorist attacks 4 years ago, reinsurers curtailed the 

supply of terrorism reinsurance and insurers began to exclude such 

coverage from policies. In response, we enacted TRIA to address 

these pressing problems. 

Several studies have already determined that TRIA has worked 

to increase the availability of terrorism risk insurance and has advanced economic development projects. The Treasury Department’s 

recent report on this law also found that the program has helped 

to stabilize our insurance market. 

TRIA, however, will expire at the end of this year. Like many of 

my colleagues, I believe that we need to move aggressively now to 

extend this economic stabilization law. Our failure to reach quick 

agreement on this important issue will likely result in less terrorism insurance, higher prices, lower policy take-up, and greater 

economic uncertainty. 

Moreover, the recent terrorist attacks in England and Egypt 

highlight the need for us to extend TRIA despite the preferences 

of some against doing so. The occurrence of terrorism, after all, is 

currently unpredictable. 

The vast majority of experts testifying before us today, including 

regulators, insurers, brokers, and real estate investors, will also 

call upon us to act expeditiously in these matters in the coming 

months in order to prevent short-term market disruptions. We need 

to listen to their counsel. 

In debating any plan to extend TRIA, I have long held that we 

ought to work to incorporate group life insurance. Therefore, I am 

pleased that one of our witnesses will directly address this issue 

today. Group life products, after all, have characteristics similar to 

commercial property and casualty insurance in that there is often 

an aggressive concentration of risk within a small geographic area. 

As many of my colleagues have regularly noted, we need to insure 

the people inside the buildings, and not just the buildings themselves. 

Additionally, the Administration has proposed a number of reforms that it would like Congress to adopt should we decide to extend the program. I approach these proposals with some doubt and 

a little skepticism. After all, the original bill was a carefully crafted 

compromise that resulted from extensive negotiations. In particular, I am especially concerned about Secretary Snow’s request 

for reasonable legal reforms. This proposal for legal reforms could 

once again stall legislative efforts, as it delayed consideration of the 

original law. 

5

Nevertheless, as legislators, we have the responsibility to give 

this proposal and the other reforms suggested by the Administration their due consideration. We also need to evaluate the recommendations of experts testifying before us today during our 

forthcoming deliberations. 

As I noted at our last hearing, Mr. Chairman, time is of the essence. We now have just 4 weeks remaining on the legislative calendar. As a result, we need to have our staffs work diligently over 

the August break in order for us to move expeditiously in September. 

In closing, this is not a Democratic or Republican issue. It is, as 

I have regularly noted, an American issue. It is a business issue. 

It is an economic security issue. I therefore stand ready to work 

with you, Mr. Chairman, and all other interested parties on these 

matters in the weeks ahead. 

Thank you. 

Chairman BAKER. I thank the gentleman. 

Mr. Frank? 

Mr. FRANK. Thank you, Mr. Chairman. I appreciate the promptness with which you and the Chairman of the Full Committee have 

given us a chance to begin working on this. 

We were encouraged when the Chairman of the Full Committee 

indicated that we will in fact be marking this up. I look forward 

to this committee doing what we have been able to do in a number 

of areas in the past, working together in a bipartisan way on the 

technical matters. 

I want to address a philosophical point here today. It is why I 

strongly support this and why I differ with some of my allies who 

have said, well, let’s not be helping business in this regard. In the 

first place, the prime beneficiaries of this, in my judgment, are not 

the insurance companies. They are the insured. The insurance companies could walk away from this. 

The problem would then fall on those who seek to build and construct, particularly in our big cities. This is a very important issue 

for New York and for Chicago. This is, as I said, a matter of the 

insured. There are people who want to build, who want to help develop. They are the ones who have come to me most passionately 

about this. 

Second, there is the philosophical question of how does this society deal with the costs imposed on us by murderers who dislike our 

form of government and our way of life. Yes, I suppose it would be 

possible for the market to take care of this. The market would take 

care of it by raising the price, if the market works as it should, to 

those who would be the likeliest targets of terrorism. That is the 

way the insurance system works. You would in a logical way say, 

okay, let’s try as best we can to figure out who are likeliest to be 

the victims of terrorism and we will charge them more for their insurance. That is the way insurance works. 

Now, that is often a very good idea because what it does is give 

people an incentive to make themselves less likely to be a cost 

problem. You can have people diminish the likelihood of fire, diminish the likelihood of automobile accidents, etc. But there is 

nothing that Americans can do in Chicago or New York or Boston 

or anywhere else, or in the rural areas about terrorism, because I 

6

think the chairman is quite right. When we do the triggering, we 

should be sensitive to rural areas. We do not know where the terrorists will strike, but we will be guessing. 

I do not think we ought to say to the American people, we are 

going to assess you an extra fee because terrorists may have targeted you. It seems to me, and this is my philosophical justification 

for TRIA, we should take the cost of terrorism, which may be inflicted on us, and obviously there will be a terrible human cost, but 

to the extent that it is a financial cost, it ought to be broadly 

shared. This is a case for totally socializing the risk and not allowing particular sectors of our society, particular geographic regions 

to be more at risk and to have to pay more for terrorism. That is 

what we are talking about. 

If you go to a purely market-based system of terrorism insurance, 

you are saying to the extent that you are likely to be targeted by 

the terrorists, to that extent we will charge you more. Our job 

ought to be to say to those who would murder and destroy because 

they disagree with policies of this country, we are going to do everything we can to make sure that you have no effect on us. We 

are going to neutralize your efforts. The best way to do that is to 

take the cost of those efforts and spread them as broadly as possible. 

I do not want any one segment of the American economy feeling, 

oh well, wait a minute, I better be careful about this policy, I will 

be particularly singled out. To the extent that we broadly distribute 

this risk across the board and say to people that we all share. Let 

me just be clear on the point. The individuals who might be building big buildings in a particular community, they are not the cause 

of the murderers and they ought not to bear a disproportionate 

share of the burden of dealing with it. It is the country as a whole 

that has been targeted by these people. It is the country as a whole 

that should respond. 

One way to respond is to take the risk of terrorism insurance, 

and again people cannot diminish that risk. They may be able to 

mitigate some, but they cannot diminish the risk that they will be 

victimized by terrorists because that is an exogenous event over 

which they have no control. 

So that is the philosophical justification for saying whether the 

market can or cannot do this is not to me the primary issue. I do 

not want to impose on particularly vulnerable people in this society 

a greater cost because murderers may have targeted them. And 

that is the justification for doing this in this public way. 

Thank you, Mr. Chairman. 

Chairman BAKER. I thank the gentleman. 

Mr. Capuano, did you have a statement? 

Mr. CAPUANO. Mr. Chairman, first of all, thank you for the hearing. 

I have no real opening statement, but I actually would encourage 

all the panelists, both on the first and second panels. Honestly, I 

deal in the real world. I think pretty much everybody is going to 

be on the same line that there is some role for the Federal Government on some sort of backstop at some level. The immediate question, though, is whether we should extend the current TRIA law or 

some form thereof. 

7

I do not think anybody who is familiar with the legislative process can look me in the eye and tell me that you think we will come 

up with a permanent solution by the end of this year. Though that 

is possible, anybody who is familiar with the process I think knows 

that it is highly unlikely. 

That being the case, my biggest interest, my immediate interest 

is your opinions on the immediate future. Should we extend TRIA? 

Should we extend it with some amendments? Or should we just let 

it expire? Beyond that, the permanent fix will take us some time 

to get to. If you think otherwise, if you think we can do it between 

now and then, I would like to hear that as well. 

Other than that, Mr. Chairman, again I thank you for having 

this hearing and for opening up the process so that we can hear 

from people who actually know what they are talking about, instead of just me. 

Chairman BAKER. I thank the gentleman. 

Are there Members seeking recognition? 

Mr. Crowley? 

Mr. CROWLEY. Thank you, Mr. Chairman. Let me thank you and 

Ranking Member Kanjorski for holding this hearing today on the 

Federal terrorism backstop. 

I especially want to highlight the work of Ranking Member Barney Frank on this issue in keeping it at the forefront, as well as 

my colleagues Mr. Israel, Mr. Capuano, Mr. Kanjorski, in conjunction with my office, in creating the legislation that I think has been 

at the forefront of moving this issue forward, as well as Ms. Bean 

from Chicago and her efforts to extend TRIA for an additional 2 

years. 

I welcome this hearing of the subcommittee on this important 

issue and look forward to as early a markup as possible. It is my 

hope that the Capuano-Israel, et al, bill, H.R. 1153, will be the base 

for this that will include a 2-year extension, as well as inclusion 

of group life coverage. That bill served as a lonely leader arguing 

for an extension of TRIA and it deserves its true place as the engine that moves TRIA forward to the next level, as well as the recognition of all those who support TRIA, including a number of the 

witnesses here today, some of whom I think sometimes forget that 

this bill exists. 

As we all know, the Terrorism Risk Insurance Act passed in 2002 

allowed for the reinsurance of terrorism insurance to private enterprise; allowed for the financing of new construction projects; and 

provided coverage for thousands of businesses that would not have 

had insurance without it. It was vital and we all agree on this 

point. As Howard Mills—and we welcome you to the committee 

today, Mr. Mills, a former State assemblyman, as I was myself, in 

New York State, who is now serving as the New York State insurance commissioner—stated about TRIA, ‘‘The nation’s current economic strength is in large part due to the Federal backstop put in 

place by TRIA.’’ Mr. Mills continued by saying, ‘‘The removal of 

that type of protection could return the insurance market to the 

uncertainty experienced in the aftermath of September 11, 2001.’’ 

As a New Yorker, Mr. Mills is very keenly aware of the importance 

of this legislation, which certainly had the support of our AdminisVerDate 0ct 09 2002 11:35 Sep 28, 2006 Jkt 029462 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 F:\DOCS\29462.TXT HFIN PsN: TERRIE
8

tration, this Administration, after the aftermath of September 

11th. 

The Treasury report stated that the creation of TRIA was meant 

to address any market disruptions and ensure the continued widespread availability and affordability of property and casualty insurance for terrorism risk, and to allow a transitional period for the 

private markets to stabilize, resume pricing of such insurance, and 

build capacity to absorb any future losses, while preserving State 

insurance regulation and consumer protections. 

The report goes on to say that TRIA has been effective in meetings its goals of supporting the industry during a transitional period and stabilizing the private insurance market. Later, this same 

Treasury report states that the immediate effect of the removal of 

TRIA subsidy is likely to be less terrorism insurance written by insurers, higher prices, and lower policyholder take-up. 

I agree with all of the above. TRIA has been a success. Without 

TRIA, our country will see serious market disruptions like we saw 

in the months after 9/11 when there was no coverage and no ability 

of insurers to assess risk. In fact, what I said last week when Secretary Snow was giving his testimony before the committee, it is 

a take on the old adage, if it ain’t broke, fix it. 

But now is not the time to let TRIA die. In fact, now is the time 

to extend and strengthen it. As we learned both in the Treasury 

report and over the past few years from conversations with industry and business leaders, many reinsurers have still not yet returned to the marketplace. 

I have concerns that as we move forward with any legislation, 

that we ensure the retention trigger rates as such are kept at a 

manageable rate to lure more insurers back into the market. I fear 

that increasing retention rates while weakening TRIA will not lure 

them back in. As they operate in a free market, reinsurers view 

terrorism as an uninsurable risk and that simply will not change. 

We need to add group life coverage and we need to look at the 

possibility of covering nuclear, biological, chemical and radiation 

coverage and other issues. We have a lot of work ahead of us and 

not much time to accomplish it. Stating that, I do believe that 

TRIA should not be a permanent program, but rather a temporary 

program until the private insurance market can develop its own 

additional terrorism insurance capacity. 

Again, I am pleased that the Treasury Department’s report on 

TRIA, as well as the leadership of Mr. Frank in continually charging ahead on the importance of extending TRIA and terrorism risk 

insurance, will go on. I want to applaud them all once again and 

commit to industry to all facets who are concerned about this that 

I, too, am committed to seeing TRIA re-passed before we leave this 

Congress. 

I yield back. 

Chairman BAKER. I thank the gentleman for his statement. 

Mr. Israel? 

Mr. ISRAEL. Thank you, Mr. Chairman. 

Let me echo Mr. Crowley’s welcome to Superintendent Mills from 

my home State of New York. 

I look forward to hearing your comments and those of the other 

witnesses. 

9

I am going to be very brief, Mr. Chairman. Some have suggested 

that with the Treasury report, we are getting very close to building 

a bipartisan consensus on TRIA. I certainly am hopeful that is the 

case, but there is a sense of deja vu because we were very close 

to a bipartisan consensus with TRIA in the last Congress. In fact, 

we were minutes away from a vote on the suspension calendar with 

the TRIA bill. 

Unfortunately, the clock wound down, we were not able to accomplish it, and here we are again. The clock is winding down again. 

We do not get two strikes on this issue. If we do not act, we are 

profoundly disappointing our businesses and our residents back 

home, and potentially setting back the U.S. economy. 

So I think that we have an opportunity to build consensus on 

what I suspect will be an imperfect bill. I just want to close by suggesting that we have an obligation to make sure that in an imperfect bill we at least cover two bases. One is group life. It makes 

no sense for us to assure the continuity of insurance for construction, for bricks, for mortar, for steel, and not for the human lives 

inside that building. It is a very tough argument to make back 

home that we insured buildings, but not the people inside. So I 

think group life has to be a critical component. 

Finally, we need to ensure that whatever is passed in the remaining weeks that we have here in Washington does focus on a 

short-term extension and a long-term solution. I look forward to 

continuing to work with my colleagues. I want to thank Mr. 

Capuano and Mr. Kanjorski and the ranking member and Mr. 

Crowley for joining me on H.R. 1153. We continue as we always 

have at every step for the past 2 years to offer to work in a bipartisan, constructive fashion with our colleagues to make sure that 

we pass TRIA, put this issue behind us, and sustain our economy 

in the future. 

I thank the chairman and yield back the balance of my time. 

Chairman BAKER. I thank the gentleman. 

The Chairman of the Full Committee, Mr. Oxley? 

The CHAIRMAN. Thank you, Mr. Chairman. 

And good morning to our distinguished panel of witnesses and 

welcome to the committee. We look forward to hearing your testimony today on the future of terrorism insurance. 

We recall today how the economy, and specifically the insurance 

marketplace, was roiled by the terrorist attacks of 9/11. Reinsurance capital fled the marketplace, insurers began to exclude coverage, and large policyholders were unable to obtain enough insurance coverage for their construction and development projects. 

In coordination with the leadership of President Bush, Congress 

acted swiftly to address the problems facing the insurance marketplace. Those problems included a drained industry surplus, insufficient diversification in geographic risk exposure, and an inability to 

model potential terrorist losses. Within weeks of the terrorist attacks, this committee and the House passed legislation that in 2002 

would become the Terrorism Risk Insurance Act or TRIA. TRIA established a public-private partnership with a temporary backstop 

to protect against future catastrophic terrorist attacks through December 31st of this year. 

10

TRIA was designed to be a temporary fix to address very specific 

goals, and it has succeeded in that role. The insurance industry’s 

surplus has dramatically increased, the economy has greatly improved, and commercial property insurers have been able to more 

effectively spread and model their risk exposures. 

However, as documented by the recent report from the Department of the Treasury, TRIA may actually be hindering marketbased solutions for terrorism insurance. As a result, it would not 

be prudent to merely extend the current TRIA program. The threat 

from terrorism will likely remain with us for years to come, and 

this Nation needs a long-term solution that the current TRIA program simply does not and cannot provide. 

We have had the Government Accountability Office perform numerous studies for the committee evaluating domestic and foreign 

catastrophe programs. From their review, it is clear that the only 

long-term solution to ensuring market stability for catastrophic 

risks is by creating dedicated capital. This can be done by allowing 

long-term catastrophic reserves, creating an industry pool, prefunding or post-funding losses through assessments and surcharges, tapping the equity markets, or providing a Federal subsidy. 

The last option, a Federal subsidy, is often the least efficient as 

it crowds out and distorts the private marketplace, reducing incentives for mitigation and appropriate risk pricing. For this reason, 

the Treasury and the White House have indicated their opposition 

to an extension of TRIA in its current form. I also believe that an 

extension of the program without reform would be unwise and unwarranted. 

Fortunately, the marketplace has not been without new thinking 

in the last year, and numerous parties have presented the committee with proposed solutions for revamping TRIA to reduce the 

Federal subsidy, increase private sector involvement, and create 

dedicated capital sources to ensure long-term stability in the terrorism insurance marketplace. 

This is an important due diligence responsibility for our committee. Whether we simply increase the TRIA numbers as the 

Treasury suggests with full taxpayer payback and more streamlined coverage, or create a more comprehensive solution with greater certainty and free-market discipline, I am confident we can get 

it done in a timely manner and in our committee’s bipartisan tradition. 

I look forward to hearing from the witnesses on our panels today, 

and on working together on a revamped and more effective and efficient terrorism insurance program. 

Mr. Chairman, I yield back. 

Chairman BAKER. I thank the Chairman for his participation. 

Ms. Bean? 

Ms. BEAN. Thank you, Chairman Baker and Ranking Member 

Kanjorski, for holding this important hearing on TRIA. 

Thank you to our distinguished panel members for sharing your 

own valuable real-world perspective in the debate over terrorism 

risk insurance. 

In the wake of the September 11th terrorist attacks, it was important to put a Federal backstop in place to protect against largeVerDate 0ct 09 2002 11:35 Sep 28, 2006 Jkt 029462 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 F:\DOCS\29462.TXT HFIN PsN: TERRIE
11

scale terror losses. TRIA provided an important step forward in 

providing relief to insurers and third parties that could suffer devastating losses in the event of a terrorist act. 

My own suburban district is located just northwest of Chicago. 

Many of my constituents work in the city, however, and I have a 

special appreciation for how TRIA helped restore the confidence 

needed to revive our local economy after the shock of September 

11th. 

The London bombings earlier this month illustrate that the 

threat posed by terrorism is still very real. Sadly, the London attacks underscore the need for Congress to act quickly to renew the 

Terrorism Risk Insurance Act before it expires at the end of this 

year. In the absence of a backdrop, I am concerned that the terrorism insurance market will once again become unstable and potentially damage our economy. 

The same rationale which compelled Congress to pass TRIA in 

the first place should again compel us to approve its extension. We 

can and should avoid further market disruption. 

I look forward to the witnesses’ testimony and I yield back the 

balance of my time. 

Chairman BAKER. I thank the gentlelady. 

Mr. Bachus? 

Mr. BACHUS. I thank the chairman. I would like to commend you 

on your leadership on this issue and your efforts in renewing the 

Federal Government’s commitment to terrorist insurance and the 

Terrorism Risk Insurance Act. 

Over the past few years, terrorist insurance has helped provide 

needed stability to our Nation’s economy. It is often a critical component in the financing of various real estate development projects, 

including office buildings, residential and condominiums, and retail 

centers. Its continued availability and affordability plays an important role in the economic health of the commercial real estate market in our economy. 

For that reason, I would like unanimous consent to submit a 

statement by the National Association of Realtors. 

Chairman BAKER. Without objection. 

Mr. BACHUS. Thank you. 

As you know, the program is set to expire at the end of the year. 

I am concerned that America’s economy will not have the adequate 

financial protection from future terrorist attacks, and we always 

have to assume that they will come, for purposes of this hearing. 

Consequently, Mr. Chairman, this program needs to be renewed 

and extended. 

In addition to the renewal of the TRIA program, we should consider the inclusion of group life as part of the Federal terrorist reinsurance program. Unlike property and casualty insurance and 

their industry, in the absence of TRIA group life insurers are required by State law to offer terrorist protection if they offer the 

product. 

As a result, group life insurers have had to make changes in 

their underwriting policies with potential risk of an exposure to a 

terrorist attack. For that reason, I believe that adding group life 

would help ensure the ability in the life insurance market and 

12

allow policyholders additional security in areas of high-risk concentrations. Also, it encourages the offering of group life insurance. 

As a proponent of the TRIA program, I have also read the recent 

Department of Treasury study on renewing terrorist risk insurance, the Act. It is my sincere hope to work with the Administration and the committee and Chairman Baker and Chairman Oxley 

on suggested changes to the program to ensure that TRIA renewal 

will not prevent the development of the underwriting ventures and 

reinsurance products in this area. 

Again, I thank you, Chairman Baker, and I look forward to hearing the testimonies of the witnesses here today. 

Chairman BAKER. I thank the gentleman. 

Mr. Miller, did you have a statement? 

Mr. MILLER OF NORTH CAROLINA. Just briefly, Mr. Chairman. 

I agree that TRIA should be extended. I voted for that in this 

committee in the last Congress and I have cosponsored the legislation this year to extend it. 

But I wanted to agree in part and disagree in part with the ranking Democrat, Mr. Frank’s statement earlier. I am sorry he is not 

here to see me disagree with him. I just wanted to prove that I 

could do it. 

[Laughter.] 

Chairman BAKER. I will tell him about it. 

[Laughter.] 

Mr. MILLER OF NORTH CAROLINA. Okay. Thank you. I actually 

felt several people might. 

I agree entirely that there is a great deal of terrorism risk that 

is entirely beyond the power of insurers to prevent. There is nothing the World Trade Center could have done to prevent being 

struck by commercial airliners, but there is something that airlines 

could have done to prevent it. I certainly want to get at what the 

private sector can do to make us safe. 

The 9/11 Commission said that despite 9/11, the private sector 

was woefully unprepared for terrorist attack. It should be a cost of 

doing business, certainly for some critical infrastructure, for some 

businesses whose vulnerability puts all of us at risk, many of us 

at risk. 

