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POLICY OPTIONS FOR EXTENDING THE

TERRORISM RISK INSURANCE ACT (TRIA)

HEARING

BEFORE THE

SUBCOMMITTEE ON CAPITAL MARKETS,

INSURANCE, AND GOVERNMENT

SPONSORED ENTERPRISES

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

APRIL 24, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–24

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

SUBCOMMITTEE ON CAPITAL MARKETS, INSURANCE, AND GOVERNMENT SPONSORED

ENTERPRISES

PAUL E. KANJORSKI, Pennsylvania, Chairman

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

DEBORAH PRYCE, Ohio 

RICHARD H. BAKER, Louisiana 

CHRISTOPHER SHAYS, Connecticut 

PAUL E. GILLMOR, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

FRANK D. LUCAS, Oklahoma 

DONALD A. MANZULLO, Illinois 

EDWARD R. ROYCE, California 

SHELLEY MOORE CAPITO, West Virginia 

ADAM PUTNAM, Florida 

J. GRESHAM BARRETT, South Carolina 

BLACKBURN, MARSHA, Tennessee 

GINNY BROWN-WAITE, Florida 

TOM FEENEY, Florida 

SCOTT GARRETT, New Jersey 

JIM GERLACH, Pennsylvania 

JEB HENSARLING, Texas 

GEOFF DAVIS, Kentucky 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

(V)

C O N T E N T S 

Page 

Hearing held on: 

April 24, 2007 ................................................................................................... 1

Appendix: 

April 24, 2007 ................................................................................................... 43

WITNESSES 

TUESDAY, APRIL 24, 2007

Abraham, Janice M., President and CEO, United Educators Insurance, a 

Reciprocal Risk Retention Group ........................................................................ 12

Cotton, Leonard W., Vice Chairman, Centerline Capital Group, on behalf 

of the Commercial Mortgage Securities Association (CMSA) ........................... 8

Ditchman, Joseph P., Jr., Senior Vice President, Colliers Ostendorff-Morris, 

on behalf of the National Association of Realtors, and the Coalition to 

Insure Against Terrorism (CIAT) ....................................................................... 14

Donnelly, Vincent T., President and CEO, PMA Insurance Group, on behalf 

of the Property Casualty Insurers Association of America (PCI) ..................... 17

Dowd, Brian E., Chief Executive Officer, Insurance-North America, ACE 

Group, on behalf of the American Insurance Association ................................. 10

Watjen, Thomas R., President and CEO, Unum Group, on behalf of the 

American Council of Life Insurers (ACLI) ......................................................... 16

APPENDIX 

Prepared statements: 

Kanjorski, Hon. Paul E. ................................................................................... 44

Abraham, Janice M. ......................................................................................... 45

Cotton, Leonard W. .......................................................................................... 54

Ditchman, Joseph P., Jr. .................................................................................. 67

Donnelly, Vincent T. ......................................................................................... 78

Dowd, Brian E. ................................................................................................. 88

Watjen, Thomas R. ........................................................................................... 96

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Kanjorski, Hon. Paul E.: 

Statement of the American Bar Association .................................................. 102

Statement of the Risk and Insurance Management Society ......................... 116

(1)

POLICY OPTIONS FOR EXTENDING THE 

TERRORISM RISK INSURANCE ACT (TRIA) 

Tuesday, April 24, 2007

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

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

The subcommittee met, pursuant to notice, at 1:36 p.m., in room 

2128, Rayburn House Office Building, Hon. Paul E. Kanjorski 

[chairman of the subcommittee] presiding. 

Present: Representatives Kanjorski, Ackerman, Meeks, Moore of 

Kansas, Capuano, Baca, Scott, Davis of Tennessee, Sires, Klein, 

Murphy, Donnelly; Pryce, Shays, Gillmor, Feeney, Garrett, 

Bachmann, Roskam, and Marchant. 

Also present: Chairman Frank and Ranking Member Bachus (ex 

officio) and Representative Maloney. 

Chairman KANJORSKI. This hearing of the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises 

will come to order. Without objection, we are going to limit opening 

statements to 15 minutes on each side. Mr. Ackerman, I understand you have an opening statement. Is that correct? 

Mr. ACKERMAN. Yes. 

We meet this afternoon to review the policy options for extending 

the Terrorism Risk Insurance Act, or TRIA. In the wake of September 11th, Congress designed TRIA as a temporary program 

with the expectation that the insurance industry could eventually 

model and price for terrorism risk. The private marketplace, however, did not recover as quickly as initially hoped. As a result, we 

extended TRIA for 2 years in 2005. 

While TRIA has increased the availability and affordability of 

terrorism risk insurance, the marketplace is still tenuous. Insurers 

still have limited capital to cover terrorism losses alone and without Federal assistance. Property/casualty firms had only $164 billion available to cover terrorism losses in 2005, according to the Insurance Information Institute, but some models have predicted terrorism losses of more than double this number. 

TRIA as amended will, of course, expire at the end of this year. 

Because insurers remain uncomfortable with their ability to reliably price coverage for traditional terrorism, we need to extend this 

law once again in order to protect our Nation’s economic security. 

In considering these matters, we must also act both in a timely 

fashion and in a deliberate manner so as to prevent marketplace 

2

disruptions, allow for careful consideration of the policy implications of our actions, and avoid unintended consequences. 

We have many important decisions before us, and I look forward 

to a thoughtful and bipartisan dialogue both today and in the 

weeks ahead. To help guide us going forward, I also want to outline 

five positions central to my thinking on these matters. First, we 

must make the extension of TRIA our primary goal and refrain 

from considering miscellaneous issues. A bill to further lengthen 

TRIA should not become a vehicle for moving non-related matters 

such as the surplus lines legislation and natural disaster reforms. 

Moreover, I have considerable skepticism about adding risk retention group reforms to this TRIA extension exercise. These separate 

issues need and deserve full, complete consideration on their own. 

Second, the duration of the extension will require us to maintain 

a delicate balance. We must choose a length of time that is long 

enough to provide greater certainty to the marketplace and short 

enough to encourage the private sector to develop its own solutions 

to the problems posed by conventional terrorism. Such an extension 

should be neither permanent nor even semi-permanent. At this 

time, I believe that a 6- to 8-year timeframe provides the balance 

we need. 

Third, we should use the TRIA extension debate to pursue needed and important reforms to the program. We should, for example, 

protect individuals, and not just the buildings they work in, by 

adding group life to TRIA. We should also eliminate the distinction 

between foreign and domestic terrorism events. 

Fourth, we must explore how best to add nuclear, biological, 

chemical, and radioactive (NBCR) coverage to TRIA, and we will 

soon learn of a few different positions on this complex issue from 

today’s witnesses. In the event of an NBCR attack, the marketplace 

already implicitly believes that the Federal Government will step 

in and respond. We therefore should explicitly address the government’s role before an NBCR terrorism event occurs, rather than 

deal with such a significant problem during a time of great uncertainty and potential chaos. 

Lastly, we should explore whether or not to continue to decrease 

or limit the government’s financial exposure within TRIA. The creation of a trust fund in this regard is one idea worth examining. 

Under the proposal, policyholders and insurers would pay surcharges in advance of a terrorism event to the Federal Government 

and the collected monies would then help pay the Federal Government’s costs in the event of a certified terrorism act. 

In closing, I thank the witnesses for coming here today to share 

their perspectives on these five policy options and the many other 

important choices before us during these TRIA extension deliberations. 

Thank you. Ms. Pryce? 

Ms. PRYCE. Thank you, Mr. Chairman, I wanted to thank you 

very much for holding this hearing and for scheduling the previous 

hearing that we had in New York City. We welcome the chairman 

back to the subcommittee. We missed your leadership in New York 

and we’re thankful for your speedy return, sir. 

Ladies and gentlemen, our commitment to TRIA has never been 

stronger. We understand the importance of terrorism insurance to 

3

American consumers, businesses, and to our economic security. In 

the aftermath of the brutal terrorist attacks of September 11th, 

this committee led efforts to help restore the recovery of a nation’s 

market, especially the availability of commercial insurance. 

According to reports by the Treasury Department, the Government Accountability Office, and others, our former TRIA efforts 

were a great success, providing American consumers with protection against terrorist attacks and the continued availability of insurance to protect our economy and job growth. Since TRIA’s enactment, the insurance market has become healthier than ever before. 

Insurers have been able to restore lost surplus, diversify risk exposures, and develop increasingly sophisticated terrorism-loss modeling. Reinsurance availability for terrorism coverage has grown 

with TRIA’s enactment with recent estimates of $8 billion of terrorism specific reinsurance available, growing by $1- to $2 billion 

per year. 

The private insurance marketplace is able to manage an increasing level of exposure and with the right combination of TRIA reforms, such as tax reserving and regulatory reform, including the 

expansion of the Risk Retention Act, the terrorism insurance marketplace will continue to strengthen and expand. I feel that expanding the Liability Risk Retention Act to include property and 

casualty insurance would be an important step in the direction of 

ensuring that the market will eventually be able to carry this risk 

without a government backstop. 

Risk retention groups often act as the insurer of last resort for 

unique or hard-to-insure risks, a category in which terrorism clearly belongs. I look forward to working with Chairman Kanjorski as 

we discuss the expansion of the Risk Retention Act, as well as 

other regulatory forms, such as streamlining surplus lines and nonadmitted insurance and enacting speed-to-market reforms. 

Unfortunately, reforms in our bill of the last Congress were set 

aside as the Senate ran out of time to conference. Some specific reforms that were included in the bipartisan bill passed overwhelmingly here, and we look forward to reviewing those very important 

reforms as we proceed in this committee in this Congress. I want 

to thank Subcommittee Chairman Kanjorski for today’s hearing 

and for all of his hard and thoughtful work. We hope to continue 

our committee’s past bipartisan cooperation on insurance legislation. I look forward to working together on comprehensive, longerterm TRIA reform, and I’ll reserve the balance of my time. Thank 

you, Mr. Chairman. 

Chairman KANJORSKI. Thank you, Ms. Pryce. Mr. Ackerman? 

Mr. ACKERMAN. Thank you, Mr. Chairman. It’s good to have you 

back in the Chair again, rested and looking so robust. Mr. Chairman, at the subcommittee’s field hearing that you scheduled in 

New York City on March 5th, we heard from developers, insurers, 

and reinsurers, and their assessment was unanimous. There is still 

not nearly enough supply in the terrorism risk insurance market 

to meet the huge demand, especially in higher risk urban areas. Indeed, if TRIA were to expire, it would certainly result in the destabilization of the insurance industry and, in all likelihood, the national economy. 

4

Every type of large-scale enterprise would be at risk, and the 

threat to our national economic health would be immense. I believe 

a permanent extension would be best, but in my view, as large development projects take many years, an extension of less than 15 

or 20 years would be insufficient to developers, insurers and reinsurers, whose efforts fuel our Nation’s economy and build our cities’ 

skylines. 

If the House were to pass a 6- to 8-year extension, knowing that 

in conference with the Senate the extension period is sure to be 

compromised on a contentious issue, we will certainly find ourselves here again, Mr. Chairman, with TRIA set to expire yet 

again, but an entirely inadequate supply of terrorism insurance on 

the private market. I would also note that with the shorter extension period, there would be uncertainty as to when or if TRIA 

would eventually expire. Let’s be clear. 

Uncertainty is the enemy we’re fighting, and as we heard in New 

York, this uncertainty would threaten the reconstruction efforts at 

Ground Zero, the site of the worst terrorist attack on American soil 

and the symbol of our Nation’s resilience and recovery, as well as 

many other sites. As I noted at your field hearing in New York, the 

potential for terrorists to commit not just a heinous, but a catastrophic act, will continue to influence the market’s assessment of 

risk for years. It matters not whether foreign or domestic terrorists 

is a distinction, or if it is impossible to make. In the new world we 

live in, nuclear, biological, chemical, and radioactive, NBCR, coverage must be included in the TRIA program. A government accountability report in September 2006 found that and I quote, ‘‘any 

purely market-driven expansion coverage for NBCR risk is highly 

unlikely in the foreseeable future.’’ The study simultaneously undertaken by the President’s Working Group came to the same conclusion. Without a significant market expansion for NBCR coverage, the Federal Government must step in and provide coverage. 

Mr. Chairman, I cannot emphasize strongly enough how important TRIA is to our Nation’s economy, as you very well know, and 

I look forward to hearing from our very distinguished panel this 

afternoon. Thank you. 

Thank you. 

Chairman KANJORSKI. Thank you, Mr. Ackerman. Mr. Bachus? 

Mr. BACHUS. Thank you, Chairman Kanjorski. In the aftermath 

of the terrorist attacks on September 11th, this committee responded quickly and forcibly to stabilize the financial services marketplace and protect the economy. On the insurance front, within 

2 months of the attacks, the committee passed by voice vote the 

original Terrorism Risk Insurance Act, or TRIA. This legislation 

has been a great success over the past 5 years. Since its enactment, 

consumers have been generally able to obtain terrorist coverage, 

and harm to our economy by the unavailability of insurance, particularly in the commercial real estate sector, has been avoided. Insurers have been able to restore lost surplus, diversified risk exposures, and develop increasingly sophisticated terrorist-loss modeling. 

While the terrorist reinsurance marketplace has grown to nearly 

$8 billion, TRIA was intended to be a temporary program while the 

market recovered, and it was very carefully designed to require anVerDate 0ct 09 2002 17:13 Aug 08, 2007 Jkt 036819 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\36819.TXT HFIN PsN: TERRIE
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nual increases in the private sector responsibility with the corresponding reduction and the exposure to taxpayers. 

The private marketplace will always provide a more dynamic response than the Federal Government and we must continue to ensure that the Federal safety net of TRIA minimizes regulatory interference in the marketplace over time by government. When the 

original TRIA program was set to expire in 2005, our committee 

took the lead on legislation to extend the program, passing comprehensive TRIA reform by a bipartisan 64 to 3 vote in committee 

and 371 to 49 on the House Floor. This bill contained a number of 

critical reforms to TRIA to transform the safety net into a longer 

term program, which is essential. 

