U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

86–680 PDF 2014

THE TERRORISM RISK INSURANCE ACT OF 2002 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

SEPTEMBER 19, 2013 

Printed for the use of the Committee on Financial Services 

Serial No. 113–45 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

MICHAEL G. GRIMM, New York 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

September 19, 2013 .......................................................................................... 1 

Appendix: 

September 19, 2013 .......................................................................................... 61 

WITNESSES 

THURSDAY, SEPTEMBER 19, 2013 

Abraham, Janice M., President and Chief Executive Officer, United Educators 

Insurance .............................................................................................................. 18 

Beshar, Peter J., Executive Vice President and General Counsel, Marsh & 

McLennan Companies ......................................................................................... 15 

Capuano, Hon. Michael E., a Representative in Congress from the Commonwealth of Massachusetts ...................................................................................... 11 

Ellis, Steve, Vice President, Taxpayers for Common Sense ................................. 21 

Grimm, Hon. Michael G., a Representative in Congress from the State of 

New York .............................................................................................................. 8 

King, Hon. Peter T., a Representative in Congress from the State of New 

York ....................................................................................................................... 12 

Maloney, Hon. Carolyn B., a Representative in Congress from the State 

of New York .......................................................................................................... 10 

Smith, J. Eric, President and Chief Executive Officer, Swiss Re Americas ....... 17 

Woo, Gordon, Catastrophist, Risk Management Solutions Inc. ........................... 20 

APPENDIX 

Prepared statements: 

Capuano, Hon. Michael E. ............................................................................... 62 

King, Hon. Peter ............................................................................................... 64 

Moore, Hon. Gwen ............................................................................................ 70 

Abraham, Janice M. ......................................................................................... 72 

Beshar, Peter J. ................................................................................................ 77 

Ellis, Steve ........................................................................................................ 121 

Smith, J. Eric .................................................................................................... 126 

Woo, Gordon ...................................................................................................... 142 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hensarling, Hon. Jeb: 

Written statement of the American Insurance Association (AIA) ................ 164 

Written statement of the Financial Services Roundtable ............................. 186 

Written statement of the Property Casualty Insurers Association of 

America (PCI) ................................................................................................ 190 

Washington Times article by Representative Bennie G. Thompson entitled, ‘‘Terrorism Insurance Still Necessary to Foster Resilience,’’ dated 

September 18, 2013 ...................................................................................... 208 

Capuano, Hon. Michael E.: 

Written statement of Accident Fund Holdings, Inc. (AFHI) ......................... 210 

Written statement of the American Hotel & Lodging Association ............... 212 

Written statement of the American Public Transportation Association 

(APTA) ........................................................................................................... 213 

Bloomberg Government Analysis entitled, ‘‘Extending Terrorism Insurance,’’ dated July 17, 2013 ........................................................................... 214 

Page

IV 

Capuano, Hon. Michael E.—Continued 

Written statement of the Building Owners and Managers Association 

(BOMA) International .................................................................................. 220 

Written statement of the CRE Finance Council ............................................ 221 

Written statement of Host Hotels & Resorts ................................................. 222 

Written statement of the International Association of Amusement Parks 

and Attractions (IAAPA) .............................................................................. 223 

Written statement of the International Council of Shopping Centers, Inc. 

(ICSC) ............................................................................................................ 224 

Insurance Journal article entitled, ‘‘Private Market Will Dry Up If Federal Terrorism Insurance Not Renewed: Aon’’ ............................................ 225 

Written statement of The Jewish Federations of North America ................ 227 

Joint written statement of the National Association of Mutual Insurance 

Companies, the Financial Services Roundtable, the Property Casualty 

Insurance Association of America, the American Insurance Association, 

the Independent Insurance Agents and Brokers of America, and the 

Council of Insurance Agents & Brokers ...................................................... 241 

Written statement of the National Association of Insurance Commissioners (NAIC) ............................................................................................... 242 

Written statement of NAIOP, the Commercial Real Estate Development 

Association ..................................................................................................... 252 

Written statement of the National Association of Mutual Insurance Companies (NAMIC) ............................................................................................ 254 

Written statement of the National Association of Real Estate Investment 

Trusts® (NAREIT)® ..................................................................................... 264 

Written statement of the National Conference of Insurance Legislators 

(NCOIL) ......................................................................................................... 266 

Written statement of the National Conference of State Legislatures 

(NCSL) ........................................................................................................... 267 

Written statement of the National Multi Housing Council (NMHC) and 

the National Apartment Association (NAA) ............................................... 269 

Written statement of the Real Estate Roundtable ........................................ 271 

Written statement of the U.S. Chamber of Commerce .................................. 273 

Written statement of the U.S. Conference of Mayors .................................... 274 

Capuano, Hon. Michael E., and King, Hon. Peter T.: 

Written statement of the American Gaming Association (AGA) .................. 275 

Joint written statement of Major League Baseball, the National Football 

League, the National Basketball Association, the National Hockey 

League, NASCAR, the National Collegiate Athletic Association, and 

the United States Olympic Committee ....................................................... 277 

Written statement of New Mexico Mutual ..................................................... 279 

Written statement of the National Association of REALTORS® (NAR) ..... 281 

Written statement of the Real Estate Board of New York (REBNY) .......... 282 

Written statement of the Workers Compensation Fund (WCF) ................... 284 

Green, Hon. Al: 

Written statement of Hilton Worldwide ......................................................... 286 

Written statement of Marriott International, Inc. ......................................... 287 

Maloney, Hon. Carolyn: 

New York Post opinion piece entitled, ‘‘Congress must move on terror 

insurance,’’ by Representatives Michael Grimm and Carolyn Maloney, 

dated September 18, 2013 ............................................................................ 289 

Abraham, Janice M.: 

Written responses to questions for the record submitted by Representatives Royce and Sinema ................................................................................ 291 

Additional information provided for the record in response to questions 

posed by Chairman Hensarling and Representative Pearce during the 

hearing ........................................................................................................... 295 

Beshar, Peter J.: 

Written responses to questions for the record submitted by Representatives Royce and Sinema ................................................................................ 297 

Smith, J. Eric: 

Written responses to questions for the record submitted by Representative Royce ....................................................................................................... 299 

Woo, Gordon: 

Written responses to questions for the record submitted by Representative Royce ....................................................................................................... 301 

(1) 

THE TERRORISM RISK INSURANCE 

ACT OF 2002 

Thursday, September 19, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:05 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Members present: Representatives Hensarling, King, Royce, Garrett, Neugebauer, McHenry, Campbell, Pearce, Posey, Fitzpatrick, 

Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, Grimm, Stivers, Fincher, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Cotton, Rothfus; Waters, Maloney, Velazquez, Watt, 

Sherman, Meeks, Capuano, Hinojosa, Scott, Green, Cleaver, Himes, 

Carney, Sewell, Foster, Kildee, Murphy, Delaney, Sinema, and 

Heck. 

Chairman HENSARLING. The committee will come to order. Without objection, the Chair is authorized to declare a recess of the 

committee at any time. 

Today’s hearing is on the Terrorism Risk Insurance Act of 2002. 

I now recognize myself for 5 minutes to give an opening statement, 

but I wish to let all Members know that I will be a little softer on 

the gavel today, since I know Members wish to be heard on this 

subject. 

Today, the Financial Services Committee meets to hold a hearing 

on the Terrorism Risk Insurance Act of 2002. This is the first full 

Financial Services Committee hearing on the subject since 2005. It 

is an important hearing for a number of reasons. 

Number one, this is a program that is due to expire in 15 

months, and there are many within our economy who rely on this 

program and need to know the will of Congress. I also note that 

roughly half of the members of our committee have never been in 

Congress when this subject was debated, so I hope that there will 

be multiple views presented today on the topic in this hearing. 

I will admit that the timing of the hearing—I had originally 

thought I would have this hearing in December, but the gentleman 

from New York, Mr. Grimm, is very persistent; there have been 

days where he was patiently persistent and days where he was 

painfully persistent. And so, due to his persistence, we are having 

this hearing today, and I certainly know of no more vocal or outspoken advocate for the continuance of this program than the gentleman from New York, Mr. Grimm. 

2 

Obviously, the other gentleman on my side of the aisle from New 

York, Mr. King, has also been exceedingly vocal and active, as 

have, on the Democratic side, the gentlelady from New York, Mrs. 

Maloney, and the gentleman from Massachusetts, Mr. Capuano, 

who have also coauthored legislation to continue the program. 

Their voices are important, and we will hear from them soon, as 

part of a Member panel. 

Although I was not personally here in 2002, I know that the 

original purpose of the TRIA bill, and the report that accompanied 

the bill that came out of committee was to ‘‘create a temporary industry risk-spreading program for foreign acts of terrorism and facilitate a transition to a viable market for private terrorism risk insurance.’’ 

Before I go on to what was debated as the purpose of the bill, 

I think it is important to say what the bill did not purport to do. 

I cannot find anything in bill text or legislative history to suggest 

that anyone thought that the passage of TRIA would somehow prevent future acts of terrorism. It could not take away 9/11. 

So to some extent, we are debating today who should bear the 

cost of terrorism acts? Should it be insurance companies and property owners, or taxpayers? I think we all acknowledge a far more 

important debate is the prevention. Our committee has some part 

of that jurisdiction; other committees down the hall have a far 

greater part of it. 

At the time, it was thought that originally the TRIA Act would 

give the insurance industry time to recapitalize and develop new 

models, that they could price for terrorism risk and increase industry capacity. Three years later, in 2005, Congress decided to make 

TRIA a little less temporary, and extended it for 2 years. 

Then, in 2007, Congress was back again to stretch the boundaries of modern linguistics by extending TRIA ‘‘temporarily’’ for 7 

additional years and expanding it to cover any acts of terrorism, 

foreign or domestic. 

So we all must recognize that in just 5 years, TRIA has leapt in 

scope and quadrupled in length, neither of which I think could be 

mistaken for facilitating a transition to a viable market for private 

terrorism risk insurance. 

I think this begs a number of questions that I hope will be addressed in our second panel. What does constitute a temporary program? And I am not sure how many of us actually have faith in 

an ex ante recovery scheme of funds, so it begs the question, if premiums are not gathered, is this truly an insurance program? Is it 

an insurance program? Is it temporary? I certainly don’t want to 

get into any trouble with the Consumer Financial Protection Bureau (CFPB) for misleading advertising. 

Has TRIA—have the 11 years allowed the insurance industry to 

successfully model and to provide products for terrorism coverage 

without taxpayer support? Or has TRIA prevented it? 

And, in 2007, the Congressional Budget Office stated, ‘‘In the absence of a Federal mandate, insurers have a strong incentive to 

offer terrorism coverage to their commercial customers because to 

do otherwise risks their losing business on other property and casualty lines.’’ 

3 

Hasn’t the capacity in the stand-alone terrorism insurance program increased significantly since 9/11? We all agree the risks of 

terrorism are unique, but are they so unique as to be uniquely uninsurable? 

There have been times in our Nation’s past where other phenomena in American history were deemed unique—airline crashes, 

oil spills, power outages, criminal riots, data losses—and yet somehow the industry found the incentive and the ability to model and 

assess this risk. How is this done? How long did it take? Are some 

positing that all acts of terrorism cannot be modeled, or is it merely 

those nuclear, biological, and chemical acts that cannot be reserved 

against or cannot be sufficiently modeled? 

It probably comes as no surprise to anyone that if we posit that 

private insurance companies are incapable of modeling this risk, 

how can we be convinced that the Federal Government is any better, as our National Flood Insurance Program is underwater, pun 

intended? PBGC, $34 billion deficit. 