There are real differences in vulnerability to terrorism, the likelihood that a business will be the target of an attack, that I think 

should not, I agree with Mr. Frank, should not be reflected in terrorism insurance. Obviously, the greatest single vulnerability is 

whether you are in a major population center; whether you are in 

a city or not. I do not represent a large city, but I want America’s 

cities to be vibrant and I do not want businesses to think they have 

to move away from cities to get insurance or to get affordable insurance. 

I do not want a publisher to have to pay more terrorism insurance if they publish Salman Rushdie. They may be at much greater 

risk of a terrorist attack if they do. It is unacceptable to me that 

we would make that distinction. I would not want a Jewish community center to have to pay a higher terrorism risk insurance premium than would a Methodist community center or a nonsectarian 

community center. Those are unacceptable to me. 

13

But if the chemical industry can do something to prevent a Bhopal resulting from a terrorist attack, I want them to do it. If utilities, if power companies can do something, should do something to 

prevent the grid from going down because of a terrorist attack, I 

want them to do it, and I want there to be an economic incentive 

to do it. 

So whether it is this legislation and the extension of TRIA or in 

some other legislation, I do want to have a discussion about what 

we can do through market forces to encourage the private sector 

to be prepared for terrorist attack, to try to prevent attacks, to try 

to reduce our vulnerability, particularly when an attack on you is 

going to cause loss to others who cannot protect themselves, who 

can’t prepare, and to minimize the damage so that we can recover 

from attacks. 

Chairman BAKER. I thank the gentleman. 

Mr. Fitzpatrick? 

Mr. FITZPATRICK. Thank you, Chairman Baker. 

When Congress enacted TRIA, we made great strides to stabilize 

the private insurance market and to safeguard the economy in the 

face of future terrorist attacks. This temporary program effectively 

limited market disruptions and encouraged economic stabilization. 

In the face of TRIA’s expiration, we must ask if we are going to 

try to develop a private reinsurance market for terrorism. Secretary Snow testified that a revamped terrorism insurance program 

must incorporate greater taxpayer protection and encourage private market development. Chairman Greenspan stated that some 

of the aspects of the Treasury’s proposal to change TRIA by increasing private market participation and lessening taxpayers’ potential liability were very sensible. I would like to hear the panel 

here today address what is sensible and what is not. 

Chairman Baker has raised concerns that raising the threshold 

to $500 million might make TRIA coverage unavailable in some 

areas, which could possibly include my district in southeastern 

Pennsylvania. I would also like the panel to address this concern. 

No matter how you look at it, the global struggle against violent 

extremism will be long. We must try to find solutions so that our 

taxpayers are not so vulnerable in the long run. In the end, terrorism may turn out to be an uninsurable risk, but until this Federal backstop is modified, the private sector will not have an incentive to innovate. Despite our differing views on reform, we can always stand together on one thing: protecting the American economy from the financial consequences of a terrorist attack. 

Chairman Baker, I commend your commitment to renew this 

vital program before it expires at the end of this year. And I yield 

back the balance of my time. 

Chairman BAKER. I thank the gentleman. 

Ms. Wasserman Schultz? 

Ms. WASSERMAN SCHULTZ. Thank you, Mr. Chairman. 

Chairman Baker and Ranking Member Kanjorski, I appreciate 

your convening today’s hearing and for your continued leadership 

on this important issue. 

I particularly want to recognize my esteemed colleague from 

Massachusetts, Mr. Capuano, for all of his hard work on H.R. 1153. 

14

Specifically, I would like to welcome Ed Harper from Assurant, 

which is a major employer in my district. 

I will not be here for your testimony because I have a Judiciary 

Committee markup simultaneous to this meeting, but I appreciate 

your being here. I look forward to your testimony and for all the 

panelists’, and I want to keep my remarks short so we can expedite 

this process. 

I also want to reiterate, as my colleague from Pennsylvania did, 

that there is a need for a Federal backstop on the reinsurance markets. A failure of the Federal Government to extend TRIA will have 

very real consequences for our economy and will especially have 

those consequences for cities like Miami where the costs to private 

market participants will be simply untenable. 

The series of tragic events in London over the last few weeks underscore the need for the reauthorization of TRIA. The war on terror continues. As we heard Chairman Greenspan testify before this 

committee last Wednesday, private markets presume peaceful and 

civil societies. You cannot price or model catastrophic events. This 

is a lesson that other countries facing such threats, countries like 

the U.K., Israel, Spain and Italy have learned. These countries all 

provide the equivalent of a Federal backstop for their reinsurance 

markets. 

Like with unanticipated, unavailable insurance for hurricanes in 

my home State of Florida, the insurance industry cannot be expected to carry the full weight of the aftermath of a terrorist act. 

I know that many of my colleagues on both sides of the aisle recognize this need and I encourage us to move forward together and do 

what is best for this country. 

Thank you. I yield back the balance of my time. 

Chairman BAKER. I thank the gentlelady. 

Does any Member seek recognition for an opening statement? 

If not, at this time I would like to ask unanimous consent that 

the gentleman from Texas, Mr. Sessions, be permitted to sit as a 

member and be recognized in regular order. If there is no objection, 

without objection— 

Mr. SHAYS. Reserving the right to object. 

Chairman BAKER. Mr. Shays is recognized. 

Mr. SHAYS. As long as Mr. Sessions speaks with the eloquence 

that he usually speaks with. 

[Laughter.] 

Chairman BAKER. You will have to be the sole judge of that. 

The gentleman from Texas is recognized. 

Mr. SESSIONS. Thank you, Mr. Chairman. 

You know, it is great to have friends around it, isn’t it? Chris, 

thank you so much. 

Mr. Chairman, I appreciate the opportunity to be with you today 

and to hear this panel as they speak clearly about the needs as we 

go about reforming TRIA. I would like to be the first one to say 

that your leadership makes a difference, and the reason why we 

are here today is because you have been able to bring us along on 

this pathway to make sure that this debate and discussion takes 

place. 

Also, I want to thank Chairman Oxley, Mrs. Kelly, and Eric Cantor for their long support of this process. 

15

Mr. Chairman, if I could, I would like to just submit my remarks, 

rather than going through them, but I would like to read one page 

of them, and like to ask unanimous consent that they be included 

in the hearing. 

Chairman BAKER. Without objection. 

Mr. SESSIONS. That is, with the benefit of some distance and 

greater insight into how the marketplace has responded to TRIA, 

I believe it is appropriate to revisit this program as we are doing 

today and determine how it can be improved. Legislation that is 

fiscally responsible and provides taxpayer protection by narrowing 

Federal exposure, while still providing certainty and stability to the 

marketplace is what our achievable goal should be. I believe it is 

one that can be reached also in a timeframe that is appropriate, 

considering the impending expiration of TRIA as we currently 

know it. 

Without the certainty provided by the terrorism insurance program, Congress runs the risk of dealing with the financial aftermath of the tragedy again without a plan and without significant 

involvement from the private sector. This is a bad policy alternative for dealing with the economic effects of such a tragedy, and 

Congress can and must do better. 

Mr. Chairman, I believe what we are doing here today gets us 

closer to the mark of not only responsibility, but making sure that 

Congress puts its mark with the private sector to ensure that our 

economy feels the strength of an ongoing need to make sure that 

Americans have confidence not only in our government, but also in 

our process and the free enterprise system. 

Thank you so much for allowing me to be here today. 

Chairman BAKER. I thank the gentleman. 

There being no further statements from members, I have a request for unanimous consent that the statements of the Association 

of American Railroads and the statement of the Trust for America’s 

Health be included in the hearing record. Without objection, so ordered. 

It is now my pleasure to turn to our distinguished panel of witnesses, and advise you that to the extent possible we request that 

your testimony be constrained to 5 minutes. However, your full 

statement will be incorporated into the official record of the hearing. 

With that, I would first like to call on Mr. Howard Mills, who appears here today in his capacity as superintendent of the New York 

Insurance Department. 

Welcome, sir. 

STATEMENT OF HOWARD MILLS, SUPERINTENDENT, NEW 

YORK INSURANCE DEPARTMENT 

Mr. MILLS. Thank you, Chairman Baker, Mr. Kanjorski, all the 

members of the committee. 

It is clear to me from hearing the many opening comments today 

that all of the members of the committee seem to have a very keen 

appreciation for my critical point. 

My critical point, if I could leave you with one message, Members 

of Congress, is that we cannot have any gap. On January 1, 2006, 

something must be in place, a Federal backstop, or we will indeed 

16

immediately return to the post-September 11th period in the insurance industry and it will have devastating impacts on our national 

economy. 

I would be pleased to see an extension of TRIA. The NAIC has 

advocated for an extension of TRIA with the inclusion of group life. 

I think that is very important. But I have been listening very carefully to the Administration, to the Members of Congress. I do not 

expect that there is a lot of desire to just go ahead with a straight 

extension. So I am here to try and offer some thoughts on how we 

could go about approaching it in a different way. 

Before I share some of those thoughts, let me make a couple of 

points that are critical to what an extension of TRIA or any new 

program would have. The first thing I would like to say—and I 

heard it in some of the opening comments here this morning—

there is a tendency, and I with all due respect think that it is incorrect and misguided, to still regard this as a large city issue. This 

is something that we have to really think about. I personally believe that it would be far more devastating if the next, and we all 

hope of course that there will not be a next, but the experts tell 

us that there will be a next attack. 

I think it would be far more devastating to the insurance industry, to the economy, to the national psyche if that next attack were 

not at the Sears Tower in Chicago, not at the Empire State Building in New York City, but in a small shopping mall in Iowa or in 

Louisiana that none of us had ever heard of. That would immediately necessitate that any building project anywhere in this country where people gather would have to have terrorism insurance. 

Immediately that would occur. 

It simply must be there. Our national economy will be devastated 

if that were to occur. We know that we are dealing with a savage, 

but a very cunning enemy. They have a history of going after soft 

targets, not hard. And many of our best minds were focused on trying to predict and prevent the next attack have that very same concern, that it will be an unforeseen attack in an unlikely location 

designed for maximum economic damage, which of course is one of 

the major objectives of our enemy. 

That brings me to another point that I would like to make. I do 

think that the industry can do more, should do more, but those 

who say that the existence of TRIA over the last 2 years has completely depressed industry response, that also is not correct. The 

industry has done a great deal. You need only look at the security 

measures taken on by the private sector in large cities primarily, 

you know, expected targets. 

Local governments are bearing a heavy burden and the American 

taxpayer is already bearing a heavy burden. That is something else 

that is not often said enough. There is a lot of concern for the cost 

to the taxpayers. I would point out that TRIA so far has not cost 

the taxpayers a dime, not a dime has been spent on TRIA. 

But the American taxpayers are already paying. They are paying 

when their local governments have to take up security, enhance security measures, so we are all already paying a cost. It is a question of how that cost will be borne and what will be the most effective use of those monies to protect our national economy. 

17

One of the great problems that the industry has even if TRIA 

goes away and if there is not a backstop, insurance rates are set 

based on modeling. To price a product, they have to model. They 

have to try to predict the likelihood of payment of claims. You simply cannot model a terrorist attack. By its definition, a terrorist attack is meant to be unexpected. It is meant to be a surprise. You 

cannot model it. Therefore, you cannot price it. 

And finally, to those who are questioning whether we should 

even allow TRIA to just expire and go away with no Federal backstop, and ‘‘let the free market respond,’’ I would urge the Congress 

to consider this. There will be a free market response, but the likely, indeed the probable free market response will be to not write 

the insurance at all. That will have devastating impacts on our 

economy. 

TRIA has worked very, very well. I think that the major point 

that I would like to make here is that TRIA, the Congress was 

wise, the Administration was wise in its make-available clause. It 

put the onus on the insureds, not the insurers. It is the option of 

the insureds to look for it. It has to be made available by the insurers, and I would hope that any solution going forward will keep 

that in mind. I agree with those who said here today, and I am 

here as the superintendent of insurance, not advocating for the industry. I am here advocating for the consumers of insurance, for 

your constituents, for the American economy. 

Right now, the Congress should be aware that even with this 

question of whether TRIA will be extended or not, great harm is 

already being done. Again, I urge you, there must be a Federal 

backstop in place in some form on January 1, 2006, and I would 

also urge you to move as quickly as possible because the mere confusion about what is going on is already doing economic damage. 

You are seeing exclusions being written into policies right now and 

those exclusions will kick in with any policies going into 2006. If 

there is not a Federal backstop in place, those exclusions will kick 

in and we will indeed be right where we were on September 11, 

2001, before TRIA was enacted that year, where the economy had 

such terrible damage. 

Congress should be very aware of the fact, you know, it all comes 

down to an issue of capacity, and there is not unlimited capacity. 

Capacity has enhanced since TRIA was enacted, that is true, but 

the capacity is not unlimited. You should be aware that less than 

half, less than half of all the capacity out there right now in the 

insurance industry, less than half of that is dedicated to commercial lines. 

Also, the hurricanes in Florida have reduced our capacity by $20 

billion, and we are in hurricane season again. We have already had 

the earliest force four tropical storm in the hurricane season on 

record, so we just cannot count on the capacity being there. It is 

not yet there and the fact that all of the policies being written are 

already containing these exclusions in the event that a Federal 

backstop goes away, shows that the industry is not yet ready to 

write and that they will indeed, because of capacity issues, in many 

cases opt not to write if the Federal backstop is not extended. 

There are just some catastrophes that the private sector is not able 

to deal with. It is absolutely critical that this backstop continue. 

18

Now, where do we go? I have been listening very carefully. I do 

believe that there is a sincere effort to come up with a long-term 

solution. I believe that a long-term solution is preferable. Hopefully, the Congress can enact a long-term solution so it is in place 

by January 1, 2006. If it is not, if for political reasons or other reasons it just is not able, I urge you to do some sort of a temporary 

extension as a bridge to get you to the point that a long-term solution can be put into place. Again, the economic impacts of any gap, 

any gap at all on January 1, 2006, would be devastating. We are 

already feeling the impacts. 

Where would I like to see a long-term solution go? I do believe 

that we need more private involvement and we need to come up 

with a mechanism that would over time do two things: build capacity and reduce the Federal Government’s involvement. Some type 

of a mechanism, some other entity created where capacity was 

built, which was optional, which those insurers that opted to go 

into the program would then pay an assessment to build capacity. 

It would be absolutely necessary that if they opted in, they had to 

cover all types of terrorism. 

Chairman BAKER. Could you begin to conclude, sir? 

Mr. MILLS. Okay. Chairman, I have many other points I want to 

make which maybe we can get on, but let me make one final point 

please, if I may. 

The urgency of having this in place is critical. I happen to be a 

very, very big believer in tort reform. I am very concerned when 

I hear some of these talks about linking TRIA or another backstop 

to other issues. I urge you not to do that. I believe that this is, 

after the men and women in the United States military, TRIA is, 

or a Federal backstop, an improved Federal backstop is the most 

critical weapon in our arsenal to fight the war on terror. They want 

to destroy our economy. TRIA has kept our economy strong and the 

lack of a Federal backstop will have a devastating impact on our 

national economy. 

I thank you, Mr. Chairman. 

[The prepared statement of Mr. Mills can be found on page 145 

of the appendix.] 

Chairman BAKER. I thank the gentleman for his statement. 

Our next witness is Mr. Larry Mirel, who testifies here today in 

his capacity as commissioner of insurance and securities regulation 

for the District of Columbia. 

STATEMENT OF LAWRENCE H. MIREL, COMMISSIONER, DEPARTMENT OF INSURANCE AND SECURITIES REGULATION, 

DISTRICT OF COLUMBIA 

Mr. MIREL. Good morning, Chairman Baker, Mr. Kanjorski, and 

Mr. Sessions and members of the subcommittee. 

As the insurance commissioner for the District of Columbia, I 

carry out the laws that were mostly enacted by this Congress, and 

in many ways I am Congress’ State insurance regulator. I am here 

today on behalf of my department, the District of Columbia Department of Insurance, Securities and Banking, and I am not speaking 

on behalf of the NAIC, the National Association of Insurance Commissioners. 

19

I want to agree with Superintendent Mills, first, that the issue 

really is one of capacity. Will there be enough money available to 

cover losses due to future terrorist attacks, no matter how large 

they may be? Will people who pay premiums to protect themselves 

from financial disaster due to a terrorist attack be able to collect 

on the promises of reimbursement for which they paid? 

We do not want to see a situation where a large-scale terrorist 

attack exhausts the reserves set up to pay for those losses, leaving 

people without financial relief at the very time they need it the 

most. 

Under TRIA, the deal that was made was that in exchange for 

insurance companies offering terrorism coverage, the Federal Government steps in under certain circumstances to provide a backstop. TRIA has worked well and it is an important law, but there 

are two shortcomings, in my view, with the approach taken by 

TRIA. 

First, the legislation does nothing to promote growth in the capacity of the private insurance market. On the contrary, the very 

fact that the Government is willing to step in when losses exceed 

a stipulated amount discourages the growth of private capacity 

above that amount. 

Second, the risk that the Federal Government will have to make 

good on its pledge to act as the insurer of last resort is too high. 

$15 billion in terrorism losses may seem like a high industry retention level, but when compared to the $40 billion caused by the destruction of the World Trade Center, it is clear that the Federal 

Government would become involved very early under TRIA in a 

major terrorism event. 

To deal with both of those problems, in my view, a long-term solution should make the Federal Government a far more remote 

guarantor. There needs to be a Federal guarantee. In the end, as 

Mr. Mills has said, and others, terrorism risk is unpredictable. 

There needs to be a Federal guarantee, but it should be far more 

remote than it is currently. 

The way to deal with that, in my view, is to use the legislative 

authority of the Congress to create the establishment of a terrorism 

risk pool that would be funded and run by the industry; that would 

act as a cushion between what the industry can cover in the ordinary course of its activities and the point at which the Federal 

Government needs to step in as guarantor. 

In my view, the sensible approach would be for Government to 

use its authority to create such a pool, which would take some time 

to be filled up, but as it fills up, the terrorism guarantee provided 

by the Federal Government could retreat. Basically, what I am 

talking about is a TRIA-like arrangement, but funded by private 

money, not by the Federal Government. 

I also want to deal with a point that was made earlier about the 

unfairness of putting the risk of terrorism attack on those people 

who happen to be in the way of the particular goal of the terrorists. 

I always use the example of Joe’s shoe store down here on 15th 

Street near the White House. The terrorists are not after Joe. They 

are after America, and Joe should not have to pay 3 times as much 

as anyone else for insurance coverage. 

20

The creation of a risk pool would allow the subsidizing of the risk 

by every American. I think that is only fair. Not only do we not 

know when the next terrorism attack will take place, but we do not 

know where it will take place. Everybody is at risk. The terrorists 

are after America. They are not after Joe’s shoe store. 

The terrorism risk pool could be funded by a very small increased charge on policies that are covered by the pool. That small 

charge would very quickly mount up to a great deal of money that 

would be used as a backstop before the Federal backstop is 

reached. 

Currently, what happens is that insurers, not knowing what the 

risk will be, not being able to properly model it, charge a high rate. 

They would rather err on the side of being too high than too low. 

At the end of the year if there has been no terrorist attack, that 

money goes to the company’s bottom line. The following year, it has 

the same issue, and so it charges the same high rate. 

Instead, if this money were put into a terrorism risk pool, and 

kept aside for the purpose of backstopping terrorism risk, it could 

serve a very important role as a cushion between what the private 

industry can provide in the ordinary course and what the Federal 

Government ultimately will have to do. 

Thank you, Mr. Chairman, for holding this hearing. I do think 

that it is very important that something happen before the end of 

the year. I agree with Superintendent Mills that we should not 

have a gap. Something has to be done. I think also that a long-term 

solution is in the air and could be done. I hope it could be done 

by the end of this year, but if not, then something must be done. 

There cannot be a gap. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Mirel can be found on page 153 

of the appendix.] 

Chairman BAKER. I thank you for your testimony. 

For the appropriate introduction of our next witness, I now turn 

to Mr. Geoff Davis. 

Mr. DAVIS OF KENTUCKY. Thank you, Mr. Chairman. 

It is a privilege to be here this morning serving on the Terrorism 

Subcommittee on Armed Services, the House Task Force on Terrorism and Unconventional Warfare, and also on the Financial 

Services Committee and Chairman Baker’s Subcommittee on Capital Markets. 

Before introducing Mr. Stiglitz, I would like to comment on the 

importance of this hearing today simply from the perspective of 

this not being a war on terror. This is a war that Islamic extremism has imposed on this country, not simply by poor people from 

remote areas, but highly educated middle class and upper middle 

class people who are orchestrating this effort, and understand very 

clearly that to win the psychological war, to reduce the will of the 

American people to unutterably defeat them, they need to be able 

to strike a blow to our economy and our confidence in our governmental structures. 

That is one reason I am very grateful to the chairman for holding 

this hearing and being a champion on reauthorization and reformation of this very critical piece of insurance legislation, because one 

of the great blows, as a student of the Middle East, one of the great 

21

blows throughout the extremist Islamic community was the fact 

that our markets were open for business again within days after 

the 9/11 attacks. I think we have to take the steps necessary to 

show the world our confidence. Indeed, the world is watching this 

hearing today. 

This morning, it is my privilege to introduce Mr. William Stiglitz, 

the third president-elect for the Independent Insurance Agents and 

Brokers of America, from Louisville and the great Commonwealth 

of Kentucky. Mr. Stiglitz was elected to the executive committee of 

the IIABA in October of 2000; was inaugurated as president-elect 

in 2004 at the IIABA’s convention in Orlando, and will become the 

association’s president this year. 

Mr. Stiglitz is an account executive with Hyland, Block and 

Hyland, Incorporated in Louisville, Kentucky. A past president and 

State national director for the Independent Insurance Agents of 

Kentucky, Mr. Stiglitz is on the State’s board of directors and government affairs committee. Nationally, he served as planning liaison to the executive committee and as a member of the dues 

taskforce. He also is past president of the Louisville Board of Independent Insurance Agents. 