While we ultimately accepted a very short-term TRIA extension 

from the Senate without most of our reforms, as Congresswoman 

Pryce has said, members on both sides of the aisle in the House 

predicted we’d be back in 2 years, still in need of a long-term TRIA. 

Still in need of reforms and not that much further along in creating 

long-term stability for consumers, it will be a test of our leadership 

whether we can advance these reforms further with strong bipartisanship that has characterized this committee’s deliberation on 

TRIA for the past 6 years. 

Most Republicans are committed to this effort, if the committee 

continues to focus on building capacity in the private marketplace 

while slowly reducing Federal displacement and regulatory interference over time. Taxpayers must be fully protected. Consumers 

should be able to obtain market price coverage without gaps, and 

the program should address not only pre-event stability, but also 

post-event stability to protect the ongoing functioning of our economy. 

For example, last Congress’s TRIA extension legislation approved 

by the committee included a very slow increase in private sector retention over time, but with a reset mechanism that would significantly lower the deductibles and trigger levels in the event of another major terrorist attack. The reset mechanism is needed to promote post-event stability. Without it, the marketplace would inevitably pull back in the wake of a large-scale terrorist attack, jeopardizing consumers and our economy. The bill also incorporated a 

number of regulatory reforms to make commercial insurance more 

available, such as streamlining speed to market and surplus lines 

of availability. Taxpayers were protected by full recoupment and 

consumers received new protection for their most vulnerable risk—

nuclear, biological, chemical, and radiological coverage, the NBCR 

coverage. Insurers were able to set aside long-term terrorist reserves without tax penalties, again to promote post-event stability 

and those reserves could be barred as a temporary pool to reduce 

the Federal exposure over time. 

In conclusion, TRIA has worked well for our country, but it is a 

short-term program according to its original design. In considering 

legislation a place to program on a long-term footing, I would hope 

we can build on prior bipartisan efforts and produce a bill to both 

promote private sector innovation and protect taxpayers while providing long-term predictability and stability. 

Thank you, Mr. Chairman. 

6

Chairman KANJORSKI. Thank you Mr. Bachus. Mr. Meeks, you 

are recognized for 3 minutes. 

Mr. MEEKS. Thank you, Mr. Chairman. It is good to see you back 

in your seat, and I shouldn’t need the full 3 minutes, but we really 

want to thank you. 

We all know that the attacks of 9/11 brought about the need for 

the TRIA program, and since then, the city of New York has 

worked hard, very hard, to recover and rebuild not only the devastating loss of life that took place that day, but also from the catastrophic economic loss that New York City experienced. The 

amount of office and retail space lost on 9/11 in a relatively confined area of New York City exceeds that of some whole cities. 

If you knew the area around the World Trade Center before 9/

11 in the way that most New Yorkers did and then compared it to 

post 9/11, the post 9/11 neighborhood was practically a ghost town. 

Never had it been so clear what an economic engine that the World 

Trade Center had been, and we know that plans are currently in 

place to rebuild the World Trade Center site along with other continuous development efforts. However, those plans and efforts like 

it will be jeopardized if we let TRIA lapse, and uncertainty of insurance coverage makes debt- and equity investors ‘‘risk averse’’. 

Not only do we need TRIA to be in place, but it needs to be in 

place for, I would say a minimum of 10 years; 15 years would be 

even better. The financial marketplace loves stability, and any permanent financing of facilities must be accompanied by a surety of 

insurance coverage. Ten years of financing, accompanied by 2 years 

of certainty in insurance coverage just won’t work. And I hope that 

we do continue to work in this committee in a bipartisan manner 

so that we can show that we’ve gone to make sure that our businesses know that they will be able to obtain insurance. TRIA is tremendously important for New York City, but not only for New York 

City, I think for businesses throughout this country and this day 

and age that we live in. I look forward to hearing the testimony 

from the witnesses today and ultimately passing a bill that I believe will be truly bipartisan. 

Thank you, Mr. Chairman, and I yield back. 

Chairman KANJORSKI. Thank you, Mr. Meeks. Mr. Shays of Connecticut? 

Mr. SHAYS. Thank you. Just very briefly: this is a very important 

hearing, Mr. Chairman. Thank you for calling it. Thank you for 

being here today to call it, and I just want to say to you that I 

know all of our witnesses are very distinguished, but I have a personal friend, Lee Cotton, and I just want to thank him for being 

here. He is someone who knows this business through and through. 

So when you hear him speak, he speaks with a tremendous amount 

of experience, and he is very successful in his business, as well. 

I am eager to see that we have a period of time, at least 10 

years, where we don’t have to keep coming back to this legislation. 

I think that foreign attacks should be dealt with. Obviously, they 

are, but domestic as well. I think it should include group life as 

well. I do think there should be higher deductibles and I’m hoping 

that we’ll pay attention to all types of attacks: nuclear, biological, 

chemical, and radiological. I think these are issues that we need to 

address and I am going to apologize to the committee for giving a 

7

statement and then leaving. It’s not my usual practice, but we have 

the Tillman hearing and it’s a very personal hearing that I think 

I need to be back at. But thank you again for having this hearing. 

I’ll be eager to work with my colleagues to form a good bill. 

Chairman KANJORSKI. Thank you, Mr. Shays. Mr. Scott of Georgia? 

Mr. SCOTT. I want to join in welcoming you back, Mr. Chairman; 

it’s good to have you back. Terrorism is the most significant risk 

facing our Nation’s economic security today. The 9/11 attacks were 

a decapitation strike. They cut off the heads not only of our civilian 

and military leadership, but very significantly our financial leadership in the world. So a successful campaign against these radical 

ideologues requires a very definitive national strategy that includes 

plans to provide a backstop against possible massive insurance 

claims. And since terrorism is less predictable and possibly more 

severe than other catastrophes, it is necessary for the Federal Government to ensure that insurance remains available if the private 

market is not doing so. And if the private market cannot do so, 

Congress has passed a limited extension of TRIA through 2007 and 

I believe that Congress must work to provide a meaningful extension of TRIA while creating a long-term market-based solution to 

this problem. And I furthermore believe that the people inside the 

buildings, the lives of the people need to also be insured, and, 

therefore, I support the inclusion of group life insurance in TRIA. 

Thank you, Mr. Chairman. I yield back. 

Chairman KANJORSKI. Thank you, Mr. Scott. Mr. Garrett of New 

Jersey? 

Mr. GARRETT. Thank you, Mr. Chairman. I also wish you continued good health as you come back with us. 

I recently attended the TRIA field hearing the committee held in 

New York City. I thought it was a very productive hearing and focused on the issue that is important in New York and also the 

Fifth District. After the attack of 9/11, terrorism risk insurance either became unavailable or extremely expensive, and that was a 

problem not only for the insurance industry, but also for real estate, transportation, construction, energy, and utility sectors. So realizing this problem, Congress acted, and passed the first TRIA Act 

of 2002. And of course we then extended it for another 2 years, 

adding up the time additional reform to make it better. 

Now, since September 11th, insurers and reinsurers have cautiously, and I’d say responsibly, re-entered the market, allocating 

more capacity year-to-year, and more commercial policyholders are 

becoming insured year-to-year as well. At the same time, on the 

up-side, the Federal role has scaled back year-to-year with higher 

deductibles, higher co-payments, higher triggers and fewer lines of 

insurance covered, and I view this private sector involvement in decreased government exposure to be a positive development. Now, 

I’ve read a number of comments and quotes in the media, and hear, 

as well, recently from individuals who want to see TRIA become a 

permanent program or extended up to 20 or 30 years. 

If we do that, I have concerns that we will not revisit this important topic as we just don’t and continue to try to make improvements, like we just recently did, after that long length of time. A 

short-term extension allows for periodic reassessment of the marVerDate 0ct 09 2002 17:13 Aug 08, 2007 Jkt 036819 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\36819.TXT HFIN PsN: TERRIE
8

ket conditions to see if there is more room for private sector participation and also allows for a gradual scaling back of the program 

going forward as we observe how private insurers and reinsurers 

continue to respond to the market. Given that the private sector 

continues to increase its capacity, I do believe that a shorter term 

extension is more appropriate than creating a very long-term or 

permanent program. 

I am really concerned that if we establish such a program, the 

private sector will lose some of the incentive that they have to look 

for the innovative things they’ve done, and new solutions. And the 

Congress also will lose our ability to step in and make the further 

reforms that we did, just a couple of years ago. So, again, I appreciate the focus of this hearing and the other hearings that we’ve 

had previously and I ask that we consider the possibility that Congress remain involved with this as the program goes forward. And 

with that, I yield back. 

Chairman KANJORSKI. Thank you, Mr. Garrett. 

Are there any other members who wish to make a statement? I 

see no response. We have an unusually good panel today, six members, and we are going to try and move through them. I just want 

to say that we are anticipating votes, so we are going to take the 

opening statements, and then as soon as the votes ring, we will go 

into recess and return to take the remaining statements. 

And to all the members of the panel, now I say without objection, 

your written statements will be made part of the record. You will 

each be recognized for a 5-minute summary of your testimony, so, 

we would appreciate it if you would hold to that 5 minutes, or you 

can go on the light side. 

Our first witness is Mr. Leonard Cotton, vice chairman of Centerline Capital Group, and a friend of Chris Shays. 

STATEMENT OF LEONARD W. COTTON, VICE CHAIRMAN, CENTERLINE CAPITAL GROUP ON BEHALF OF THE COMMERCIAL MORTGAGE SECURITIES ASSOCIATION (CMSA) 

Mr. COTTON. Yes, that is true. Thank you, Subcommittee Chairman Kanjorski and Ranking Member Pryce. I also see Chairman 

Frank and Ranking Member Bachus, from the full Financial Services Committee. 

Thank you for having us here today. As stated, my name is Lee 

Cotton, and I am vice chairman of a company called Centerline 

Capital Group. Excuse me, we just changed our name. One of the 

Nation’s leading real estate lenders and investors, I have been in 

the real estate business for about 35 years, and I am happy to have 

the opportunity to come and talk to you today. I am also the president-elect of the Commercial Mortgage Securities Association, otherwise known as CMSA, and it’s in that capacity that I speak 

today. 

CMSA is an international trade group representing the collective 

voice of the capital markets for real estate around the world, primarily in the United States most recently. Our membership has included 400 financial institutions and thousands of individual members. We are a very broad and diverse group. The thing that distinguishes us from most trade groups is that we are vertical in the 

sense that we have everybody involved in our business in one 

9

group. We have the lenders, the people who securitize the loans, 

the people who service them, the people who are the trustees for 

them and the investors. So, everybody involved in commercial 

mortgage securities is part of our group. Our primary mission has 

been and continues to be to promote the ongoing strength and liquidity and viability of the commercial mortgage market. 

As you may know, commercial mortgages are now securitized. 

Approximately 40 percent of those mortgages made last year were 

in fact securitized and almost all of them are available to be 

securitized or sold into the market. In essence, we have brought liquidity to the marketplace and broader expansion of capital available to the real estate industry. Last year, over $200 billion of 

mortgages were securitized, almost 40 percent of the mortgages 

made last year. The mortgages are in every county in the country. 

Our own portfolio, I think, covers almost every county in the country, and the portfolios of the whole industry today exceed $750 

billion. With an average loan size of around $8 million, and an average maturity between 7 and 12 years, we are the lenders in the 

room, so to speak, and we care about the viability and the sustainability of all of those assets. There are thousands and thousands 

of assets around the company. 

We’d like to thank you for the hard work that this committee is 

doing on TRIA and its extension. We appreciate your efforts and 

we are here to support that extension, obviously. We had hoped 

that a private market would fill in. It hasn’t. We don’t think it’s 

necessarily viable fully to be filled in, because it’s an event that is 

unpredictable, unlike possibly even a hurricane. It’s critical to the 

policyholders who are our clients. Remember, we’re the lender, the 

policyholders are the borrowers. The borrowers own property and 

they borrow money from us. It’s critical to them that they have this 

insurance, not only for the protection of their properties, but for the 

stability of the capital markets. Think, if you will, of those $750 billion plus mortgages all being 

in technical default as a result of no insurance on their buildings. 

What would that do to the stability and the viability of the capital 

markets? That’s the issue that we’re here to talk to you about. An 

interesting statistic for you, the CMSA, or the CMBS business for 

which the CMSA represents, has grown steadily from about a $4 

billion business to the aforementioned $750 billion plus. The only 

time we had a reduction in issuance and a reduction in mortgages 

made was in the year 2002. It was a very steady climb. It stalled, 

and then it has come back into business. I credit TRIA for a lot of 

that reestablishment of stability. Simply put, the real estate markets around the country impact the economy around the country. 

The ability to attract capital that is stable and is available is important to the entire economy, not just the people who own the 

properties or those of us who own the mortgages on those properties. To that extent, we would recommend a TRIA extension for 

as long as is practical. Permanent is fine, but for as long as is practical. 

We would like to eliminate the distinction between foreign and 

domestic, as has already been stated, and we also believe that 

there should be an extension or an inclusion of radioactive and biological and nuclear as part of the coverage. 

10

Thank you very much for the time today. We are looking forward 

to a timely extension of this Act. Thank you, very much. 

[The prepared statement of Mr. Cotton can be found on page 54 

of the appendix.] 

Chairman KANJORSKI. Next witness, Brian Dowd, CEO, Insurance-North America, ACE Group. 

Mr. Dowd. 

STATEMENT OF BRIAN E. DOWD, CHIEF EXECUTIVE OFFICER, 

INSURANCE-NORTH AMERICA, ACE GROUP, ON BEHALF OF 

THE AMERICAN INSURANCE ASSOCIATION 

Mr. DOWD. Thank you, Chairman Kanjorski, Ranking Members 

Pryce and Bachus, and Chairman Frank. I appreciate the opportunity to be here today on behalf of both ACE and the American 

Insurance Association. 