And as we look at the national debt clock, which I know is inconvenient to some, it principally turns because insurance programs, 

be it the social insurance programs of Social Security and Medicare, or others, the government has not done a particularly good 

job. That, ladies and gentlemen, represents a manmade disaster, 

and it will certainly color my opinion on this matter. I have an 

open mind. It is not an empty mind, but it remains a skeptical 

mind. 

I now recognized the ranking member for 5 minutes. 

Ms. WATERS. Thank you, Mr. Chairman. 

I would like to thank Chairman Hensarling for holding this hearing, which is the first in a series focused on the reauthorization of 

the Terrorism Risk Insurance Act, known as TRIA. 

For more than a decade, TRIA has been nothing short of a qualified success, supporting critical economic growth by ensuring access 

to terrorism coverage by our largest venues, businesses and employers. The terrorist attacks of September 11, 2001, forever 

changed the way we live and do business. In addition to the tragic 

loss of life and disruptions to our financial system, insurance losses 

totaled an estimated $40 billion in today’s dollars. The enormity of 

the losses made it financially impossible for many insurers and reinsurers to offer terrorism coverage. 

Consequently, most fled the market, and State insurance regulators allowed providers to exempt terrorism coverage from their 

policies. Those that did offer coverage did so at a cost that was prohibitively high. As a result, in 2002 Congress stepped in, enacting 

TRIA. The program makes terrorism insurance both available and 

affordable by requiring insurance companies to offer coverage to 

commercial entities in exchange for a Federal backstop, which is 

used to protect against only those terrorism-related losses that exceed $100 million. 

By requiring private insurers to offer terrorism coverage, TRIA 

actually reduces taxpayer exposure, because it keeps most of the 

terrorism risk with the private sector. Without affordable terrorism 

insurance, many buildings, schools, and venues would remain uninsured against terrorist attacks, meaning that the government likely 

would pick up 100 percent of the tab for catastrophic losses. 

4 

The success of the TRIA program has been remarkable and has 

fostered continued economic and commercial real estate development across the United States. TRIA is strongly supported by a 

broad coalition of businesses and organizations representing a wide 

array of industries including construction, manufacturing, retail, 

transportation, real estate, sporting, and entertainment. Entities 

from the National Football League to the U.S. Chamber of Commerce to the National Association of REALTORS® have lauded the 

program’s importance. 

Support for TRIA is so strong and so widespread that it has been 

reauthorized twice by the House, both times without controversy 

and with overwhelming bipartisan support, but as we approach its 

expiration in 2014, opposition to the quick, clean and long-term renewal of this popular and noncontroversial program remains a 

mystery to me. 

While opponents argue that the program inhibits private-sector 

participation, the private sector itself maintains that without TRIA 

in place, insurers would fall into the same practices that followed 

the attack of September 11th. This would mean the exclusion of 

terrorism coverage that would cushion the economic shock of a 

large terrorist attack or a series of attacks, something that remains 

essential for economic growth and job security. 

Mr. Chairman, I support reauthorizing TRIA, and I am encouraged by the proposals on the table to do so, in addition to the bill 

by Representative Capuano, which I have co-sponsored. We have 

seen bipartisan legislation from Representatives Maloney and 

Grimm, as well as a bill from Representative Thompson. While 

each bill differs slightly in form, it is of the utmost importance that 

TRIA is reauthorized quickly, cleanly, and for the long term. 

I thank you again for holding this hearing, and I look forward 

to the testimony of my colleagues and the other witnesses. 

I yield back the remainder of my time. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Texas, Mr. Neugebauer, the chairman of the Housing and Insurance Subcommittee, for 31⁄2 minutes. 

Mr. NEUGEBAUER. I thank you, Mr. Chairman, and thank you for 

calling this important hearing. This, I think, is the first of what 

probably will be a number of hearings. We have planned some additional hearings in the subcommittee level, as well. 

Last week, we remembered 9/11, which was an event that was 

unwanted, unplanned for, and unexpected in this country. It created quite a bit of economic havoc in our country, and as a result 

of that, there was economic uncertainty, and so TRIA was put in 

place to give some confidence to the marketplace so that people 

could continue to insure buildings and lives in what can be considered high-risk areas. 

One of the things that I want to do when at some point in time 

I leave Congress is I want a temporary government contract, just 

like TRIA, one that lasts almost 11 years now. And one of the 

things that, as I said, was the purpose of this was to bring some 

stability to the marketplace. 

And so, let’s look at what has happened since 2002. The insurance industry was able to absorb the shock. It was a pretty big hit, 

but they absorbed it, and subsequent to that, the industry has reVerDate Nov 24 2008 15:52 Jun 06, 2014 Jkt 086680 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\86680.TXT TERRI
5 

capitalized almost twofold. The reinsurance market is very much 

up and running, and there is a lot of liquidity out there, a lot of 

capital, and a lot of interest in taking on some of these risks. 

The insurance for TRIA for terrorism has gone down. The takeup rate is up. And so when you look back, if you ask people what 

would need to happen for us to begin to transition off of TRIA 11 

years ago, they would have told you, well, the industry needs just 

a little bit of time to get back on its feet. And when you look at 

the industry today, it is back on its feet. 

We have talked to a number of market participants, and we have 

talked to a number of people in the insurance business, and they 

are ready to take on these risks. Because really what is happening 

today—and it is a great business model if you are in that business—is that basically, the American taxpayers are furnishing free 

reinsurance for TRIA coverage in this country. 

It seems to be, and we have reached a period in this country— 

and it is unfortunate—where we now have the American taxpayers 

backing everybody’s mortgages, backing their insurance, backing 

their flood insurance, and what we know is the government is not 

really good at the insurance business. We look at FHA, it is in the 

insurance business, but yet they are undercapitalized. 

And so, I think the debate needs to be not just about what we 

do with TRIA, but in the future, can we have economies where the 

American taxpayers don’t have to take on risks that other people 

don’t want to take on? 

I look forward to the discussion that we will have today. I think 

it is an important discussion. And I thank the chairman for calling 

this hearing. I appreciate my colleagues who are going to testify in 

the first panel and I look forward to hearing their testimony, as 

well as the testimony of the other panel members. I think this is 

a good discussion beginning point, and one that I think will have 

additional opportunities in the future. 

And with that, Mr. Chairman, I thank you. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Connecticut, Mr. Himes, for 2 minutes. 

Mr. HIMES. Thank you, Mr. Chairman. I appreciate you calling 

this very important hearing, and I would like to thank my colleagues for appearing on this panel on this very important topic. 

I will note that I am a co-sponsor of both Mr. Grimm’s and Mr. 

Capuano’s bills. I will note we have a wonderful opportunity here 

today, because Mr. Capuano finds himself on the other side of the 

witness table for this hearing. And I want to say that, Mr. Chairman, like it or not, the Terrorism Risk Insurance Program has become a critical element of the real estate industry in particular. 

Some 60 percent of total U.S. commercial property—and that is an $11 trillion market—is backed by TRIA reinsurance. The National Multi Housing Council believes that about 85 percent of the 

firms that they surveyed purchase terrorism coverage as part of 

their property programs. 

This is not just important to the industry; it is actually a really 

important debate. Mr. Chairman, I agree with you. We should be 

very, very cautious in how we proceed. We don’t want to repeat the 

experience that we all just lived through with other insurance programs, in particular the GSEs. We want to be careful that this 

6 

ends up being a well-underwritten program that does what it has 

always done, which is provide an insurance backstop without any 

cost to the Federal Government, and we do, I think, want to make 

sure that it is structured in a way that if the private market eventually can provide this insurance, it does so. 

The logic, of course, for government intervention in this market 

is that the insurance industry relies on a couple of things that 

don’t exist when you think about terrorism. The events are utterly 

unpredictable. They are not subject to any sort of actuarial analysis, and, of course, there is dramatic asymmetric risk. The government—and I say this as a member of the Intelligence Committee— 

knows a lot more than the market does about the nature of this 

risk. 

So, Mr. Chairman, I hope that we will do something at this 

crossroads. We could do nothing, as we are wont to do. We could 

pass a bill that goes nowhere because it is so extreme. After the 

fashion of the day, we could pass TRIA reauthorization which relies 

on a repeal of Obamacare. 

And if we do one of these three things, we will earn our low approval ratings, or we can make an important statement to the 

American people that we are willing to govern in an intelligent 

way, and, Mr. Chairman, I hope that is the path we follow. 

I yield back the balance of my time. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Illinois, Mr. Hultgren, for 11⁄2 minutes. 

Mr. HULTGREN. Thank you, Mr. Chairman, and thank you, all of 

you have done so much work on this. 

From the hearing today, and in the committee’s discussions to 

come, I am not just interested in fully understanding the necessity 

of the Terrorism Risk Insurance Program, but also if it can be improved. 

I can recognize that some Federal backstop may be required if 

our Nation’s worst fears are realized, but how can we maximize 

taxpayer protection? How can we fully realize private insurance capacity? Are there emerging threats being covered? 

Terrorism continues to evolve, and so must our response. Data 

centers and communication capacity are high-priority targets 

today, higher than when terrorism risk insurance was first conceived. Is TRIA meeting these challenges? 

Today, I have more questions than answers, but I start with this 

acknowledgement: Terrorist attacks that destroy individual lives 

and private property were not ultimately directed at those specific 

entities. The attack is meant to harm a much wider audience and 

is directed at our Nation. 

On 9/11, my friend from high school, Todd Beamer, was killed in 

the Flight 93 crash. He was not the terrorist target on that day, 

nor was United Airlines. We all were. 

Like so many of my colleagues, I have not voted on TRIA before, 

and I thank the chairman for the chance to explore this issue, and 

I thank the witnesses for sharing their experience. Thank you, Mr. 

Chairman. I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Illinois, Mr. Foster, for 2 minutes. 

7 

Mr. FOSTER. Thank you, Mr. Chairman, for holding this important hearing. 

While it is important to periodically re-evaluate the effectiveness 

of every Federal program, I am increasingly concerned by indications that TRIA may only be extended for a short time, or not at 

all. The importance of terrorism insurance to our economy was in 

full view during the 14-month period after the September 11th attacks. 

In 2002, when terrorism insurance was largely unavailable, a survey from the Real Estate Roundtable found that $15.5 billion in 

real estate projects in 17 States were stalled or canceled because 

of the lack of available terrorism insurance from the private market. 

In the midst of what is now a solidifying, but still fragile, economic recovery, congressional inaction on this issue could threaten 

the stability of our markets and delay progress in the real economy. Uncertainty alone may cause insurance premiums to spike 

and become unavailable in some markets. 

We have seen various arguments of opponents of catastrophic 

Federal backstops before. I believe that it is intellectually dishonest 

to believe that the Federal Government would not and should not 

step in following another large-scale terrorist attack or, for that 

matter, a collapse in our Nation’s housing market. 

There will always be a range of disasters for which only the Federal Government has deep enough pockets to cover the losses. In 

the case of terrorism risk insurance, we should accept that reality 

and accurately price that risk. 

After having spent over 20 years as a particle physicist, modeling 

the probabilistic outcomes of very rare events, I understand the difficulty in modeling a terrorist attack, given our inability to predict 

the future, and attacks with very low probabilities, a small dataset 

on which to project probabilities in the future, and the fact that the 

probabilities are both random and correlated. 

But a failure to extend this program is unacceptable. Even sending signals to the market that we may not act rationally and decisively will raise the operational costs for businesses and jeopardize 

jobs, not just in Chicago, New York, and San Francisco, but across 

the banking, commercial, real estate, and construction industries of 

this country. 

Thank you, and I yield back. 

Chairman HENSARLING. The last colleague I will recognize before 

I recognize four more colleagues is the gentleman from Georgia, 

Mr. Scott, who is recognized for 2 minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

A couple of points. First of all, terrorism risk does not resemble 

any other commercial risk. Unlike natural disasters, in which insurers have had significant experience and data to project the risk 

of damage, terrorism is highly difficult to model projections of risk 

assessment. 