Mr. Stiglitz graduated from Centre College in Danville, Kentucky, and served in the United States Army in Vietnam. 

For that, we thank you for your service. 

Mr. Stiglitz, we are pleased to have you here this morning at the 

Subcommittee on Capital Markets, and we look forward to your 

testimony. 

Chairman BAKER. Please proceed, Mr. Stiglitz. Welcome. 

STATEMENT OF WILLIAM G. STIGLITZ, III, HYLAND, BLOCK 

AND HYLAND, AND PRESIDENT-ELECT, INDEPENDENT INSURANCE AGENTS AND BROKERS OF AMERICA 

Mr. STIGLITZ. Thank you, Congressman Davis, for that generous 

introduction. 

Good morning, Subcommittee Chairman Baker and Ranking 

Member Kanjorski and members of the subcommittee. My name is 

Bill Stiglitz, and I am pleased to be here today on behalf of the 

Independent Insurance Agents and Brokers of America, IIABA, to 

present our association’s perspective on the future of terrorism insurance. 

I am an account executive with Hyland, Block and Hyland, an 

independent agency based in Louisville, Kentucky. I also serve as 

president-elect of IIABA. 

Today, independent agents and brokers sell nearly 80 percent of 

all commercial lines policies in the country. Members of the Big I, 

as we are known, write the coverage for America’s businesses and 

serve as the intermediary between consumers and insurance companies, thereby seeing the insurance market from both perspectives. 

From this unique vantage point, we urge Congress to continue 

some form of a Federal terrorism insurance backstop beyond the 

year-end expiration of TRIA. I would like to compliment Chairman 

Oxley, Subcommittee Chairman Baker, and Ranking Members 

Frank and Kanjorski for holding this hearing and moving expediVerDate 0ct 09 2002 11:35 Sep 28, 2006 Jkt 029462 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 F:\DOCS\29462.TXT HFIN PsN: TERRIE
22

tiously to consider the recent report issued by the Department of 

the Treasury. 

The Big I and our 300,000 members are especially encouraged 

that members of this committee and Secretary Snow reaffirmed 

support for a continued Federal role in terrorism insurance. The 

challenge now before Congress is how to follow up the success of 

the Terrorism Risk Insurance Act, or TRIA, to ensure that consumer have continued access to terrorism insurance. 

After 9/11, it was quickly apparent that insurers could not handle the risk of further large-scale terrorist events without a Federal 

backstop. As insurers reacted to uncertainty in the market with exclusion clauses and outright cancellations of coverage, agents and 

brokers were left in the difficult position of not being able to meet 

clients’ needs for coverage. 

In the market, we began to see economic activity, especially significant new construction projects, impacted by the inability of 

owners to satisfy demands of current or prospective lenders to demonstrate adequate insurance coverage. Fortunately, through the 

leadership of the Administration and many in Congress, TRIA was 

enacted before the worst effects of this availability and affordability 

crisis further injured our national economy. 

As an agent from Louisville, Kentucky, serving many smaller 

communities, one of the points that I would like to stress to the 

committee today is that the need for a terrorism insurance backstop is not confined solely to large urban areas. In Louisville, my 

clients in the downtown area and icon buildings, and those clients 

with heavy involvement with the public have purchased this coverage. This is not unlike other stories that I have heard from other 

agents who have seen coverage purchased across the country, from 

small towns in Mississippi to small and large businesses in New 

York City. 

The bottom line, this is not a big city or a big State problem. It 

is a business consumer problem throughout the country. This is 

truly a national issue. Our ultimate goal is to ensure that our customers have access to affordable insurance, which enables them in 

turn to serve their customers, whether they are hotels and convenience stores like the witnesses here today, or other businesses that 

drive our economy. 

At the end of last month, the Treasury Department released its 

report on the TRIA program. We agree with the report’s conclusion 

that TRIA has worked well and generally as intended. In our experience, prices have come down, capacity has grown, and demand is 

up in many geographic areas. Overall, the Treasury Department’s 

findings support the need for an appropriate Federal role to encourage a workable insurance mechanism in the event of cataclysmic terrorism losses. 

The report is also consistent with the Big I position that the Federal Government’s role in the insurance market be limited, while 

State insurance regulation is preserved. In fact, most folks in the 

private sector will tell you that they prefer the private market to 

handle this risk. In an ideal world, it would, but that is not practical at this time. 

However, to the extent that the private sector is able to handle 

this risk and Federal Government involvement is phased out, we 

23

believe that all stakeholders and the market will ultimately benefit. Going forward, the litmus test for Big I is that any solution 

must work for the consumers with whom our members serve. Put 

simply, the ultimate test for IIABA support of any proposal will be 

whether the program works for the marketplace. 

Right now, both Congress and stakeholders are at somewhat of 

a crossroads with two basic choices: either reauthorize the TRIA 

program temporarily with some modifications suggested by the 

Treasury Department; or enact a long-term private industry pooling mechanism which phases out the Federal role over time. Both 

options have some attraction. 

Short-term extension legislation may have fewer political complications, although it may be difficult to find the right balance of 

increased deductibles and triggers for the marketplace. On the 

other hand, developing a private sector-funded layer of coverage 

would help reduce Federal involvement in the marketplace and create a long-term market-based solution for a problem which we have 

every reason to believe will be with us for years to come. 

The Big I is committed to working with this committee on parallel tracks to develop both options so the Congress is in the best 

possible position to move forward with the solution that is most 

viable. 

I thank you very much for the opportunity to testify today. 

[The prepared statement of Mr. Stiglitz can be found on page 218 

of the appendix.] 

Chairman BAKER. Thank you for your statement, sir. 

Our next witness is Mr. John Sinnott, testifying in his capacity 

as vice chairman of Marsh and McLennan Companies. 

Welcome, sir. 

STATEMENT OF JOHN T. SINNOTT, VICE CHAIRMAN, MARSH 

AND MCLENNAN COMPANIES, INC., ON BEHALF OF THE 

COUNCIL OF INSURANCE AGENTS AND BROKERS 

Mr. SINNOTT. Thank you, Mr. Chairman, and thank you, members of the subcommittee, for allowing us here today. 

I am here also in my capacity representing the Council of Insurance Agents and Brokers, in addition to my own firm. We prepared 

a statement. I will not read it, but I will try to give you some highlights. 

Compared to the chaotic situation that existed 3 1/2 years ago 

when I last appeared before this committee, I will describe the situation today as far more reasonable, certainly up to this point. 

We have attached a good number of statistics to our statement. 

It is in a document such as this, and I would encourage you and 

your staff to take a look at it, because it slices and dices take-up 

rates. It does it by industry. It does it by region. It shows the trend 

as to what has happened from before TRIA, but more importantly 

what has happened since TRIA. 

I think it demonstrates that substantially due to the actions of 

this committee during that time, the situation is much better, and 

that without TRIA we would be in the same chaotic situation that 

we were back in 2002. 

Just a brief resume, prior to 9/11, terrorism was ho-hum. It was 

just included. There were no issues there. From 9/11 until NovemVerDate 0ct 09 2002 11:35 Sep 28, 2006 Jkt 029462 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 F:\DOCS\29462.TXT HFIN PsN: TERRIE
24

ber of 2002, there was chaos. That does not mean that there wasn’t 

some terrorism availability, but I can tell you most of our commercial clients had Swiss cheese when it came to their property placements, because they are multi-carrier and there were exclusions in 

some cases. The exclusions differed. 

In other cases on workers comp, with high aggregations, in one 

case we actually were prepared to have a very large financial institution’s workers comp insured by the New York State Insurance 

Fund, which Superintendent Mills would agree that is not the intent of that market of last resort. 

The shake-out after TRIA was put through, yes, there was some 

difficulty while the markets figured out how to respond. But from 

about November 2003 until let’s say June of 2005, we saw a steady 

increase in the take-up rate and in the level of confidence that the 

market had in dealing with this. Today, of course, pending your decisions and the decisions of Congress, there is a bit of uncertainty 

that is building in. 

So what are we looking at? Do nothing on December 31st and 

many consumers will be significantly disadvantaged. I am talking 

about the consumers. I am not talking about the insurance companies. But the insurance companies will reduce availability to our 

clients. That is a given. That absolutely will happen. High-risk 

property, workers comp aggregations and the whole issue of nuclear, biological, chemical and radioactive coverage deficiencies. 

Please remember, in our report we show the take-up rates. We 

believe now that even on property the take-up rate is up to 60 percent. It was 25 percent in 2003. It is 80 percent on general liability, 

and of course it is 100 percent on workers comp because workers 

comp is statutory and there is no option for a market to exclude 

anything in that regard. So doing nothing, I think as everyone has 

stated, would be disastrous. 

An extension, modified extension, we believe that an extension 

with some modification will continue to serve our clients. Now, the 

two areas that I have noted, that we have noted have been discussed is particularly the industry trigger point, moving it up to 

$500 million. Frankly, I will not speak for the large insurance companies, but I suspect that at the very big insurance companies that 

is not an issue because in many cases their own individual retention is as large if not greater than $500 million. 

What you have to look at carefully is the availability among the 

smaller insurance companies to whom an event, if it occurs, might 

disproportionately involve smaller or middle-size insurance companies and the amount that they retain, it might be within the $500 

million point, so they do not have any protection, and that could 

risk their balance sheets, or make them withdraw coverage from 

the clients that they are providing today. 

The second thing that we noted was that, okay, can you reduce 

some of the areas, some of the risk areas. The one that seems to 

be sort of tossed about is auto. The only thing I would suggest that 

the committee look a very seriously there is the impact on the 

trucking industry. Our country, our economy is dependent upon 

that. I think some investigation should be done as to the impact 

with those carriers who ensure general liability, auto liability on 

25

truckers to make sure that they would continue to maintain coverage for terrorism for those particular categories of users. 

Finally, the pooling approach, that might not be the proper term, 

we have made some suggestions in our written statement. I will 

not belabor it, but one of the considerations one might look at is 

whether or not the pool should be voluntary with carriers, as 

against be mandatory. 

Perhaps some of the large carriers might opt out. I do not know 

that. We do not know that, but I think something that is voluntary 

should at least be looked at. Having said that, if you opt out, you 

are out because there cannot be any adverse selection that underwriters go through. 

So in summary, our clients’ interests would be served if crafted 

properly by either a modified extension, a pooling arrangement 

which would still have a backstop behind it, but their interests 

would be severely damaged if nothing was done by the end of the 

year. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Sinnott can be found on page 168 

of the appendix.] 

Chairman BAKER. I thank you for your statement. 

It is my pleasure to welcome our next witness, Mr. James 

Maurin, appearing today in his capacity as chairman of Stirling 

Properties and as a member of the International Council of Shopping Centers’ board of trustees, and more particularly an old college friend. 

Welcome, Jimmy. 

STATEMENT OF JAMES E. MAURIN, CHAIRMAN, STIRLING 

PROPERTIES, ON BEHALF OF THE COALITION TO INSURE 

AGAINST TERRORISM 

Mr. MAURIN. Thank you, Congressman, and thank you, Ranking 

Member Kanjorski, for conducting today’s hearing on the future of 

terrorism insurance. 

I also want to thank Chairman Oxley for his commitment to 

bring legislation regarding this issue to the Floor of the House of 

Representatives in an expedited manner. 

My name is James E. Maurin, and I am the immediate past 

chairman of the 56,000 members who make up the International 

Council of Shopping Centers. I am the founder and principal of one 

of the Gulf South’s largest commercial real estate companies, Louisiana-based Stirling Properties. 

I am appearing on behalf of the Coalition to Insure Against Terrorism, or CIAT, which includes the United States Chamber of 

Commerce and 75 other major trade and business organizations 

that rely on the current Federal program for access to terrorism insurance for the future of our businesses. 

The members of CIAT have strongly and consistently supported 

and encouraged every effort to continue a terrorism insurance program that would provide effective coverage for one overriding reason: the private insurance markets are not yet able to take over the 

job on their own. 

We know this because as policyholders, the consumers of insurance, when the current program expires, so does our coverage. As 

26

policyholders, our members have already been subject to a variety 

of pop-up exclusions and sunset clauses and other restrictions 

which the insurance industry has begun to impose on renewals of 

policies that run beyond December 31, 2005. 

Furthermore, I need to emphasize the extreme importance of 

having a new terrorism insurance backstop in place as far ahead 

of the current scheduled expiration as possible. The uncertainty 

surrounding the future of Federal terrorism insurance is impacting 

business today and growth for years to come. 

My message to you today is simple. American businesses need to 

be able to effectively manage risk to function on a long-term basis. 

Regrettably, terrorism is an unknown risk, akin to wartime risks 

that cannot be borne alone by the business community in the face 

of the continued threat of terrorism. Terrorism insurance is a requirement in most commercial real estate loan documents. Investors will not absorb the risk if insurance companies are not able 

to provide terrorism insurance. This is true for properties in small 

towns and large cities alike. 

Should terrorism insurance not be available, thousands of outstanding existing loans will likely be in technical default and under 

the covenants of the loan documents, the loan servicer will be 

forced to seek remedies such as force placing coverage no matter 

what the price is, or some other legal action against property owners. 

While commercial banks remain the industry’s principal source 

of construction financing, commercial mortgage-backed securities, 

the CMBS market, are the source for much of real estate’s longer 

term debt. CMBS are bonds backed by individual commercial mortgages that are typically owned by commercial banks, insurance 

companies and savings institutions. More than $444 billion of loans are pooled in CMBS, representing almost one-fifth of all commercial real estate mortgages. 

These securities are rated by rating agencies such as Moody’s and 

Fitch, who have already voiced concerns regarding the potential effects of the expiration of TRIA. When CMBSs are downgraded, as 

they were prior to the enactment of TRIA in 2002, they generally 

decline in value and restrict access to capital. 

Pension funds also play an important role in capital formation 

for commercial real estate. As of January 2005, $166 billion in assets have been invested by defined pension plans in commercial 

real estate. 

Pension funds with substantial commercial real estate investment include California Public Employees and Teachers, Florida 

State Board, New York State Employees and Teachers, Ohio State 

Teachers, and my own home State of Louisiana’s Teachers Fund. 

Should terrorism insurance expire, billions of pension dollars belonging to workers across this country would be exposed to undue 

liability. 

The esteemed members of this panel can appreciate the significant role that retail real estate plays in our economy, and the considerable concern of having our businesses put at risk. Relating 

back to the shopping center industry, during the first two quarters 

of this year, the shopping center industry expanded by 102,000 new 

jobs, accounting for 9.4 percent of job growth. This may help to ilVerDate 0ct 09 2002 11:35 Sep 28, 2006 Jkt 029462 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 F:\DOCS\29462.TXT HFIN PsN: TERRIE
27

lustrate why terrorism insurance is not merely an insurance issue, 

but a widespread economic issue with far-reaching implications on 

financial markets and our Nation’s economy. 

The risk of further catastrophic terror attacks appears to be as 

acute as ever. The recent attacks on our closest ally, Great Britain, 

remind us all of what may happen here. While the highest levels 

of government tell us that the threat of terrorism and the war on 

terror in the United States continues, not surprisingly the insurance and reinsurance markets lack the ability to handle this problem alone. 

We have recognized that Congress, the Administration, and 

stakeholders are now effectively faced with pursuing two options: 

implementing a short extension of the TRIA program; or developing 

a more permanent solution utilizing a form of a mutual reinsurance facility, or pool, as discussed earlier, with government bonding. 

The short extension legislation should be relatively simple to negotiate, and therefore may provide greater assurance of being completed on time, which is our paramount concern. On the other 

hand, developing an intermediate private sector layer of coverage 

would move us toward a long-term, market-based solution for a 

problem that we have every reason to believe will be with us for 

years to come. 

In creating a successor program under either model, the policyholders of CIAT request that the committee keep in mind the following principles: First, the program should include the makeavailable requirement for insurers to ensure that property owners 

and businesses will be able to secure sufficient terrorism coverage 

to adequately protect their assets and their employees. 

Second, new programs must be designed with the goal of minimizing exclusions or gaps, which would undercut the intent of the 

program. As previously mentioned, this should include coverage for 

nuclear, chemical, biological, and radiological acts, as well as acts 

of domestic terrorism. 

Mr. Chairman, CIAT is committed to working with your subcommittee and other stakeholders during the next month on parallel tracks to develop both options, if need be, so that we are in 

the best possible position after Labor Day to enact the solution 

which proves the most viable. 

To close, I am not in the insurance business. I am in the commercial and residential real estate business. I cannot write my own 

insurance and I cannot decide what levels of risk or capacity my 

insurers can undertake and still be responsible to the fiduciary interests to which they are subject. I am the end-user and a policyholder. I am being squeezed by both sides in this debate regarding 

the future of Federal terrorism insurance. 

On the one hand, insurers do not want to take on this seemingly 

open-ended risk, and on the other hand my investors cannot absorb 

that liability of being exposed. You will have a situation where the 

cost of capital goes up and the value of assets diminishes. At the 

end of the day, my colleagues and I in business need to be able to 

buy terrorism insurance so we can continue to help grow the economies of every community in this country. 

28

Chairman Baker, Ranking Member Kanjorski, CIAT thanks you 

for holding this hearing and for giving us the opportunity to testify. 

We look forward to working with you and the rest of the subcommittee on this important subject in the coming weeks. 

Thank you. 

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

132 of the appendix.] 

Chairman BAKER. I thank the gentleman for his statement. 

I would like to start with just a general observation about our 

procedural circumstance. 

It is very clear, to me at least and I think to Chairman Oxley, 

that a mere extension of the current programmatic guarantees will 

not be acceptable to the Administration without modification. The 

mere process to pass an extension will require the Congress to act 

over some number of days. 

In the intervening August recess, we have the opportunity, I 

think, to significantly evaluate alternative approaches, perhaps 

something short of a pooling mechanism which may be more complicated and require more time to implement, but something that 

would achieve the following goals. One is to ensure market stability 

by the Federal backstop continuation, but at the same time to reduce the potential exposure of taxpayers to payments which may 

not necessarily be warranted. 

I would refer, I have not had the occasion to review Mr. Sinnott’s 

dicing of the numbers, but I believe there are others on the panel 

who indicated that with the market enactment of TRIA, meaning 

the actual operative effect, that stability returned to the marketplace, companies generally showed levels of profitability they had 

not previously enjoyed because we had the good fortune of pricing 

the risk and we have had no event on which to make claims. 

The result is an industry which has, because of these perverse 

circumstances, found itself in the better financial condition that everyone hopes for, but at the same time my view, from my shareholders’ perspective, we cannot continue to underwrite this indeterminate risk at these levels while the industry enjoys significant 

levels of profitability. As Chairman Greenspan would say, there is 

need for equities to be rebalanced. 

In that case, I think to upwardly adjust retention levels, for example, immediately may not be warranted, but there certainly is 

a need to upwardly adjust retention levels for not only the balancing of equities, but I think to incent the industry to move toward the voluntary pooling or other alternatives that bright people 

may develop. 

Secondly, there needs to be not a permissible, but a mandatory 

repayment of liquidity advanced by the Federal Government when 

the industry returns to profitability. The current structure in the 

TRIA Act is a conditional repayment which the secretary may assess. That needs to move over into the ‘‘shall’’ category with certain 

circumstances on limiting premium run-ups and adverse economic 

conditions for the industry should it not be warranted in a particular timeframe. 

And then finally, the triggering mechanism. I am putting this 

out maybe for response and comment. As opposed to a hard $500 

million trigger, I have noted that in much of Louisiana, you could 

29

pretty much take everything out there and you would not get close 

to $500 million, but it would be a pretty significant event to us. 

If we were to take some measure of commercial property concentration and look at it in some geographic area, whether a census 

tract or something larger, starting with the 9/11 event, valuing the 

buildings prior to the attack and having them establish as a percentage of value of commercial property in a designated area. 

Let’s just assume it is 1 percent. Then the triggering device for 

any other area of the country might be that the attack results in 

losses exceeding 1 percent of commercial value in that designated 

area. This is not that complicated a deal, but it takes a little time 

to get all the data together. 

So it is a relative trigger. In other words, our loss in Baton 

Rouge would not have to hit $500 million, but it would have to hit 

the same percentage loss that New York had or exceed it. That percentage could go up each year, so we would have a moving window: 

increasing retentions, increasing triggerings, and a guaranteed repayment to taxpayers. 

That, to me, says: Industry, get it together and find a cheaper 

way to do this because I do not think, at least speaking for this 

Member of Congress, that we can out-think the entire insurance industry and keep you guys from being profitable almost notwithstanding what happens. 

I also know that you cannot calculate the risk of an unknown, 

unpredicted terrorist event and the consequences of that would be 

unacceptable if we do not have some balanced backstop in place. 

Mr. Sinnott, would you like to start? 

Mr. SINNOTT. Yes, thank you. 

The idea that I had not heard before of trying to geographically 

set a trigger, if that is what I understand you are saying, my quick 

reaction is that the only problem with that is that that would then 

require the underwriters, the insurers also to only write in certain 

geographic areas. My example is New York City, Washington, the 

major cities. It is not just the big carriers that underwrite insurance there. They also want the opportunity to make available insurance for the smaller customers that reside in that area. 

If they still underwrote in that area which had the high trigger 

point, they could be in dire straits if they ended up having an unusually large share in that high-risk area. 

Chairman BAKER. But give me alternatives. If today we have a 

$500 million trigger and the little guy is in that area where it is 

$455 million, he is in duck soup now. 

Mr. SINNOTT. Absolutely. 

Chairman BAKER. So if we at least get it down to some census 

tract level, the idea here is that you cannot have all big guys living 

only in certain neighborhoods. You are going to have mixed properties, I understand that. 

Mr. SINNOTT. Right. 