My name is Brian Dowd, and I am the CEO of ACE’s operations 

in North America. ACE is one of the largest property and casualty 

insurers in the United States and we operate in virtually every 

State in the United States. I started in the industry as a property 

underwriter, and my first exposure to terrorism risk was really the 

bombings in the United Kingdom in the late 1980’s and early 

1990’s. I remember thinking of risk for terrorism largely as a European and a Latin American event. You know, as time has gone by, 

the tragic events in Oklahoma City and both World Trade Center 

events, our perception of the risk as an industry has changed to encompass clearly the United States. 

I have been involved with ACE’s Management of Terrorism Risk 

as well as public policy discussions throughout our industry since 

9/11. First, let me say that the original TRIA was in fact a tremendous success. The availability and affordability of terrorism insurance has grown each and every year and has helped the economy 

in many, many ways. With all the technical information that is 

being discussed regarding TRIA and extensions, I thought I would 

spend a few minutes just talking about some practical matters that 

insurance companies think about with how much risk to take on. 

And essentially, we have a three-step process in how much risk we 

are willing to take. 

You know, essentially it starts with talking to our customers. 

What is the demand for a product? We design a product and we 

look at what the risks are. We try to decide how much capital we 

would risk based on what the profitability and the downside risks 

are. The second step is we generally look at can we measure in a 

mathematical way what those risks are? Can we accumulate the 

data and in some way control how much we underwrite? 

And, third, we generally buy reinsurance to protect those risks 

so that we can operate and continue in a stable environment. Terrorism creates some challenges in our traditional three-step method. You know, first, clearly our customers have a desire to buy terrorism insurance and they have a willingness to pay. However, the 

amount of risks that insurers take on as regards to terrorism insurance isn’t our choice, based on how much of our earnings, our 

capital we are willing to risk. It’s actually mandated by the TRIA 

Act. 

11

The original retention of the original Act was 7 percent. Generally, 7 percent of our direct-earned premium is basically within 

the underwriting guidelines and most appetites of most commercial 

insurers. Today, the retention is 20 percent and has an additional 

15 percent coinsurance. For ACE, that translates into over $1 billion worth of deductible, as it is commonly referred to. 

By comparison, the amount of deductible or retention I take for hurricane or earthquake is only $250 million. The second step is, 

you know, most insurers today are spending more time gathering 

information and in fact attempting to model the risk. And essentially, what we are doing is deterministic methodology of looking at 

it. We are looking at an event, but one of the core pieces of information that we look at and decide how much we are going to risk 

is what is the probability of that event occurring, and no one has 

developed the model today that brings that into impact. 

And third, generally, reinsurance is available for most types of risk we take. I think as Ms. Pryce said, there is about $8 billion 

worth of reinsurance available, which has grown. But it’s still far 

below the demand of what the insurers would like to buy to protect 

their deductible in the situation. With all that said, I think the 

P&C industry generally has found a comfort zone with conventional terrorism in the United States, and what they’ve done is essentially underwritten risk at below their full deductible level. 

Most companies aren’t actually writing as much insurance to fill 

their deductible today. 

Terrorism insurance as it relates to NBCR is an entirely different story. 

Step 1, there is a clear customer need. Our customers are crying 

out for the cover. Today, only one product covers it—worker’s compensation—and frankly that’s because statutes require it. You actually have an unwilling seller. Most insurance companies don’t want 

to sell NBCR for worker’s comp; we are mandated to do so. 

Step 1, our ability to determine and measure the size and probability of the loss, is severely limited when it comes to NBCR. 

We’ve seen estimates that range anywhere from hundreds of billions of dollars to trillions of dollars on what the impact of a loss 

can be, and both the magnitude and duration of the claims could 

last over 30 years, so it is very difficult for us to price for that risk. 

Step 3. Virtually no reinsurance today exists for this risk. And 

when we think about these three items together and the current 

retention of 20 percent and the 15 percent co-insurance taken at 

NBCR, our risk is clearly an untenable situation for most insurers. 

We do believe that if the right provisions were mandated, NBCR 

could be available at a separate retention at a much lower level. 

Finally, the last thing I’d like to mention is the $100 billion cap 

that’s in the program. Currently, the statute provides that the financial responsibility ends once losses reach $100 billion. It’s neither the Treasury’s nor the insurer’s responsibility. Congress will 

then decide how to deal with it. This is an impractical situation for 

the customer, for the Treasury, and in fact insurers, to leave that 

up in the air. 

It puts us in an untenable position of saying, as claims have already incurred, to somebody who’s bought a policy, that potentially 

they won’t get a recovery because the cap has been reached, and 

12

it really is uncertainty that we need to remove in the future on this 

program. We need to face the reality of that situation now so we 

can plan for it and be prepared. The Federal program should clearly pay the losses in the situations where the losses due to NBCR 

terrorism exceeds the cap. 

I’ve tried to spend my time focusing on the practical aspects of 

managing terrorism from a public policy perspective. We believe 

TRIA has worked to address the availability and state-wide marketing economy. The program not only must continue, but it should 

also be modified to better address the daunting challenge of NBCR 

closest to the insurance system and the economy, et al. We appreciate the opportunity to testify, and we’re happy to take any of your 

questions. Thank you. 

[The prepared statement of Mr. Dowd can be found on page 88 

of the appendix.] 

Chairman KANJORSKI. Thank you very much, Mr. Dowd. 

We are going to sneak you in Ms. Abraham, if that is all right. 

Can you hold to 5 minutes so we can make the vote? 

Okay, well, Janice Abraham, president and CEO of United Educators. 

STATEMENT OF JANICE M. ABRAHAM, PRESIDENT AND CEO, 

UNITED EDUCATORS INSURANCE, A RECIPROCAL RISK RETENTION GROUP 

Ms. ABRAHAM. Thank you, very much, Chairman Kanjorski, and 

Ranking Members Pryce and Bachus. I appreciate very much, 

Chairman Frank, the opportunity to be here. My name is Janice 

Abraham and I am president of United Educators. Given your 

healthy skepticism on risk retention groups as part of this hearing, 

I appreciate—I am president of a risk retention group, and I speak 

to you today on a policy option to consider, as with the extension 

of TRIA. 

I am representing United Educators, a risk retention group. We 

have 1,200 schools, colleges, and universities as members of United 

Educators. They range from MIT to Penn State, Stanford University, Purdue, Miami University, University of Scranton, public 

school districts in Ohio, California and New York, and hundreds of 

schools throughout the country. 

I am also representing various associations and business interests that have an interest in the extension of TRIA and finding a 

strong public/private partnership going forward. We strongly support the extension of TRIA and suggest authorizing risk retention 

groups to issue property coverage in addition to the liability coverage that we currently offer. We think this will be a strong public/

private opportunity for a solution going forward. 

Over 20 years ago Congress, with great wisdom and foresight, 

passed amendments to the Risk Retention Act that allowed businesses and nonprofits with similar interests to join together to 

share liability risks. There was an insurance crisis in 1980 and 

Congress wanted to find a way to add capacity and competition to 

the liability insurance market. Risk retention groups now serve a 

wide range of businesses and nonprofits, including educational institutions, large and small law firms, churches, nonprofit agencies, 

healthcare providers, and manufacturers. As a risk retention 

13

group, United Educators is owned by and governed by our 1,200 

educational institutions. Our policyholders are our owners and they 

share their risks with each other and make significant investments 

in risk management and loss control, to try to keep their students 

and employees safe and their campuses safe. 

As Congress explores policies options for extending the public 

private partnership in providing terrorism insurance, I think the 

successes of the Liability Risk Retention Act could be a model for 

you to consider that can add capacity and stability to this volatile 

market. Expanding the Liability Risk Retention Act to include 

property insurance with an extension of TRIA creating a long-term 

role for the government as a backstop or reinsuring our terrorist 

risks will allow businesses and nonprofits to pool our resources, to 

share our risks and our risk management lessons, to purchase reinsurance and with the long-term stability of TRIA be a reliable, 

committed source of capacity for both property and liability risks. 

Now, I want to be careful today not to oversell this for risk retention groups. Risk retention groups only comprise approximately 3 

percent of the liability commercial insurance market, but it’s an 

important 3 percent. At United Educators, we cover the risks that 

most others are afraid to cover: sexual molestation; tenure disputes; dealing with students with severe mental health issues; and 

catastrophic athletic injuries. These are some very challenging 

risks, and the risks for educational institutions of potential terrorist targets are real. 

Our schools and universities represent the very best of this country. Our campuses are open and accessible. Debate and free exchange of ideas are encouraged. A lot of people gather on our campuses for commencement, for football games, for Presidential debates. And some of the most important and dangerous research, 

that is very important to this country and supported by the Federal 

Government, is done on our campuses. In fact, the experts say that 

our campuses are ‘‘soft targets’’. A long term commitment from the 

Federal Government to be a partner with private industry in providing the high limits that we need—our campuses need—for terrorism insurance and extending the Liability Risk Retention Act so 

that we are able to offer property insurance is a creative and sound 

option to allow businesses and nonprofits the chance to help themselves. These two actions will add capacity and increase competition. 

That’s a good thing. These mega risks require long-term commitments and extensive planning and investments. Risk retention 

groups are ideally suited to filling this void for select groups. They 

are owned and governed by their members. The interests are in 

mind and it’s matching the long-term horizon that this kind of risk 

calls upon us. 

Thank you very much for the opportunity to speak with you 

today. 

[The prepared statement of Ms. Abraham can be found on page 

45 of the appendix.] 

Chairman KANJORSKI. Thank you very much, Ms. Abraham. 

Members of the committee, we have five votes pending now. We 

anticipate that votes will run until 3 p.m., so I am going to put the 

committee in recess until then, but I urge the members to return 

14

as soon as possible, because we do have time constraints and we 

are limited on the hearing until 4 p.m. As you have noticed, we 

have some powerful members of the panel, and we certainly want 

to extract from them their best information. 

So, with no further adieu, we will recess until 3 p.m. 

[Recess] 

Chairman KANJORSKI. Our next witness is Joseph P. Ditchman, 

Jr., Partner, Colliers Ostendorff-Morris. 

Welcome to the subcommittee. 

STATEMENT OF JOSEPH P. DITCHMAN, JR., SENIOR VICE 

PRESIDENT, COLLIERS OSTENDORFF-MORRIS, ON BEHALF 

OF THE NATIONAL ASSOCIATION OF REALTORS, AND THE 

COALITION TO INSURE AGAINST TERRORISM (CIAT) 

Mr. DITCHMAN. Thank you, Mr. Chairman, and Ranking Members Pryce and Bachus. Mr. Chairman, I’d like to extend my personal best wishes on your health and my hope that you recover 

soon. 

My name is Joseph P. Ditchman, Jr., and I am a partner in the 

commercial real estate brokerage firm of Colliers Ostendorff-Morris 

located in Cleveland. I am a member of the National Association 

of Realtors and am appearing today on behalf of the Coalition to 

Insure Against Terrorism, more formally known as CIAT. This coalition is represented by the National Association of REITs, the national chambers of commerces, and many other organizations. This 

coalition represents a broad range of businesses and organizations 

from across key sectors of the U.S. economy; businesses that are 

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

NAR commercial members are involved in all aspects of commercial real estate. Our members broker commercial transaction, identify tenants, manage properties, and advise property owners. The 

availability of terrorism insurance touches every aspect of our industry. Terrorism insurance is often categorized as only an insurance institute. With respect to that, we believe terrorism insurance 

is vital to the national economic security of this country. It insures 

the businesses of individuals who own and manage real estate in 

which we live, work, and play—vital pieces of coverage that are so 

important to their survival. It is also an issue of protecting the investment of those pensioners, the shareholders, the bond holders, 

and individuals across the country who are the owners of that real 

estate. 

Since Congress worked hard to find the solution to the economic 

risk associated with terrorism, terrorism insurance laws is a solid 

step forward and we cannot lose it. But TRIA, as you know, is set 

to expire in less than 8 months. Consumers now in the marketplace 

are being told that they may not be able to get terrorism insurance 

for next year or that they will be repriced out of the market. This 

hearing recognizes the essential facts that have not changed from 

the congressional enactment of TRIA in 2000. 

Terrorism continues to be, at best, an unpredictable threat. But, 

at worst, as we all know, is a catastrophic event and staggering 

losses. The insurers continue to say that terrorism risk is uninsurable, yet, our economy depends on the helping hand of terrorism 

15

insurance to maintain the critical services that safeguard our Nation in the event of a terrorist act. That is why our support is market-oriented. But absent the current Federal program, there has 

never been a true market for terrorist risk insurance. There is no 

evidence a market will develop to provide the capacity that the 

American economy needs. Because of this, Congress must act soon. 

We believe our Nation is best served with a viable long-term solution. In fact, we believe it should be permanent. While TRIA has 

been successful, there are some availability problems. For example, 

New York, a high-risk, major market in an urban area with ‘‘fire 

following’’ laws combines the aggregation of risk, high retention 

rates for the insurers, and rating agencies’ pressures on the insurance companies. This causes capacity problems for the conventional 

terrorism coverage. 

In other words, some market businesses still cannot buy necessary levels of terrorism insurance. Even in my home City of 

Cleveland, I have seen significant increases in terrorism insurance 

in the office buildings that I personally own. However, the Government Accountability Office and the President’s Working Group on 

Capital Markets have issued reports confirming that no meaningful 

amount of insurance against loss from nuclear, biological, chemical 

or radiological events, known as the NBCRs, is available in the 

property market today. Notwithstanding that TRIA backstops this 

insurance, we stand ready to work with this committee and Congress to find the proper long-term solution to the problem. 

To that end, CIAT has jointly developed, with the American Insurance Association, a set of joint principals that we believe should 

be part of any TRIA modernization. For conventional terrorism attacks, we recommend leaving in place the TRIA backstop. With the 

insurer’s deductibility, industry retention levels, and the program 

triggers at the 2007 level, we would also leave the current makeavailable provisions as it is for the conventional terrorist coverage. 