The Terrorism Risk Insurance Program provides a good risksharing model between insurers, policyholders, and the Federal 

Government that provides insurance market stability and security, 

particularly considering the unpredictability of the tragic nature 

and uniqueness of terrorism. 

8 

It is very important to point out that TRIA has provided a necessary service at nearly zero cost to the taxpayers. Numerous and 

diverse industries from insurance to real estate to travel and tourism have argued very hard for the necessity of extending TRIA, 

and we must do that. 

And so it is with great pleasure that I am pleased to sign on with 

both Mr. Grimm and Mr. Capuano’s bills and support them. And 

I would urge the committee to do so, as well. 

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

Chairman HENSARLING. The gentleman yields back. 

Today, we will have two witness panels. Our first panel will be 

composed of our colleagues who have authored and co-authored this 

legislation. We certainly look forward to grilling them like welldone hamburgers. 

In all seriousness, without objection, we will dispense with questioning of the witnesses on this panel. Clearly, our colleagues need 

no introduction, so I will now yield to the gentleman from New 

York, Mr. Grimm, for 5 minutes for your statement. 

STATEMENT OF THE HONORABLE MICHAEL G. GRIMM, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 

YORK 

Mr. GRIMM. Mr. Chairman, thank you. I appreciate very much 

your moving up this hearing, and I know I speak on behalf of all 

of my colleagues at the table. 

I also want to thank Ranking Member Waters and my fellow colleagues on the Financial Services Committee for holding this hearing to examine the Terrorism Risk Insurance Act of 2002, which we 

all know as TRIA. And I want to thank you for providing me this 

opportunity to testify today on this important program. 

As a 9/11 first responder, and a Member of Congress representing New York City, I am keenly aware of the devastation and 

destruction that a major terrorist attack can cause. I can also report that 12 years after that terrible day, we are finally seeing 

meaningful redevelopment of the World Trade Center site come to 

fruition, redevelopment that insurance proceeds helped make possible. 

Prior to 9/11, insurance companies in the United States routinely 

provided coverage for losses caused by acts of terror. However, 

after the devastating losses suffered during the largest terrorist attack in our Nation’s history, insurance carriers were forced to totally re-evaluate the risks associated with insuring against acts of 

terror. 

This caused the availability of terrorism insurance to all but vanish. It created a situation in which many commercial property developments were either stalled or canceled, as developers and lenders were ultimately unwilling to move forward without terrorism 

insurance coverage. 

This lack of coverage was the driving force behind Congress creating TRIA in 2002, and reauthorizing it in 2005 and 2007. TRIA 

will expire at the end of 2014 unless Congress takes action, and I 

would like to express to my colleagues today the importance of continuing this vital program. 

9 

Many of the reasons, if not all of the reasons that caused insurance to withdraw from the terrorism insurance market 12 years 

ago are still present today. The risks and possible costs associated 

with terrorist attacks are still impossible for insurance actuaries to 

model. 

This is because, unlike natural disasters, which are random 

events, terrorist acts are manmade, malicious events. Such intentional acts do not easily fit into the standard principles of insurable 

risk. 

In addition, giving insurers the information needed to better 

model such risks would put our national security in severe jeopardy. It would require turning over top-secret intelligence information on current terrorist threats and plots. 

While I understand there is a perception that TRIA is only important to large cities, such as New York and Los Angeles, it is not. 

Our energy infrastructure, amusement parks, resorts, sports stadiums, universities, and major hospitals are some of the many atrisk targets across the entire country. 

For example, on any given autumn Saturday, there are hundreds 

of football stadiums on college campuses filled with fans, in some 

cases more than 100,000 people at any one time. Such facilities are 

as vulnerable as skyscrapers in New York City to a terrorist plot 

to kill and harm innocent Americans. 

Additionally, I feel it is extremely important to note that TRIA 

is not only vital to property insurance, it provides a key backstop 

to workers’ compensation insurance across the entire country. State 

law prevents insurers from excluding risks, such as terrorism, from 

workers’ compensation policies. 

Without TRIA, many workers’ compensation insurers could be 

left in financial ruin in the case of a large claim caused by a terrorist act. This would not only harm those directly injured in the 

attack, but everyone else who also relies on the important safety 

net that workers’ compensation insurance provides. 

To put this in perspective, workers’ compensation was liable for 

$750 million for Cantor Fitzgerald alone. This was one financial 

company located in the Twin Towers on that fateful day. 

Compare this with the liability that could be created by a terrorist act striking a large hospital or a university that has thousands of employees on any site, on any given day. I submit to you 

that with regard to workers’ compensation insurance, not only is 

the risk impossible to model actuarially, but it is virtually unlimited. 

It is important to note that workers’ compensation insurers are 

mandated by State law to provide coverage for acts of terror. So, 

this is decidedly not a free market. 

Finally, I would like to make clear that TRIA is not a taxpayer 

bailout. It is not a bailout of the insurance industry, but it is, in 

fact, the most taxpayer-friendly way to deal with the long-term 

costs associated with a terrorist attack. 

TRIA, through a $100 million industry-wide co-payment, and its 

20 percent of written-premium, individual-carrier co-payments, 

places significant private capital in front of any taxpayer assistance. Additionally, TRIA’s repayment mechanism provides an imVerDate Nov 24 2008 15:52 Jun 06, 2014 Jkt 086680 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\86680.TXT TERRI
10 

portant vehicle for compensating taxpayers over time for assistance 

provided in the immediate aftermath of a terrorist attack. 

Again, I just want to thank all of my colleagues, and I want to 

thank my chairman again. This is an extremely important issue. 

And with that, I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from New York, Mrs. Maloney, for 5 minutes. 

STATEMENT OF THE HONORABLE CAROLYN B. MALONEY, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 

YORK 

Mrs. MALONEY. Thank you, Mr. Chairman, and Ranking Member 

Waters, for calling this full Financial Services Committee hearing. 

And I also would like to thank my colleagues who have co-sponsored this bill. I hope others seriously consider co-sponsoring it, 

and I thank my colleagues who authorized this important program 

to begin with and reauthorized it. 

I also would like to ask unanimous consent to place in the record 

an article that my colleague, Mr. Grimm, and I co-authored in the 

New York Post today entitled, ‘‘Congress must move on terror insurance.’’ 

Chairman HENSARLING. Without objection, it is so ordered. 

Mrs. MALONEY. And extending TRIA really should be a nobrainer, because it works, it protects taxpayers, it creates jobs, and 

it costs absolutely nothing. We all know that major U.S. cities, like 

New York and Boston, remain top targets for terrorists. Everyone 

also knows that a major terrorist attack would be devastating, not 

just for our citizens in our country, but for our overall economy. 

That is why reauthorizing TRIA is essential to our country’s continued economic well-being. 

And the risk continues. Police Commissioner Kelly has reported 

that there have been 13 different attempts since 9/11 to attack 

New York, which have been thwarted and stopped. 

After 9/11, businesses across this country, and especially in New 

York City, could not get terrorism insurance. This crippled the construction, real estate, and tourism industries. TRIA provided businesses and insurers with much needed certainty by establishing a 

stable, long-term Federal support system for terrorism insurance. 

This helped the economy bounce back after 9/11 and ensured that 

terrorists could not wreak havoc on our economy and our way of 

life. 

After 9/11, all construction stopped. You couldn’t even build a hot 

dog stand. It completely stopped. They could not get insurance anywhere in America. The only place they could get insurance was 

Lloyd’s of London was insuring some places in America. 

Over the long term, TRIA ensures that if, God forbid, another 

terrorist attack does occur, we will be able to keep our markets 

open, our cities vibrant, and our economy strong. As we all know, 

it is rare for Congress to pass a bill that ends up doing exactly 

what we intended it to do and at no cost to the Federal Government or to the taxpayer. 

Yet, that is precisely what TRIA has done. It has ensured that 

businesses have access to terrorism risk insurance for over a decade and has not cost taxpayers a single dime. Why then would we 

11 

even think about ending this program? Ending this program would 

harm the fragile economic recovery in the short term, and in the 

long term would leave our economy dangerously exposed in the 

event of a future terrorist attack. 

Opponents sometimes question why we need TRIA at all, but it 

is important to remember that just because the Federal backstop 

in TRIA has never been used does not mean that it is unnecessary. 

On the contrary, as the terrorist attack at the Boston Marathon 

demonstrated just this year, TRIA remains as necessary as ever. 

Opponents also argue that the private sector has the capacity to 

step in and provide terrorist insurance even without TRIA, but 

there is no evidence to support this. 

To the contrary, we already know what will happen without a 

Federal backstop for terrorism insurance because we experienced 

it. During the 14-month period after 9/11, before Congress enacted 

TRIA, private insurers refused to offer any coverage, which resulted in stalled and stopped construction projects and thousands 

of lost jobs. 

This is why there is widespread support in the business community for reauthorizing TRIA in its current form. Insurers, developers, banks, and even the major sports leagues, hospitals, and 

schools all believe that the presence of the Federal backstop that 

TRIA provides is the only reason that terrorism risk insurance is 

available at all. 

This time, we can’t just wait until the last minute to reauthorize 

TRIA like we do with everything else. Months before the last TRIA 

reauthorization was expiring, insurance companies were already 

notifying regulators of plans to drop their terrorism insurance, 

which started to stop and stall development and jobs in our country. 

That is why my colleague Mr. Grimm and I introduced a bipartisan bill to extend the current TRIA program for another 5 years. 

Our bill currently has 76 co-sponsors on both sides of the aisle. And 

with such broad bipartisan support, I very much hope that the 

committee will schedule a markup without delay, please, Mr. 

Chairman, and Ms. Ranking Member. 

Thank you very much for this privilege to testify before this important committee and before colleagues that I respect so much. 

Thank you so much. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Massachusetts, Mr. Capuano, for 5 minutes. 

STATEMENT OF THE HONORABLE MICHAEL E. CAPUANO, A 

REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF MASSACHUSETTS 

Mr. CAPUANO. Thank you, Mr. Chairman. And thank you for 

having this hearing, and allowing me to testify as representing 

what I consider to be 99 percent of America, which means those of 

us who do not root for the Yankees. 

Mr. GRIMM. Objection. 

[laughter] 

Mr. CAPUANO. Mr. Chairman, let’s be serious here. 

Chairman HENSARLING. So much for bipartisanship. 

[laughter] 

12 

Mr. CAPUANO. Always trying, Mr. Chairman. Always trying. 

Mr. Chairman, let’s be serious. We are going to reauthorize TRIA 

pretty much as it is. We may tinker around the edges, changing 

some of the triggers, or the amount of time we do it, but it is going 

to be done. And we all know this. 

It is going to be done because of people like me. I don’t like 

TRIA, either; I just don’t have a better idea. I haven’t heard anyone else suggest a better idea. The private market has not come 

back in, and they won’t come back in. If there are better ideas, let’s 

hear them. 

To me, TRIA is a necessary item, because without it we will have 

no construction, you have heard my colleagues testify, and we all 

know that. Without some sort of terrorism insurance, there would 

not be a new Dallas Cowboys Stadium today. There would not be 

fans in the Dallas Cowboys Stadium next week. This is a national 

issue. This is an issue that especially for me, the most important 

thing we did the last time is we put in a repayment mechanism. 

God forbid there is a need to use TRIA, but we now have it so 

that taxpayers will not lose a penny. They will put in the money 

upfront and get paid back over time. And, again, if others have better ideas, people like me want to hear them. This doesn’t fit with 

my general philosophy, but, again, to me, it is necessary for the 

American economy to keep moving forward. 