Chairman BAKER. What else can you do? 

Mr. SINNOTT. I mean, the only other way to do it is to try to look 

at a trigger that is somewhere in between the $500 million. 

Chairman BAKER. That sounds like an answer I would give. 

[Laughter.] 

30

Mr. SINNOTT. I do not know. I would have to give some thought 

as to whether there is any way that you can balance the two, the 

geography on the one hand with the, call it the balance sheet sides 

of the companies that are offering protection or risk transfer in 

that area. It is something worthwhile working on. 

Chairman BAKER. Does anyone else have any comment or adverse comment about increasing retentions, increasing the triggers 

over time, absolute guarantee of a taxpayer repayment? These are 

the things that I think would be responsive to the Administration’s 

concerns. 

Mr. Mirel? 

Mr. MIREL. Mr. Chairman, I think that these kinds of issues can 

be left to the industry to deal with under rules set by the Congress. 

I think there ought to be a pool. If Congress were to establish the 

pool and tell the industry to figure out when and how to pay out 

of that pool, I think you would find that the industry would do a 

good job at that. 

Chairman BAKER. Do you think there is sufficient time for the 

Congress? 

Let me tell you our timeline. If we were to return and have the 

good fortune and agreement on some proposal by the middle of 

September and get it out of the House, the Senate still would have 

to respond to it, practically speaking, in early October. The industry would be uncertain as to the necessity to do this until Thanksgiving. 

Does that really leave time to develop that type of response in 

light of the time constraint? 

Mr. MIREL. Again, I would say—and then I will let Superintendent Mills chime in—I would say that the fewer decisions that 

have to be made by the Federal Government, the better. If you set 

the general rules and let the industry figure out how it is going to 

meet those requirements, I think that it is possible to do things 

pretty quickly on an industry basis. 

Chairman BAKER. Thank you. 

Mr. Mills? 

Mr. MILLS. Mr. Chairman, I think that the industry could respond very quickly if the Congress were to come up with another 

idea along the same track. I absolutely agree with the mandatory 

repayment, but if some new entity, a public-private partnership 

were to be created which was voluntary, the industry that wanted 

to offer the coverage could participate it, pay an assessment to 

build capacity. 

Again, getting back to one of the critical points I think you heard 

all of the witnesses say is we need to build capacity. Capacity 

would be built. Initially, there would be a heavy Federal involvement, but as capacity is built, the Federal involvement would decrease. There would be an automatic repayment mechanism in 

there. It is completely voluntary. It could be a self-executing, selfdirecting entity with a board. I think the industry would respond 

very, very quickly. 

We are convinced and everyone that I have talked to is convinced 

that the industry can handle this very, very well. They just need 

to know where their risk is. Right now, they don’t. They need to 

have a ceiling. They need to have a trigger. They need to know 

31

what their deductible is. If they know what the deductible is and 

they know that the Federal Government is there as a backstop and 

one that will decrease over time as capacity is built, I am confident 

that the industry would move very, very quickly and would have 

this up and running. 

Chairman BAKER. My time has long expired. 

Mr. Capuano? 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Gentlemen, we have to get some more details. I presume today 

is not the day to do it. Does anyone on the panel right now believe 

that we should not cover or include group life insurance in an extension or any permanent plan that we might have? 

So, therefore, I presume that you think that we should consider 

including group life insurance. Thank you, because that is one of 

the issues we have not discussed. 

Everything that Mr. Baker has said, pretty much I agree with 

him. I think the required repayment is a good idea. I think the real 

issue that we have here is to try to come up with a limit, somewhere between $5 million and $500 million. Five million dollars 

may or may not be too low; $500 million is too high. At $500 million, there has only been one terrorist attack in the history of mankind that exceeded that limit, and that means we would not be covering, we would not be bumping up against it for the London attack that just happened, or Madrid or Bali. 

I am not convinced at all, and again that is all part of the discussions we have to have. That is why I do not think we can do this 

in the timeframe that we have. Maybe I am wrong. Maybe Congress will somehow do something that they never done in the history of America and actually act quickly, but hope springs eternal, 

I guess. But I do not see how we can come up with a number. 

What is the number that we want? I understand full well that 

the industry wants a number, and you are right, that is exactly 

what we need to do. But are we willing to say that America will 

step up if the next attack is in Oklahoma City, which based on history is no longer out of the realm of possibility. Or Bali—our own 

Bali could be Disney World. It could happen tomorrow. I do not see 

how you can set it on geographic precedent, but again I would like 

to hear if the industry feels that way. 

I also would like to ask, is there anyone here who thinks that 

the insurance coverage wouldn’t be impacted by another attack on 

American soil? If, God forbid, tomorrow in Washington, D.C., the 

subway gets attacked, what happens then? Whether we have a 

plan or not, my expectation is that anything we do, we are talking 

about permanence here. I do not believe we can do this permanently. I do not think this country or this world is ready to do it 

permanently. I do not think your actuaries are ready to do it permanently, which is why I think an extension is necessary. 

I guess I would like to ask whether you think we can do it permanently, or whether you think that, God forbid, the next attack, 

and many of the experts say it is not a matter of if, it is a matter 

of when, will it not shake this very aspect of the economy once 

again? Whoever wants to start is fine by me. 

Mr. STIGLITZ. Well, as an independent agent, I think you are 

going to have to put a number somewhere. We have to start with 

32

a number. That is the way insurance works. We cannot model terrorism. So you are going to have to say, we will either pick $100 

million or pick $75 million or whatever, and then let the marketplace work from there. I agree with the commissioner. I believe 

that the industry will respond very quickly if we just know where 

we are going. We do not know where we are going right now. 

The thing that worries me about a geographical deductible, 

things like that, would be the effect on regional companies. Independent agents for the most part represent regional companies in 

all their States, and some of them are very, very small. Any type 

of really high threshold limit or anything like that, any kind of deductible percentage based upon values, I think that would probably 

affect them. It would probably cause them to withdraw from this 

market immediately. 

I think if you just give us a number and let the industry work 

on it, I believe we could come up with something quickly. 

Mr. MILLS. Congressman, if I may also, with regard to your concern that you do not think it could be a permanent program, I respectfully submit that France, Germany, and the U.K. all have permanent programs based on the pool idea that Commissioner Mirel 

talks of. 

The FDIC is a permanent program. I have often said and some 

folks have criticized my analogy, but I think it fits. The FDIC is 

a permanent program to instill confidence in the American banking 

system, backed up by the Federal Government. We are advocating 

the same thing for the insurance industry in response to a terrorist 

attack. 

Mr. SINNOTT. To your point, certainly if there is a major event 

within the next few years, it is going to again create significant disruption in the mechanism. If we have some sort of a backstop 

there, it will be ameliorated to a great degree. The problem with 

moving up the thresholds so significantly is that if you just extend 

and do that, you have created an enormous gap that the whole industry cannot respond to. 

So the difficulty here is, yes, if you move things up, you have no 

choice but to try to create some intermediate mechanism, and that 

is this pooling. The question is how and how quickly it can be done. 

But I do not see how you could move thresholds up without creating an intermediate mechanism, something that involves the insurance company takes its piece; there is an intermediate level that 

can work out the difference between the major insurance companies and their ability to retain risk; and the smaller insurance companies and their ability to retain risk. 

But then ultimately, particularly during the early years, until it 

is decided that that pooling or funding is adequate, there is going 

to have to be a backstop there. If you get an event early on in any 

risk enterprise that can swallow up the funds that you put in initially, yes, that can happen. But the longer you go and the more 

you build that up, the more you remove the government from involvement. 

Chairman BAKER. The gentleman’s time has expired. 

Mr. MAURIN. Mr. Chairman, I have one quick comment, if I 

could. And again, I cannot really address the issues here. I am repVerDate 0ct 09 2002 11:35 Sep 28, 2006 Jkt 029462 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 F:\DOCS\29462.TXT HFIN PsN: TERRIE
33

resenting the policyholders, CIAT, and the associations of people 

who actually need this insurance every day. 

I would caution that in the tinkering of the formula as far as 

triggers and copays or whatever, that we do not err on the side of 

making it not work and the insurance industry cannot provide me 

what I need. 

Prior to 9/11, and my company has been in business for 30 years, 

I got terrorism insurance for free. I mean, I literally got it as part 

of the overall package. I have been told by my insurance agents 

that it was included. Today as we speak, even with TRIA, my insurance costs have risen dramatically on our commercial properties. So don’t think that with TRIA I am back to pre-9/11 costs. 

My costs of doing business have risen dramatically. 

If we tinker with this and my costs go up 10 times again, you 

have maybe fixed the problem from your perspective, and maybe 

the insurance companies will write it, but they will write it at such 

a cost that doesn’t make it affordable. I would say in negotiating 

and working with them, come to something that they can look at 

and say reasonably that they can provide terrorism insurance to 

policyholders at a cost that we can afford. 

Chairman BAKER. I thank the gentleman. His time has expired. 

Mr. Bachus? 

Mr. BACHUS. I thank the chairman. 

My first question, Mr. Sinnott, I noticed that you dealt with 9/

11 on a very personal basis and that you were the CEO of Marsh 

and you lost 295 employees. 

Mr. SINNOTT. Correct. 

Mr. BACHUS. I would like to thank you. I noticed in your bio you 

were honored by the New York City police and fire widows and 

children’s benefit fund for your contributions. I would like to say 

thank you for that. 

Mr. SINNOTT. Thank you for saying that. 

Mr. BACHUS. Being such a personal issue, what some people have 

said about 9/11 is that we are dealing with a big city skyscrapertype of issue, urban, New York issue. Yet your testimony indicates 

that TRIA has a much broader impact. 

Mr. SINNOTT. Right. 

Mr. BACHUS. Would you like to give us your thoughts on that? 

What your biggest worries are? 

Mr. SINNOTT. As this shows with the statistics that we have 

gleaned from the placements that we have made for our clients, it 

is not correct to say that it is only in the urban areas where there 

is a take-up on terrorism. We give the regional percentages and 

there is a take-up rate, granted, lower perhaps in the middle of the 

country than elsewhere, but still a take-up rate. Now, that is a 

function as well of a different pricing structure that the insurance 

companies are not costing-out the risk the same way as they are 

in New York, where it is a real issue. 

So I do not think that TRIA is something that responded only to 

what happened in New York and Washington, D.C. It responded 

universally. As I said earlier, our statistics show a marked difference between how the market would respond, and as with my 

colleague here, I am speaking on behalf of the consumers, not the 

34

insurance companies. But if we do not have availability in the market, my clients are in trouble. 

So I think your point is well taken. It is much more universal 

than just speaking about New York or Washington. 

Mr. BACHUS. I appreciate that fact that you pointed out it is not 

just a New York problem. 

Mr. SINNOTT. Yes. 

Mr. BACHUS. I thought your testimony was very good. 

Mr. SINNOTT. Yes, right. The other thing—well, maybe that is 

enough. 

Mr. BACHUS. I might ask Mr. Stiglitz, the Independent Insurance 

Agents, you represent small communities in States all over the 

United States, where you serve consumers as independent insurance agents. How are those towns going to cope without extending 

TRIA? Are they going to be affected by the lack of terrorist insurance affordability and availability? 

Mr. STIGLITZ. I certainly think so. I think it is going to be basically this. When our agents go out to sell the renewal, right now 

there is an exclusion pretty much across the board that starts 12/

31/05. 

And when you get into a rural area, and particularly when you 

are talking about utilities that may serve that area, a rural electric 

co-op, perhaps a water system, even industrial parks that are 

somewhat isolated, but can certainly be an easy target. That would 

include chemical plants, any type of manufacturing facilities. 

For the most part, those folks are now, as Mr. Sinnott has said, 

are now taking up this coverage. They did not initially. There was 

a lot of laughter when you threw down the quote for the terrorism. 

But it is not a laughing matter anymore. Certainly, they are buying it and we encourage our clients to buy it. Without it, I think 

a lot of these people, especially the utilities, are going to be in trouble. 

Mr. BACHUS. So you do not see it as a big city issue. 

Mr. STIGLITZ. Not by any means. No, sir. 

Mr. BACHUS. Okay. That is what I am hearing. 

What about the desirability of a backstop as opposed to what we 

did on 9/11 when we tried to deal with it on an ad-hoc basis? Actually, there was terrorist insurance afforded at that time, and I 

think the point has been made that it would not be this time. It 

is now excluded. 

But isn’t it better to have a long-term solution in place for terrorist insurance, rather than dealing with the aftermath of another 

attack on an ad-hoc basis? I will ask any of you to comment on 

that. 

Mr. MILLS. I certainly think so, Congressman. I think a longterm solution is definitely preferable. I certainly do not think that 

the Administration or the Congress are interested in making TRIA 

permanent. I think the key is a long-term solution with no expiration date, but with a declining Federal involvement and a building 

of private capital capacity. That I think is the key. 

Mr. BACHUS. I think the desirability of a backstop, but then the 

desirability of minimizing the Federal role over time would be the 

way we ought to approach this. 

Thank you. 

35

Chairman BAKER. I thank the gentleman, who yields back his 

time. 

Mr. Miller? 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. 

Mr. Mills, under TRIA, the insurance industry is still subject to 

form approval and right approval by State regulators. Has the insurance industry been seeking any differentiation rights based 

upon risk or upon mitigation efforts, and what has been the response of State regulators? 

Mr. MILLS. We have not seen much of a request for differences 

in rates. There has been some discussion that the industry has 

come to us for. It certainly will increase dramatically if a backstop 

goes away, of looking again at exclusions, which the New York department has historically not allowed. 

I think that with the continuation of the backstop in whatever 

form it is, that the rates will stabilize and the industry will be well 

equipped to go ahead without that type of fluctuation and uncertainty. 

Mr. MILLER OF NORTH CAROLINA. But what I am getting at, is 

there a difference in premiums based upon level of preparedness? 

For instance, in homeowners insurance, if you have a smoke detector you get a break. 

Mr. MILLS. We certainly could see more of that. I think that we 

could see more of that. I think that we could see more of that. 

We do see some differences, but certainly I have seen many instances of the private sector making significant investments. I used 

the example in my presentation earlier about enhancements to security. 

I certainly do think that looking at the investments that the private sector makes and looking at reductions in rates such as a 

homeowner does when they put in a security system is something 

that the industry should look to much more closer. There is room 

for greater allowances for that. 

Mr. MILLER OF NORTH CAROLINA. Okay. 

Mr. Sinnott, what is the insurance industry doing along those 

lines? Does the insurance industry try to differentiate rates? 

Mr. SINNOTT. First of all, in the commercial side of the industry, 

there is great flexibility as against homeowners where the rates are 

more filed and fixed. So I think there is sufficient flexibility I think 

within the system to allow for this type of risk, the rates to be 

properly cared for. 

As far as the issue of security, you can just go into any, using 

a large city, I will just use office buildings. You can go into any office building, I do not care whether it is Chicago or New York or 

San Antonio or wherever. There is security there that we never 

saw prior to 9/11. 

I think the same thing is true, I am not an engineer, so maybe 

there is a lot more than can be done, but by the same token I think 

that manufacturing plants and other installations clearly put a 

higher priority on security, not just loss prevention like more sprinklers and things like that. I mean security. 

So I think that it is not perfect. I am sure there is more that can 

be done, but I do not think that corporate America has not recognized that security is a key aspect, along with the government 

36

doing whatever it can to secure our borders, but that people are 

going to get through and the corporations better make sure that 

they have done their part. I think in our view, security is a significant item with corporate. 

Mr. MILLER OF NORTH CAROLINA. Okay. Anyone else wish to be 

heard? 

Okay. Thank you, Mr. Chairman. 

Chairman BAKER. The gentleman yields back his time. 

Mr. Shays? 

Mr. SHAYS. Thank you, Mr. Chairman. 

The challenge all of us have is we all agree. We are all saying 

the same thing. It was kind of exciting to have the Secretary of the 

Treasury come here because his transmittal letter said postpone it, 

and his written statement, written by OMB, and his public discourse was, you know, I will work with you guys; let’s get the job 

done. So it is a little bit of a conflict. 

I think sometimes what we should do is we should ask someone 

from OMB who approves these statements to testify, so that they 

have to justify really what is outrageous. I think it is outrageous 

that we are not dealing with this issue. But I think Mr. Robert 

Hunter, the director of insurance, Consumer Federation of America, is probably the only one disagreeing. I would just make the 

point, I would like to have some folks who disagree so I could hear 

their arguments and hopefully pick it apart. 

I do not really have much to ask you all. I think I will just make 

a statement. I think we should have passed it a while ago. I think 

it does not pass the smell test for me to think that we are going 

to ask insurance companies to insure for something they cannot insure for. If there was a catastrophic event, we would be jumping 

to help out because we are not going to let everybody go under. 

So it just seems to me that it makes more sense to deal with it 

up front. I am sorry I do not have a question, but I just happen 

to think that we need to get on with this in Congress. Maybe my 

only suggestion would be—we have Sarbanes-Oxley—and maybe 

we just need a Baker-something and put your name on it, Mr. 

Chairman, and pass it and we can hear your name talked about 

for the next 10 years. 

[Laughter.] 

I would be happy to yield my time to Ms. Kelly because I understand she has two people up here from her district, so she may 

need more than 5 minutes. So I will give her the remainder of my 

time. 

Mrs. KELLY. I appreciate that very much. 

This is the first time in my entire career in Congress I have 

faced a panel with two constituents on it. So, Mr. Mills and Mr. 

Sinnott, I am delighted, as a New Yorker, to have two New Yorkers 

on this panel. I am delighted also to have read your testimony and 

to be able to ask you some questions. 

I stood looking at the ruins of 9/11 at the Trade Towers, thinking, while the smoke was rising, something needs to be done with 

regard to the way the insurance is going to handle this. That is 

why I worked so hard to help to write and pass the original TRIA 

bill. I am convinced because the Chairman of the Federal Reserve 

has stated on more than one occasion—Mr. Alan Greenspan—that 

37

we must have some kind of a mechanism because the industry simply cannot handle it at some levels. 

So I am delighted to have you both here. We New Yorkers know 

very well firsthand what the net effect is on the markets and on 

our economy when there is a terrorist act. One of the reasons I believe that the economy of the world has been remarkably stable in 

light of the London bombings has been because everyone knows 

that England has dealt with this problem and they have something 

in place, so there was no real jolt to our economy when those bombings occurred in London. 

We need to make sure that if that happens again, and my friend 

Porter Goss at the CIA says it is not if, it is when—we need to 

have something in place so that the Federal Government does not 

have to step in and be the insurer of first resort, but also so that 

the smaller insurance agencies who cover this do not have to go out 

of business, and we do not have them in the market again. 

That being said, for the remainder of Mr. Shays’s time—and, Mr. 

Shays, I thank you very much for giving me this time. 

Commissioner Mills, I wanted to say to you that the Treasury report that came out, you probably read it, they made a remark in 

that report that the importance of commercial real estate did not 

need any, that commercial real estate did not need to be covered 

essentially by any kind of terrorism report. 

I would like you to talk to the panel about the importance of the 

commercial real estate industry to the economies of New York, 

Washington, D.C, and the United States as a whole. 

Mr. Maurin, I would like you to join in. 

Mr. MILLS. Well, Congresswoman, I certainly could not disagree 

with that statement more. The commercial real estate industry is 

critical to our home State in New York. It drives the economy, but 

it is not just a New York thing. As I have said, it drives the whole 

national economy. 

The commercial real estate market, whether it is in New York 

or anywhere—and again I go back to my earlier point. You know, 

if a terrorist attack, God forbid, were to happen in some small town 

in Iowa tomorrow or Louisiana, you would need right away to have 

terrorism coverage for all building projects. Right now—and this 

point was made by several on this panel—it is not a question of we 

need to have the backstop on January 1, 2006. We all, I think, 

know that we do. We need to have it yesterday. 

You are already seeing multi-year builders risk policies in New 

York City not being written, period. You can’t get it. Major, major 

construction projects that employ many, many thousands of people 

all over this country will stop. Lending from financial institutions 

will dry up. The commercial real estate market, all sectors of our 

economy are highly susceptible to it, none more so than commercial 

real estate. 

Mrs. KELLY. Thank you. 

Mr. MAURIN. I would agree with Mr. Mills. I would remind everyone, and there are some younger faces here than Richard and I, but 

the Tax Reform Act of 1986 was passed by Congress for the sole 

reason of dealing with abusive tax shelters. It devastated the commercial real estate market. 

38

Congress did not, in fact no one anticipated that it would have 

the effect that it did, but it devastated it, and it was primarily because of the capital markets. The values of real estate dropped. The 

ratios and various things for banks and lenders got out of whack. 

We went through a period of years of foreclosure and the RTC and 

whatever. 

This issue, if not handled carefully, has the same potential impact upon the commercial real estate industry. The capital markets, the life insurance companies, the pension funds, the CMBS 

market, they are not willing to accept this risk. They want the insurance markets to do that. I, as an investor or as a developer, I 

am not willing to accept this risk. I simply can’t. 

And if we do not come up with a solution that keeps the capital 

market stable, I do not care whether that shopping center is in 

Baton Rouge, Louisiana, or that office building is in New York 

City, it does not matter, it is going to be in trouble, whether it is 

an existing property that would be in default of its mortgage because the mortgage requires terrorism insurance, or whether there 

will ever be another property built in that market or whatever. 

So this could have significant impact if not handled carefully, 

and I might add quickly in the sense that hopefully we can have 

action here in September or October. As we get closer to December, 

quite frankly, we will begin to see some disruption, in my opinion, 

before the end of the year. 

Chairman BAKER. The gentlelady has expired the gentleman’s 

time. 

Mr. Kanjorski? 

Mr. KANJORSKI. Thank you, Mr. Chairman. 