The NBCR terrorism risk is a different matter. To make sure 

that businesses have access to this important coverage, we urge 

that NBCR perils be added to the make-available requirements 

under TRIA and to recognize that insurers cannot model this risk 

or price it either. We support a separate and lower insurer’s deductibility and a lower co-pay with respect to the NBCR’s risk. This 

legislation should clarify that the Federal Government is ‘‘solely 

liable’’ for the NBCR terrorism losses above the insurer’s individual 

NBCR retentions, thus encouraging insurers to provide more capacity. 

Finally, we support removing the distinction between foreign and 

domestic terrorism in the current definition of the act of terrorism. 

As the London bombings demonstrate, there are serious difficulties 

distinguishing between foreign and domestic terrorism and the distinction makes no difference to the victims. 

In conclusion, we believe that the proper long-term solution 

should focus on a private market, having been unwilling or unable 

to do so. The ideal solution must enable businesses to purchase insurance for the most catastrophic, conventional terrorism risk. It 

must provide adequate insurance capacity in high risk urban areas. 

It must provide meaningful insurance against the so-called NBCR 

risk. An ideal program would seek, over time, to reduce the Federal 

16

role in the conventional terrorism risk market while maximizing 

the long-term, private capacity by facilitating entry of new, private 

capital. 

I’d like to thank you on behalf of our group, and I appreciate the 

opportunity to have spoken today. 

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

67 of the appendix. 

Chairman KANJORSKI. Thank you, very much, Mr. Ditchman. 

Mr. DITCHMAN. Thank you. 

Chairman KANJORSKI. Our next witness will be Tom Watjen, 

president and CEO of Unum Group. 

STATEMENT OF THOMAS R. WATJEN, PRESIDENT AND CEO, 

UNUM GROUP, ON BEHALF OF THE AMERICAN COUNCIL OF 

LIFE INSURERS (ACLI) 

Mr. WATJEN. Thank you, Chairman Kanjorski, Ranking Member 

Pryce, and members of the subcommittee. My name is Tom Watjen 

and I am president and chief executive officer of Unum Group. 

Unum is, among other things, the fourth largest writer of group 

life insurance, including accidental death and dismemberment, in 

the United States. We insure approximately 8 million lives and 

provide over $800 billion of group life and AD&D coverage. 

I am here today on behalf of the American Council of Life Insurers. The ACLI is the primary trade association of the life insurance 

industry, representing 373 member companies that account for 93 

percent of the industry’s total assets in the United States. I would 

like to thank the committee for holding this hearing. Your committee has had a proven track record of supporting group life insurance coverage within TRIA, and we remain grateful for your sincere efforts and consideration of this issue. 

While much of the ongoing discussion on extending the TRIA 

program has focused on property casualty insurance, it is also important to discuss how this issue affects the life insurance industry, 

particularly with regard to group life insurance. We believe that 

the individuals who work or reside inside our Nation’s buildings 

should be adequately covered as well. 

Group life insurance is a critical component of a standard employee benefit package. For millions of Americans, especially lower 

income workers, it is the only life insurance that their families 

have. In 2005, there were about 167 million group certificate holders with an average coverage amount of $49,500. Due to the nature 

of the coverage, group life policies have a very high concentration 

of risk. Members of an insured group are often gathered in single 

locations and live near their work places. A single catastrophic 

event can cause many or all of them to die at one time. 

While the life insurance industry as a whole would be able to absorb tens of billions of dollars in death claims resulting from a catastrophic attack, those insurers that receive an unexpectedly high 

number of claims could be forced into insolvency. Such insolvencies 

would impact payments to beneficiaries at their time of need. They 

would also impact the payment of benefits to all the policyholders 

of insolvent companies, not just the group life insurance policyholders. 

17

Group life policies are designed to provide simple, affordable protection for average Americans. They are not designed or priced to 

account for the immediate deaths of thousands of people from a terrorist attack. Group life insurers could protect themselves from the 

terrorist risk exposure, either by excluding coverage for deaths due 

to terrorism, or by purchasing catastrophic reinsurance protection. 

However, neither Unum nor the ACLI are aware of any States, except for Kansas and North Carolina under very limited circumstances, that allow the use of terrorism exclusions by life insurers. 

Furthermore, we do not believe it is good business or good public 

policy, frankly, to exclude the coverage for deaths due to catastrophic events such as terrorism. Since exclusions are therefore 

not a viable solution, insurers must turn to catastrophic reinsurance for protection. While such reinsurance has become more available since 9/11, it comes with higher deductibles, various exclusions 

and most importantly with overall coverage limits that are lower 

than were available prior to 9/11. 

Without adequate catastrophic reinsurance, many life insurers 

risk financial ruin from a significant terrorist attack. We believe 

that catastrophic reinsurance would become more available if group 

life were included in the TRIA extension. This additional reinsurance capacity would significantly reduce the risk of insolvency that 

many group insurers face in the event of a large-scale terrorist attack. 

If TRIA is extended again, and group life is included, we urge 

that a separate recoupment mechanism be created for property casualty and group life insurers. Recoupments of amounts paid by the 

Treasury for losses relating to P&C insurance should only be made 

by P&C insurers. Similarly, recoupment for losses relating to group 

life insurance should be only made by group life insurers. 

We look forward to working with your committee and others in 

Congress, at the Treasury, and in the Administration, to ensure 

that group life remains available to millions of Americans who depend on it and that this vital protection is there when it is needed 

most. 

Thank you for providing the opportunity to share our views now 

and we certainly look forward to having a chance to answer your 

questions at the appropriate time. 

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

of the appendix.] 

Chairman KANJORSKI. Thank you very much, Mr. Watjen. 

Our final panelist is Vincent Donnelly, president and CEO, PMA 

Insurance Group. 

STATEMENT OF VINCENT T. DONNELLY, PRESIDENT AND CEO, 

PMA INSURANCE GROUP, ON BEHALF OF THE PROPERTY 

CASUALTY INSURERS ASSOCIATION OF AMERICA (PCI) 

Mr. DONNELLY. Thank you, Chairman Kanjorski, Ranking Member Pryce, and members of the subcommittee. Thank you for the 

opportunity to testify before you today regarding the terrorism risk 

insurance program. 

My name is Vincent Donnelly and I am the president and CEO 

of the PMA Insurance Group, which is a member company of the 

18

Property Casualty Insurers Association of America, PCI, representing more than 1,000 member companies. I am testifying 

today on behalf of PMA and PCI. 

I am pleased to be here this afternoon to share my perspective 

on the uniqueness of the risk that terrorism presents to our economy, resulting in the need for the Federal Government to continue 

to play a major partnership role with the property and casualty insurance industry. Furthermore, the partnership role needs to be 

sensitive to the unique characteristics of small- and medium-size 

insurers when considering the key elements of the continuation of 

TRIA. 

The PMA Insurance Group is headquartered in Blue Bell, Pennsylvania, and has been underwriting commercial lines of insurance 

for over 90 years, with worker’s compensation business producing 

about 84 percent of our premium. Our total 2006 written premiums 

was $430 million, placing PMA within the parameters which the 

insurance industry would consider to be a small- to medium-size 

insurer. In the nearly 5 years since its inception, TRIA has become 

an essential part of our Nation’s preparedness for responding to 

acts of terrorism. As Congress debates its continuation, we ask that 

you will consider the importance of TRIA in making it possible for 

small- and medium-size insurance companies to play its role in protecting the American economy. 

I believe there are several basic principles that most of us here 

today can agree upon. One, without this program, the randomness 

and catastrophic risk associated with terrorist attacks pushes terrorism outside the realm of insurability. It is not possible for the 

insurance industry to calculate the probability of loss, nor to determine a reasonable range of outcomes. 

Secondly, participation in this effort by the Federal Government 

is necessary, especially when it’s apparent that the threat of terrorism has not abated. In effect, the Federal Government is in the 

best position to be the ultimate risk manager for handling this exposure to loss of life and property. 

Third, a response by insurers to terrorism losses resulting from 

an event that occurs in New York City, here in Washington, D.C., 

or near my company home town of Philadelphia has financial implications that are widespread and extend to all policyholders who 

are depending on an insurer’s capital and surplus to respond to 

their everyday losses. All acts of terrorism should be covered by 

TRIA and the Federal Government’s participation should not be 

limited to only foreign-motivated terrorist attacks or to certain 

types of attacks (i.e., NBCR). 

Let me now address the specific concerns that are particularly 

important to small- and medium-size insurers, all of which are 

even more acute for worker’s compensation insurers who are challenged to manage the uniqueness of terrorism risk. Many smalland mid-size insurers are regional in nature, serving both niche 

markets and tightly defined markets, as well as a broad spectrum 

of employers across the country in many of the States that are represented on this subcommittee. They insure a variety of businesses, 

some small and some large. Indeed, 94 percent of companies writing TRIA policies are small- and medium-sized (as defined by total 

19

premiums less than a billion dollars) representing a quarter of the 

Nation’s total TRIA lines. 

So, as you consider the extension of TRIA, I believe it is important for you to consider the impact that two key elements have on 

the competitive landscape of the insurance industry. First, a higher 

program trigger (the point at which the program kicks in) increases 

the number of insurers whose capital is in jeopardy. Already, at today’s trigger of $100 million, 75 percent of insurers—all of whom 

are small- and medium-size companies—have total capital below 

that level. In effect, TRIA provides no protection. 

Just to give you an example, suppose there was a terrorist attack 

on a business resulting in 100 employee death claims in the State 

of Pennsylvania. That could result in $75 million in worker’s compensation benefits that would have to be borne entirely by the insurer. Needless to say, no insurer can endure the risk of any single 

loss that can wipe out its entire capital base. In order to manage 

the risk of the magnitude on a going forward basis, small- and medium-size companies may be required to reconsider their risk appetite, an outcome that could potentially limit the access of businesses to a wider range of choices and a robust, competitive market. 

The second aspect is the deductible. A high TRIA deductible 

means that a greater proportion of the terrorism loss is paid by the 

insurance company, putting more of its capital at risk. This threatens solvency for smaller and mid-size insurers to a greater degree. 

And while I cannot speak this afternoon for the rating agencies’ position on this issue, I do believe that the impact of TRIA’s deductible and trigger requirements upon future financial performance 

has become a greater focal point in their evaluation of individual 

insurers. 

The characteristics that make terrorism a unique, and even more 

importantly an uninsurable risk, are as present today as they were 

after the events of September 11th. It is essential that the Federal 

Government continue to be a long-term partner with the insurance 

industry in addressing the potential economic effects of terrorism. 

In designing the program, the economic interest of all market participants needs to be balanced, yet with special recognition that the 

small- and medium-sized insurers are essential to the health of the 

insurance market and, as such, the economy as a whole. 

The size of the program trigger and the deductible retained by 

insurers needs to promote a robust market for the consumers that 

it serves. I want to thank you for giving me the opportunity to 

share our perspective this afternoon. 

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

78 of the appendix.] 

Chairman KANJORSKI. Thank you, very much, Mr. Donnelly. 

And now for the record I ask for unanimous consent to have two 

statements, one by the American Bar Association and the other by 

the Risk and Insurance Management Society, entered into the 

record and made a part thereof. 

It seems to me that we have almost unanimous agreement on the 

panel that we should continue TRIA, which is not surprising. But 

it is surprising in terms of the fact that there seems to be a strong 

indication that you prefer an extension for a longer period of time 

20

rather than a shorter period of time and some permanency to the 

program. 

Is that to indicate from your statements that you have concluded 

that the private market will never come back to fill this vacuum? 

Do you believe it its really a government program from now on and 

that we should treat it as such? 

Mr. DITCHMAN. Mr. Chairman? 

Chairman KANJORSKI. Yes. 

Mr. DITCHMAN. Mr. Chairman, we believe strongly, CIAT believes strongly, that it is very difficult to handle that type of magnitude of issues and it really belongs in the hands of the Federal 

Government to handle, certainly, the NBCRs, but when one looks 

at business and handles when one buys a mortgage or gets a mortgage, they get 15 to 25 years, depending on what the terms are. 

Companies need surety; they need clarity; they need some safety 

level. And if—over some period of time they need to know how that 

process can fare, so I would say longer is better—15 to 25 years. 

Chairman KANJORSKI. It does not create any fear on your part 

that this is the camel’s nose under the tent, if you will, and that 

we can make the same argument about catastrophic insurance? 

Can you make the same argument about size of coverage, that 

maybe some companies and some markets just aren’t capable. Certainly, you could make the argument, if you wanted to make workmen’s compensation uniform among the 50 States, that it would be 

justified to turn that program into a totally Federal program. 

What is stopping that effect? 

Mr. DONNELLY. Mr. Chairman, if I could add my thoughts on 

that, I believe, as I said in my remarks, that this is a very unique 

exposure, and in my opinion uninsurable, and I believe probably 

forever it will be uninsurable. But I think when you balance the 

fact of that issue with also the need to have more stability in the 

market so that we’re not looking at this issue every 2 or 3 years, 

there does need to be a fair amount of time for it to evolve and to 

see if there are changes and to look at some of the parameters of 

the program, to look at what does happen in the marketplace. The 

world does evolve. 

So, I echo some of the other comments that were made, is that 

probably looking at something that is similar in the 10 to 15 years, 

so that there is some permanency in terms of the market being 

able to react in a stable fashion to dealing with this, both for worker’s compensation and non-comp. The fact that this is unique is a 

very important point that I made today and, I want to emphasize 

again that terrorism is unlike any other risk that I can think of, 

that we deal with. It is the uninsurability of terrorism that puts 

this on sort of an island by itself when you evaluate this particular 

exposure. 

Chairman KANJORSKI. So, you don’t see the private market having the flexibility to find a way to solve that problem? 

Mr. DONNELLY. I think I certainly don’t see that in the shortterm, and even when I look out further, sir, because when I think 

of insurability, I think of the need, the ability to predict loss, the 

frequency of loss, and the ability to measure that loss. I don’t see 

either of those issues here. 