And as far as bipartisanship goes, I do want to point out there 

were 32 members of this committee who were in Congress the last 

time we reauthorized TRIA. All but two of the members on this 

committee voted for it. But with my luck, one of those two happens 

to be the chairman of the committee today. 

[laughter] 

A minor point of consternation, but something we have to live 

with. 

Mr. Chairman, thank you for having this hearing. And with trueness in my heart, I look forward to your grilling, insightful questions. 

[The prepared statement of Representative Capuano can be 

found on page 62 of the appendix.] 

Chairman HENSARLING. Well, in the spirit of bipartisan friendship, I would just suggest to the Member that in the future, if he 

wishes to get the chairman’s attention, Kyle Field at Texas A&M 

University is more persuasive than the Cowboys Stadium. 

[laughter] 

The Chair now recognizes the gentleman from New York, Mr. 

King, for 5 minutes. 

STATEMENT OF THE HONORABLE PETER T. KING, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW 

YORK 

Mr. KING. Thank you, Mr. Chairman. 

And thank you, Ranking Member Waters. It is truly a privilege 

to follow Mr. Capuano. 

Very seriously, most of the points have been made. I would ask 

unanimous consent to have my full statement inserted in the 

record. And I will just— 

Chairman HENSARLING. Without objection, it is so ordered. 

13 

Mr. KING. There are several points I want to make at the outset, 

though. First, comments have been made that this was intended to 

be a temporary measure, and it is still around 12 years later. The 

reality is this was passed in the aftermath of 9/11, and we didn’t 

fully realize at the time that the international terrorist threat 

would not be a temporary threat. 

The fact is, 12 years later—I say this as a member of the Intelligence Committee and former chairman of the Homeland Security 

Committee—in many ways, the terrorist threats are as great if not 

greater than they were on 9/11. So the threat is still there, and 

that is why to me it is so essential that this program be continued 

and not be just looked upon as a temporary program. 

Second, as has been said, TRIA has no debt. This is not like the 

Federal Flood Insurance Program. It has no debt. The Federal Government has never paid out one dime in claims. And I think it is 

important out there—because somehow there is this impression 

that this is a handout or people are making money off of this. The 

fact is, not one penny has been paid out in the 12 years. 

Now, I think this is perhaps the most successful example of a 

public-private partnership, and it is provided economic certainty 

and stability to businesses across the country. It has brought private insurers back into the business of protecting against terrorism 

following the devastating effects of 9/11. 

My district lost 150 friends, neighbors, and constituents. Thousands and thousands of constituents have worked in the area of the 

World Trade Center and continue to work there today. So, Mr. 

Grimm, Mrs. Maloney, and I certainly are very personally involved 

in this. Mr. Capuano, having gone through the Boston Marathon 

attack, knows the trauma that affects an area when a terrorist attack such as this occurs. 

But as also been said, this is not just a New York or a Boston 

issue. TRIA has allowed, as Mr. Capuano mentioned with the Dallas Cowboys, the fact is the Super Bowl, the Olympics, amusement 

parks, universities, we can go on, Las Vegas, favorite major league 

sports teams in all sports, TRIA has had a hand in allowing all 

these events to come to pass. 

So at this time, I would like to ask unanimous consent to enter 

into the record letters in support of TRIA’s extension from Major 

League Baseball, the NFL, the NHL, the NBA, NASCAR, the 

NCAA, the U.S. Olympic Committee, the U.S. Chamber of Commerce, the National Association of REALTORS®, the Real Estate 

Board of New York, the American Gaming Association, New Mexico 

Mutual, and the Utah Workers Compensation Fund. 

In other words— 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. KING. Thank you. Thank you, Mr. Chairman. In a post-9/11 

world, we need the TRIA program more than ever. And also, this 

is a unique issue, because as we saw with 9/11, nothing the City 

of New York could have done, nothing the State of New York could 

have done could have prevented those attacks. 

It is the responsibility of the Federal Government to ensure the 

security of its citizens. A terrorist attack occurs when there is a 

breakdown in our national security system. If that happens, the 

14 

Federal Government bears the responsibility to assist the victims 

of such an attack, which is akin to an act of war. 

We cannot expect the private market to ensure against failures 

in U.S. counterterrorism without the government taking on some 

responsibility for the failure. Americans are relying on us to keep 

them safe. 

Now, an attack—again, as I said before, not one dime has been paid out. As we go forward, an attack needs to cost over $100 million in claims, and an additional 20 percent insured deductibles before government cost-sharing even kicks in. And then, TRIA makes 

sure taxpayers are fully repaid, as Mr. Capuano pointed out, by assessing fees on the insurance industry to recoup any payouts. 

So this is a program which has not cost us anything, and which 

has allowed billions of dollars in real estate development to go forward. We are talking about thousands and thousands of jobs. And 

I just see no rationale in this not being extended. 

I strongly support a clean extension of the TRIA program. Mr. 

Capuano and I have one piece of legislation. I am proud to be a 

co-sponsor of the Grimm-Maloney legislation, and they have 

worked extensively hard on this. 

But let’s not just, as we somehow rely on buzzwords, to put ourselves in a situation where we are hampering the economic future 

of this country. This is something—yes, as Mike said, if there are 

any improvements, let’s make them. No one wants to see one 

penny or one dollar be spent unnecessarily. 

But until someone comes up with that, let’s not stop one of the 

most effective programs we have ever had and which really goes 

to the heart of the main threat, one of the main threats, certainly 

the most life-threatening danger we face today, and that is a terrorist attack. 

So, let’s go forward. Again, if there are ways that this can be 

done in a more efficient way, more effective way, let us know. But 

until then, I strongly urge an extension of the program. 

I yield back the balance of my time. 

[The prepared statement of Representative King can be found on 

page 64 of the appendix.] 

Chairman HENSARLING. I thank my colleagues for their clarity 

and passion and leadership on this issue. You are now dismissed 

to assume your usual seats. 

We will take a moment to allow our second panel of witnesses 

to be seated at this time. 

We will now turn to our second panel. I will introduce our witnesses. First, Peter Beshar is the executive vice president and general counsel to the Marsh & McLennan Companies. He previously 

was a litigation partner in a large law firm, and served as assistant 

attorney general in New York. 

Eric Smith is the president and CEO of Swiss Re Americas, a position he has held since 2011. He leads the company’s property, 

casualty, and life and health reinsurance businesses in North and 

Central America. 

Janice Abraham is the president and CEO of United Educators 

Insurance, a position she has held since 1998, where she is responsible for developing and executing business strategy and operational plans for the risk management and insurance company. 

15 

Dr. Gordon Woo is a catastrophist for Risk Management Solutions, a Silicon Valley firm specializing in catastrophic risk modeling. 

Last but not least, Mr. Steve Ellis is vice president of Taxpayers 

for Common Sense, and is no stranger to the congressional witness 

table, having testified on numerous topics such as flood insurance 

and congressional earmarks. 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. Without objection, each of your written 

statements will be made a part of the record. 

Mr. Beshar, you are now recognized for 5 minutes. 

STATEMENT OF PETER J. BESHAR, EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL, MARSH & McLENNAN COMPANIES 

Mr. BESHAR. Chairman Hensarling, Ranking Member Waters, 

and all the members of the committee, thank you for the opportunity to be here. 

Terrorism is a deeply personal issue for our company, Marsh & 

McLennan. On that fateful day, 9/11, our company lost 295 employees and scores of business associates. 

We also feel that we have a unique vantage point on the terrorism insurance market. Through our company, Marsh & 

McLennan, and our subsidiary, Guy Carpenter, we provide analytics and brokering services to really all of the players in the insurance marketplace, the buyers of terrorism insurance, the sellers, 

and also key reinsurers. 

We consider TRIA to be a model example of a public-private partnership. It provided crucial stability into the insurance marketplace at a vital time, and today it is instrumental in allowing the 

marketplace to function effectively. So, we strongly encourage its 

reauthorization and its modernization moving forward. 

This morning, I would like to briefly cover four areas: the current 

state of the terrorism insurance market; the aggregate levels of 

capital in the industry; our recommendations for reforming TRIA; 

and lastly, a couple of cautionary notes in the event that a different 

decision is made. 

This spring, our company, Marsh, released a sweeping survey of 

2,500 clients across the country on the subject of terrorism insurance. And there were two big takeaways from the report. 

First, buyers across the country want this coverage. In the 

South, in the Midwest, and interestingly, in the West, the take-up 

rates are increasing faster than anywhere else, so this is not simply a phenomenon in the Northeast. 

And second, the take-up rates are really across all industries. We 

tracked 17 industries—real estate, health care services, nonprofits—really, at every level, the take-up rates have been consistent or increasing. So, policyholders want this protection. 

Meanwhile, on the level of capital in the reinsurance industry, 

our subsidiary, Guy Carpenter, recently released a report indicating that the level of capital in the reinsurance industry has increased over the last 5 years to approximately $195 billion, up from 

about $160 billion 5 years ago. 

16 

Now, to be clear, not all of this capital is available for terrorism 

coverage in the United States. These numbers are the aggregate 

numbers for the reinsurance industry across the world. 

Nonetheless, there is more capital in the reinsurance industry 

today than there was 5 years ago, and were these trends to continue, we believe that there is space for the private insurance industry to take up more and to thereby reduce the position of the 

Federal Government. 

Against this backdrop, Mr. Chairman, we offer three specific recommendations. 

First, we recommend that Congress specifically clarify that coverage is available under TRIA for all forms of terror, including 

NBCR, if the underlying policy makes those provisions available. 

Second, TRIA should be modernized to reflect the fact that new 

terrorist risks have emerged, even since the last time that Congress reauthorized it in 2007. I think the most acute example is 

cyber terrorism, and we ask that Congress reflect on that and analyze how best to include cyber terrorism in a reauthorized TRIA. 

And third, the certification process. There is a clearly laid-out 

process, but it doesn’t have a timeline associated with it. And as 

the bombings in Boston have revealed, in the absence of a timeline, 

there is ambiguity that is brought into the marketplace and for policyholders. 

So, a range of additional changes have been recommended from 

abolishing the program in its entirety to scaling back the deductible, and expanding the co-pay. We will leave that to you, Congress, 

to grapple with, but we would offer just a couple of thoughts about 

potential market disruption that can occur as you analyze those 

issues. 

First, a critical component of TRIA is the make-available component. We take it for granted, but up until that point, unless that 

make-available is there, there is no guarantee whatsoever that 

property and casualty carriers will, in fact, make terrorism coverage available. 

And our research suggests that, indeed, if TRIA is not there, 

there are many P&C carriers who will, in fact, choose not to underwrite the peril. 

Similarly, on workers’ compensation coverage, where carriers 

have to pay their claims without regard to fault, absent a Federal 

backstop, a number of carriers will likely decline to provide coverage. 

So, in sum, we believe TRIA is the backbone to a healthy terrorism insurance market, and in our judgment, its existence actually serves to protect taxpayers from absorbing virtually all the loss 

associated with a significant terrorism event. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Beshar can be found on page 77 

of the appendix.] 

Chairman HENSARLING. Mr. Smith, you are now recognized for 5 

minutes. 

17 

STATEMENT OF J. ERIC SMITH, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, SWISS RE AMERICAS 

Mr. SMITH. Chairman Hensarling, Ranking Member Waters, and 

members of the committee, good morning. My name is Eric Smith, 

and I am the president and CEO of Swiss Re Americas, a U.S.- 

based corporation with thousands of employees in 30 offices around 

the United States. We began doing business here in 1893, and we 

have helped people rebuild their lives and businesses after every 

major catastrophe since the San Francisco earthquake of 1906. 

Thank you for allowing me to appear before the committee today 

to discuss the Terrorism Risk Insurance Act. TRIA protects the 

American economy and provides certainty in the insurance marketplace. 