Mr. Mills, I want to carry on your supposition that we may suffer 

in the United States the same type of terrorism as we have experienced in Europe in the last year or so. That is, attacks on shopping 

centers or subways or something like that, which is less catastrophic in terms of damage to real estate or property and more in 

the nature of loss of life, etc. 

It seems our problem here is that we have some support in the 

Congress not to take any action because they want the ideal, and 

we are now down to the last 5 months of time. I guess we are going 

to be called upon to write the ideal statute in order to get it passed, 

whereas I am a supporter of a 2-year extension. 

But rather than trying to spend our time now and hold up the 

marketplace and put it in jeopardy, I think we are in a perfect position to lay out a plan of attack over the next 2 years to look at 

things like what happens on the shopping center attack and what 

happens for the people’s compensation programs that we may need 

to put into place. But that is no reason why, in my estimation, we 

should hold back from moving ahead with what has stabilized the 

market. 

I think a delay for the purposes of perfection would be a great 

error. And quite frankly, I am very much worried about it. 

As you know in the last terrorism risk insurance bill, there was 

the effort to make that a vehicle to carry tort reform, which everybody has their own ideology and method of arriving at their ideology, but I do not think we have time for that. I agree with the 

panel that discussed the idea. We have to move now. We have to 

39

stabilize the market as early as possible. Even yesterday was too 

late. 

We have a little window of opportunity here now, at the end of 

September, to get this done. I do not see any great contribution 

that could be made to reorganize or re-think a perfect plan. If we 

try to do that, we are going to only exacerbate the opposition in 

various quarters, both in this city and around the country, that will 

cause further delay. 

So, I guess I generally want to ask the panel, do you feel that 

we could, speaking for the Congress, just put a timetable together 

that within 6 months from January to have everyone—the Treasury, the White House, the Congress, and the insurance industry—

submit their ideas as to what we could do to change this, how we 

could restructure it, and what other facets and potential damages 

should be covered? 

But in the meantime, we cannot put that in place merely as just 

a study, but a study with tracking. In 6 months, issues will come 

in; a year from now, a final bill will be put together. We could use 

the next 6 months to have hearings on that study to reconstruct 

the program beyond the 2-year period that we are looking at now, 

as opposed to trying to compress that all together in the next 1 1/

2 months and get some comprehensive magic bill that I am quite 

worried is not really going to cover everything. 

For instance, one example that I am worried about is our inability to realize the impact of changing the proportional size standard 

that the chairman is talking about. I appreciate what he is trying 

to accomplish, but what impact will it have on various size companies and coverage, and what areas of the economy are going to be 

weakened because of that. 

Because maybe we could end up not covering a large portion of 

the regional or small insurance companies across the country, by 

simply not understanding that in Iowa maybe AIG does not cover 

or write a lot of insurance. Maybe it is the Iowa mutual that does 

it, and they may be excluded if we start putting triggering mechanisms without an in-depth, fully thought-out analysis of what is 

necessary. 

So, I would like the panel to give me an idea. Do you believe we 

should just move ahead? We have a bill pending after all. We have, 

in H.R. 1153, added on group life insurance, and we could add on 

to that bill a detailed reporting and study process to move beyond 

the two years. Such a provision would help us be prepared a year 

from now to really move serious legislation to make the changes we 

probably should have been thinking about a year-and-a-half ago. 

Mr. MILLS. I think, Congressman, again the primary message 

from everyone on this panel is no gap. And whether that comes in 

the form of the Congress does work on a long-term permanent solution and has that in place by January 1, 2006, great. If it is a temporary bridge of an extension of TRIA with modifications to get you 

to that point, great. 

As long as the Federal backstop is in place on January 1st, however the Congress can do that, I certainly feel that the industry 

will work with the Congress. I certainly will in any way I can be 

helpful to get that long-term solution in place, but just make sure, 

please, that it is bridged. 

40

Mr. KANJORSKI. Does anybody else want to add to that? 

Mr. SINNOTT. I am certainly not competent to figure out how 

soon Congress can get things done. I think it is clear to say that 

we are looking at what we feel is the needed result, and we are 

looking at December 31st. If Congress feels that both can be accomplished within this timeframe, both the backstop, if you will, as 

well as this interim piece, I think we would all be fine with that. 

So it is really a question of what Congress feels can be done in this 

timeframe. 

Mr. KANJORSKI. If you recall, it took us 13 months to put the 

first act into place as a result of the tort reform debate. And an 

extension is so tempting a bill, particularly as we get closer to the 

end here, for some people who want to craft something like that to 

add it on. I am not sure we can control it even on this committee. 

I imagine there will still be a referral to the Judiciary Committee 

and they just may have other thoughts on it. 

So your argument sort of agrees with me. Let’s get it done. 

Mr. SINNOTT. I think what I am saying is that question really, 

I hate to say this, but I have to bounce it back personally to the 

Congress as to what they feel. If you are saying, and I think we 

have all said that the worst-case scenario is that nothing happens 

on December 31st. 

Now, the best-case scenario would clearly be if there can be two 

solutions: a continuing backup with this interim piece. That, I 

think, would be probably preferable. If that cannot be done, we 

need something beyond December 31st and we need something that 

does not drive certain of the providers of risk saying the retention 

is so big, I can’t deal with it. I do not know how to answer otherwise. 

Mr. MAURIN. I think from the perspective of the coalition, the 

CIAT coalition, it would be that you go to work now in the short 

term and see what tweaks can be done to the current system, but 

do two important things. 

Number one, let’s pass an extension for at least 2 years. Let’s not 

do a 6-month extension or a 1-year extension. We get ourselves into 

the same box that we are in right now. 

Second, if you err in the tweaks that you do to the current system, please err on the side of that it is not going to cause a disruption in the program. That would be our request. 

Mr. STIGLITZ. Independent agents would certainly like to see 

really three things happen. We want to see the program strengthened. We want to see it modernized. And we do want to absolutely 

maximize private market participation. If you can do that by the 

end of the year, we are all for it. 

Mr. KANJORSKI. And what if we can’t? 

Mr. STIGLITZ. I think we would probably accept an extension, but 

there has to be some absolute rules as to what is going to go on, 

who is going to study it, let’s get it into place, and move on from 

there. 

Chairman BAKER. The gentleman yields back. 

Ms. Biggert? 

Mrs. BIGGERT. Thank you, Mr. Chairman. 

I have just a couple of questions. 

41

What sort of transition time is needed for companies to produce 

and distribute new forms or system changes that are needed to accommodate any sort of TRIA modification? And how long would you 

need, based on past experience, to get up and running with those? 

Mr. SINNOTT. Do you want me to try that? Obviously, if you excluded certain risks like auto, which as I said you should look at 

the trucking industry if you do that, if you are thinking about that, 

yes, the carriers will have to put some exclusions. 

But I do not frankly see anything that we have discussed today 

creating a big problem in timing from the process. I do not know 

whether anyone, the commissioner sees it. 

Mr. MIREL. That really is a question for the industry. It depends 

entirely on how complex the changes are. If they are not overly 

complex, they can do it pretty quickly. 

Mrs. BIGGERT. Okay. Thank you. 

Then, Mr. Sinnott, with the low trigger and the substantial 

deductibles, does the current TRIA program distort the marketplace and create a competitive advantage for high-risk captives 

versus large diversified companies? 

Mr. SINNOTT. Clearly, yes. Captives, as you point out, are covered and one could say that the threshold point there is one that 

they can deal with. On the other hand, clearly if you moved it up 

very high, they would not be able to deal with that. Pricing has 

been a function of, yes, of degree of risk. 

Mrs. BIGGERT. If there was a hit, wouldn’t the captive almost always get Federal reimbursement, while an insurer like Zurich on 

the second panel would rarely be backstopped? Is this a market 

distortion that we should avoid? 

Mr. SINNOTT. Well, the captive is a capitalized insurance company as well. It just has its own risks that it deals with. 

Mrs. BIGGERT. It is separate, yes, management, I should say. 

Mr. SINNOTT. You are talking about captives? 

Mrs. BIGGERT. Yes. 

Mr. SINNOTT. Yes. So it follows the same formula as the smaller 

insurance companies that have certain thresholds that they have 

to meet. 

Mrs. BIGGERT. Would you say that that would distort the market, 

that it would be a bad thing? 

Mr. SINNOTT. No, I frankly do not think that that is a major 

issue that we are looking at here as far as the whole issue of availability. I think captives have been a mechanism. One of the things 

we talked about 3 1/2 years ago, if the backstop is going to be 

there, you have to sort of follow the way the insurance market operates. Captives have been there for a long time, and captives have 

been recognized as a viable vehicle for corporations, for companies 

to use. 

So I do not think that in anything that we are doing in the backstop should deviate from what has been traditional insurance practice in that regard. Otherwise, you get the government involved in 

a lot of complexities and trying to figure out something that I think 

has been fairly well managed by the industry and by the regulators. 

Mrs. BIGGERT. Okay. Then just one last question for Mr. Stiglitz. 

42

As the insurers’ deductibles in TRIA continue to increase, is 

there a risk that a series of attacks over multiple years would decrease the industry surplus so that insurers would no longer be 

able to handle the higher levels? Would it be wise to have some 

sort of a re-set mechanism in exchange for the higher deductibles 

to bring the deductibles back down after a series of major events? 

Mr. STIGLITZ. Yes. We would certainly support that. That seems 

to be reasonable. I would think certainly any type of smaller insurance company is almost going to have to have a re-set in place if 

we get into a situation like that. 

Mrs. BIGGERT. Thank you. 

Thank you, Mr. Chairman. I yield back. 

Chairman BAKER. I thank the gentlelady for yielding back her 

time. 

Mr. Scott? 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

Welcome. This is a very important panel. You guys are on the 

front lines. You are the industry out there, representing the agents, 

putting this together, having to cover it. 

In going forward, we had Secretary Snow in last time. We are 

getting mixed signals from this Administration whether they want 

to go forward with it and under what terms. Last week when he 

was in, he mentioned that, Mr. Snow did, that perhaps they could 

go forward, but with certain conditions that, one, they do away 

with general liability; that they would increase the premiums; they 

would raise the trigger to $5 million; they would do away with 

auto; and would not allow group life. 

Is that something you all could accept? 

Mr. SINNOTT. I think I have already said that, number one, think 

carefully about moving up the threshold points to such a point that 

it reduces significantly availability. Availability, when you move up 

threshold points, involves small companies. I also said general liability, no. I think that that is something that should be re-thought 

if they are thinking of excluding that. There you get into nuclear, 

chemical, biological, and radioactive risks that can be truly catastrophic. 

I have just thrown out the issue of studies should be made as to 

auto, which appears benign, but maybe the trucking industry issue 

should be looked at. 

Mr. SCOTT. Let me ask another question, and if each of you could 

answer this. Do you think that the risk of litigation exposes taxpayers to excessive costs in backstopping terrorism risk? If so, what 

do you recommend Congress could do to separate excessive lawsuits from legitimate claims? 

Mr. MIREL. Congressman, you are asking a very serious and important question that I think is not going to be possible to answer 

in connection with this particular legislation. I do think it is very 

important to ask it, but I do not think it can be answered and also 

have Congress do something between now and the end of the year. 

Mr. SCOTT. Let me ask you this, then, particularly in view of 

what is happening around the world. Under the current law of 

TRIA, there is a distinction between domestic and foreign terrorism. Should that be eliminated? 

43

Mr. MIREL. Let me try to tackle that, and it deals with an earlier 

question you asked, Congressman. My view is that the trick here 

is to deal with places where the capacity is not sufficient to handle 

the exposure. I think if we focus not on the kind of insurance, but 

rather on the risk of catastrophe, we do much better. Is there a 

risk of catastrophe with group life? If there is, then it ought to be 

part of this program. If there is not, then it shouldn’t be. 

The same with any kind of other insurance. I think that can be 

handled on a market basis. That is, who would be in a pool and 

who would not be in a pool. The ones who are concerned about the 

capacity to cover losses would want to be in the pool; and the ones 

who think they can handle it on their own would not. Again, it can 

be left to the market, but I think that the issue is a capacity issue, 

not a particular line of insurance issue. 

Mr. MILLS. If I could tie one thing to that, Congressman, if I 

may. I certainly agree with what Commissioner Mirel said in terms 

of approaching it from the point of view of capacity, but I would 

caution that that question of domestic or foreign, there is some 

question whether the attacks that occurred in London 2 weeks ago, 

if they had occurred in the United States in a similar fashion, if 

it would be covered under TRIA because the bombers were British 

citizens. If there were American citizens in a radical cell here today 

who detonated a bomb in the Metro system in D.C., or anywhere 

else, it may not come under TRIA as it exists today. 

Mr. SCOTT. Let me ask another question, if I may. I have a couple more before my time is up. 

I mentioned a worldview here. Is terrorism reinsurance a unique 

product for the United States? Has there been a time before 9/11, 

for example, where there has been a reinsurance crisis? Is there 

any comparison to the experience of other countries, Great Britain 

for example? In other words, what is the state of things regarding 

terrorist insurance from other parts of the world? 

Mr. MIREL. Congressman, the proposal that I talked about earlier about creating a risk pool, that is not a new idea. Great Britain 

has one. Spain has one. I believe France and Germany have them 

at this point. I think it is not very different than what the State 

of Florida created in the way of a catastrophe risk pool for hurricanes in that State. 

This is not a new concept. It is just a concept that has not been 

embraced yet in this country. 

Mr. SCOTT. Okay. Thank you. 

Mr. STIGLITZ. Congressman, let me reinforce that. He is absolutely correct about Florida. There was a reinsurance crisis there 

about 5 or 6 years, I believe it was, after they had a series of hurricanes. They responded by putting their pool together. It has 

worked. There is a lot of money in it. It has responded very well, 

certainly during the last four that they had last year. We have already had two this year. That pooling mechanism does work. So 

there are precedents for what we are talking about. 

Mr. SCOTT. Does the existence of TRIA in your opinion, since we 

have had it, has an indirect impact on indirectly lowering rates? Or 

does it cause additional costs to be passed on to the consumer? 

Chairman BAKER. That will have to be the gentleman’s last question, as his time has expired. 

44

Please respond. 

Mr. STIGLITZ. Actually, the rates are coming down. Initially, they 

were higher. There wasn’t near the take-up level, as Mr. Sinnott 

has mentioned. Now, the rates are coming down because there has 

not been an incident. They understand it. They have modeling. 

They have all kinds of stuff that enters into it. So we are seeing 

the rate come down. 

At the same time that we had this problem, we also had what 

they call a hard insurance market. Pricing increased rather dramatically, which I think Mr. Maurin probably refers to as he got 

hit by the hard market, not just the TRIA-related calls. So now 

that market is softening again. We go through cycles every 3 or 4 

years in the insurance business and now we are starting back 

down again. It is just typical of our industry. 

So I do not think there is a direct correlation between TRIA rates 

and the general insurance rates at all. 

Mr. SINNOTT. Just to add one comment, and that is that when 

looking at terrorist rates, I do not think it is so much that all rates 

came down. The difference was that in the early stages, the rates 

that were being offered were of such a level that they were declined 

by the clients. As TRIA took hold, I think the underwriters began 

to reduce the rates in that area, so those insureds that in 2003 

might have decided not to take-up property as an example, in 2004 

because the rates seemed more reasonable, took it up. And that is 

why we saw our percentage double in a period of probably 18 

months on take-up on property. 

Mr. SCOTT. Thank you, gentleman. You have been very helpful. 

Chairman BAKER. The gentleman’s time has expired. 

Ms. Kelly? 

Mrs. KELLY. Thank you. 

I am very interested, Commissioner Mills, in the question of 

whether or not if TRIA were allowed to expire, what impact the 

higher premiums that would most certainly occur would have on 

terror insurance with regard to the take-up of terror insurance and 

the pass-on costs to consumers or tenants in New York. Would you 

like to answer that for me? 

Mr. MILLS. One of the things that we have always felt is that if 

TRIA goes away, that the take-up rates may be impacted because 

the terror insurance may not be available. I mean, I really think 

that the very likely scenario would be that most of this coverage 

simply would not be available, and so obviously the take-up rates 

become insignificant. 

Mrs. KELLY. Anybody else want to jump in on that? I am interested in what could happen in terms of the pass-on costs to tenants 

in buildings. 

Mr. SINNOTT. I think that there would be some increase in cost 

because there is a limited market for stand-alone terrorism, and 

that those rates, just as they did right after 9/11 for stand-alone, 

jumped up. But I agree with the Superintendent, I mean, I am saying yes there would be some cost impact, but the biggest problem 

for our clients would be lack of availability. 

Mr. STIGLITZ. Ms. Kelly, I might also add that the thing that 

really worries me is that if this goes away, I think probably the 

largest exposure, which we really have not addressed, is workers 

45

compensation. If statutorily our clients are required or companies 

rather are required to offer this, workers comp, I can’t help but 

think that that will increase without the backstop in place. 

Mrs. KELLY. Well, that takes me to my next question, which is 

the fact that I think London showed that mass casualty attacks 

may not cause mass insurer loss, but we also have gotten information that it is possible that you could have 10,000 casualties and 

they are saying that that could fit under a $500 million cap. 

So my question is, is it realistic to say that a catastrophic event 

would not drive capacity out of the market in that area and essentially out of the industry? 

Mr. MIREL. Let me just say, Congresswoman, that my understanding is that the largest amount of money paid out as a result 

of the attack on the World Trade Center was actually workers 

comp payments. Maybe Superintendent Mills can say. 

It is a real problem. We have it here in Washington, D.C., where 

very large businesses can no longer get coverage in that area, even 

under TRIA, and have had to go into our own risk pool, the city’s 

risk pool. Organizations like The Washington Post, AARP, Kennedy 

Center, these kinds of institutions are having trouble finding coverage even under TRIA for workers comp. That would be much, 

much worse if TRIA were not extended. 

Mrs. KELLY. I understand. I needed to testify on a bill that I 

have before Congress, which is why I was late. I understand before 

I got here you had some discussion about the Treasury report and 

the $5 million. I am interested in what you think the trigger 

amount really ought to be, what the effect of a major catastrophic 

event, or multiple minor catastrophic events would be, and where 

you think that trigger really should be set in order to make sure 

that the reaction of the industry is not catastrophic in and of itself. 

Mr. MILLS. There was a great degree of discussion on the size of 

the trigger. There was no real resolution. Myself in New York, we 

have said that we have no problem with significantly raising the 

trigger event. The chairman made a very good point that frankly 

I had not considered, because I was looking at largely the New 

York market. Mr. Sinnott also made a very good point that there 

are a lot of other small carriers even in New York and in all markets. 

So I think the trigger is really one of the major questions that 

the Congress will have to resolve, and it will not be an easy question to resolve, but certainly I think that it is safe to say it can be 

increased significantly from what it currently is. 

Mrs. KELLY. Anybody else want to address that? 

Mr. MAURIN. On that issue, I think the trade that could better 

this coverage would be if in raising the trigger to be able to move 

it up from $5 million, which is relatively low, that we could include 

chemical, biological which is now excluded, and also include this 

domestic-foreign issue, which was talked about earlier. 

We are going to determine whether a claim is paid on a terrorist 

act depending upon where your passport is. As we saw in London 

and as we have even seen in America, we have had even some 

Americans that have joined Al Qaida. Okay? 

So I do not think the test should be where your passport is from. 

The test should be whether it was purely a terrorist act on this 

46

country, focusing on a specific property or a specific event. That 

should be the trigger for TRIA taking place. 

Mrs. KELLY. Thank you very much. 

I yield back. 

Chairman BAKER. I thank the gentlelady. 

Ms. Maloney? 

Mrs. MALONEY. Thank you, Mr. Chairman. 

The timely renewal of TRIA is a critical issue for the city I represent, New York, where the painful memory of September 11th 

has been renewed by the tragic events in London this month. 

I would like to thank you very sincerely and deeply, Chairman 

Baker and Ranking Member Kanjorski, on behalf of my constituents for advancing the renewal of TRIA. I cannot think of anything 

that is more important to their lives and the ability for New York 

City to go forward. 

I welcome Superintendent Howard Mills and Mr. Sinnott. I was 

in your crisis offices on September 12th. You had grief counselors 

there, assistance for victims’ families, and you had offices set up to 

continue business. On behalf of many of my constituents who benefited from these efforts and your efforts for the city, I express their 

appreciation. 

I can tell you from a very personal point of view in the painful 

days after September 11th, this great Congress came together like 

I have never seen it to help New York City and to help the Nation. 

But of all the efforts, by far the most important was passing TRIA. 

The city was not moving, and we are a resilient, great city, but no 

one could build. No one could plan. No one could do anything until 

TRIA was put in place. As their testimony states, if we are not able 

to renew and move forward, we face a tremendous challenge. 

Mr. Mirel, you spoke beautifully that this is not an attack 

against a particular shoe store, but it is an attack against America 

and it is a responsibility of all Americans to come in and be part 

of the solution. Many people are citing the reaction of London and 

support for the pool system. The AIA PCI came out in support of 

this approach. 

I would like to ask Mr. Sinnott, if Congress were to move toward 

a pool system, how long do you think the industry would need as 

a transition period to get up and running? 

Mr. SINNOTT. I do not think I could specifically give it to you in 

1 year, 3 years, 5 years. My belief is that it would take several 

years without an incident, frankly, to build up a sufficient amount 

of funds in the pool that one could say that the backstop that 

would still be there behind it is no longer necessary. It might be 

that you just keep pushing it up and up and up and up, and that 

the amount of backstop that is reasonably deemed to be there is 

extremely remote that it would ever be called in. 

There are other things like war that are not covered by insurance. I think the fact that the market has responded and Congress 

has responded, and not just saying, well, war is war and it is excluded and we will figure it out after it happens, which is what 

would happen if we had a war event. The Federal Government 

would have to step in. 