21

And the third issue is, and I mentioned it in my comments, at 

the end of the day I believe the Federal Government is ultimately 

the risk manager. I’ll give you an example: in worker’s compensation, over the last 15 years, what we’ve seen is the frequency of loss 

change over time and decline. And it has declined because of the 

risk management techniques that have been brought to bear with 

respect to worker’s compensation and potential injuries, by manufacturers, by insurance companies, by consultants, and so forth. 

Those three elements, the ability not to predict loss, not to be 

able to measure loss, and the fact that the government is ultimately the risk manager, puts this in a unique, I think, in a very 

unique picture, and I don’t foresee, as I look out in my crystal ball, 

the ability for any of those three things to change. 

Chairman KANJORSKI. Yes? 

Mr. WATJEN. Mr. Chairman, if I could just add the group life perspective a little bit, because this is certainly a new piece to the discussion around TRIA, not for this committee, but more broadly 

around the inclusion of group life. 

Similar characteristics: it is very difficult to predict and price the 

terrorism act into your group life pricing; and, in fact, if you tried 

to do so, I had almost postured the fact that the employer may not 

actually offer that coverage to their employees, which very much is 

contradictory to good public policy right now. As I said in my comments, oftentimes the only place an individual employee can actually acquire group life or any life insurance coverage is in the work 

place, and what we don’t want to do is to create an atmosphere 

where the employer is no longer incented to provide that coverage, 

because the cost is too high. So, again, it is very difficult to price 

that into the product, given the randomness of the events. 

The second thing I’d point to is that actually since 9/11, we’ve 

really not seen a material amount of capital come back into the industry in the form of reinsurance coverage, because—again, for 

those very same reasons. So, even though there is a lot of capital 

out in the marketplace looking for a place to find a home, it’s actually not migrating to the reinsurance business in terms of covering—group life coverage. And so again this is where I do believe 

there is a more active involvement of the government. It is very essential for us to have some stability, create some sense of comfort 

that encourages capital to come back into the business. Whether it 

needs to be a support mechanism that’s in place for a long term, 

that remains to be seen, but at least in the short term, that’s the 

force necessary to attract capital and restore confidence. 

Chairman KANJORSKI. Are there any other free enterprises here? 

[Laughter] 

Mr. DOWD. I probably qualify. 

The biggest thing for innovation, I think, is the challenge, because a lot of times the innovation comes from very private companies in the capital markets and the challenge for the capital markets who are innovating and adding more capacities is they are so 

quantitatively driven, right? You know, I use the capital markets 

for some of my other risks that I use, rather than traditional reinsurers. 

And how do you get their interest is, when you can model and 

quantify the risk with the greater certainty, the more they are willVerDate 0ct 09 2002 17:13 Aug 08, 2007 Jkt 036819 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 K:\DOCS\36819.TXT HFIN PsN: TERRIE
22

ing to risk their money. They really want to be able to bucket, slice 

and dice and move the market. That is how credit cards, that is 

how mortgages, everything else, if they can repackage it and quantify it, they can sell it to different groups of investors. And, the real 

trick with terrorist insurance is that we don’t have probabilities. 

Right? We don’t know what the likelihood of loss is. 

We can do estimations on the severity of loss, but the probability 

is missing, and so there is not a good way to repackage and slice 

and dice the product so that the average investor wants to buy it, 

and that really stifles the creativity in terms of more capital wanting to handle terrorism risk. 

Mr. COTTON. Well, it stifles the capital market in the sense that 

it provides volatility with the uncertainty of whether or not an 

event would occur and whether or not it were covered. As I said 

in my remarks, the mortgages that are supporting the bonds that 

we own or sell or buy are 10 or 15 year mortgages, as was pointed 

out earlier, and all we have to gain back from our position is the 

mortgage to get paid back if something happens. 

And it seems to me that if we are not going to have a volatile 

capital market, we need to have some certainty, and that’s where 

I think long term is important, though I am a free marketer. 

Chairman KANJORSKI. You know, the arguments that you are 

making could have been made regarding commercial mortgaging 30 

years ago or 40 years ago, that there wasn’t a secondary market. 

We found a vehicle to create a secondary market, which now the 

private market is coming in and saying, ‘‘Get Fannie Mae and 

Freddie Mac out of the picture and let the private market handle 

the whole proposition.’’ It’s interesting where 30, 40, or 50 years 

ago they said it was something that couldn’t be done, could not be 

put together. 

Let me pose a question that goes to why I would favor a limitation of time as opposed to a long extension. If we do a 15- or 20-

year extension, for all intents and purposes, that is permanent for 

several reasons. One, the institutional memory of this committee 

will be gone when we reconsider. Now, that sounds stupid, but 

there are only about three of us who remember the S&L crisis. 

Other than the three of us who still remain, everybody else here 

are virgins to that; they never heard of that problem before. So, if 

we do this 15 or 20 years from now, there will really be no institutional memory left here at the committee level. That being the 

case, they won’t really know the nuances or the reasons why certain things were done or not done. 

The second proposition that bothers me is if we go too long a period of time. As I indicated in my opening remarks, I prefer a 6- 

to 8-year extension. I am not sure that the private market can handle all of these things. But I don’t feel as guilty talking that way 

as a Democrat that you all, being Republicans, should feel. 

[Laughter] 

But, that being beside the point, if we reexamine this proposition 

in 6 or 8 years, will we have a crisis of catastrophic insurance? 

What is going to happen; how can it be done? What is going to be 

done on ‘‘all peril’’ insurance? Regarding disaster insurance, certainly in the coastal States of the United States, it is a catastrophe, 

a second catastrophe. What is happening there? 

23

We will not face that issue unless we have something that requires us to reexamine it so that maybe, ultimately, this issue of 

terrorism may make us recognize and separate what becomes a 

public interest issue of insurance that may be covered. It will give 

us the requirement to come back and revisit the system, 6, 8, or 

10 years down the road as opposed to making it permanent, or 15 

or 20 years down the road, when, as I said, the institutional memory of all these issues will be gone. 

Now, the last legislation was lacking one thing that I am sure 

my colleague, Ms. Pryce, is going to join me in supporting. We really have to get a commission to do a total in-depth study of this 

issue and have it returned to the Congress within 3 years or so. 

Not just a paper, but a real analysis, not only on this issue, but 

on catastrophic insurance and all these elements, how they fit together and how they could be attacked. The study should be returned to us so that we have enough time to really work on the 

issues and examine them. 

Right now we’re doing patch work, and that does disturb me, 

particularly 2 years to 2 years. And I think, didn’t the last leader 

in Congress only want to do 6 months? You know, which reminds 

me, there is that famous picture of the President balancing the basketball, and he bounces it and it just doesn’t return, because there 

is no air in it. Well, doing 6 months of catastrophic or terrorism 

insurance is about the same thing. It really does nothing. We are 

already getting to a danger point in time. I think we really have 

to make sure that we move this legislation as quickly as possible, 

and I am probably partially responsible for its delay and I hope to 

not be any more responsible for that in the future. 

So, we are going to try to move this along in the next couple of 

months as quickly as possible. 

Ms. ABRAHAM. Chairman Kanjorski, excuse me; one comment on 

this. Stability is one of the most important issues that we are looking for. We plan at educational institutions really for a generation 

and make very large investments. And your recommendation for a 

major study of this, I think, is spot on, because risk management 

issues are evolving. There are new technologies; there are new 

issues that are coming up that may in part reduce the risks longer 

term. But, currently, the probability issue is very real for us. 

What’s the probability of an attack on Boston, Philadelphia, Seattle, or Chicago campuses on any given day? I don’t know that and 

so I can’t possibly underwrite for it, nor can our reinsurers. 

We can pool. We can try to do some things, but that stability and 

lack of ability to judge when it will happen and what the probability may be is significant. But there are new things that we are 

looking at; the government is learning. Institutions are learning 

issues and learning new things. So I think we need stability; we 

need multiple years. Permanent, I think, is never say never; but, 

I think there is an opportunity for us to dig in. Look at the changing technology. Look at the changing issues that are evolving in 

this world of terrorism, and I think we’ll be better prepared in 6 

to 10 years, both for capital markets as well as loss control and 

risk management, which is an important part of this. 

Chairman KANJORSKI. I hope from the academic world, there is 

some emphasis. Pay attention. One of the things that has always 

24

disturbed me about insurance is that we failed to recognize its implications in regard to social and economic policy. When we under 

price insurance to make a sophisticated market like New York or 

Miami very attractive and very competitive, because we have been 

artificially subsidized by prices and other markets, we really have 

a tremendous impact on location of population investment policies 

in the future. Catastrophic insurance really points that out, but 

terrorism insurance also points that out. 

On the other hand, with my good friend from New York here, 

terrorism insurance is one thing, probably, that I am not at all certain that we shouldn’t underwrite on a national level. It is the importance of our financial centers of the world or our capital city 

that are much more highlighted and make them likely to be the 

subjects of those attacks because they are icons of the entire Nation and should be covered that way. 

But as we get into catastrophic insurance and other forms of insurance, I think we have to be very careful not to further destabilize the natural supply and demand of the private marketplace 

to see how growth occurs, how population shifts occur, and how investments occur. Or we just may populate the first 10 miles of the 

shoreline of this country to the extent that we cause an earthquake 

in California. 

Ms. ABRAHAM. Well, I couldn’t agree with you more. In fact, I 

think you speak to why risk retention groups really make a lot of 

sense for some particularly tough risks, because we really know the 

risks of our institutions better than others and can really work 

both to price appropriately, give risks and rewards, give carrots 

and sticks in order to both encourage investments and risk management, and encourage changes and behaviors, both societal behaviors and campus behaviors. So, knowing the risks, giving the 

right kind of incentives is something that we do day in and day 

out, whether it is athletic injuries, date rape, discrimination, harassment training, or some of the emerging terrorism risks. 

So, I absolutely agree with you that we have a role as insurance 

makers to help encourage societal behavior that’s positive. 

Chairman KANJORSKI. Thank you very much, Ms. Abraham. I 

have just been notified by my chief of staff here on the committee 

that I broke my first rule, and I have over spoken and misused my 

time. And, therefore, I am responsible for the further delay of this 

process. I will yield and change that. 

[Laughter] 

And now, if we can, we will move on to a charming ranking 

member, Ms. Pryce. 

Ms. PRYCE. Thank you so much, Mr. Chairman. Ms. Abraham, 

while we are on the topic let’s continue with, well, first of all, I 

know that you’ve been traveling and I appreciate the accommodations you made for the committee to be here today. 

Ms. ABRAHAM. I am honored. Thank you. 

Ms. PRYCE. We especially appreciate that. And you have testified 

that expanding the Liability Risk Retention Act would create more 

capacity and more stability and more competition and all the 

things we see as good in this picture. But, I know that this committee has been approached by consumer groups and others in the 

past to include this in TRIA or freestanding, so, there must be 

25

some opposition. There must be some—are there policy considerations against what you are proposing, and who would come forward with arguments counter to yours? 

Ms. ABRAHAM. A good question. I don’t know who will come forward. I’ll get to them soon though, if you let me know on our own 

side. But we clearly see this as an opportunity to be a small part, 

and I want to be clear on that, a small part of the solution. So we 

think that we have the ability to understand risk, to add capital. 

Because risk retention groups, all of the capital is owned by the 

policyholders. 

So when a member joins, a new institution joins United Educators, they make a capital investment. So, we’re a co-op, a mutual, 

a reciprocal, so it is an ability to add capital and to try to solve 

a problem. We rely on reinsurance as well, but the members have 

an investment. They make an investment. Our net income is their 

net income. I can’t invest in United Educators. Only Penn State 

can invest, or another educational institution. So, it is an ability for 

like-minded, whether it is a hospital, real estate agents, shopping 

malls, to be able to join together, so it is adding capacity. 

It’s not going to solve personal lines problems. It’s not going to 

solve every issue, but some of the toughest risks. And I would say 

MIT and Cal Tech would be some of the toughest risks out there 

to be able to join together and find a solution. Some, there may be 

some out there. They have not approached us, but I think it adds 

competition and is a part of your very complex solution, not the 

magic dust, but part of the solution. 

Ms. PRYCE. Well, I welcome comments of the other witnesses and 

let’s ask Mr. Ditchman since he’s a fellow Ohio Buckeye, if you 

have any opinion, and if the others would like to weigh in on the 

pros or cons of this, attaching this to TRIA or a free-standing bill. 

Mr. Ditchman? 

Mr. DITCHMAN. Thank you. Mr. Chairman, the CIAT is a wide 

ranging group of organizations. And when one asks who may come 

out in opposition to the positions held at this table, one only needs 

to look at the United States Chamber of Commerce, who is involved in our organization. The Real Estate Roundtable, the National Association of Manufacturers, the National Retail Federation 

are members; the Association of American Railroads, the General 

Aviation Manufacturers Association, Taxicab and Limousine Association, the American Association of Gas, the American Public 

Power Association, Edison Electric Institute, the National Rural 

Electric Cooperative Association, the American Bankers Association, and the American Community for Bankers, the Mortgage 

Bankers Association and the Commercial Mortgage Backers and 

Securities Organization. What more can I say? There are a lot of 

organizations that support under the CIAT position. 

So, I think you are going to find it difficult to find a large group 

that’s going to be in opposition to the positions held at this table. 

Thank you. 

Ms. PRYCE. Anybody else care to comment? I mean, this has obviously been considered in the past and for some reason has not 

made it in, made the cut. And so I just wonder if there’s something 

I’m overlooking. 

26

Mr. DOWD. I think for the large insurance group, I don’t think 

that there’s any opposition to the risk retention groups being 

added. I think Ms. Abraham was correct that probably in her view 

it doesn’t have a lot of the excess we’ve seen in the House, though 

don’t add a meaningful amount of capacity when you consider the 

billions and billions and billions of dollars that we are talking 

about. 

But from the fringe of the situation, if insureds are interested in 

taking more of their own risk, which essentially this is, you know, 

we have no opposition to that. 

Ms. PRYCE. All right, thank you. 