Swiss Re supports this important partnership between the government and the private sector as a means of managing the terrorism risk that our country faces. We urge you to reauthorize the 

program. 

Swiss Re offers insurance and reinsurance coverage for terrorism 

risk in the United States. We believe this gives us a unique perspective on two critical issues: first, why the risk of terrorism continues to be uninsurable; and second, how traditional and nontraditional reinsurance markets view the risk of terrorism. 

We are celebrating our 150th anniversary as an enterprise, and 

the risk of terrorism and natural catastrophes has existed since our 

company began operations. Today, insurance for natural catastrophes is much more available and affordable than it is for terrorism. 

Why is this the case? Because even though natural catastrophes 

like hurricanes and tornadoes can be just as devastating as acts of 

terrorism, we can model them with accuracy. Terrorism risk can’t 

be modelled. Terrorism risk remains largely uninsurable today because terrorists are unpredictable. 

Terrorists actively work against being detected so they can inflict 

as much damage as possible. The same isn’t true for hurricanes or 

other natural catastrophes. And until we have a means of modeling 

the human element of terrorism risk, we don’t believe the risk can 

be underwritten or priced with accuracy. 

Because Swiss Re is the leading global reinsurance company in 

the United States, I would like to comment on the U.S. market capacity and the potential for growth in terrorism reinsurance. 

Reinsurers face the same basic challenges as primary insurers in 

underwriting and pricing coverage for terrorism risk. And this uncertainty affects our business appetite for taking on the risk. 

The fact is, we earmark very limited capital to terrorism reinsurance, and the capacity we do offer goes to support our clients in 

their TRIA mandates. The reason Swiss Re offers capacity for terrorism risk in the United States is because TRIA is in place. 

Reinsurance capacity for terrorism risk in the United States is 

generally limited to conventional terrorism losses. There is virtually no capacity available for unconventional terrorism losses 

from nuclear, biological, chemical, or radiological attacks. And even 

for conventional terrorism, reinsurance capacity is limited in large 

metro areas because of the risk concentration challenges. 

18 

There have been recent reports about capital flowing into the reinsurance market from hedge funds and large pension funds and 

some have made the assumption that this capital will be deployed 

for terrorism risk. Our experience does not lead us to believe that 

this will be the case. Investors have not shown an appetite for terrorism risk, whether the investment is made in insurance-linked 

securities or in a more traditional manner. 

There are two reasons for this: first, the unknowable characteristics of the underlying risk; and second, the correlation of risk. Pension funds and hedge funds are usually heavily involved in financial markets. After a terrorist act causing large-scale destruction, 

they would face the prospect of losses from their reinsurance investments and possible losses from a downturn in financial markets. This contrasts with investments geared solely toward natural 

catastrophe risks, where market downturns are less likely after an 

event. 

Such dual uncertainty is not attractive to investors. This brings 

me back to the central problem with terrorism risk. Until it can be 

reliably modeled by insurers and reinsurers in the financial markets, U.S. businesses will face challenges getting the commercial 

insurance coverage they need to protect their operations and meet 

financing requirements. And without TRIA, U.S. taxpayers would 

be at greater risk. 

We have worked hard at building the TRIA public-private partnership. We are very thankful that the program hasn’t been tested. 

It is the elusive nature of terrorism that underscores the continuing need for the partnership. TRIA has proven effective in balancing the challenges of terrorism risk, national security, and economic stability. It provides an important foundation for orderly economic recovery following a catastrophic terrorist attack on U.S. 

soil. 

Mr. Chairman, thank you for allowing me to appear today. I look 

forward to answering your questions. 

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

of the appendix.] 

Chairman HENSARLING. Ms. Abraham, you are now recognized 

for 5 minutes. 

STATEMENT OF JANICE M. ABRAHAM, PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, UNITED EDUCATORS INSURANCE 

Ms. ABRAHAM. Thank you. 

Mr. Chairman, Ranking Member Waters, and members of the 

committee, thank you for this opportunity to testify today. I am 

Janice Abraham, president and CEO of United Educators, speaking 

today on the concerns of schools, colleges, and universities. 

United Educators is an A-rated risk retention group, a liability 

insurance company owned by more than 1,200 schools, colleges, 

and universities throughout this country. Our goal is singular and 

focused on this issue, to help schools and colleges recover as quickly as possible after a terrorist event, if a terrorist event occurs. 

Although United Educators insures institutions in Boston, Los 

Angeles, and throughout the country, we are mindful that the terrorists found Oklahoma City as a target. And close to 92,000 fans 

will gather in Lincoln, Nebraska, to watch a football game this fall. 

19 

This is not a rural or urban issue; this is an issue about having 

a plan to recover in the event of a natural catastrophe. 

Our policyholders fit the profile of potential targets. They are 

icons of America, with open campuses and cultural landmarks, a 

high concentration of people, and a strong role in their community 

as economic engines. 

Schools are potential targets for their Saturday afternoon football 

games, and their research labs, not just the labs at major research 

universities, are targets, especially of terrorists who would seek to 

harm the Nation’s national security apparatus. And schools are targets when they host major speeches or Presidential debates. 

United Educators views TRIA as a national terrorism risk management plan that enables our schools to manage their risks responsibly through a four-way collaboration. 

First, the policyholders, the schools through their insurance 

deductibles have the first level of risk. They are also obligated to 

have well-documented and tested crisis response plans that ensure 

the security of research labs and safe evacuation plans for large 

gatherings. 

Second, United Educators, as the primary insurer, underwrites 

this terrorism risk considering the schools location, its 

vulnerabilities, and its crisis response and recovery plans. We take 

on considerable risk of loss ourselves as a company; 100 percent of 

our general liability insureds hold the terrorism insurance endorsement now, 100 percent. 

Third, U.E.’s reinsurers support our high limits of coverage, particularly in the case of multiple catastrophic events, such as a coordinated terrorist event across the country. Our reinsurers have 

advised us that this broad coverage will disappear if the Federal 

program is not renewed. 

So that leaves the Federal Government, a fourth and critical collaborator, by capping the liability and providing stable and predictable limits on terrorism insurance allows insurers and reinsurers 

to offer the sufficient capacity, even for multiple events. 

If the Federal Government steps away from its current role in 

terrorism risk management, I think two things will happen. 

Number one, the policyholders will not be adequately protected. 

U.E. could not responsibly provide coverage knowing that our balance sheet could be hit by coordinated terrorist attacks on multiple 

campuses. This would leave colleges and schools with few options, 

and none of them are good. They may be unable to purchase terrorism coverage, relying on government aid and private gifts to 

slowly recover after a catastrophic event, or they may obtain some 

form of limited coverage with exclusions and uncompetitive rates 

and pass this cost on to students through tuition. 

Second, insurance companies’ insurance capacity would be reduced and market competition would suffer. Like United Educators, small and midsized insurers—and that is the majority of 

companies and the insurance companies in this country—many of 

which are mutual companies—would not be able to provide this 

coverage. This would result in less capacity to support terrorism 

risk and a much less competitive insurance market. If caps on catastrophic terrorism losses expire, only the large insurers will be left 

20 

to offer coverage, and they may have limited appetite to fill this 

gap. 

The U.S. insurance industry thrives through diversity and competitiveness, and it may be counterintuitive, but capping the limits 

on private sector liability for catastrophic terrorism losses encourages more competition and more options for policyholders. 

No one here wants, after a catastrophic terrorist event, for the 

government to hand out recovery money based on political pressures. What we want is an orderly recovery, and TRIA supports 

this. 

Thank you, again, Mr. Chairman. I would be pleased to answer 

any questions. 

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

72 of the appendix.] 

Chairman HENSARLING. Dr. Woo, you are now recognized for 5 

minutes. 

STATEMENT OF GORDON WOO, CATASTROPHIST, RISK 

MANAGEMENT SOLUTIONS INC. 

Mr. WOO. Chairman Hensarling, Ranking Member Waters, and 

members of the Financial Services Committee, I am very pleased 

and honored to be here today to give my testimony on terrorism insurance risk modeling. 

Terrorism has become and will remain a catastrophe insurance 

risk. The possibility of a malicious aircraft impact in a central business district of a major U.S. city will exist as long as there is air 

travel. 

The private sector market for any catastrophe insurance peril requires risks to be quantified. To meet this need, catastrophe insurance modeling has progressed in covering earthquakes and hurricanes in the 1990s to terrorism after 9/11. 

In 2002, when TRIA was introduced, and subsequently reauthorized in 2005 and 2007, some attention was given to insurance risk 

models, but experience was still too limited for them to be accorded 

much weight. 

Now, in September 2013, with a doubling of experience since 

2001, terrorism risk insurance risk modeling has attained a level 

of capability, validation, and maturity to make a more notable contribution to the discussion of the future of TRIA. 

What has become clear since 2007 is this: Terrorism risk is as 

much about counterterrorism action as about terrorists themselves. 

U.S. terrorism insurance is essentially insurance against the failure of counterterrorism. This is true not just in America, but across 

the Western alliance, Canada, Western Europe, and Australia. 

Numerous terrorist plots are developed, but the vast majority are 

interdicted through the diligence of Western intelligence and law 

enforcement agencies. Mass surveillance of communication links, 

and intrusion of intelligence models elevates the likelihood of plot 

interdiction with plot size. The ambitious plots that might have a 

potential to cause massive insurance loss would tend to involve a 

significant number of operatives and thus be very prone to interdiction. 

Too many terrorists spoil the plot. Attacks by a lone wolf or a 

pair of operatives such as the Boston bombers may be horrific acts 

21 

of murder and destruction, but they are unlikely to cause large catastrophe insurance payouts. 

Now, an earthquake is a deadly and destructive force of nature, 

but an earthquake is not a crime. After the Japanese tsunami of 

March 2011, a Japanese boy asked his father why the earthquake 

that caused the tsunami could not be arrested. 

Terrorism is a crime. Criminals can be arrested in a way that 

earthquakes and hurricanes cannot. With every terrorist brought to 

justice, the evidence of counterterrorism control of loss volatility is 

accumulating across the Western alliance. Progressively, the courtroom record of terrorism convictions, combined with low terrorism 

insurance losses and risk modeling of terrorist social networks, 

should encourage cautious expansion of the U.S. terrorism insurance market. However, terrorism is not geographically 

diversifiable. The terrorists predominantly choose iconic targets 

with a recognition in populous urban centers. 

The lack of geographical diversification inherently limits the insurance market capacity for covering terrorism risk in the central 

business districts of Manhattan and other main metropolitan 

areas. An ongoing challenge for future terrorism insurance market 

development is lack of capacity in some prominent ZIP Codes. 

I want to make this point, that the Federal Government has a 

permanent, implicit involvement in terrorism insurance, in that it 

provides extensive—and massive, even—counterterrorism resources 

to stop terrorists before they move to their targets. And these resources have been deployed very effectively since 9/11. 

Now, the greater these resources, the less the insurance loss burden. So the billions which have been spent on counterterrorism, 

quite rightly, to protect citizens from terrorist assaults, have 

helped to reduce the insurance loss burden. 

And to minimize the cost to the American taxpayer of TRIA, continued development, continued proficiency of counterterrorism action provides a solid security platform for future development of 

the terrorism insurance market, provided that a government backstop is in place for the most extreme losses. 

Thank you very much for your attention. 

[The prepared statement of Dr. Woo can be found on page 142 

of the appendix.] 

Chairman HENSARLING. Last but not least, the Chair now recognizes Mr. Ellis for 5 minutes. 

STATEMENT OF STEVE ELLIS, VICE PRESIDENT, TAXPAYERS 

FOR COMMON SENSE 

Mr. ELLIS. Thank you. Good morning, Chairman Hensarling, 

Ranking Member Waters, and members of the committee. I am 

Steve Ellis, vice president of Taxpayers for Common Sense, a national nonpartisan budget watchdog. Thank you for inviting me 

here today to testify on the Terrorism Risk Insurance Act and the 

Terrorism Risk Insurance Program. 