Now, this with TRIA and I think with what we are talking about 

today, we are talking about a more organized and thinking ahead 

47

of the event as to building something so that there isn’t what happened after 9/11 or what happened would not happen if we had actually something that is defined as in the old sense a war event. 

Mrs. MALONEY. So if you were stating, in other words, you would 

need a certain amount of time to build a reinsurance pool similar 

to London’s. So in other words, we would possibly need a 2-year extension of TRIA or something like it in more or less its current 

form before the industry is ready to have a pool that could really 

be the backstop. Is that what you are saying? 

Mr. SINNOTT. I am sure there are others who might have a 

slightly different view, but I think that a backstop to a diminishing 

degree will be required because, as they would say in workers 

comp, there could be theoretically a $90 billion event. Now, it is 

going to take a long time. You are not going to build up that sort 

of a fund in 2 years. The whole commercial industry premium-wise 

I think is roughly $200 billion. So it will take time, but I think if 

you start out, you are going to gradually remove the government, 

push any sort of backstop security out. 

Mrs. MALONEY. The chairman came forward with a very thoughtful proposal, and I thank him for his attention to this critical issue 

before our country. His idea of a geographic slide, a percentage 

point. You countered that the smaller companies would not be able 

to compete. How could we adjust that? Could we put in a provision 

that smaller companies could come together and possibly band together to provide insurance jointly so that they could meet the trigger? 

I also thought that Mr. Miller came forward with a good idea. I 

think that industries that help themselves and protect themselves, 

and some of our companies now even take photographs before you 

can enter the building, hire private guards, have put in metal detectors, have gone to great lengths to increase security on their 

premises. 

Shouldn’t that effort to invest in security from the private sector 

be taken into account in any type of formula in order to reward the 

creativity of the private sector and also the financial and creative 

effort that they are taking in localities and in particular businesses 

to help themselves? 

Just in New York, there is a wide disparity between different office buildings when you walk into them, to the degree that they 

have taken steps to really protect their own employees and their 

clients as they come there. 

I see that my time is up. I think the testimony today has been 

really extraordinary. You have given us a good foundation to go forward. 

I cannot mention more passionately how important this is to the 

city of New York. If we do not have TRIA, building will stop. Nothing will happen. And when the economy is bad in New York, the 

economy is bad throughout the country. I have always noticed that. 

So I would argue that all of our cities have a stake in it, and we 

have to remember the terrorists were en route to San Francisco, 

Los Angeles, and our Capitol and the Pentagon on that day. 

Anyway, in any event I thank you, Mr. Chairman, on behalf of 

my constituents. You have obviously put a great deal of work on 

48

it, and you will be a big part of making this happen. I hope it happens soon because we need it. Thank you. 

Chairman BAKER. I thank the gentlelady for her kind comments. 

Mr. Sherman? 

Mr. SHERMAN. Thank you, Mr. Chairman. 

You gentlemen are in the business of determining whether an insurance company has adequate reserves to deal with the particular 

risk that they have assumed. You do that for both insurance companies, presumably also for reinsurance companies. 

If there was a company called the United States Government, 

and it assumed the risks of TRIA, and you may want to respond 

for the record or respond orally now, how big a reserve would your 

State require them to have? 

Mr. MIREL. The Federal Government has one thing, Congressman, that insurance companies— 

Mr. SHERMAN. I am not saying the Federal Government. I realize 

if you add in the U.S. Treasury, the ability to print money and the 

ability to tax America, you would say it is a fiscally sound company 

with or without reserves. What I am saying is, if you were going 

to have reserves for that particular risk, how big would they be? 

Mr. MIREL. That is exactly the problem, Congressman. Nobody 

knows. I have seen the kind of modeling that has been done by the 

various— 

Mr. SHERMAN. Can you give us the range? 

Mr. MIREL. Can you tell me what the next terrorist attack will 

be and how much— 

Mr. SHERMAN. No, but I can’t tell you when the next hurricane 

is, and you are doing that for insurance companies all the time. 

Mr. MIREL. Because if you go back over 100 years or 200 years, 

you can predict where the hurricanes will come. 

Mr. SHERMAN. Well, let’s say this, you cannot predict the next 

earthquake. Trust me. I represent Northridge. 

[Laughter.] 

Mr. MIREL. Okay. 

Mr. SHERMAN. So you have companies that sell earthquake insurance. There will be an earthquake sometime in California. It 

could be in the Mojave Desert. It could be in downtown Los Angeles. Predicting the economic effect of an earthquake is rather difficult. Any of you want to venture, since you do something just as 

difficult all the time, help us with this difficult issue as to trying 

to value what the reserve would be, what the risk would be. 

Mr. SINNOTT. I will make one comment. When you are talking 

about an earthquake or hurricane or other catastrophes, there are 

limits of liability that the carriers are able to put on the policy. On 

earthquakes in California on commercial properties, nowadays you 

cannot get $1 billion of coverage. So the limits that an individual 

insurance company has I think allows— 

Mr. SHERMAN. So if somebody built something the size of the 

World Trade Towers in Los Angeles, they could not get insurance 

for the full value. 

Mr. SINNOTT. Right. 

Mr. SHERMAN. Or even half the value, yet people are willing, well 

may or may not be willing to build huge projects in Los Angeles 

without such insurance. 

49

Mr. SINNOTT. That is the way the commercial insurance market 

works, except for workers comp, where it is unlimited liability. 

Mr. SHERMAN. One of the other questioners talked about the differentiation between international terrorism and domestic terrorism. I would hate to think that the outcome would depend upon 

which terrorist had a green card, which terrorist did not. Do you 

see any reason to differentiate between ‘‘domestic’’ terrorism and 

‘‘international’’ terrorism? 

Mr. MIREL. I do not see any reason, Congressman. 

Mr. SHERMAN. I agree. Now, let’s go on from there. Why do we 

differentiate between an earthquake and terrorism, since both can 

cause the same amount of damage? 

Mr. MIREL. Congressman, as we pointed out earlier, Florida has 

in fact developed a very good catastrophe fund for hurricanes. Except for the fact that it is probably more difficult to predict manmade events than natural events, I see no difference. 

Mr. SHERMAN. What you are saying is that, well, in New York 

you may not be able to get terrorism insurance for your building. 

In Los Angeles, you cannot get earthquake insurance for your huge 

project. I would think that the Federal Government would be just 

as interested in making sure that projects go forward and are not 

stopped by risk of earthquake as by risk of hurricane as by risk of 

terrorism. 

Mr. MILLS. Congressman, if I may, you are failing to take into 

account the most insidious weapon of all that we are dealing with, 

and that is the power of the human mind. I mean, human beings, 

terrorists will change tactics. They can come up with new plans to 

deliberately try. You cannot predict an earthquake, but an earthquake cannot proactively try to confound you. 

Mr. SHERMAN. Mr. Mills, neither you nor I know whether during 

this century the greatest catastrophe and the greatest insurance 

events will be an earthquake or a terrorist action or a hurricane. 

You cannot predict it. I cannot predict it. Yes, terrorists can do new 

and terrible and unpredictable things, but earthquakes can do new 

and unpredictable things, and of course the tsunami in the Indian 

Ocean. We never had tsunamis in that ocean. We did not have a 

warning system in that ocean. 

So whether God or man creates the greatest catastrophes is 

something that only time will tell. I would think that we would 

want the same kind of system to make sure that you can get earthquake coverage in California, hurricane coverage in the Gulf, other 

catastrophe insurance. We should have a system where huge 

projects can go forward everywhere in this country regardless of 

which is the greatest risk. 

It is interesting. I represent a city, perhaps the only city where 

the earthquake and the terrorism risk have both been illustrated 

just in the last 10 or 15 years. 

Moving on, you folks deal with insurance companies, but I hope 

you also, and I expect you also deal with policyholders. Have you 

learned anything in your conversations with commercial policyholders about the price and availability of terrorism insurance? I 

think you have probably answered this question in different guises 

through the hearing, but I just got here. 

50

Chairman BAKER. That will be the gentleman’s last question, as 

his time has expired. 

But please respond. 

Mr. SINNOTT. Yes, we have provided information on what the 

pricing is. We happen to have in this case statistics that show it 

by industry, by region. So yes, that is there, and there are differences. 

Mr. SHERMAN. Mr. Chairman, I look forward to having the Federal Government play the minimum possible role in order to make 

sure that some kind of adequate insurance is available for all the 

risks that otherwise hold up major projects. 

I yield back. 

Chairman BAKER. I thank the gentleman for his statement. 

I want to thank each of you for your participation and just make 

the observation on behalf of the Administration that the Treasury 

report, although we may find reasons to differ with the conclusions 

reached, was a very thorough examination, broad in scope, carefully prepared, and provides I think a great deal of information for 

this committee to consider. 

I would request to each of your respective interests in the matter 

that over the course of the August recess you make available to the 

committee any perspectives you have that would lead the committee to reach conclusions different from those presented in the 

report. 

Some have suggested that the committee needs merely to renew 

the TRIA and engage in a study. I would suggest that the Treasury 

work is a pretty good piece of critical analysis, and I think the appropriate timeline is over the course of the next 4 or 5 weeks for 

industry representatives to give us the appropriate take, remedies, 

whether it is a regional trigger, whether it is gradual increase in 

retentions. We need assistance, and the reason for the hearing 

today is to bring that clearly to your attention. 

I am appreciative of your time and your effort. Thank you very 

much. 

As appropriate, we will get started with our second panel when 

folks are settled in. 

We will just stand in recess for about 5 minutes. 

[Recess] 

Chairman BAKER. I wish to call the subcommittee back to order 

and welcome our distinguished panel of witnesses who have already spent a considerable portion of their day here. For that, I am 

appreciative. 

As you heard in the first panel, we would request that you attempt to keep your statement to 5 minutes. Your entire official 

statement will be made part of our record. We appreciate your participation here today. 

Our first witness is Mr. Robert Hunter, no stranger to the committee, who again is testifying in his capacity as director of insurance for the Consumer Federation of America. 

Welcome, Mr. Hunter. 

51

STATEMENT OF ROBERT HUNTER, DIRECTOR OF INSURANCE, 

CONSUMER FEDERATION OF AMERICA 

Mr. HUNTER. Thank you, Mr. Chairman, members of the committee. 

Three years ago, Congress was debating creation of a temporary 

program to give insurance companies time to adjust to the new 

world we were faced with after the September 11th attacks. As 

Congress debated this, the property casualty insurance market was 

reeling from a hard market that had seen capital decline and commercial insurance prices skyrocket. The hard market began early 

in 2001 and the attacks exacerbated the problem. 

Congress wisely sought a temporary program. Some members 

warned that a program of free reinsurance, as was about to be 

adopted, would be difficult to terminate as insurers and others who 

would receive a Federal subsidy would naturally like to keep the 

tap into the Federal Treasury. Whether Congress did it knowingly 

or not, the choice of a 3-year temporary program turned out to be 

perfect for those who would seek to end taxpayer subsidies for terrorism insurance today. Now is the ideal time to end TRIA or 

sharply cut it back. 

Why? The reason is the hard market of falling insurer capital 

and skyrocketing policyholder rates has ended. We are now in a 

soft market of skyrocketing capital and sharply declining commercial property casualty insurance rates. It is impossible to justify 

terrorism insurance subsidies when insurance profits are skyrocketing, property casualty insurance rates are sinking, and beleaguered taxpayers face mounting deficits. 

In the first quarter of 2005, the industry had a 92 percent combined ratio, one of the lowest such ratios in decades, meaning 

mammoth profits lie ahead. The first quarter of 2005 had underwriting profit of almost $7 billion and with investment income, retained earnings jumped $10 billion. Retained earnings of the insurers were $323 billion before the terrorist attacks of September 

11th, but now are $403 billion, $80 billion higher than they were 

before the attacks. 

The commercial lines segment of the industry had a surplus of $171 billion at year end 2004, a growth in surplus of almost $50 

billion before the attacks. The new capital just in the commercial 

property casualty insurance area would be enough to pay for losses 

from an attack more than twice the size of the World Trade Center. 

This excess of capital has, happily for commercial policyholders, 

led to a price war, with rates dropping by 5 percent for small commercial accounts and over 10 percent for medium and large accounts for the 12 months ended June 30, 2005. Since Treasury has 

shown that average percentage of overall premiums paid out by 

commercial policyholders for terrorism insurance were under 2 percent in 2004, it means if terrorism rates doubled as a result of 

TRIA termination or cutback, overall insurance premiums paid by 

businesses of all sizes would still decline. 

More remarkably, for larger commercial accounts, terrorism 

prices could more than quintuple with no overall premium increases being felt. It is a perfect time to end the program or cut 

it back. Claims by insurers and large real estate interests that an 

end to TRIA would put the economy at risk, threaten jobs, stall 

52

commerce and delay construction are not credible as Treasury and 

CBO have indicated. 

Our review of the terrorism reinsurance gap in 2002, detailed at 

great length in my testimony, shows that the Nation adjusted to 

the terrorism insurance shortage and the private market found 

ways to provide most of the needed coverage in 2002. Now, this 

was in the midst of a hard market with surplus falling and insurance prices soaring. Imagine how well it could cope in 2006 with 

the industry enjoying record reserves and profits and rates dropping. 

What should Congress do? We think Congress should let TRIA 

expire, maximizing the private sector response and maximizing 

mitigation incentives. However, if TRIA is extended, we think that 

you should adopt the Treasury Department’s recommendations in 

the main to significantly pare back the program. This would include elimination of lines of insurance such as general liability and 

commercial auto, with relatively low terrorism risk. Group life insurance should definitely not be added to TRIA since life insurers 

have never provided any meaningful evidence that it is necessary. 

CFA also agrees with the Treasury Department’s recommendation 

that the trigger should be increased. 

I heard your comments, Mr. Chairman, about rural areas. I think 

there may be ways to adjust it. I have just started thinking about 

it. I think that you might have a trigger that varies by size of insurance company, rather than territorially. That might be a better 

way to handle what you are looking for. But I would like to think 

some more and get back to you on that. 

We do think that the deductible should be raised, we believe, to 

$75 billion before taxes, which is $50 billion after taxes, which 

would mean that the industry would never be in a worse position 

than they were before the first attack. Copayments should also rise 

as the Treasury Department proposed. 

Beyond the Treasury Department’s recommendations, we recommend charging a premium for whatever coverage is available to 

insurers. CBO favors this. Even insurers have agreed there is no 

legitimate argument against charging a premium, so that taxpayers can be kept whole. Developing and administering a premium payment requires a very small staff. I know. I was the sole 

actuary who did it for the riot reinsurance program in HUD under 

President Ford. Any extension of TRIA must be declared temporary 

and extended only for the purpose of giving the private sector a bit 

more time to prepare. 

Now, there is an area, nuclear, chemical, biological. If you do expand it to that, I think the industry cannot handle it without a 

Federal backup. You do need to think about that. 

Finally, the third choice would be a longer term pool backed by 

the Federal Government. A pool could be set up with no Federal 

involvement if TRIA expired or didn’t, even, for that matter, and 

we think over time some States like New York and California 

might want to have an interstate compact-type pool. A simple solution might be for Congress to authorize a pool that way. It is unlikely that a complex risk pooling bill could possibly be done by 

January 1 of next year, much less have it up and running. 

53

Further, we are concerned it might significantly increase the risk 

of a permanent Federal presence in terrorism and therefore unnecessarily increasing taxpayer exposure. We worry that complex Federal-State issues that deserve a separate discussion might be swept 

into such a bill. However, we do list in my written testimony a series of things that we think you need to be concerned about in how 

you put together a pool, including cherry-picking the kinds of regulation necessary to protect against a cartel-type structure that 

would be legally mandated, and making sure coverage is limited to 

high-risk lines. 

I would be happy to answer questions at the appropriate time. 

[The prepared statement of Mr. Hunter can be found on page 108 

of the appendix.] 

Chairman BAKER. Thank you very much, sir. 

Before proceeding to the next witness, because of scheduling conflicts, Ms. Bean would like to make remarks at this time. 

Ms. Bean? 

Ms. BEAN. Thank you, Mr. Chairman, and thank you also for allowing us to have such extensive testimony on the important subject of terrorism risk insurance. 

Thank you to our second panel for participating. 

I did also appreciate the opportunity to personally welcome two 

Illinois constituents, Jason Schupp and Penny Pritzker, who have 

traveled from my home State of Illinois and bring some 

Chicagoland perspective to the debate over reauthorization of terrorism risk insurance. 

Ms. Pritzker is the founder and chairman of Classic Residence by 

Hyatt, which provides luxury senior living communities nationally. 

She serves as president and CEO of Pritzker Realty Group, 

headquartered in Chicago, and is treasurer and on the board of directors of the Real Estate Roundtable. Her numerous chairmanships and board positions at private and philanthropic institutions, 

as well as her distinguished economic credentials really enable her 

to provide a broad management perspective. 

But it is her industry-relevant experience in the real estate business that makes her testimony so valuable today. Pritzker Realty’s 

diverse asset portfolio includes developed industrial parks, apartments, offices, land, and airport parking complexes. Such development projects are critical to America’s continued economic growth, 

and so her testimony to the impact of TRIA on such development 

is important today. 

Jason Schupp is from Inverness and is an 8th District constituent whom I am honored to be working for every day. He is vice 

president and serves as chief legal counsel to the underwriting 

committee for Zurich American Insurance, the third-largest commercial insurer in America. He has been directly involved with developing internal policy addressing exposure to terrorism. His testimony is valuable as well. 

I am honored to have you both here today from my home State 

and I look forward to hearing your testimony, although I may be 

pulled out for a couple of meetings. 

Thank you so much. 

Chairman BAKER. I thank the gentlelady. 

54

It is my pleasure to next call on Mr. Ernie Csiszar, who also is 

no stranger to the committee, who appears here today as president 

and chief executive officer of the Property Casualty Insurance Association of America. 

Welcome, sir. 

STATEMENT OF ERNST N. CSISZAR, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, PROPERTY CASUALTY INSURERS ASSOCIATION OF AMERICA 

Mr. CSISZAR. And who is also a new resident of the State of Illinois. I just moved there. 

[Laughter.] 

Thank you, Mr. Chairman, and members of the committee. It is 

a pleasure to be able to testify before you today. 

I represent the Property and Casualty Insurance Association. We 

have over 1,000 insurance companies as members. We represent 

some very small companies with no more than a few million dollars’ worth of premiums. And we represent some very large companies with several billion dollars’ worth of premiums. So we have a 

wide cross-section of members. 

As a result, I think I can fairly say that we have had a committee together that has worked very closely with members of your 

staff. We are fully committed to finding as much of a role for the 

private sector in solving this terrorism risk problem as we possibly 

can. We have worked well with your staff toward that end and we 

will continue to do so. 

We have made some progress. Nonetheless, let me begin by stating some very simple facts. You have heard some of these before. 

What we are talking about here is essentially uninsurable. We do 

not know where it is going to occur. We do not know when it is 

going to occur. We do not know how often it is going to occur. And 

we do not know how much it is going to cost when it does occur. 

It is an uninsurable event for all practical and theoretical purposes. 

That very fact immediately brings in the question of how do you 

price this product and secondly, how do you reserve for this product? Since reserving is an issue, as a former regulator, for instance, 

I can tell you very clearly that immediately the lights go on when 

it comes to solvency. What kind of solvency problems are you really 

creating if you even underwrite this type of product, never mind 

about whether you are able to price it correctly or not? 

The last point I would like to make as a fact is very simply this, 

and we all know this. You have a bill before Congress now, the 

SMART Act. We are asked to provide market solutions, but we are 

not operating in a free market. As you know, there are rate restrictions. There are policy form restrictions that prevent any kind of 

creativity, oftentimes, from finding solutions to these problems. So 

we are not operating in a free market. If that is what we are looking for, then one of the issues we need to address is what kind of 

free market solutions are there in fact that can be part of the solution for terrorism. 

While there is no perfect solution, I will say that the only answer 

in these cases will be a public-private partnership that essentially 

addresses the problem. What we have worked on essentially has 

several different prongs. If the private markets are to participate 

55

in a significant manner, first of all the private markets need greater freedom to respond. That means greater freedom to rate. That 

means repeal or a scale-back of some antiquated fire policy provisions, for instance. That also means preventing States from unilaterally mandating that terrorism coverage must be provided. So 

that is prong number one. 

Prong number two is also let’s pursue the capital markets and 

see whether we can find capital market solutions to this. The argument has always been that these kinds of financial instruments—

a catastrophe bond, which are quite common these days, in fact—

are not unusual transactions, that they may not be liquid; that the 

markets might not be receptive. 

We think there are ways to provide liquidity in this instance. For 

instance, providing puts to the Treasury as a purchaser of last resort could very simply solve that problem, and there may be other 

ways in which we can address it. So one component of a solution 

may well be participation by the capital markets. 

We also very much agree with what you have heard earlier today 

that some type of a pool will be necessary in which companies can 

participate. Let’s not forget that while it is true, again I heard 

some questions before as to how long an accumulation might take 

before it is meaningful in such a pool, let’s not forget that such a 

pool might also be able to pre-fundable by way of borrowings, for 

instance, by way of issuing bonds, by way of revenue creation in 

fact to repay. These things I think there are details that can be 

worked out. 

We also think as a fourth component of the solution that one 

needs to look at buildup of tax-deferred catastrophe reserves for 

terrorism. 

Last but not least, we have heard it before, domestic acts are no 

different from foreign acts. I would also suggest that personal property is really no different from commercial property, particularly 

homeowners. Now, I know we have not talked specifically about 

homeowners, but I would suggest it deserves further study as to 

what kind of coverages, what kind of inclusion one might bring to 

the homeowners policy. 