Mr. WATJEN. If I could just add, I represent, I know again, a different group, which is the life insurance industry. And again, I 

can’t see where the opposition would come from. The national insurance agents, the commissioners have all supported legislation 

like this, as we said. Frankly, protecting the buildings is a part of 

the object of all of us, but also the individuals in the buildings as 

part of that. So I can’t see where the opposition would come from. 

Ms. PRYCE. And, Ms. Abraham, the proposal is to add property 

too, and, the liability experience has been a very positive one. Is 

that what I am to understand? 

Ms. ABRAHAM. It’s been a very positive one. The market has 

grown over the past 21 years. We, in fact, are 20 years overrated 

by A.M. Best. Our member retention rate would mean, year-afteryear, is 95 to 96 percent. So across the board it’s been very strong 

comparable to the commercial insurance market, but very strong 

loyalty. These are institutions that, or businesses or nurse-midwives, that invest in their company. They run their company. So, 

it’s not for everyone. Not everybody should join a co-op. But for 

those who believe in long-term investments, a risk retention group 

is a very good alternative. 

Ms. PRYCE. All right, thank you. My time has expired. Thank 

you, Mr. Chairman. 

Ms. ABRAHAM. Thank you. 

Chairman KANJORSKI. Thank you, Ms. Pryce. Our good friend 

from New York, Mr. Ackerman? 

Mr. ACKERMAN. Thank you, very much, and just for the record 

I want to make sure it indicates that I, too, am charming. 

Chairman KANJORSKI. You are. 

[Laughter] 

Mr. ACKERMAN. Thank you. To stipulate, all the members of the 

community are charming. 

Chairman KANJORSKI. All the guys are charming, come on. 

Mr. ACKERMAN. This issue gets more complicated the more we 

look at it and I think that’s because of the changing dynamics of 

our times as individuals or groups tend to become more and more 

violent. I think we’re going to have to possibly look at redefining 

some things, at least for the purpose of insurance, if not in other 

areas under other committees’ jurisdictions as well. 

If we take away, for insurance purposes, the difference between 

international and domestic terrorism, which as I indicated I am in 

favor of doing, how do you define each of these terms and how? 

And to consider it may be necessary not just to redefine the word 

domestic, but the word terrorism itself, I know there are distincVerDate 0ct 09 2002 17:13 Aug 08, 2007 Jkt 036819 PO 00000 Frm 00032 Fmt 6633 Sfmt 6633 K:\DOCS\36819.TXT HFIN PsN: TERRIE
27

tions in the law for some purposes between massacres and mass 

murders and serial killings, and the like. And each one is a different kind of category. But how, what category would you put the 

incident at Virginia Tech, for example? 

All of these horrific examples have a terrifying effect, but is it 

an act of terrorism that I think we’re going to have to collectively 

think about and reason out? I do not know that there’s any answer 

right now. Certainly, if I were an insurance company, I’d have one 

argument. If I were a victim or relative thereof, I’d have a different 

argument for Virginia Tech, and I’m sure somebody’s going to make 

those arguments at one point in this or some other case. 

Do we need to redefine these terms? 

Mr. DONNELLY. Well, I think, sir, what I’d say with respect to the 

domestic and the foreign, I’m not a lawyer. And I think when you 

were commenting, I think of the example in London of the subway 

bombings, where it was caused by British citizens who were creating, what I would say terrorist attacks. And I think before when 

we said foreign, we would think about literally people from outside 

of this country coming upon American soil and creating an event. 

So, when I think of domestic, saying all events should be covered 

is something that we need to consider. We need to sit down and 

make sure we take a look and define exactly what we mean. But 

I reference, I use the London example as something that I say was 

a terrorist, you know, whether it was a British citizen doing it or 

an American citizen doing that versus somebody from another 

country coming here, because they were attempting to basically attack the way of life that we have here in our economy. 

You know, the Virginia Tech issue, I guess I view as an unfortunate event. You know, an individual person that obviously had a 

lot of personal issues to deal with and created a lot of tragedy for 

a lot of people for not only the victims themselves, but the families 

and all of the people at Virginia Tech and a lot of other people in 

the country. 

I don’t necessarily consider that a terrorist event in the way—

that particular event anyway, and I know that we have to write 

some legislation that’s broad enough so that it doesn’t take into account—we get in a situation that we’d have to redefine it every 

time there’s an event happen. But I do think we have to make it 

broader than what we have today. 

Mr. ACKERMAN. Yeah, I’m not sure that we have to look at this 

from the perspective of checking somebody’s passport to identify 

what they’ve done. I think we get into the sticky area, and I guess 

maybe we do have to get into it, of what the motivation is of the 

person who is making the attack. And it doesn’t necessarily have 

to be that they have the passport of some country that gave them 

a passport, whether or not they really—there are a lot of countries 

for example in the Middle East and other places that give people 

passports, who are not of that country. They just carry passports 

of other countries. An international terrorist attack, I would presume, is one where somebody is attacking our country in what they 

view as the interests of another country. 

And we’re dealing with other societies as well as other countries 

right now. You know, somebody could carry the passport of one 

country and commit a terrorist attack on behalf of some beliefs of 

28

another country. And something like Virginia State was more of an 

attack on our society or our culture, or you could make the argument that it was just the ramblings of a mad individual. 

Do we have an obligation on the terrorism insurance to insure 

against acts, individual acts of individuals? 

Mr. COTTON. I might add a comment. I think you used the word 

intent. The intent to disrupt society in the government, operation 

of the government, it seems to me as a way to look at it. But I 

think the marketplace as we see it, CMSA sees it, will not make 

a distinction between who the person is or where they came from. 

But when you see an act like this you’ll recognize it and we think 

the distinction should not be there. 

Mr. ACKERMAN. Well, it’s like pornography, then. 

Mr. COTTON. That’s what he said. 

Mr. DITCHMAN. Mr. Chairman, may I? 

Chairman KANJORSKI. Yes, Mr. Ditchman. 

Mr. DITCHMAN. The National Association of Realtors recently did 

a study of voting Americans and determined that 64 percent believe that in the next few months there would be an attack on this 

country and 42 percent believe it’s going to be in their neighborhood. 

And, candidly, the whole process of terrorism is to create horror. 

The horror of it all is to influence governments to act differently. 

The Rand study clearly indicated that these fringe organizations 

rely on the violence against civilized people to make a political 

point. 

And that Rand study, which you have available to you, but more 

importantly is the effect that it has on one personally, and how one 

lives with that after the person who is down the hall from the person at Virginia Tech; or what happens to the person on 9/11. All 

you have to do is to look into that huge crevice today and realize 

what happened to those 3,000 people who passed away. I mean, it’s 

just so—they want to create the fear within the individual and they 

don’t really care who they are. They just want to do an economic 

damage to this country and create the horrors. 

Thank you. 

Mr. ACKERMAN. Let me just be clear on that before I further 

abuse the time the chairman has allowed. Are you saying it should 

or should not go to motive for insurance purposes? We have a different standard because we struggle with this and hate crimes, 

whether, you know, you bury someone’s head in it because of their 

color or religion. Or you bury someone’s head in it because they 

kissed your girlfriend, there’s a different penalty, sometimes. But 

that was the intent of the hate crimes thing. Should we go to intent 

for purposes of insurance? I would think the purpose of insurance 

is to figure out from an actuarial standpoint, which is continually 

a moving target and what we’re talking about—do we figure out 

just what the risk is and insure everything? 

Mr. COTTON. Is it possible to say that this whole debate is 

around the fact that the only gap that really exists in the insurance world is as it relates to terrorism, and that’s why we’re sitting 

here? 

Mr. ACKERMAN. I think it’s a new frontier—a terrible but new 

frontier. I yield back my time. 

29

Chairman KANJORSKI. Let’s see. I don’t know who is going to remain or who is here, but because we have some time constraints, 

I ask unanimous consent that we move on with only the remaining 

members being justified to be heard. Mr. Bachus of Alabama, Mr. 

Scott of Georgia, Mr. Murphy of Connecticut, Mrs. Bachmann of 

Minnesota, Mr. Donnelly of Indiana, and Mrs. Maloney of New 

York, in that order. And now, I recognize the ranking member of 

the committee, my good friend Spencer Bachus from Alabama. 

Mr. BACHUS. Thank you, Mr. Chairman, and I appreciate your 

work on this issue over the years. I am going to try to ask really 

short questions, so I can get long answers. And my first question, 

and I’ll just start with Mr. Dowd, because I read your testimony 

and you sort of touched on this; how would you rate our current 

program on a one-to-ten basis? 

Mr. DOWD. You know, if we look at the goals of increasing availability and affordability of terrorism insurance as one of the main 

goals, I think we probably got about an eight. I think when it 

comes to conventional terrorism, for the most part, the customers 

who want to buy it at a reasonable price do today, I think. 

When it comes to the non-conventional at the NBCR, I would 

probably rate it closer to a two. Really, the only available insurance 

today is worker’s comp and it’s only available because it’s mandatory. So, I think we need improvements there if you wanted to 

move the total scope of the bill up to a ten. But the truth is, I 

think, that’s the main area that I would focus on for improvement 

to move it up to that. Because generally the economy, clearly as a 

direct result of this bill, took off in leaps and bounds. In our own 

industry, you know, people think of this as an insurance bill. 

Frankly, we’re like the tail on this thing. The rest of all the issues 

that were mentioned over here really are what took off, because 

this bill is high. I would rate it very, very high on its goals of availability and affordability. 

Mr. BACHUS. In fact, you touched on something that absolutely, 

when you said workmen’s comp was the only coverage that doesn’t 

exclude nuclear, biological, chemical, or radiological. You know, 

after 9/11 when we were working on that bill, we didn’t hear as 

much about that. Now, we are told pretty much in briefings which 

have been released to the public, so this is not confidential information. And most securities and analysts tell us that probably the 

next attack, if it’s a large-scale attack, will be nuclear, biological, 

chemical, or radiological. 

I mean, that’s what, and you know, we don’t have the coverage 

there, except workman’s comp. Normally, it’s excluded otherwise. 

So, I would give that part of the program a two also. Now, let me 

ask a follow-up question, then I’ll let everybody else answer it, but 

I’m going to put him on the spot first. But then, everybody else 

knows the two questions, because I’ll ask anybody else who wants 

to answer them. 

How could my side and both sides I think—cost is always a concern on the Hill—how do we increase coverage and at the same 

time not expose government involvement or reduce the cost? Is 

there a way to both, you know, to increase capacity, while at the 

same time lessening government involvement? 

30

Mr. DOWD. I think it’s actually tricky. I think we’ve probably 

reached the tipping point where increased deductibles and co-insurance from the perspective of putting on insurance, is actually reducing capacity today. I said before that I don’t think very many 

insurers today are selling enough insurance to actually fill their deductible, because their deductible is greater than their appetite for 

any other risk. So, you’ve actually probably, with the increases in 

the deductible, lowered the available capacity. 

I would sell more and was selling more when I had a lower retention. You know, the truth is that today’s deductible is greater 

than the World Trade Center. We would get no recovery on the 

World Trade Center and from a conventional point of view, we 

have difficulty finding any scenarios that we would get recovery 

under. So, I think it sounds counterintuitive, but I think to increase more capacity, the first thing I would do is think about the 

deductible and the co-insurance layers. 

And, I think if you are interested in how then to keep the government’s participation at the same place, then you do have to 

come to some sort of fund mechanism, whether it’s a pre- or postevent surcharge of some kind. I think that’s where you end up with 

if you want to leave the government where it’s at in terms of attachment point, but yet encourage people to write more insurance, 

I think you are going to have to joust with ‘‘someone else has to 

pay for it’’. 

Mr. BACHUS. Okay, Mr. Cotton? 

Mr. COTTON. From the point of view of the consumer, and I think 

we represent that to a degree here, I don’t think there is a seeking 

of a free ride. And, if there are recoupments appropriate that help 

to repay, that makes sense. I agree with Mr. Dowd. And I also 

think that the more that it gets done, the market picks up on 

what’s happening. Again, to what Mr. Dowd just said, you have a 

better chance for the market to understand what it’s doing. 

Mr. BACHUS. Okay, Ms. Abraham, do you have any comment? 

Ms. ABRAHAM. I do. In fact, I represented Mr. Donnelly’s a small 

company, I mean a micro-nano kind of company. But I think you 

want that. You want small- and mid-sized companies in their adding capacity. And if you make the deductible too high, make the 

triggers too high, we’re out of the game. But I think you want us 

in there. I want to be in there providing capacity, giving some capital, making more of a market. If he’s frightened by those kind of 

deductibles as a percentage, you can imagine what it does to our 

institution. So, making it so high that there’s a safety and a release 

for the Federal Government really saps capital out of the market, 

because we can’t be players. 

So, you want a lot, not just the big guys in there. You want the 

small, midsize, and nanos in there as well. 

Mr. BACHUS. Okay, anybody else? Mr. Ditchman? 

Mr. DITCHMAN. Yes, sir. One thing that’s very important is to understand that if we ratchet it up, it actually puts the insurance 

companies out of business and the reality is that this is an economic issue facing this country. You want more companies involved, so ratcheting down might be a more practical approach 

than that and we have always suggested that the event of the trigger should remain in the current level. You know, we believe that 

31

a question of the domestic acts and so forth, so I think that deductibility issues, you know, if they can come down on some basis, I 

think that will only help the process. 

Mr. BACHUS. Thank you. Mr. Watjen? 

Mr. WATJEN. Yes, I’d like to just add to—back on your comment—about NBCR. Actually, group life insurance coverage does 

include that now. There are few exceptions. For the most part, that 

is not an exception. And again, in a couple of States there are limited exceptions. But again, we are very much contained to provide 

that coverage to our insureds, which actually raises the point that, 

you know, because we can actually price for the terrorism exposure, 

because those are such event-driven events and there is limited reinsurance out in the marketplace, I think our industry basically is 

taking on greater financial risk at this point. 

So, one of the goals as we think about legislation and support 

going forward is to provide a little more of a safety net because our 

industry, frankly, is taking those risks on without the type of coverage and catastrophic reinsurance coverage that used to be available to it in the past. 

Mr. BACHUS. Okay. 