Congress enacted TRIA to ‘‘establish a temporary Federal program that would allow for a transitional period for the market to 

stabilize, resume pricing of such insurance, and build capacity to 

absorb any future losses.’’ 

22 

Taxpayers for Common Sense, to be clear, opposed the creation 

and the extensions of the temporary program and believe that 

nearly a dozen years after the tragic events of 9/11, the terrorism 

marketplace has settled to the extent that it is past time for the 

government to step aside and let the private sector handle the portfolio. 

Much of our concern with the terrorism reinsurance program 

comes from the experience with the National Flood Insurance Program, where the availability of subsidized Federal insurance has 

largely prevented the development of a private market, forcing taxpayers to pick up the tab for approximately $25 billion in losses to 

date. 

In addition, below-market rates serve as a disincentive to mitigate for risks, something which is concerning in both the flood and 

terrorism context. President Reagan once observed that Federal 

programs and agencies are ‘‘the nearest thing to eternal life we will 

ever see on this Earth.’’ 

And so, you have this 3-year, explicitly temporary terrorism reinsurance program extended for 2 years, then extended for 7 years. 

And legislation, as we have heard about today, has been introduced 

to extend the program for another 5 to 10 years. That will result 

in a temporary program that is just about old enough to vote. 

I know that insurance companies and insureds would like to see 

the program extended as is. No wonder; it is a good deal. But as 

then-CBO Director Douglas Holtz-Eakin has observed in the 2005 

reauthorization debate, it is not such a good deal for taxpayers: ‘‘It 

is easy to exaggerate the overall cost to the economy of reducing 

the Federal subsidy for terrorism insurance.’’ 

In fact, those costs are likely to be small. One reason is that 

TRIA does not lower total costs of terrorist attacks, but rather 

shifts them from property owners to taxpayers. Indeed, total cost 

might be lower without TRIA, because efforts to mitigate risk could 

pay off in smaller losses from a terrorist attack. 

For more than a decade, insurance companies have been pocketing terrorism insurance premiums with nary a payout. Thankfully, I admit. For the insureds, the take-up rate for terrorism insurance is roughly steady at a little over 60 percent since 2009. 

Terrorism insurance premiums as a percent of total property insurance premiums is fairly consistent, as well, from 4 percent to 5 

percent. Reinsurance and insurance response to disastrous events 

is to initially pull back, only to return with greater capacity, like 

pruning a tree, even after 9/11. 

A Journal article describes an airport director’s testimony to this 

committee on obtaining insurance in 2001: ‘‘The significance of the 

testimony is apparent. The insurance industry has learned sufficiently about terrorism risk insurance that, while on September 

20th, insurance was unavailable, a short while later, it was available at a price, and by the third week of October, available at a 

lower price, all without Federal support.’’ 

As has been mentioned by my colleague here at the table from 

Marsh, in their report from the spring, they noted that capacity in 

the standalone terrorism insurance market has increased significantly over the years. In the report, they estimate that terrorism 

23 

insurance market capacity is $4.3 billion, and there is up to $2 billion per risk in standalone capacity. 

It is important to note that in the United States, the reinsurance 

market is servicing a very small slice of the reinsurable pie. Some 

insurance companies are purchasing reinsurance to cover a portion 

of their deductible. This market would clearly grow if the Federal 

Government was not providing reinsurance for free. 

We believe TRIA should expire at the end of 2014. However, it 

is important that this be an affirmative decision by Congress and 

the Administration that can lead to an orderly transition in the 

market. 

If Congress should decide to continue TRIA in some form, we 

have several recommendations, short term. A long-term extension 

was done in 2007—a long-term extension, like what was done in 

2007, lends itself to more permanence in transition. A 2- or 3-year 

extension should be the maximum. Further, the law should explicitly state that this is the last extension. 

Skin in the game: The 2007 extension did nothing to shift more 

responsibility onto the private sector, like was done in 2005. Any 

new extension should increase the trigger for Federal involvement 

significantly, to as much as $50 billion or more. In addition, the deductible should be increased throughout the extension, and companies should pay a premium to the Federal Government for reinsurance coverage. 

TRIA was created in a much different time, with extensive uncertainty about future risks in the marketplace for terrorism insurance and reinsurance. The program doesn’t reduce any of the risks 

to people or property from terrorist attacks, nor does it encourage 

companies to minimize and mitigate those risks through security 

measures. 

It simply shifts much of the fiscal risks off of property owners 

and insurance companies and puts it on the backs of taxpayers. It 

is time for that to end. Thank you very much. 

[The prepared statement of Mr. Ellis can be found on page 121 

of the appendix.] 

Chairman HENSARLING. I thank all the members of the panel for 

their testimony. The Chair now recognizes himself for 5 minutes 

for questions. 

There have been a number of references to 9/11, and the tragedy 

of the Boston terrorist massacre. In fact, I have made some of those 

allusions in my own opening statement. 

But I want to ensure, I guess following up somewhat on Dr. 

Woo’s testimony about counterterrorism, does anybody on the panel 

believe that TRIA has anything to do with lowering the risk of terrorism? 

If not, I believe Mr. Ellis referred to the Congressional Budget 

Office, the nonpartisan Congressional Budget Office, that concluded 

in an earlier report, ‘‘TRIA does not lower the total cost of terrorism risk, but rather shifts more of the burden from commercial 

property owners and their tenants to taxpayers.’’ Is there anyone 

on the panel who wishes to take issue with the Congressional 

Budget Office? 

If not, we are trying to isolate the debate here. In fact, Mr. Ellis, 

I think— 

24 

Ms. ABRAHAM. I actually do have a comment. 

Chairman HENSARLING. Please. 

Ms. ABRAHAM. Mr. Chairman, I think TRIA will support an orderly, speedy recovery. That is what TRIA is for our members at 

our schools, colleges, and universities. It provides surety that we 

can provide the primary insurance, our reinsurers will be— 

Chairman HENSARLING. But does that lessen the cost of an incident of terrorism to our society, or does it shift the cost? 

Ms. ABRAHAM. If you look at the total cost, it would reduce the 

cost, because the economy would recover faster. Schools would open 

their doors faster. Businesses would be moving faster. 

Chairman HENSARLING. I understand the argument. 

Ms. ABRAHAM. You look at a total cost of risk, yes, I think— 

Chairman HENSARLING. I understand. Now, for something completely different, Mr. Ellis, I think in your testimony, you actually 

are making the case that TRIA can potentially increase the cost of 

incidents of terrorism. Is that what I read in your testimony? 

Mr. ELLIS. Yes, Mr. Chairman. One of the social benefits of insurance is that it serves to encourage, through the price mechanisms, to mitigate your risk, to essentially take measures that are 

going to reduce your risk. If you don’t smoke, you have lower 

health insurance costs. 

And so it is a similar sort of thing, that if it is priced appropriately, the companies, the entities are going to be required to 

take more security measures. I am not saying that it is going to— 

that not having TRIA is going to eliminate terrorism or the impacts 

of terrorism, but the price signals try to mitigate the risk and diversify the risk. 

Chairman HENSARLING. Dr. Woo, yes, go ahead? 

Mr. WOO. I wonder if I could just— 

Chairman HENSARLING. Again, if you could pull your microphone 

closer, please. 

Mr. WOO. I’m sorry. What is very interesting, to make a comparison between the amount of money spent on risk mitigation against 

natural hazards as opposed to terrorism. What is remarkable is 

that a far greater amount is spent on mitigating terrorism risk 

than on natural hazards, because terrorism is something that people are especially fearful about. 

So with regard to the comments of Mr. Ellis here, I would say 

that if you just compare how much money is spent on counterterrorism nationwide, it is a massive figure which far outweighs the 

amount spent on natural hazards. If I could just make a comment 

about the U.S. Geological Survey’s budget, annual budget of about, 

I think, $1 billion a year, that is completely dwarfed by the budget 

for counterterrorism. So, I think this is a very interesting comparison between natural hazards and counterterrorism. 

And it is one of the reasons the terrorism insurance losses have 

been low since 9/11, because there has been this massive expenditure on terrorism risk mitigation. 

Chairman HENSARLING. If I could, Dr. Woo, unfortunately, my 

time is running out here, but I will give you another chance to comment. Clearly, you believe there have been great advances in the 

ability to model for terrorism attacks. I suspect it is one reason 

25 

why you are employed as a catastrophist, that you actually believe 

this can be done. 

And you talk about, every time a terrorist is brought to justice, 

greater evidence, counterterrorism control, courtroom record, low 

terrorism insurance losses, ‘‘should encourage cautious expansion 

of the U.S. terrorism insurance market.’’ 

I think you go on to say that a plot involving as many as 10 

operatives has only a slim 5 percent chance of avoiding interdiction, as opposed to lone wolf attacks, which can be very deadly to 

human life, but not necessarily economically catastrophic. 

But in the few seconds I have left—and I hope that other members of the panel will answer this—you say, Dr. Woo, that a future 

challenge is that lack of capacity in prominent ZIP Codes. Ms. 

Abraham talked about, I think, 1,200 universities and colleges that 

are members. 

So I am trying to get a feeling, again, is this limited, this risk 

to certain large, metropolitan areas, where the risk cannot be effectively spread throughout the Nation? Because I seem to be getting 

contrary testimony from others that there are many soft targets 

that also have an incentive to be insured. 

But I have long since gone over my time. Perhaps others will 

pursue that. 

I now yield 5 minutes to the ranking member. 

Ms. WATERS. Mr. Chairman, I have listened with great interest, 

of course, to all of the testimony. And I perhaps have 101 questions 

for Mr. Woo to the degree risk mitigation can reduce the cost of insurance or create models that could be handled by the private sector. 

But let me, before I ask any questions, just say this: I am thinking very much about patriotism. And I am thinking a lot about the 

fact that—I am thinking about 9/11, and I am thinking about the 

fact that companies, both public and private, were attacked. Jobs 

were lost. Lives were lost, on and on and on. 

And it seems to me that we would be thinking about everything 

that we can do to make sure that the government plays a role to 

reduce the losses, to get the private and the public sectors back up 

and operating as quickly as possible and all of that, and recognize 

that at this time we have not experienced any losses, but we have 

a safety net for public and private. 

It seems to me that even with the thought of cost that would be 

incurred by the citizens, that is just something we should assume 

is what we should do and what we must do. 

And so having said that, Ms. Abraham, in your testimony, you 

indicated support not just for TRIA reauthorization, but specifically 

for TRIA reauthorization in substantially the same form as TRIA 

exists today. Can you explain briefly why reauthorization with substantially similarly insured deductibles is as important as TRIA reauthorization generally? 

Ms. ABRAHAM. Yes, thank you very much for the opportunity. I 

think there are reasons for some improvement, and I would agree 

with Marsh & McLennan’s recommendations, but I mentioned in 

my testimony the importance of making sure small to mid-sized insurance companies are in the market providing capacity. 

26 

And if these deductibles are significantly raised above the current 20 percent, then many of us will be forced to exit the market. 

We wouldn’t be able to take that kind of loss from multiple events. 

Currently, the 20 percent is 10 percent of United Educators’ capital. That is a lot of money. That is a risk that most businesses 

wouldn’t put at loss. And so, if you make the deductibles or the copay significantly different from what it is, you will run small to 

mid-sized insurance companies out of the market, reducing capacity. 

So I really understand that it is counterintuitive, but the Federal 

Government having a role in this encourages competition, encourages more companies to play a role in providing capacity and having opportunities for, in my case, colleges and schools. Whether you 

are insuring a mutual in New York or a mutual in Texas, you need 

to be able to have more capacity entering the market. 