Let me make a few comments in finishing on just some of the 

proposals that we have heard. I am quite unclear as to precisely 

what the Treasury expects at this point or what kinds of changes 

because the signals have been mixed, quite frankly. I welcome the 

Treasury report. I agree with you, it was quite comprehensive and 

I can assure you we will respond to that report. But at the same 

time, I do not want to be critical because I think it is hard to anticipate exactly what is suggested in that report. But let me make 

a couple of comments. 

On the issue of the $500 million, there is no question that as I 

speak, for instance, for some of our smaller and mid-size insurers, 

that would put them out of business. I can think of an insurer we 

have, for instance, who covers churches and synagogues and 

mosques and so on. One mega-church on a Monday morning with 

a single bomber would do the job. It would only be that company 

exposed to it. So a retention that high, I may agree that $5 million 

is too low, but I think $500 million is way too high, and we have 

to find some compromise in between. 

56

As regards retentions, I would also agree there is room for discussion on increasing retention levels. What I would suggest is that 

we do not approach it as dramatically as suggested by the Treasury, from 15 to 20 to 25. Maybe it is more reasonable to think of 

15 to 16 to 17 and so on, a much more gradual approach on those 

retention levels. But these are details that can be worked out. 

Quite frankly, I think a good deal of progress has been made on 

these issues and I would hope that this committee can use this as 

an opportunity to continue to pursue those and to put them in 

place really by year-end. I think it can be done. I think the industry understands the need to do this. The worst of all possible 

things that can happen here is that we leave ourselves open with 

nothing at the end of the year. But I would suggest, let’s use it as 

an opportunity. Let’s implement a longer-term program than the 

current one that is in place. 

Thank you. 

[The prepared statement of Mr. Csiszar can be found on page 81 

of the appendix.] 

Chairman BAKER. Thank you very much, sir. I appreciate your 

testimony. 

Mr. Schupp, as you have been previously introduced by Ms. 

Bean, please proceed at your leisure, sir. Welcome. 

STATEMENT OF JASON M. SCHUPP, VICE PRESIDENT AND 

SENIOR ASSISTANT GENERAL COUNSEL, ZURICH FINANCIAL 

SERVICES GROUP, ON BEHALF OF THE AMERICAN INSURANCE ASSOCIATION 

Mr. SCHUPP. Thank you. 

Chairman Baker and members of the subcommittee, thank you 

for the opportunity to speak on behalf of Zurich and the American 

Insurance Association about what is actually happening in the terrorism insurance marketplace. 

I am vice president and senior assistant general counsel for Zurich, the third-largest commercial insurer in America. I have been 

intricately involved in all aspects of our U.S. terrorism underwriting strategy since September 11th. Based on those experiences, 

I assure you that the private sector has made great strides in understanding the terrorism exposure. However, there are inherent 

limitations to what the private sector can do. 

Since 9/11, we have learned some fundamental principles about 

terrorism and about the private marketplace’s ability to deal with 

this risk. The first is that terrorism presents a far larger financial 

risk than private capital markets can handle. For example, insurance rating agencies recently suggested that no more than 10 percent of insurer capital should be exposed to terrorism risks. That 

amounts to a capital commitment of about $19 billion for the commercial property casualty lines covered by TRIA. 

Yet under this year’s TRIA retention levels, total industry exposure is $37.7 billion, about double the capital exposure that rating 

agencies look for. This is an obvious concern for insurers, but 

should alarm anyone relying on the property casualty sector to respond to another terrorist attack on U.S. soil. 

Some academics and others suggest that TRIA has crowded out 

private market reinsurers or other capital market mechanisms that 

57

would commit capital to the terrorism exposure. Over time and on 

the right terms, it is possible to coax a bit more limited, short-term 

capacity from private reinsurers and other capital markets. However, there is plenty of space today for these private market solutions to expand and they have not. 

The second principle we have learned is that terrorism exposures 

are not all alike, nor should they be treated alike. For example, it 

has become clear that NBCR attacks have such unique characteristics that our capability to respond is particularly limited. In addition to thinking differently about the type of attack, we have 

learned that certain classes of business such as workers compensation and commercial property pose more difficult underwriting and 

risk accumulation challenges due to the nature of the risk and the 

regulatory regime governing those lines. 

This hearing asks: What is the future of terrorism insurance? 

The American Insurance Association, including Zurich, believes 

strongly that a continued Federal role is necessary, and we congratulate this committee for the extraordinary bipartisan leadership demonstrated in developing and expressing this common understanding. 

There are several ways the subcommittee could proceed. One 

would be to scale back the existing program, as Treasury has proposed. The viability of that approach depends on the numbers and 

whether there is room to further respond to the risk characteristics 

of the various lines. Or a structural alternative to TRIA such as a 

pool or a pay-to-play reinsurance system could be developed. Either 

approach needs to encourage higher take-up rates. 

Whatever path is chosen, our fundamental concern is that any 

mechanism must be workable for all stakeholders in the marketplace. We will judge these various proposals based on our realworld, on-the-ground experience and expertise. 

I would like a minute to quickly address some of the suggested 

program changes. We appreciate the expectation that the private 

sector insurer should shoulder more of the financial burden associated with terrorism, but increasing individual insurance company 

retention levels will not create more reinsurance capacity. It will 

simply make it more difficult for insurers, particularly large diversified insurers, to manage the massive unfunded and unreinsured 

portions of their deductibles. 

For similar reasons we have serious concerns about increasing 

insurers’ quota share if a loss exceeds the per-company deductible. 

Moreover, the existing quota share is consistent with those in 

many private reinsurance contracts and provides ample incentive 

for companies to efficiently manage claims to minimize Federal involvement. 

The recent Treasury report suggests removing commercial auto 

and general liability from the program. While commercial automobile is likely to pose a less major terrorism accumulation challenge, general liability is a very real significant exposure. A full impact analysis should be undertaken before acting in this area. 

A final policy area that must be addressed is insurance market 

reform. State rate and form laws limit insurers’ ability to manage 

the terrorism exposure. The still all-too-real risk of catastrophic 

terrorism attacks on U.S. soil means that we need an effective inVerDate 0ct 09 2002 11:35 Sep 28, 2006 Jkt 029462 PO 00000 Frm 00063 Fmt 6633 Sfmt 6633 F:\DOCS\29462.TXT HFIN PsN: TERRIE
58

surance mechanism in place beyond December 31, 2005. Such a 

mechanism must be built to reflect marketplace reality, not hopes 

or theories. 

On behalf of Zurich and the American Insurance Association, let 

me say that we stand ready, willing, and able to work with you to 

ensure timely enactment of a workable national terrorism insurance mechanism. 

Thank you. 

[The prepared statement of Mr. Schupp can be found on page 162 

of the appendix.] 

Chairman BAKER. I thank you, sir. 

Our next witness is Mr. Warren Heck, testifying as the chairman 

and chief executive officer of the Greater New York Mutual Insurance Company. 

Welcome, sir. 

STATEMENT OF WARREN HECK, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, GREATER NEW YORK MUTUAL INSURANCE 

COMPANY, ON BEHALF OF THE NATIONAL ASSOCIATION OF 

MUTUAL INSURANCE COMPANIES 

Mr. HECK. Thank you. 

Chairman Baker and members of the committee, my name is 

Warren Heck. I am chairman, as you indicated, and chief executive 

officer of Greater New York Mutual Insurance Company and its 

wholly owned stock subsidiaries, the Insurance Company of Greater New York and Strathmore Insurance Company. I am also the 

chief underwriting officer of the companies and manage their underwriting activities. 

I am here today to testify on behalf of the National Association 

of Mutual Insurance Companies. Let me start by thanking Chairmen Oxley and Baker and this committee for adopting TRIA in 

2002. NAMIC and I are convinced that it played a major role in 

preventing an economic catastrophe in helping get the country back 

on its feet economically after 9/11. 

We also thank you for your efforts today to reform TRIA and to 

renew the Federal reinsurance backstop for terrorism before it expires at the end of this year. We agree with Federal Reserve Board 

Chairman Alan Greenspan’s observation before this committee that 

there is ‘‘no way that the private insurance market can handle terrorism-related risk by itself because of the very substantial potential scope of damage.’’ We support his endorsement of governmentbacked reinsurance for terrorism. 

Greater New York Mutual Insurance Company is the fourth-largest writer of commercial multi-peril business in New York State. 

Much of that business is in New York City. As CEO and chief underwriting officer of our companies, I have first-hand knowledge 

and understanding of the needs of our policyholders and brokers, 

particularly with respect to the terrorism exposure. 

As a result of the terrorist attack on 9/11 and prior to the passage of TRIA in late 2002, most primary insurance carriers operating in New York City began to non-renew their large commercial 

property and workers compensation business or to reduce or limit 

coverage to under $20 million on the property side. With the passage of TRIA, the fear that a worst-case terrorist event could 

59

render our company insolvent was reduced, which made it possible 

for our company to keep its market open to a degree that would 

not have been otherwise possible. 

While we believe that TRIA has been instrumental in creating 

some market stability, we also agree with Treasury that some reform is needed. We think the Treasury Department’s recommendations for changes in TRIA are a reasonable starting point for shortterm reforms. We agree with Treasury’s assessment that ‘‘the immediate effect of the removal of the TRIA subsidy is likely to be 

less terrorism insurance written by insurers, higher prices and 

lower policyholder take-up.’’ 

Treasury outlined several key areas of reform, particularly higher deductibles and higher event triggers. The private sector has 

shown that it can operate with a 15 percent deductible. Raising 

that deductible would provide a further test of private sector capacity. Similarly, an increase in the event trigger is within the realm 

of reality. However, raising the event trigger much higher would be 

problematic, particularly for medium and small insurance companies. 

In establishing new deductible levels and a higher event trigger, 

one must recognize that if they are set too high, the program will 

unfairly discriminate against the medium and small companies in 

favor of large companies that can afford a much larger hit. 

As far as a long-term solution goes, I think it is more likely that 

the creation of a private-public partnership similar to the system 

that exists in Great Britain with the Pool Reinsurance Company, 

Ltd., can be a substantial part of that solution. 

A new RAND Center for Terrorist Risk Management study recommended two other possibilities: first, requiring that terrorism insurance cover acts by domestic groups as well as foreign terrorists, 

a wise admonition in light of the London attacks; and second, requiring that insurance cover attacks involving chemical, biological, 

radiological or nuclear weapons, perhaps through a direct government insurance program. 

Now would also be a good time for the Federal Government to 

examine tax and accounting policies that NAMIC believes are 

major impediments to increasing the capacity of insurers and reinsurers to provide terrorism coverage. For example, insurers should 

be permitted to deduct reserves set up for terrorism losses. The 

present prohibition against this creates a disincentive for the private sector to invest in the insurance industry. 

The flow of private sector capital to this industry is also inhibited 

by outdated State regulatory policies that often require regulatory 

approval of the price insurers charge. 

Thank you once again for the opportunity to testify on this issue 

of vital importance to NAMIC member companies and the U.S. 

economy. Your continuing leadership on this issue represents the 

best in public policymaking and NAMIC stands ready to assist you 

in any way in developing the best possible terrorism insurance legislation. 

Thank you. 

[The prepared statement of Mr. Heck can be found on page 100 

of the appendix.] 

Chairman BAKER. Thank you very much, sir. 

60

Our next witness is Mr. Ed Harper, who appears here today as 

the senior vice president of public affairs and governmental relations for Assurant, Inc. 

Welcome, sir. 

STATEMENT OF ED HARPER, SENIOR VICE PRESIDENT, 

ASSURANT, INC., AND CHAIRMAN, GROUP LIFE COALITION 

Mr. HARPER. Good afternoon, Mr. Chairman. 

The Group Life Coalition appreciates your leadership and our 

being given the opportunity to present some ideas to the committee 

on defending the American economy against terrorist attacks. I am 

Ed Harper, as you said, senior vice president of Assurant, which 

is a leading provider of insurance products and services, including 

health and employee benefits. 

I am here today in my capacity as chairman of the Group Life 

Coalition. The coalition is composed of insurance companies which 

provide the protection of group life insurance, both as a stand-alone 

product and as a part of an employee benefits package. I particularly want to thank you, Mr. Oxley and Mr. Frank and Mr. Kanjorski for their commitment to get something done this year and for 

their interest in and support of group life. 

I am here for two reasons. I join with my industry colleagues and 

Federal Reserve Chairman Alan Greenspan in sharing the belief 

that the private insurance market cannot fully handle the risk 

posed by terrorist attacks. Secondly, I hope to persuade the committee to create a successor program to TRIA that protects the people as well as the buildings. That is a program which includes 

group life insurance going forward. 

What is group life? Group life is the financial lifeline for the widowed families of breadwinners for over 160 million Americans. In 

many cases, group life is the only life insurance most policyholders 

have to provide protection to their families. It truly is a financial 

security blanket for the average family. Our prime purpose here 

today must be to make sure that consumers’ claims are paid 

promptly under the worst of circumstances. 

Unfortunately in a post-9/11 environment, this financial protection is threatened by two aspects of group life insurance. One is a 

concentration of risk from covered employees working in the same 

building, coupled with an absence of the mechanism that had previously been used to spread such risk, catastrophe reinsurance. 

Moreover, State insurance laws do not allow for any group life exclusion from acts of terrorism from conventional weapons nor unconventional nuclear, chemical, biological and radiological attacks. 

But for group life, if someone dies, group life pays regardless of the 

source of the attack. 

The group life market is highly competitive, where employers 

buy policies from the lowest bidder, usually as a part of a package 

sold by an employee benefits insurer. Policies are lost to competitors for pennies on the dollar. Faced with the reality of extremely 

limited or no catastrophe reinsurance protections, group life insurers are faced with few options to address concentration risks in an 

age of terrorist attacks. 

None of the options are attractive. They can raise prices to cover 

a risk they cannot calculate, thereby cutting themselves out of the 

61

market. They can exist the employee benefits market or they can 

continue to offer coverage without the catastrophe reinsurance 

mechanism to mitigate such risks. None of these options are truly 

viable solutions for a group life insurance company, nor do they 

properly address the problems posed by catastrophic terrorist attacks. 

What should the Congress do? The committee has asked for our 

views on a successor to TRIA. We believe the following four principles should be considered. Number one, the program ought to 

match the term of the solution to the term of the threat. Historically in times of war, particularly World War II, the Federal Government has made legislation permanent or set to expire at the 

war’s end. Just recently we have seen the House of Representatives 

make key provisions of the USA Patriot Act permanent in recognition of the long-term danger of terrorism. Unfortunately, the risk 

of terrorism and our Nation’s struggle with the specter of terrorist 

attacks is not likely to end soon. 

Second, we need to have a shared burden with a balance. Any 

long-term solution should first demand that carriers assume a significant deductible to assure everyone that underwriting procedures are appropriate. Second, it should facilitate the private market-enhancing mechanism supporting pools that have been mentioned here this morning, and finally require that the industry pay 

to play by repaying over time any funds advanced by the Federal 

Government in the wake of catastrophic terrorist events. 

The program’s mechanisms and formulas should: (A) achieve increased capacity where the industry is paying just consumer 

claims; (B) have an appropriate level of shared burden with the 

Federal Government; (C) avoid a program where only big companies in big cities could access the program; and finally (D) provide 

an orderly transition. The creation of something beyond a quick-fix 

solution may be achievable yet this year, but the implementation 

will take time to get right. 

We support an extension of TRIA with appropriate reforms to the 

extent necessary, but only as a transition to a more comprehensive 

approach. As the new program is ready to be engaged in begin 

functioning, the old TRIA model should be sunset. Protect the people inside the buildings, too. This is where I would end: any program must include group life as a covered line of insurance to 

make sure that the financial security of the average American families in those buildings is covered as well. 

On behalf of the Group Life Coalition, we thank you and your 

colleagues for holding this hearing on this important subject, and 

we look forward to working with you. 

Thank you. 

[The prepared statement of Mr. Harper can be found on page 89 

of the appendix.] 

Chairman BAKER. Thank you very much, sir. 

Ms. Pritzker, pursuant to Ms. Bean’s welcome, please proceed at 

your leisure. 

62

STATEMENT OF PENNY S. PRITZKER, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, PRITZKER REALTY GROUP, L.P. 

Ms. PRITZKER. Thank you very much for the opportunity to be 

here today. My name is Penny Pritzker. I will not repeat the introduction, the very lovely introduction given by Congressman Bean. 

However, I do want to say that I am also here as treasurer and 

a member of the board of directors of the Real Estate Roundtable. 

I want to begin by thanking you, Chairman Baker and Ranking 

Member Kanjorski, for conducting today’s hearing on the future of 

terrorism insurance. 

I am pleased that Chairman Oxley and so many members of this 

committee support the continuation of Federal terrorism insurance 

programs. 

I also want to specifically note my appreciation for the focus and 

attention given to the issue by Representatives Kelly, Frank, 

Israel, Crowley, Capuano, and Bean. 

I am honored to offer my perspective today as you craft legislation in the area. 

Immediately following 9/11, Congress was called upon to develop 

many new public policies to reflect the changed world. This committee, led by Chairman Oxley, quickly grasped the enormous potential economic problems that could develop if the government did 

not step into the terrorism insurance marketplace. You led the 

Congress in developing the legislative solution that became known 

as TRIA. Thank you for your hard work in this area then, and 

thank you for recognizing the need to focus intently on the issue 

once again. 

Like many of you, I had hoped that the government’s role in terrorism insurance could be ended. I am in a highly competitive market-based business. Like the real estate business that I am in, I 

was hopeful that the private insurance markets could fully handle 

the issue of terrorism insurance as it had prior to 9/11. But let me 

be clear: Unfortunately, that does not seem to be the case. 

From my perspective, the reasons that caused this committee to 

work daily to enact the Terrorism Risk Insurance Act have not significantly changed. Because of this reality, I strongly believe that 

our economy continues to need a Federal terrorism insurance backstop. We need it to be in place well before TRIA sunsets at the end 

of the year. So I favor reauthorization for several years while a 

commission considers a longer-term solution. The issues here are 

complex and the implications are very broad for our economy. 

Obviously, as recent events in London and around the world indicate, the threat of terrorism continues to be strong. Where terrorists might strike and how they might attempt to do so continues 

to be an evolving picture. Not only does the terrorist threat continue, but the potential economic costs of terrorist attack are almost limitless. You correctly saw the problem in 2002. You enacted 

TRIA. I believe it has been a tremendous success. 

A survey conducted during the post-9/11, pre-TRIA time period 

showed that more than $15 billion of real estate-related transactions had either been stalled or cancelled because of lack of terrorism insurance. Studies further showed that approximately 

300,000 jobs were lost during this period. Almost overnight, TRIA 

63

provided the capacity to insurance markets, which in turn yielded 

the economic confidence for transactions to resume. 

I am personally familiar with stalled construction projects that 

moved forward immediately to the benefit of countless workers in 

the construction trade, including our newly completed and constructed Hyatt Center, a 1.5 million square foot office building that 

created over 2,500 jobs that we started just post-9/11 after the implementation of TRIA. Without TRIA, we would not have been able 

to finance and build our new building. Without the continuation of 

TRIA, we will not be able to refinance our building. 

Having noted the benefits of TRIA, I am also aware that few 

laws are perfect. You are the ones who must review the technical 

way in which the Federal backstop functions and make any revisions that you see fit. I personally do not share the optimism expressed in the Treasury report concerning the ability of private insurers to effectively model terrorism risk. However, if reforms to 

the program along the lines suggested by Treasury Secretary Snow 

can be crafted to increase the role of the private market in this 

area that still makes sure that terrorism insurance is widely available to the economy, then they should be done. 

I also understand this committee might be interested in crafting 

a longer-term solution to the terrorism insurance problem. I certainly would not discourage this committee and Congress from exploring a more permanent way to ensure that terrorism insurance 

is available in our country. There are several models that may be 

instructive in this area, including the pool approach used in the 

United Kingdom and the pooling approach for catastrophic risk 

taken by Florida. I urge you to proceed cautiously when looking at 

TRIA reforms or at a longer-term solution. 

In general, I urge that you make sure that whatever the approach, you do not unintentionally penalize the policyholding community. The economy does not need a situation where terrorism insurance is once again only available in limited supply and then 

only at extremely exorbitant prices. The resulting illiquidity would 

not be a functioning marketplace. 

During your deliberations, I respectfully offer a few points for 

you to consider. First, one of the most important aspects of TRIA 

was the so-called make-available provision. It ensured that terrorism coverage was offered to businesses. I strongly urge that this 

provision be included in whatever Federal backstop program this 

committee recommends. 

Second, the distinction under current law between domestic and 

foreign terrorism should be eliminated. In today’s world having to 

determine whether a terror strike is at the direction of a foreign 

entity is obviously very difficult and seems somewhat meaningless. 

Even today, little is known about the origins of the anthrax attacks 

of a couple of years ago. 

Third, nuclear, biological, chemical, and radiological exposures 

are truly limitless. It seems that they should be somehow treated 

differently than other forms of terrorism risk, if for no other reason 

than to provide an even greater incentive for insurers to offer this 

type of coverage. As you know, TRIA currently backstops these 

events if in fact a primary insurer will write the coverage. I see no 

64

evidence that such coverage is being written today. A strong incentive is needed to ensure that this very real risk is covered. 

Finally, I would urge you to act in this area quickly. According 

to the Moody’s report, 50 percent to 75 percent of all property and 

casualty insurance policies written since January 1st have adopted 

conditional endorsements. Conditional endorsements will automatically void terrorism coverage if a Federal terrorism insurance backstop is not in place by January 1, 2006. 

Also, new projects will face increasing difficulties because in 

many cases terrorism insurance coverage will not extend into next 

year and therefore the financing will not be available to go forward. 

The sooner Congress acts on this issue, the less dysfunction will 

occur in the marketplace. 