Mr. DONNELLY. I guess I would just echo Ms. Abraham’s comment about what I believe is good for the economy, good for the 

consumer, is more competition. So the need to lower the trigger, 

lower the deductible, and deal with the co-insurance, is important 

to make sure that the playing field is level. 

I will tell you that I did mention in my comments, I think, the 

rating agency is one of the things that’s evolved over time. In reference to your question about how things have evolved is, I believe, 

the rating agencies will continue to play a greater role in evaluating the parameters of the key elements of TRIA or an extension 

of TRIA and what that means for the competitive landscape. And, 

I think not lowering and not addressing those needs is going to 

constrict competition, not expand it. The other thing; I am a free 

enterpriser, but I do believe, and I probably have said it too many 

times is this is unique exposure, including the fact—and I think 

the government has done a fabulous job being a risk manager since 

September 11th—we’ve not had an event. 

And I certainly don’t want the job of being the risk manager—

I have enough trouble sleeping at night. I don’t want to know about 

all of those things. But the fact is the government really is ultimately the deterrent here and the protector and this puts a lot of 

responsibility on the Federal Government to play a major role here 

today in going forward. And while that may evolve over time, I do 

see that continuing because of that very fact. 

Mr. BACHUS. Can I just close with a statement? One thing that, 

Mr. Donnelly, you were sort of saying this, I think. Another thing 

that’s happened since 9/11 that members ought to reassess, not 

doing everything we can do to create the private market insurance, 

and that’s Katrina. Because, you know, one of the biggest lessons 

out of Katrina, the difference, Katrina was much larger than any 

other hurricane. But the other thing about it was there was so 

much uninsured loss, because they were in a floodplain or there 

was a wave and all that. 

32

And it’s costing the government just untold amounts, because 

they’re not very good at compensating people. Insurance companies 

have done it for 200 years. They have a good claims process, and, 

so when I say cost, I mean the government cost. If we don’t create 

private sector insurance, we are going to come in like Katrina, just 

like we did on 9/11, and there’s going to be a public outcry, and 

they’re going to say, make everybody whole. And it’s going to cost 

the Federal Government and the taxpayers 3 or 4 times what private insurance companies could do it for. 

So we’re really not saving any money. If there’s an event and 

there’s not coverage, we just don’t do it well. I mean, I can tell you. 

You know that; the public knows that. But government is just not 

in the business of running an insurance company and of compensating people for claims. It’s not what we do well. 

Mr. DONNELLY. And that’s why I am not going to criticize the 

government, but I echo the need to look at TRIA, the extension of 

TRIA in a pretty orderly fashion, which this committee has done. 

And I also go back to Chairman Kanjorski, your suggestion about 

a study over the next few years probably addresses that too. So 

that we can look at collectively government and the insurance industry and business in general to look at the issues. So that if 

going forward, there needs to be adjustments, those adjustments 

can be done in an orderly fashion, not in a time of chaos. 

Mr. BACHUS. Thank you. 

Mr. COTTON. Might I add one thing? I wholeheartedly agree with 

you on the proactive nature of what you are talking about as opposed to the reactive nature. If you look at it from the CMSA’s 

point of view in the capital market, the lenders need the insurance, 

because after all the skin in the game we have is a loan to get paid 

back. The rating agencies who rate the bonds demand it, because 

they are looking for stability, not volatility as it relates to the 

bonds that are sold. 

And the investors who are buying these bonds can’t withstand 

the thought of the loss of 100 percent of their investment, which 

is not an equity investment. It’s a mortgage as a result of something like this. So from the capital market’s point of view, the lack 

of insurance is untenable. 

Mr. BACHUS. Thank you. 

Chairman KANJORSKI. Thank you, very much, Mr. Bachus. Mr. 

Scott of Georgia? 

Mr. SCOTT. Thank you. Mr. Chairman, this has been a very interesting hearing, and a very informative one. I have a couple of 

questions, but I first want to get a better understanding about the 

state of the discussion within the industry on the nuclear, biological, chemical, and radiological threats and how each of you feel 

about that, including an extension of the legislation. And I noticed 

here recently that there’s been a split among the industry as to 

this. Could you just share a little bit on the status of that and sort 

of a summary of where we stand on that particular issue? Maybe 

the lady from—are you from Scranton? 

Ms. ABRAHAM. No. I’ve been to Scranton. We insure the University of Scranton; they’re a member of United Educators. 

What I can tell you is from United Educators’ perspective, we 

don’t believe that it’s an insurable risk. We insured some isotopes. 

33

If there’s an accident in the lab, we’ll do some work at that level, 

but we have no idea how to underwrite the kinds of catastrophic 

risks that this would bring to one of our campuses. And, if it is included in a terrorism bill—a different deductible would be—a 

much, much lower deductible would be required for us to be able 

to have any role in taking part of this risk. 

It’s simply something that we don’t know how to underwrite at 

the scale that the experts are talking about. So, my colleagues will 

have to speak to their own industry, but it’s a level of risk that we 

can take a piece of, because we do that with a lot of other issues. 

But to take a major risk, the kind of deductibles you are thinking 

about for the rest of TRIA that are in place now, is something that 

would fall into the uninsurable level. 

Mr. SCOTT. Okay. Yes? 

Mr. DITCHMAN. CIAT clearly believes that the NBCRs are noninsurable and it just is not a possible way to cover it given the 

mechanisms that currently exist. And so, we stand, and all the organizations behind us clearly believe that’s the case. 

Mr. SCOTT. Thank you. 

Mr. COTTON. CMSA would echo that and say that we are supportive of it: (1) because it’s uninsurable; and (2) if it is included, 

it will provide a much more efficient mechanism by which to deal 

with it, as opposed to the government coming in after the fact and 

dealing with it. 

Ms. ABRAHAM. Right. 

Mr. DONNELLY. I would say that I think there’s more fundamental agreement than there is disagreement. I echo comments 

made that I think it scares everybody in lots of ways. But as a 

CEO of an insurance company, and especially where it’s mostly 

worker’s compensation, it is clearly on the far spectrum of insurability. I think the range of possible outcomes is just staggering. 

And so, I’m sure there are some details as the legislation is worked 

out and recommendations are made from the industry that will require further study. 

There are some nuances in terms of details, but I think we are 

fundamentally united on the fact that this is, if I could say, it’s the 

scariest of when you think about the terrorists, of potential events, 

and therefore the outcomes. 

Mr. WATJEN. Yes. I was just going to say, again, as I mentioned 

before; it’s not excluded from a group life contract for the most 

part. That’s mandated by the States that we all in our industry operate within. That doesn’t mean, though, that we’re not, as I said 

earlier, taking really significant risk as part of that. Which is why 

again it’s created under some scenario, some solvency issues for 

some companies. 

If they, in fact, found that there was a terrorist act where they 

had some unusual exposure, it could actually mean substantial solvency for some of our member companies. 

Mr. DOWD. Truly, from the large insurer’s point of view, I think 

it’s probably the most troubling. Our customers uniformly want the 

coverage. And, generally speaking, when that’s true, I want to find 

a product I can sell. The trouble is the quantification; we will have 

a very difficult time quantifying the size, magnitude of loss, and 

the probability of it occurring. And when you add that to the fact 

34

that there’s no capital markets or no reinsurance solution and the 

limited capital base is what makes it so difficult. 

And those that would like to have it in the bill, I think the insurance industry is good at delivering the mechanism. Right? We can 

deliver the policies. We can deliver the claims handling service. We 

can deliver some services around that, but we do have difficulty 

with the financial side. So, to the extent that it is talked about 

from our perspective, the cap is very, very troubling, a $100 billionevent. All of us can come up with scenarios that are greater than 

that and the size of that would have to be either zero or very, very 

low before I think you’d get many people that want to put their 

capital at risk. 

Mr. SCOTT. Well, I’d really appreciate those responses, because 

from all indications, and from information we get from Homeland 

Security, all of the experts are saying that if we do have another 

event of catastrophic nature, it’s not going to be like the one we 

had because we’re pretty well protected from that. It in all probability would come from a biological or chemical attack. And there’s 

so much more work we need to do on that, but I appreciate those 

comments. 

I would just like to ask, Mr. Chairman, some logistical questions. 

One, as we continue to pass short-term extensions of TRIA, is it 

not possible or plausible to extend the legislature for a longer period of time and if so, what would be the appropriate length for the 

extension. I would like to start with—I don’t know. When I referred 

to Scranton, I just heard somebody at the very beginning say they 

were— 

Ms. ABRAHAM. I’ll be Scranton. That’s all right. 

Mr. SCOTT. Both the chairman and I went to elementary school 

there. 

Ms. ABRAHAM. Actually, I’m Pittsburgh, but I’ll do Scranton, so, 

that’s all right. 

Chairman KANJORSKI. You have to understand, Mr. Scott was 

born in Scranton, Pennsylvania. 

Ms. ABRAHAM. I’m getting that. 

Mr. SCOTT. Mr. Chairman, of course, will represent Scranton. We 

love Scranton and I just thought I heard Scranton mentioned up 

there. Go ahead. 

Ms. ABRAHAM. We spoke before about the lack of stability and is 

that causing the real problem? A 2-year windows is really very difficult. Is this a forever kind of bill? I don’t agree that it is a forever. 

I respect the institutional memory issues, but we need a long-term 

solution: (a) for the government to share with the industry the 

data, the underwriting for us to get better at it; and (b) for a study 

of new loss control and risk management issues. So, I see this as 

a 10-year kind of horizon that seems like a very long period of 

time. But I think it’s going to be very difficult for the capital markets to develop, fill in the voids, and for the evolving nature of this 

risk to really come to a level that we will be able to underwrite it. 

And, more importantly, the capital markets will step in and be 

able to, as Mr. Dowd said, develop a probability associated with it. 

So, anything less than that creates an instability in the market 

that I think is a real problem for us. 

35

Mr. COTTON. For those of us who finance these assets, 10 years 

sounds like a good number. Permanent also sounds good. The issue 

is sustainability and the ability for our borrowers and their customers, to have affordable and available insurance to conduct their 

businesses, and for our investors to be able to have a sustainable 

income stream that they can understand and see not be interrupted as a result of these 2-year exchanges like this. 

Mr. DITCHMAN. To answer your question, Mr. Scott, the business 

certainty and stability are the key elements here and CIAT clearly 

believes it would be wonderful to have it indefinitely. But the reality is that 15 to 25 years is a reasonable time that any large corporation will study or have a plan for, so we hold to a 15 to 25-

year time-line if not indefinitely. 

Mr. DONNELLY. Mr. Scott, PMA Insurance Group provides workers compensation insurance to the University of Scranton. 

Ms. ABRAHAM. I’d echo the comment about 10 years. I think that 

10-plus years is in one way a long time, but I do think it is something that gives a lot of stability and allows, you know, the studies 

that Chairman Kanjorski mentioned before to take place and to be 

able to monitor, in fact, if there are innovations. 

The world is going to change over the next 10 years, and it does 

make sense to have some point at which evaluations can take place 

in terms of the key parameters. But we do need something. I believe it’s in the best interest of everybody to have more stability. 

Certainly something a lot longer than 2 years, because 2 years can 

go by very quickly and we’re back debating the issue, and I don’t 

think that’s constructive for anybody. 

Mr. SCOTT. Okay. Just a final question, if I may. Anyone agree 

on inclusion of group life insurance? 

Mr. WATJEN. Certainly, speaking for myself, yes sir. 

Ms. ABRAHAM. I can’t think of a reason to exclude it. 

Mr. COTTON. I don’t have a dog in this hunt. 

Mr. DITCHMAN. Nor do I. 

Mr. DONNELLY. Nor do we. 

Mr. SCOTT. Thank you very much. I yield back, sir. 

Chairman KANJORSKI. Thank you, Mr. Scott. Mr. Murphy of Connecticut? 

Mr. MURPHY. Well, thank you very much, Mr. Chairman, and 

that actually provides a fairly apt segue to my question and that 

is mainly directly to Mr. Watjen to help many of us make that case 

for the inclusion of group life. Explain to us why we’ve gotten to 

the point where the market has treated group life in a slightly different way, why both insurers and reinsurers to an extent have 

been able to price a group life product in a way that we have not 

been able to for property and casualty, and why there still is a 

major risk for either originators of products or reinsurers to pull 

out of that market. 

I myself certainly share the view that this should be as comprehensive and long-term a solution as possible, and that certainly 

in my mind includes the composition of a program with group life. 

But, I think that there are some members who maybe need to understand why the market has treated them differently and still 

given that differentiation, why it makes sense to include group life 

as part of this package. 

36

Mr. WATJEN. I’d be happy to answer that and again I do think 

this committee certainly has been very supportive of group life for 

some time. It just has never reached its way to a final bill. And 

some of the characteristics that I think we discussed a couple of 

years ago very much exist today and actually came out with some 

of the discussion here today from the property casualty program, 

which is that there’s still a high certainty around the event of a 

terrorist act, which makes it very difficult to price and underwrite 

for this business. That characteristic has existed ever since 9/11 

and has continued to exist actually for all companies in our industry. And as I said in my prepared comments, there has been no return in meaningful ways of reinsurance capacity to provide some 

catastrophic coverage to give all those group life insurers frankly 

to really have some degree of support to the extent there was a catastrophic event like that that they’d actually make good on. 

And so, as I said earlier, we can’t really fully pass the price law, 

because again, what would happen, if you think about the whole 

dynamic here is that our group life products are basically for the 

most part paid by an employer. In many cases, that’s the only insurance that the employee actually has is actually the insurance 

provided at the employer. So it’s a discretionary expense, if you 

will, by the employer. 

So, we try to overload the cost with what could be a theoretical 

cost of a terrorist act. Employers may consider dropping that coverage, which actually is not good public policy, because in fact in 

many cases this is the only safety net the individual actually has 

is the coverage they receive at the employer. So, really our whole 

industry is taking on more risk right now, because in the past we 

used to have some level of catastrophic exposure that we could rely 

on. 