So if it significantly changed, raising the deductibles, a lot of our 

small and mid-sized companies will not be able to absorb those 

kinds of hits to our balance sheets in the case of a catastrophic 

event. 

Ms. WATERS. Thank you very much. I want to move to Mr. Peter 

Beshar from Marsh. 

Earlier this year, Marsh released a report that included among 

other findings a section on standalone market capacity. Can you 

please discuss these findings? In your opinion, is there a willingness by the private sector to offer terrorism coverage, absent a 

mandate such as TRIA? 

Mr. BESHAR. It is an excellent question, Congresswoman. Clearly, 

the make-available provision is critical in inducing property and 

casualty carriers to provide terrorism insurance. And were that not 

to exist, our belief is that there are many carriers that would not, 

in fact, be willing to provide terrorism insurance. 

Ms. WATERS. Mr. Smith, reinsurance is a vital component of terrorism insurance coverage. In the aftermath of September 11th, the 

reinsurance industry essentially fled the market. Can you discuss 

the extent to which the reinsurance industry has re-entered the 

market, if at all? How limited is current reinsurance capacity? 

Mr. SMITH. The reinsurance market is very active in the terrorism risk space. We believe that balance occurs today with insurers. Whether you are individuals or businesses, you have to take 

steps to fortify and to do what they can. 

The primary insurance companies are taking a great load, and 

they serve a wonderful purpose, but there is significant capital 

from the reinsurers that are in the marketplace. And when we had 

the attacks of 9/11, it was the reinsurers that provided the majority 

of the funds to help rebuild our country. 

So, we are there. With TRIA, we will stay there. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the chairman of our Housing and Insurance Subcommittee, the gentleman from Texas, Mr. Neugebauer, for 5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Dr. Woo, you heard a number of our panelists say that one of the 

problems with terrorism insurance is that it can’t be modeled. Do 

you believe that terrorism insurance can be modeled? 

27 

Mr. WOO. Thank you very much, Congressman. Since 2007, one 

of the major developments in terrorism risk modeling has been the 

study of terrorist social networks, in particular to assess the likelihood of a plot being interdicted as a function of the size of the plot. 

And, in fact, I have submitted with my testimony a PowerPoint 

presentation which includes a table showing how the chance of a 

plot being interdicted increases with the number of operatives involved in it. This is work that I did in 2009, 2010, so it wasn’t 

available at the time that TRIA was last being discussed. 

So this, to my mind, is a major development, because what we 

are all interested to know is, what is the severity, the likelihood 

of a given attack? If you just consider vehicle bombs, there are 

bombs of all different sizes, from a car bomb to a small truck bomb 

to a large truck bomb to a 5-ton or 10-ton truck bomb. 

The key point here is that there is no way that a 10-ton truck 

bomb can be implemented as a terrorist attack without having a 

substantial number of operatives involved. And if you have a large 

number of guys involved in a plot, the plot most likely is going to 

be interdicted. 

If I can just make a point about the Federal Government’s involvement, any major successful terrorist attack almost certainly 

would involve a substantial number of operatives. And in any inquiry as to how this plot was allowed to get through the security 

net, there is going to be a question of government responsibility, 

liability, negligence around it. I live in London. Just in May, we— 

Mr. NEUGEBAUER. Dr. Woo, I’m going to take that as a yes. 

Mr. WOO. Yes. Yes. I’m sorry. 

[laughter] 

Mr. NEUGEBAUER. And I appreciate that. One of the things, when 

we talk about TRIA—and I want to go to Mr. Beshar, Guy Carpenter, which is one of Marsh & McClennan’s subsidiaries, put out 

a report in 2010 which stated more than 80 percent of the reinsurers are actively seeking new or expanded terror insurance business. And two-thirds of the global insurers now offer coverage for 

nuclear, biological, chemical, and radiological events, a substantial 

shift in underwriting appetite from the period immediately following 9/11. 

This seems to make a strong case that there is an appetite out 

there for TRIA, for terrorism insurance without necessarily a Federal backstop, because in other markets there is not a Federal 

backstop. So do you agree that there is an increasing appetite for 

terrorism insurance out there? 

Mr. BESHAR. Congressman Neugebauer, I think the critical fact 

is there is an increasing appetite in the presence of TRIA. And the 

concern is that if you take that backstop away, this is not a peril 

that most property and casualty carriers are eager to underwrite. 

And so, when we speak about some of the capital levels that exist 

in the overall industry, I referenced a figure earlier of $195 billion. 

That is for all lines across the world. And when you shift to just 

the United States and then just to the United States for terrorism 

insurance, the issue is much smaller, the amount of capital. 

Mr. NEUGEBAUER. So what do buildings that are insured in London and Paris and Hong Kong that don’t have TRIA, what is the 

appetite for insuring those buildings? 

28 

Mr. BESHAR. It is part of the same public-private partnership. So 

in the United Kingdom, there is a pool reinsurance facility that the 

government has helped establish that is similar to the case in Germany and France, for example. 

Mr. NEUGEBAUER. What if you separate the NBCR component 

from that and you had a backstop for that, but the rest of the risks 

were separated from that? Is there an appetite to assume those 

risks? 

Mr. BESHAR. I think it is a gradual process, Congressman. Right 

now, if you can validate that if there is underlying coverage for 

NBCR, then TRIA will backstop that. That process will encourage 

the P&C market to begin to expand its willingness to go into broader NBCR. Again, in the absence of TRIA there is not the appetite, 

just given the immensity of the potential exposure to a catastrophe. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Mrs. 

Maloney, for 5 minutes. 

Mrs. MALONEY. I would like to ask Peter Beshar from Marsh & 

McClennan—and note that Marsh & McClennan was located in one 

of the two towers. So we appreciate all of the panelists’ testimony 

today on this incredibly important issue. 

I would like to ask you, in the last 5 years, how much have property and casualty firms received in premium payments for terrorism coverage in the United States? 

Mr. BESHAR. Congresswoman Maloney, I don’t know that specific 

answer, but I would be happy to have some of the experts within 

Marsh and Guy Carpenter work with members of your team. 

Mrs. MALONEY. Okay. And in the last 5 years, how much have 

those firms paid in claims for terrorism events in the United 

States? 

Mr. BESHAR. Thankfully, the response to that is very little. 

Mrs. MALONEY. Now, when you look at the alternatives that may 

be out there for TRIA that would result, are there any alternatives, 

and if so, what are they, that would result in the level of availability and terrorism risk insurance sufficient to protect the broader economy? Are there any alternatives that you can think of that 

could— 

Mr. BESHAR. We think that the existing framework that the Congress developed first in 2002, and then reformed and modernized, 

is probably the best available structure that can exist, this publicprivate partnership, where particularly, the Federal Government is 

trying to backstop the true catastrophe. 

Mrs. MALONEY. And as I mentioned in my own testimony, during 

the days after 9/11, everyone halted their insurance. No one could 

get any insurance. I don’t think anyone was supplying insurance 

in the United States. 

The only place some companies could get insurance was Lloyd’s 

of London. Why was Lloyd’s of London able, in very limited ways, 

to provide insurance, yet no insurance company in America was 

providing insurance to anyone, to any business in New York? 

Mr. BESHAR. It was actually—aviation insurance was one of the 

first issues that really came up and crystallized, because, you will 

remember, essentially no planes were flying for a period of time. 

29 

And so, that was the first issue that the insurance industry had to 

grapple with. 

Marsh & McLennan actually worked with Lloyd’s and other brokers and carriers in the marketplace to first try to stabilize the 

aviation so that the planes could begin to fly and then worked beyond that into property and other areas. 

Mrs. MALONEY. Your work reminds me of the great resiliency of 

our country. The fact that we bounded back after that catastrophe 

in such an extraordinary way is a credit to every public-private effort. If TRIA is not reauthorized, what do you expect the impacts 

will be on the availability and pricing of terrorism insurance or terrorism coverage? 

Mr. BESHAR. There are two principal concerns that we have, Congresswoman Maloney: first, that P&C carriers will pull back; and 

second, that in the workers’ comp area, in particular, where carriers have to make the coverage available, that if there is not the 

backstop, they will simply decline to underwrite the insurance. 

Mrs. MALONEY. And what do you think would be the material 

changes or the economic impact if we were not able to continue to 

current TRIA program, in terms of job creation, the overall economy? What would be the effect on development? 

Mr. BESHAR. It is very difficult to estimate it, Congresswoman. 

In the workers’ comp area, if the coverage is mandatory, in order 

to employ people, and there is very limited coverage that exists in 

the marketplace, clearly, under that scenario, that could be an inhibitor on job creation. 

Mrs. MALONEY. Some have attacked the program as ‘‘corporate 

welfare’’ and a potential liability to the hardworking taxpayers of 

America. Can you discuss the level of responsibility private insurers continue to face under TRIA? And can you more fully explain 

the relationship between the public insurers, the private insurers, 

and the public, the government, in paying claims which result from 

a terrorist attack? 

Mr. BESHAR. Sure. I will focus just on one provision that was implemented in 2007, the recoupment provision, so that if there was 

to be a significant terrorist attack and the Federal Government did 

have to, in fact, advance funds to carriers, both on the reinsurance 

and insurance side, then the Federal Government has the right to 

recoup those outlays over time through increases in premium. 

Mrs. MALONEY. My time has expired. I just want to thank all of 

you for your testimony. It is important. Just seeing you reminds 

me of visiting with your survivors shortly afterwards. And thank 

you for the leadership your company has had in this area. Thank 

you. 

I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from New Jersey, the chairman of our Capital Markets Subcommittee, Mr. Garrett, for 5 minutes. 

Mr. GARRETT. I thank the chairman. 

So, let’s begin. First, let’s just take a look to see how well the 

system is working right now. Someone on the panel, I forget who, 

made reference to the trigger mechanism in the current law and 

I believed referenced also the Boston bombing situation. If my 

recollection is correct, the mayor of Boston said, ‘‘This is not a terVerDate Nov 24 2008 15:52 Jun 06, 2014 Jkt 086680 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 K:\DOCS\86680.TXT TERRI
30 

rorist event.’’ And I guess—Mr. Beshar is shaking his head. Is 

that— 

Mr. BESHAR. I don’t know that specifically, Congressman. 

Mr. GARRETT. Okay, yes. But you will confirm that has not been, 

as of yet, officially declared a terrorist event. Is that correct? 

Mr. BESHAR. That is correct. 

Mr. GARRETT. Right. Many months ago. And so, I can understand 

why a mayor or governor or actually the Federal Government 

would want to say that it is not a terrorism event, because if you 

declare it a terrorism event, all of those businesses which did not 

secure coverage would then be basically ineligible to seek their normal coverage on their policy. I will look to—Mr. Beshar, is that 

your understanding? 

Mr. BESHAR. That is part of the complexity of it, is that some 

businesses will have terrorism protection, and some will not. And 

so, if there hasn’t been a formal declaration, it makes it harder for 

the marketplace to respond. 

Mr. GARRETT. Right. And so that is going to—it has been apparent, from that incident, since it is many months later and we still 

don’t have a determination on it, I guess that is one of the issues 

that is brought to my attention as a flaw in the system, because 

you can imagine the political pressure for, unfortunately, if there 

is another event, political pressure not to declare that a terrorist 

event, because then there will be a lot of people who will be basically uninsured. 

Mr. Ellis, do you have a comment on that? 

Mr. ELLIS. No. No comments. I think it is a very valid point. 

Mr. GARRETT. So as long as you are—I am talking to you, let me 

just reference a report that Chairman Hensarling raised. It was a 

2007 report by the CBO, and as it said, ‘‘TRIA legislation raises 

difficult questions about economic deficiencies. For instance, some 

analysts and policymakers maintain that TRIA does not lower the 

cost but simply shifts the cost.’’ 