I would also urge caution in two additional areas. First, there is 

great discussion about what lines of business are to be included 

and excluded from backstop coverage. For example, general liability is an important line of business coverage by itself. It also gives 

support to our officers and directors insurance. I urge you to carefully review the justifications to exclude it from the future backstop 

coverage. Obviously, if the decision is to move forward on a pooling 

approach to address this problem, which will bring with it a payto-play aspect, then I would strongly urge all existing lines be covered in the successor program. 

Second, the issue of tort reform is one that is very important, but 

one that could overwhelm the prospects for this important legislation if not carefully crafted. First, through regulation, the Treasury 

Department already has established strong litigation safeguards 

against runaway verdicts and excessive settlements. These regulations, of course, expire with TRIA. I think reauthorizing these regulations would address the concerns of unwise lawsuits arising in 

this area. 

Just to summarize here, rational litigation management rules 

are needed in this area, but the debate should not serve as a hurdle to achieving the most important goal here, and this is a workable terrorism insurance program. 

In conclusion, the real estate industry is one of the most competitive market-oriented industries in America. We want markets to 

operate freely, but sometimes they can’t. As Alan Greenspan testified last week to this committee, ‘‘So long as we have terrorism 

that has the capability of a very substantial scope of damage, there 

is no way you can expect the private insurance system to handle 

it.’’ 

Given this situation, I am pleased that a bipartisan group of 

members of this committee support the continuation of Federal terrorism insurance programs. Without a backstop, the terrorism insurance market is very likely to once again become highly unstable 

with potentially very harmful effects on the economy. TRIA was 

successful. Perhaps it can be made more market-oriented without 

causing market disruption and perhaps a long-term solution is 

within grasp. 

The most important action, however, is to act by putting a program in place long before the year ends. 

Thank you for the opportunity to comment today. 

65

[The prepared statement of Ms. Pritzker can be found on page 

157 of the appendix.] 

Chairman BAKER. Thank you, Ms. Pritzker. 

I would like to start with the observation about the nationalization of insurance risk. I disagree with the view that the United 

States taxpayer should be the first line of response in these circumstances. The industry assesses risk and collects a premium 

against that risk and tries as best is practicable to be profitable in 

judging future risk and making profits for shareholders in that 

business. So as between nationalizing on the one hand, and throwing it all on the industry, there is a balance to be reached here. 

What I think the Treasury report underscores in its view of the 

current TRIA program is that those equities are not properly balanced today, and that we can move more in the private market direction without adverse economic consequences. To that end, we 

have the month of August plus a week or so before we would come 

back, even if the decision were made just to extend TRIA as others 

have suggested, it would not happen this week anyway. So since 

we have the gift of 5 weeks, let’s focus on Treasury, focus on what 

can we do to move in the direction they would like us to move, and 

I will acknowledge that the $500 million trigger, for example, is a 

problem. 

In suggesting remedies, I talked about some regional type of 

measure taking the percent of commercial value lost as opposed to 

the commercial property in that regional area as a triggering device. Mr. Hunter suggested it might be more appropriate to have 

some other trigger that relates to the size of the business entity, 

which is subject to the claims for payment. 

The only hesitancy I have about that, and maybe the two can be 

done in tandem, is that when you move to looking at the individual 

business enterprise, whether we by inadvertent action are creating 

additional moral hazard by causing that company to not worry 

about concentration of risk in a particular community, whether 

they have properly gauged the risk, whether the business enterprise, for example, has security on the file. As Ms. Maloney rightfully pointed out, we ought to incent professional conduct and people who have security devices in place ought to have lower premium than people who just say, we are open for business. So some 

blend on the triggering side, coupling that with some graduated increase in retentions. 

I agree with you, Mr. Csiszar, that we may not want to go at 5 

percent a clip, but maybe nothing the first year, to give us time to 

graduate to a more sophisticated increase, maybe two points the 

following year or something thereafter to be negotiated, but certainly an increase in retention. Absolute language of taxpayer repayment under whatever conditions we choose to construct that the 

secretary of the Treasury would have to administer, and then 

whatever language the lawyers tell us is necessary to incent the 

creation of voluntary pools over some time. 

My idea is that we still should be in the temporary business. We 

ought to be providing a transition to where there is sufficient pooling voluntarily, and if you are not in it, you have no claim. I think 

that really incents people to think these things through, whether 

it is regionally, by State. It does not matter to me. I think the largVerDate 0ct 09 2002 11:35 Sep 28, 2006 Jkt 029462 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 F:\DOCS\29462.TXT HFIN PsN: TERRIE
66

er the area, the more you minimize potential risk of catastrophic 

loss. 

Could anybody respond to why this would not make some sense 

over the next 5 or 6 weeks to try to get something like that agreed 

to? Mr. Csiszar, I will throw it to you first. 

Mr. CSISZAR. I would certainly commit our organization to work 

with you on that. I think all of those points have merit. For instance, your suggestion that there be some regional. I can see some 

problems with that, where you are writing a church in New York 

City now, but you might not be able to write it in New York City, 

and you are a small company based in Wisconsin. 

But I think we need to look at all the options. Nothing should 

be taken from the table at this point. And there may be some combination formula that we can come up with, or we may find that 

we can agree on an absolute ceiling, for that matter. Let’s not 

eliminate that possibility as well. 

So on all of the points, I think they are worth pursuing. I know 

4 weeks, 5 weeks does not sound like much, but under the pressure 

cooker, we know how much time we have between now and December 31st, and the worst thing that can happen is that we have 

nothing in place. So I think that puts pressure on us as an industry 

to work with you and to come up with a solution. So I would be 

fully committed to that. 

Chairman BAKER. Mr. Hunter, how would you jump in? 

Mr. HUNTER. CFA would be happy to work with you. I am sitting 

here thinking about ways to address your rural issue and I am 

coming up with ideas, but they are half-baked at this point. But 

if you get the retention to a high enough level, maybe you do not 

need a trigger. Maybe the retention takes care of it for the small 

company because that is varied by size. Who knows? But we need 

to start thinking about those kinds of approaches. 

Chairman BAKER. Thank you. 

Mr. Schupp, did you want to comment? 

Mr. SCHUPP. Certainly. Thank you. 

You are absolutely right, Chairman. This is not 2002 anymore. 

We have learned over the last 3 years quite a bit about the terrorism exposure. We have the Treasury study and assessment to 

look at and learn from. We have even the documents that are attached to the gentleman from Marsh’s testimony that provides 

some good analysis of the terrorism exposure by line, by geographic 

region. 

Over this time period, I would suggest to you that this is learning that is taking place certainly within my company, within the 

AIA, and I have confidence within other companies over many 

months and years that we have now been in the terrorism insurance business. We can bring these learnings together in the short 

period of time, come up with a program that is more responsive to 

the unique characteristics of the terrorism risk as that plays out 

geographically and across the various lines. 

Chairman BAKER. Thank you. 

Mr. Heck? 

Mr. HECK. Yes, I believe that realistically the trigger can be 

raised. However, as Ernie Csiszar mentioned, insurance companies 

67

range in size from a few million dollars in capital to many billions 

of dollars. So one size does not fit all companies. 

I do think the important thing is the deductible and not the trigger, because if the deductible is high, that determines how much 

the company is going to assume and the government not pay. So 

I think more focus should be put on the individual company retention, rather than on the trigger. Although as I said, I think it can 

be higher than it is. 

Chairman BAKER. There may be some combination of the two. 

Mr. HECK. Possibly, yes. 

Chairman BAKER. Mr. Harper and Ms. Pritzker, would you care 

to comment? 

Mr. HARPER. Yes, sir. We are delighted and look forward to the 

opportunity to work with you and your staff on dealing with these 

five issues. Of course, the interesting point will be in the details, 

the incentive, for example, to participate in voluntary pools. In the 

State guarantee funds, the incentive is a kind of a mandatory incentive, and likewise with the Florida catastrophe funds that we 

were talking about, it is not entirely a voluntary fund. 

So we will look forward to it, and I guess we would lean somewhat toward the view that some of these will have to be mandatory 

and they will have to be fairly strong incentives to make people 

play in the game. But we are absolutely delighted to have the opportunity to work with you in this, and we look forward to it. 

Chairman BAKER. Well, unfortunately we are not really in a free 

market anymore when you have must-carry provisions and workers 

comp is mandated, there went free market. If we want to really go 

free market, that is a dangerous thing in this environment where 

you may or may not be able to get it and you do not know what 

the price will be. So somewhere modifying what we now have, that 

I am not altogether comfortable with, I think we can improve on 

it and make modestly better. 

Ms. Pritzker? 

Ms. PRITZKER. As you said, decreasing the degree of taxpayer potential liability is fine. I think the things to keep in mind are that 

ultimately the results lead to broad capacity and reasonable pricing 

for the insured so that you do not have a dramatic impact on the 

economy. 

Chairman BAKER. The only point that I am making is that when 

you force the market to price the risk, the people who pay the premium are the people who are exposed to the risk. When we have 

a system that does not achieve that goal, the taxpayers pay it. Mr. 

Kanjorski and I were talking a moment ago, if there were no program extension and there was an act in January, this Congress 

would write checks, as we do for earthquakes or any other disastrous consequence, without the type of controls or accountability 

that either one of us would like to see. 

So I do not want to see taxpayers generally called on in Wyoming 

to continually fork out money for risks that they have no relationship to. But you cannot force all of New York to pay for all of New 

York losses because there is not an insurance capacity to manage 

it, so it is a balancing act. And that requires a regimen of barriers 

to access to the taxpayer that makes all reasonable effort to recoup 

whatever is on the table. And then we come to the taxpayer and 

68

say we will give you a bridge loan, but when you are healthy we 

are going to get that, too. 

Mr. Kanjorski? 

Mr. KANJORSKI. Thank you, Mr. Chairman. 

I feel much more comfortable that I know when I return on September 6th you all will have a bill worked out that we can vote on. 

There is one other issue that I am interested in, and one of your 

last statements brought it to mind. We have a tendency to think 

that because the first terrorism strike was in New York, there is 

some greater burden on New York City. We are ignoring the fact 

of what may be the cause of terrorism. At least some enlightened 

people in our society would argue that it has some bearing on national policy of this country and other countries. 

As a result, if there is some part of the mixture that is responsible to the national policy, then the national expense has to be 

well-shared. It cannot be looked at as a municipal or regional problem jus because the target is nice. I mean, maybe some people like 

to hit the Washington Monument, but that is not because of something that people in Washington, D.C., did or are responsible for. 

We have to look at it that we are a target in particular cities, I 

think, because of policies either we pursue or policies of other nations, but not by having a regional or municipal identification 

point. 

I was interested, Ms. Pritzker, in your testimony when you 

talked about the $15 billion of delay of investment as a result of 

the hiatus after September 11th of not having terrorism insurance 

in place. I have heard that figure used many times. 

I am wondering, has anybody done any studies? What would be 

the effect if we did not pass, at the very minimum, an extension 

of TRIA? What kind of a jolt to the economy would occur, say, within the first 6 months or a year? 

Ms. PRITZKER. I don’t know the precise economic studies, because 

I do not know if those figures have ever been calculated. 

What I would say is that obviously the exclusions that I spoke 

about would come into effect immediately. Your financing markets 

would be severely affected, which would affect your commercial 

mortgage-backed securities markets and therefore all the buyers 

and owners and all the economics and impact on the economy of 

that, as well as frankly your financial institution because they are 

not going to lend money to those of us who create buildings if we 

cannot provide terrorism insurance to them. 

They do not want to take, nor are they pricing in to the risk of 

those mortgages, the risk of a terrorist attack on the asset they are 

lending against. Unfortunately, I cannot give you a dollar figure. 

Mr. KANJORSKI. Do you think it would be as great as the $15 billion figure? 

Ms. PRITZKER. I actually think it would be greater because you 

are dealing with a much more robust economy than we were dealing with around 2001. There is a lot more construction going on 

right now. I think that construction would be severely impacted, so 

I think the number would probably be much larger. 

Mr. KANJORSKI. Would there be a tendency for the lenders to protect their own assets and treat much of this commercial mortgage 

69

market as being in technical default because of the failure of terrorism insurance? Would there be a lot of calls? 

Ms. PRITZKER. Absolutely. Today, I will give you an example. For 

us, we are refinancing a very large building right now. We are just 

in the term sheet phase, and we spent almost 2 weeks and about 

a page of a term sheet, not documents, discussing what would happen if there was no terrorist insurance or if TRIA is renewed in 

such a fashion that costs become astronomically high. The marketplace is already anticipating the various potential outcomes. They 

are very harsh on the people like us who are borrowing money who 

are insureds. 

Mr. KANJORSKI. Something the chairman mentioned, too, is that 

we could gear this off-risk. Isn’t this a problem? I ask this sort of 

generally to the panel. We have no experience with risk insurance. 

I do not really understand how you all write a premium for risk 

when we do not have a formula to work off of. I am sort of struck 

with the idea that we are convincing ourselves that there is an intelligent private market to deal with risk that isn’t identifiable 

presently. How do you look at that? 

Mr. HARPER. Mr. Kanjorski, you are exactly right. There is no 

way to calculate the risk properly. We do not have the frequency 

or severity of experience to be able to calculate and extrapolate. 

The Treasury report, interestingly, said well, the models are improving. Well, the models are improving, but they also noted that 

the three major models gave radically different projections of what 

would happen in a particular situation. 

So here are the best models in the world, examined by, we will 

stipulate the best analysts in the country and coming up with radically different conclusions. So how are we supposed to come up 

with a single rate that is intelligent, whether it is for group life or 

for buildings, either one? 

Mr. KANJORSKI. And isn’t it the normal experience of the insurance industry to be conservative, and therefore anticipate the worst 

potential? 

Mr. HARPER. Absolutely. In the group life business, this is a little 

business. It is not exciting, but we know that out of every 1,000 

employees, approximately three of them will die in a year. So we 

go to a company and say, here it is. We know what their salaries 

are. You know what they are. So we will sell it to you at a minimum price that basically is the claim plus a minor administrative 

charge and we hope to make a few dollars on the deal. 

Well, to go from that where the risk is three in 1,000, to 1,000 

in 1,000 in a terrorist attack, I mean, how do you figure out what 

is the right premium for that? There is no way to calculate it. 

Mr. HUNTER. Mr. Kanjorski, the models, I am an actuary. I have 

looked a the models. We had to develop models for riot reinsurance 

in the wake of that to price it. In the wake of Hurricane Andrew, 

models had to be developed because up until then the insurance 

companies thought they could just rely on some recent history. 

That turned out to be inaccurate. 

The models do go through a learning curve, but these curves are 

relatively fast. They have learned a lot. If you study the models 

that are in place, not only did they learn a lot. Every insurance 

70

company is buying them for small fortunes. They believe in these 

models. 

These models are very valuable and you can predict, not with 

precision because this is not a precise kind of thing. It is man-made 

threats, but you can predict with a great degree of comfort at maximum probable losses and annual expected losses, and you will 

have to improve them over time, but it is doable and it is being 

done. 

Mr. KANJORSKI. How would you account for the fact that we do 

not have a very strong reinsurance industry out there? 

Mr. HUNTER. Because the reinsurance industry cannot compete 

with a zero TRIA rate. It is not going to come in and compete with 

that. 

Mr. KANJORSKI. So your proposition is that what the Congress 

did last time and what we may intend on doing in the future is actually counterproductive. 

Mr. HUNTER. Absolutely. I agree with Treasury’s finding that it 

has pushed out innovation in the private sector. But they are pricing. You do pay more in New York than you do in rural Louisiana. 

The pricing is variable by using the models by both geography and 

type of risk. 

Mr. KANJORSKI. If you make the argument, though, that we are 

pushing the private sector out of the market by having government 

involvement, then you are really saying let it go. I hear the rest 

of this panel saying that solution is a catastrophe. 

Mr. HUNTER. I am saying you can at least go as far as what 

Treasury has proposed and significantly increase the private sector 

involvement. I said earlier I do agree that nuclear, biological, chemical, there is no way that the private sector can handle risks of that 

magnitude, but the conventional type terrorism risks can be mostly 

and I think all handled by the private sector. 

Mr. CSISZAR. Mr. Chairman, if I can jump in for a moment here. 

I am a former regulator and I am also a former CEO of a company. 

I can tell you that the terrorist models that we are using are primitive by comparison to the models we are using on earthquakes and 

weather-related incidents, for instance. 

Secondly, the data available, models are as good as the data: 

junk in, junk out. So it is only as good as the data and there is 

very little data available that you can use objectively. A lot of what 

we are doing here on terrorism really is guesswork. Unless you 

know, unless you have the comfort, yes, you have the comfort of 

that model, perhaps, but unless you also know that there are caps 

to how much you are going to pay; unless you know that there is 

a formal program in place which limits your exposure, you are not 

going to write the stuff. I do not care what your model does. 

An earthquake is an earthquake, by the way, but two planes hitting a tall building and a nuclear attack are very different from 

each other. So it is a little bit more complex, I think, than Mr. 

Hunter is portraying here. 

Mr. KANJORSKI. Does anybody else want to comment? 

Mr. HECK. I would like to say something about that also. We 

have done a lot of modeling for terrorism. What you arrive at are 

many alternative attacks. There are hundreds of attacks. They go 

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71

tacks. And when you try to decide what your exposure is, you have 

to just arbitrarily pick something. Typically what we pick is the 

smallest exposure because the others are just unmanageable. There 

is no way to deal with them. 

So modeling is so primitive at this point, and so uncertain that 

it is of really very, very limited value. I think there is a lot of work 

being done on the models. It is true that the data has to be very 

accurate. When a lot of these models are done, the data isn’t accurate so you have to go into it and try to improve it. But it is very, 

very difficult to determine exposure from the models, but it is all 

that we have. We have nothing else. We have no experience. 

Mr. SCHUPP. Congressman, that is absolutely right. Models are 

used today primarily for capital allocation purposes. How much 

capital is an insurance company willing to lose based on an assumed scenario does not take into account probability, how often 

will that assumed event occur, and does not do a particularly good 

job of looking at or helping an insurance company manage scenarios that differ from that assumed scenario, such as two truck 

bomb events instead of one. 

So we can tell you, and we feel we have a fair degree of confidence in telling you that if a five-ton truck bomb were detonated 

at a certain location in Manhattan what the resulting workers compensation and property losses would be. That can be used to determine how much capital to risk on the exposure. 

Converting that into a rate, which is what is the probability, how 

often should we anticipate suffering that type of a loss, is not something that the models can help us with today. Unlike hurricanes 

where we can accumulate tens of decades, a hundred years worth 

of data and make predictions, terrorism is a very dynamic exposure. It is driven by a lot of factors that change rapidly over time. 

Thank you. 

Chairman BAKER. If no one else, Ms. Bean? 

Ms. BEAN. Thank you, Mr. Chairman. 

I did want to just follow up on Congressman Kanjorski’s question 

to Ms. Pritzker regarding what if we did not extend TRIA. I know 

he was looking to quantify that in terms of dollars and it was hard 

to do that. 

But could you give us some insight into as a percentage of 

projects in your industry that you develop and others like you develop, what could be in jeopardy, both future projects that haven’t 

even started and those that are already in the works that may 

have financing now that could become in jeopardy. 

Ms. PRITZKER. Let me try and just frame the picture. The real 

estate industry employs about 9 million people in this country, and 

about 70 cents of every State and local tax dollar comes from real 

estate. So I will try and give you a whole picture. We think it is 

at least 10 percent of gross domestic product comes from real estate. Obviously, construction jobs are very high-paying jobs. 

So pick a percentage of that that you think is going to be hurt. 

I would say you would have to think about what kind of attack it 

is and how large the impact could be. But frankly from my standpoint, if I cannot get terrorism insurance on a project, it means I 

cannot finance it. If I cannot finance it, I can’t afford to build it. 

And if I am in construction and I lose that coverage because of the 

72

exclusions that have been created in policies, I may have to stop 

construction whether I like it or not, whether I want to or not, I 

may not be able to continue funding because the banks will say we 

are no longer going to fund unless you can give us some kind of 

coverage. 

Ms. BEAN. Let me ask it a little differently. Given that there are 

projects that are happening right now and that are being financed, 

and there is some uncertainty obviously as to whether this is going 

to be extended further, what percentage of projects do you think 

are already going away just because of that uncertainty? 

Ms. PRITZKER. I can’t answer that question. It is too difficult a 

question to answer. I think what is happening is that if you 

thought about it in terms of years, for example, since the beginning 

of this year there has been the creation of these exclusions, which 

means the marketplace is anticipating the notion that if there isn’t 

an extension or some new kind of a bill, that they are going to take 

action or lack of action in terms of offering that insurance. 

So you could say okay, projects that began this year will be 

through the end of the year and then they are going to face the 

issue. Projects that I am considering today, if I can get insurance, 

I will begin the process because I have confidence that I think we 

are going to enact something. The question will then be, I am taking the risk of what is the cost of getting that insurance post-January. 

But the closer we get to January or the end of the year, the harder it is going to be for a person to get insurance and therefore the 

harder it is going to be to begin a new project. So I think that you 

are starting to see the marketplace, they are assuming right now 

that something is going to happen to continue the backstop, I believe. If that view changes, I think that is when you will begin to 

see projects stopping. 

Ms. BEAN. Thank you. 

Chairman BAKER. The gentlelady yields back her time. 

I just want to express my appreciation to you. It has been a long 

hearing. Your perspectives have been helpful to the committee’s 

work. 

And I renew my request I made of the earlier panel. Over the 

course of the next several weeks, your observations and recommendations are very important in helping us come to formulate 

some response when the committee returns in September. 

We look forward to working with you. 

Our meeting stands adjourned. Thank you. 

[Whereupon, at 1:50 p.m., the subcommittee was adjourned.] 

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A P P E N D I X

July 27, 2005

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