Our own company, for example, on 9/11 had a fairly extensive 

catastrophic reinsurance program in place, which minimized the 

cost of the tragic events of 9/11. Those programs are no longer 

available. So, the private sector hasn’t stepped back in to provide 

that capacity, to provide that safety net for insurance companies. 

And the reason it hasn’t is because these are still events that are 

very random. How does the reinsurer actually price for those 

events? 

And so we, as an industry, are frankly taking on more risk right 

now, more risk than we think is acceptable in the long term. We 

are still waiting for new capital to come in and accept some of this 

risk, but that capital has not been coming in for very obvious reasons. 

Mr. MURPHY. Now, you mention in your written testimony, I 

don’t know if you touched on it in your verbal testimony, about a 

limited number of reinsurers starting to creep back into the market 

but at a price apparently that’s not terribly—could you talk a little 

bit about what’s happening in the reinsurance market on life? 

Mr. WATJEN. Very much so. And again, we were very fortunate. 

We, up until 9/11, were very active users of catastrophic reinsurance, even though we’re a fairly large company, to protect our capital, to manage volatility. That was a very important part of our 

risk management. And again those programs for all intents and 

purposes have completely been eliminated. 

37

What you can find is some limited amounts of coverage with 

more significant deductibles, with more limits of coverage, so again 

there are pieces of the marketplace that have returned. But in 

terms of having a more holistic market that provides that safety 

net if you will for small, medium and large companies that has not 

returned in anything close to the levels we saw pre-9/11. 

Mr. MURPHY. Thank you. The second question I guess I’ll direct 

to Mr. Ditchman, because you are on the real estate side of this, 

but open it up to the panel, is a question of geography. I guess I’d 

be interested in hearing to what extent on the property insurance 

side this is an issue that has been more of a problem in terms of 

our urban areas, metropolitan areas. To the extent that from a real 

estate perspective, you have lenders across the country, no matter 

of areas that may be at greater risk of terrorism, and other areas 

requiring this kind of coverage. 

In some parts in the short time that I’ve spent in this building, 

it’s been talked about as an issue really to one that relates to the 

east coast’s more densely populated areas. But it certainly seems 

to be an issue that from a real estate investment side really has 

no discrimination as to geography. 

Mr. DITCHMAN. The situation is not limited to the coast. As I indicated, we own an office building in Cleveland. One of the ones 

that we have, have a large number of telecommunication companies that reside in it. Our terrorism insurance—this is something 

that I own personally with a couple of partners—has just skyrocketed because of the types of uses. That’s in Cleveland, Ohio, a 

21-story office building. 

Most people don’t even know that it has telecommunication companies in it, but the insurance company knows, and so we do it. 

And, the same thing is true for other parts of Ohio, and, I know 

is certainly in the major cities it has affected. We do the real estate 

for Goodyear, Goodrich, Eaton Corporation, some of which are selfinsured and some that rely on other companies to provide the insurance, all of which is a question that they ask and make a determination when they determine the location. 

For example, Albuquerque, New Mexico: We are doing something 

for Goodrich in Albuquerque, New Mexico, right now. Goodyear got 

out of Paris. We sold an office building in Paris for them. The problem is they are trying to concentrate in areas where they believe 

they have the least number of risks. Does that answer your question? 

Mr. MURPHY. Yes. 

Ms. ABRAHAM. Mr. Murphy, I would say that I think of a Saturday afternoon and I think of the University of Michigan and Notre 

Dame and University of Nebraska, and those are not necessarily 

urban centers but they are certainly worldwide-known centers. 

Some of them might be streaming video, and so these risks are not 

simply New Haven, New York, Pasadena. These are truly ‘‘in 

heartland’’ issues that we face and I worry about every single day, 

that we have a large number of people at the big house or any 

other major establishment that are on our campuses in usually remote areas, very rural heartland areas. 

Mr. MURPHY. Thank you very much. 

38

Mr. WATJEN. Congressman, I can echo that too, again. In the 

group life world, again, it’s the concentration of employees that are 

really the issue that we need to consider. And those—that can be 

a large plant, that can be an office park. That can be just large concentrations of people all in one position, which again could mean 

it’s not just the metropolitan areas. It’s all across the country and 

I would echo those comments. 

Mr. DONNELLY. That’s certainly true about workers compensation 

insurance as well. 

Mr. MURPHY. Thank you very much, Mr. Chairman. 

Chairman KANJORSKI. Mr. Donnelly? 

Mr. DONNELLY OF INDIANA. Thank you, and I’ll try to keep it to 

5 minutes so we can go vote. 

I just want to tell you the extreme wisdom I thought that the 

gentleman at the far right of the panel, I think Mr. Donnelly— 

Mr. DONNELLY. I appreciate that, cousin. 

[Laughter] 

This question is for Mr. Cotton, then maybe for the entire panel. 

And that is we are talking about a timeline of 2 years, 5 years, 10 

years, indefinite, and you have to talk to investors. We were talking about a timeline. We were talking 2 years, 5 years, 10 years 

and you talk to investors. Is there a tipping point on this legislation where if this is renewed for an additional 2 years or something 

your investors will say, we’re not real comfortable with that kind 

of horizon. 

Mr. COTTON. I will tell you that I’m not sure I’m smart enough 

to know where the tipping point is. The issue is stability versus 

volatility and if the rating agencies or the investment grade buyers 

in our world smell volatility, they leave. If they leave, that’s a liquidity issue. If there’s a liquidity issue, it affects the real estate 

industry, which affects the entire U.S. economy, is the way we look 

at it. 

So, I don’t know that I could tell you 2 years versus 4 years. I 

think sustainability and permanence are really critical. I understand the free market desire to have free market fill it, and I think 

Mr. Dowd said it very well when he said, more availability, more 

people participating may in fact encourage more participation. It’s 

sort of an ongoing cycle. I think that’s the point he was trying to 

make and I echo that. But I don’t think I could tell you what the 

tipping point is. 

Mr. DONNELLY OF INDIANA. And that follows into my next question, which is if it’s 5 years or 10 years, do you anticipate a time 

when the market itself can start to step up and fill this in, or do 

you see the government as being almost a permanent partner in 

this process? 

Mr. COTTON. That’s not a question for us, because we’re not in 

the insurance business. I will tell you from the investor’s perspective, if they keep seeing the volatility, it discourages them from investing. 

Mr. DOWD. I’ll take a shot at the last one. Right now, there’s 

nothing that I see from talking. I spend a lot of time with capital 

markets reinsurers, our own investors. Right now, there’s nothing 

on the 5-year time horizon that leads us to believe there is going 

to be another solution. I’m with Mr. Kanjorski. I would hate to say 

39

in 15 to 20 years something else wouldn’t develop. Things always 

develop over long periods of time. 

Mr. DONNELLY OF INDIANA. And I guess that’s where I was trying to go is in 5 years do we see anything developing? 

Mr. DONNELLY. I would echo Mr. Dowd’s comments about that. 

I don’t see over the next, you know, four, five, six and maybe beyond, you know, a situation where the government doesn’t play a 

partnership role with the industry. And as for the first question 

about if this were to be renewed for 2 years or 3 years, and I guess 

I’ll go back to the insurance company perspective as I can’t speak 

for the rating agencies. 

But for smaller and mid-size companies, looking at the elements, 

looking at first of all whether or not TRIA is going to be renewed, 

and what the elements are going to be to that, it is my perception 

that they are becoming more important in terms of the evaluation 

of companies. And I think so, and they generally take a time horizon, looking out more than 1 year, more than 2 years. So, I think, 

and we probably would be back if this thing were renewed at the 

end of the year. You know, we’d probably be back in the middle of 

2008, starting to talk about, you know, the same issues over. 

So, I certainly believe that another rollover in 2 or 3 years again 

is not in anybody’s best interest in terms of it. And I don’t think 

it really solves what we are trying to get at and you folks are trying to do from a committee perspective. One of the gentlemen mentioned before, the issues; I sort of feel from what I am hearing is 

that, you know, the complexity of the issues. And you guys have 

been studying the issues and they are more complex than maybe 

what was thought 5 years ago. 

Mr. DONNELLY OF INDIANA. So, we’re probably, I mean, to provide comfort factors and comfort levels to everybody, we may be 

looking at 10 years. 

Mr. COTTON. Yes. 

Ms. ABRAHAM. That’s what we see. 

Mr. DITCHMAN. And the CIAT organizations that I referred to 

earlier clearly believe that this is not something that’s going to be 

solved in the short term, and I concur with the other gentleman. 

But from an investment point of view, one who owns real estate, 

who buys real estate and sells real estate, we want security. You 

know, we want the ability to know that it is there, that we are protected and the tenant that we have in that real estate is protected. 

So you need security. You need that certainty and stability that 

it’s going to happen, which is why although we’d like to see it for 

a much longer period, the 15- to 25-year term, which is the standard term of a mortgage as Lee would indicate. I mean, you know, 

that’s how people think. 

Mr. DONNELLY OF INDIANA. Thank you. 

Mr. DITCHMAN. Thank you. 

Chairman KANJORSKI. Thank you, Mr. Donnelly. Ms. Maloney, 

you have patience beyond. 

Mrs. MALONEY. This is an important issue, Mr. Chairman, and 

it’s wonderful to see you back in the chairman’s seat. And I want 

to add my voice in thanking you for your leadership on this and 

your statement to have a bill before us to consider by April and 

hopefully to move something forward. As a New Yorker who repVerDate 0ct 09 2002 17:13 Aug 08, 2007 Jkt 036819 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\36819.TXT HFIN PsN: TERRIE
40

resents many people who suffered from 9/11, absolutely nothing 

that Congress did, and I thank all of my colleagues for their support, was more important than the creation of TRIA. 

We couldn’t even sell a building. No one was building. No one 

was doing anything. Our economy just moved to a grinding halt 

and what I am hearing now from New York and from business is 

that no one can get insurance now. The only insurance they can get 

goes up through the extension and then it dies, or there’s no insurance unless there is an extension. And so it’s absolutely critical for 

the economy in New York, and I would say in many areas of the 

country. I’ve talked to some people, some constituents, who say 

they’ve had to go to London to get insurance. They couldn’t even 

get it in America. 

So, it’s a really, really important issue, and I think it’s the most 

important really for our national security, because part of our national security is our economic security, and our economic security 

is not going to go forward without a TRIA extension in place. I 

want to take this time to really thank the chairman for organizing 

a hearing in New York City that many of us went to. And we were 

there with many representatives and we heard loud and clear from 

all the witnesses, as I’ve heard from most of you today, that we 

need a long term extension and that a long term extension gives 

a certain amount of stability to our economy and allows the developers, investors, and insurers the guidelines to properly prepare for 

the future. 

Now, what we heard in this hearing, and it may be somewhat 

unique to New York, is that some of the investors and developers, 

they were saying to build a building takes 15 years. To get the 

bonding for some of these buildings they are trying to replace is a 

15- to 16-year deal, and they are very concerned to be able to put 

the financial packages together. And when I asked the question 

that I’d like to ask the panelists now—we’ve been called to a vote 

so we’ll have to move very quickly. We don’t want to miss a vote. 

You know, I asked the question of how long at a minimum must 

we extend TRIA in New York, and what I heard at that hearing 

was 15 to 16 years. And then of course some wanted a permanent 

one. But I’d like to ask each panelist going down in your opinion, 

what is the minimum Congress should do to extend TRIA for the 

stability in our economy that all of you have been talking about. 

And why don’t we start with Mr. Donnelly and come down. And 

I’d like to hear what you think is the minimum for stability in our 

markets. 

Mr. DONNELLY. I think 10 years is a minimum. 

Mrs. MALONEY. Ten years is a minimum. 

Mr. DONNELLY. So, my first priority is to get us included in 

TRIA, but with that, then 10 years would certainly be— 

Mr. DITCHMAN. Mr. Chairman, Congresswoman, we believe 

strongly in the longer the better. The 15- to 25-year timeline 

should be the absolute minimum. 

Ms. ABRAHAM. The minimum should be 10 years. 

Mr. DOWD. My customers want at least 10 to 25 years. It is more 

my customers’ issue than it is mine, so I say 10 years. 

Mr. COTTON. I would say an absolute minimum of 10 years and 

the inclusion of NBCR, for sure. 

41

Mrs. MALONEY. Okay, that’s my second question. NBCR—do you 

think NBCR should be included? And, also, do you think we should 

mesh together domestic and international and just go down the line 

again? 

Mr. DONNELLY. I believe that the bill should cover all, both domestic and foreign terrorism, and certainly including NBCR, absolutely. 

Mr. WATJEN. It should be inclusive of both domestic and foreign, 

and again in our particular case, group life is mandated and covered and already covers NBCR. 

Mr. DITCHMAN. We also conclude or agree that it should be both 

domestic and foreign. We also believe that the NBCRs should absolutely, positively be covered. 

Ms. ABRAHAM. Both included but a very different structure, very 

low deductible for the NBCR, very low deductible or first dollar. It’s 

just not something that we can have a high deductible on, but both 

international/domestic included. 

Mr. DOWD. Domestic and international I think is unanimous. 

NBCR; different challenges and clearly the structure of the program as referred to deductible co-insurance and ultimately limit 

are going to be critical factors. 

Mr. COTTON. NBCR, no question, and the market does not distinguish the passport that the person carries. 

Mrs. MALONEY. Well, I want to thank everybody. And, we may 

miss our vote, but we’ve enjoyed your testimony. It’s very important. It’s very important to our economy and, I would say, to the 

security in general of our Nation. 

Thank you for your work and for your leadership and thank you, 

Mr. Chairman. No one has been better on this issue than you. We 

thank you. 

Chairman KANJORSKI. Thank you. First, some members may 

have additional questions for the panel, which they may wish to 

submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to 

these witnesses and to place their responses in the record. 

And, with that, I would like to thank the panel. It has been really quite an enjoyable session. We are going to try and run off and 

make that vote, and this hearing stands adjourned. 

[Whereupon, at 4:45 p.m., the hearing was adjourned.] 

(43)

A P P E N D I X

April 24, 2007

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