As you are all aware, TRIA has a trigger set at $100 million. I 

believe, in your testimony, you said you had thought we could 

lower the thresholds, lower the deductibles. I think you probably 

also heard from the colleague just to the right of you, figuratively 

speaking, Ms. Abraham said that the threshold at 20 percent is 

problematic. 

I will look to you first, Mr. Ellis. Is there potential that those 

numbers will be changed, if there was reform to this legislation? 

Mr. ELLIS. Certainly we would advocate that if we are going to 

extend the program, we would be trying to lay off more risk onto 

the private sector and allow the reinsurance market to grow. And 

so certainly, what some insurers have done is to lay off some of 

that 20 percent deductible. 

We heard about how the terrorism reinsurance market is growing. That is the place where it can actually grow, is in that 20 percent. So if we actually increase the deductible, then we would be 

able to lay off more risk to the private sector and not have the taxpayer on the hook. 

Mr. GARRETT. Right. Although this law has been here in place 

longer than what was intended, the numbers have changed over 

31 

time. Originally, I guess it was at 15 percent, and then it went to 

17.5 percent, and now we are at 20 percent. 

And memory doesn’t serve me too well, whether there were statements at those times, as well, that the industry was not able to absorb it. So, I assume that is the case today. 

Mr. Smith, there is a Swiss Re publication that came out after 

September 11th, which was entitled, ‘‘Terrorism Risk in Property 

Insurance and their Insurability after September 11th.’’ And it 

said, ‘‘Swiss Re basically agrees that property and business interruption losses resulting from terrorism are insurable, even in the 

aftermath of September 11th.’’ 

Do you all still stand by this? 

Mr. SMITH. Congressman, we are actively involved in insuring 

terrorism risk today, so— 

Mr. GARRETT. Right. 

Mr. SMITH. I think you have—the full report talks about the 

presence, or the hopeful presence of a government backstop. Being 

a global reinsurer, we have to deal with terrorism risks all over the 

globe, and, unfortunately, our country in the United States, we are 

the main target. So, we are very concerned about TRIA— 

Mr. GARRETT. I understand. 

Mr. SMITH. That it is with the presence of a backstop, that it has 

to be there. 

Mr. GARRETT. Was that part of that report? 

Mr. SMITH. I believe so. 

Mr. GARRETT. Okay. I see my time is—I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Ms. 

Velazquez, for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Smith, historically, smaller firms have much lower take-up 

rate of terrorism insurance when compared to larger companies. 

Some reports show as few as 10 percent of small businesses have 

such coverage. In your opinion, what is the reason for this lower 

take-up rate? 

Mr. SMITH. That is part of the dynamics of the marketplace. So 

terrorism risk is something that is—for smaller businesses that 

tend to work on thinner margins and in a more straightforward 

business approach, it is one of those optional coverages that oftentimes they don’t feel that they can afford. 

It is not just terrorism risk. There would be other optional coverages that small businesses oftentimes will exclude, that a larger, 

more sophisticated business, perhaps a publicly traded company 

with a board and a risk management apparatus in place, would not 

be able to avoid. 

Ms. VELAZQUEZ. Mr. Beshar, do you have any stats on terrorism 

insurance coverage by small businesses pre-9/11 and post-9/11? 

Mr. BESHAR. I don’t believe we have data pre-9/11, because, really, the coverage was embedded in property and there was so much 

less focus on it. In this Marsh report that we released earlier in 

the spring, there is a lot of analysis about the pricing, based on the 

size of companies. So, larger companies generally are paying a 

smaller rate online, in terms of percentage of premium, than smaller companies. 

32 

Ms. VELAZQUEZ. And do you have any opinion as to any mechanism that we should explore to make terrorism insurance more affordable for small businesses? 

Mr. BESHAR. I think the continuity of the program—if there is 

less uncertainty about whether the program is going to continue, 

I think the market will naturally evolve so that there are higher 

take-up rates, particularly in some of the small businesses that you 

have referenced. 

Ms. VELAZQUEZ. Thank you. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from New Mexico, Mr. 

Pearce, for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. Thanks to each one of 

you for your testimony today. I generally am concerned about businesses and the ability of businesses to work through the problems 

they face. I would like to ask questions kind of from the other direction this morning, though. 

The idea that safe and orderly speedy recovery of an industry 

would result by having this coverage, I wonder if any of you are 

familiar with Sri Lanka? In 2001, they lost 5 or 6 of their 12 aircraft. And do they employ some sort of a process to rebuild the industry? Or what was their aftermath? I will just ask that as an 

open question to anyone who might want to take it on. 

Mr. SMITH. Let me go with that. When you look across the globe 

at developed nations versus developing nations, you are going to 

find much lower participation in insurance programs. Whether we 

are talking about Sri Lanka, or whether we are talking about the 

tsunamis, there tends to be a slower recovery, so the resilience that 

we enjoy in the United States unfortunately just doesn’t exist in 

many parts of the world. So, the recoveries are very slow. They 

tend to be much more community-based. They tend to involve a 

very different mindset of the population. 

Mr. PEARCE. I would note that Sri Lanka, at that point, had 12 

aircraft. Now they have 22 in about 10 years, and so it looks like 

the industry has not suffered and it didn’t just stall out. 

I also am kind of drawn to the situation with the two successive 

hurricanes. Hurricane Katrina, of course, came in and off-course 

out of the Gulf. Then, I think it was the next year or the next hurricane sat out there and jammed around on Cancun. We had been 

to Cancun a year or two before, and were scheduled to go back, but 

we didn’t bother. 

But I asked the travel agent about a year later, did they ever get 

fixed? Yes, they were fixed in a matter of weeks. They understood 

that if they didn’t fix Cancun, nobody was going to come, and yet 

it took years, with $100 billion more or less sent to Louisiana. 

And so, again, I am sympathetic to the argument. I tend to feel 

a little bit like Mr. Capuano described, that I might not like it, but 

I am not sure what else to do with it, and I am still processing this 

idea of, is it essential? 

One of you mentioned—I am not sure which one—that many of 

the underwriters simply wouldn’t tolerate the risk, they wouldn’t 

carry the insurance. What would companies do, for instance, if they 

lost an airliner, let’s say, or a building? I am not willing to discount 

33 

the human loss, but let’s say that a major facility was damaged 

and a business did not have risk insurance, did not have terror insurance. 

Mr. Beshar, I really appreciated your testimony. It was clear and 

precise, and I appreciated that. How do businesses react when they 

don’t have that coverage? 

Mr. BESHAR. It is not a great scenario, because if you have, obviously, a substantial loss and there is really no third party, not a 

private insurer, not the government that you can turn to, you have 

to absorb that loss. 

One other brief point, Congressman, in Mexico—you cited the example—they have recently issued, together with Swiss Re, catastrophe bonds to try to protect against certain risks, earthquake 

risk, for example, and it has been quite successful. It is a very unusual program of the Federal Government trying to essentially 

market something like that. And over the years ahead, hopefully 

there are those types of alternative instruments that might play an 

increasing role in the marketplace. 

Mr. PEARCE. Let me crowd one last question in here, if you don’t 

mind. 

A couple of you have mentioned the risk of lawsuits downstream. 

If what we are doing is to give trial lawyers access into unlimited 

pools of taxpayer money, then I become greatly more resistant, and 

so probably you will have to answer in writing, but if any of you 

could address how we could limit the frivolous lawsuits downstream, I would be a lot more interested in the program. 

But, Mr. Chairman, I see my time has expired. I appreciate the 

opportunity, and I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from New York, Mr. Meeks, for 5 minutes. 

Mr. MEEKS. Thank you, Mr. Chairman. 

And I want to thank all of the panelists for their testimony today 

on this very important issue. I think it is important to all of us, 

given the day and time in which we live. 

Let me first ask Ms. Abraham the question about terrorism insurance being an uninsurable risk, but the capacity of the private 

sector to—if they had to insure on their own, do you think that 

they would be able to have the capacity without the public-private 

partnership to cover? 

Some have said because of their financial capacity, it could be 

meaningless if they issued insurance and they didn’t have the capacity. So, I wonder if you could just give me your thoughts? 

Ms. ABRAHAM. No, I do not believe, Congressman—thank you for 

the question—that there is capacity to insure the type of losses 

that we have all read about that could come either in major gatherings—I noted, as others, a football gathering or a major city or 

anywhere around the country. 

So, no, I do not believe there is an—although there is a lot of 

capital in the world now supporting insurance companies, that capital is both for natural catastrophes, it is for global risks, as well 

as domestic risks. I do not believe there is enough capital to support the type of losses and multiple losses that could occur in this 

country from a major terrorist event. This is about catastrophic 

losses. 

34 

Mr. MEEKS. Thank you. 

And, Mr. Smith, every time that Congress has extended TRIA, 

we have passed additional risk retention to the private sector. 

What has been the impact on terrorism insurance pricing and coverage? Have the private insurers, for example, bolstered their capacity to be able to cover up to $40 billion in losses should another 

tragic event like 9/11 happen again, that we hope never does happen? 

Mr. SMITH. There are a couple of elements there. 

The first is that, as time has gone on and as businesses especially have learned more about terrorism risk and have chosen to 

take on the coverages, with the partnerships that are in place between primary insurers and reinsurers and TRIA, the market has 

been stable, the coverages have been, we think, affordable, and 

there has been a greater uptake. 

But it is kind of two steps. First, businesses have to better recognize the risk they have, but then they are able to turn to primary 

insurers with the backing of reinsurers and TRIA and fulfill upon 

what their desires are. 

Mr. MEEKS. It seems as though we are making progress, as the 

longer we go without a major incident, et cetera. So as we debate— 

we have several bills that are before us. Could you tell us what you 

think? Some say 5 years extension, some says 10 years, some say 

even longer. What do you think would be the appropriate extension 

of TRIA? 

Mr. SMITH. I think this is an exceptional program. There is great 

balance to it. The majority of the costs are going to be borne by the 

primary insurers and the reinsurers. But terrorism risk is just in 

a league of its own, and it cannot be modeled. The extreme events 

will be devastating to our industry. So, therefore, without the backing of TRIA or a similar-type program anywhere in the world, you 

won’t see the presence of insurers and reinsurers being able to participate. 

We would say that the program we have today is in great balance. It does allow smaller and mid-sized companies to participate 

and to provide important coverage. If we start to go higher, we are 

going to start to lose some of those smaller and mid-sized players. 

So we would urge, keep it as is, and let’s stop going through this 

over and over again every so many years. We would urge a 5-year 

minimum, and we would prefer 10 years. 

Mr. MEEKS. Ms. Abraham, would you agree? 

Ms. ABRAHAM. Absolutely. I hope we are all alive when terrorism 

is not a risk. Dr. Woo said it has existed for a millennium. But it 

exists. The partnership works; the collaboration works. If we can 

rule out terrorism, this law can have a sunset. It works. It is not 

broken. It is effective. It allows us to provide capacity. I strongly 

encourage extension, as long as you feel comfortable. 

Mr. MEEKS. And in the 35 seconds that I have left, Mr. Beshar, 

would you agree that it is important for Congress to send a message now that we are going to extend TRIA insurance? Would that 

be an important stability factor as we move forward? 

Mr. BESHAR. The more certainty that you can have in the marketplace, the better. 

Mr. MEEKS. Thank you. 

35 

I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from California, Mr. Royce, for 5 minutes. 

Mr. ROYCE. Thank you very much, Mr. Chairman. 

I know it has been said that you never really know if an event 

is insurable until after that event happens. We can, however, attempt to put parameters around what is insurable and what is uninsurable based on the industry’s ability to price risk, to reserve for 

risk, to pay claims. And we know, for example, that the very tragic 

attack on 9/11 on the World Trade Center, at that time, was insurable at a cost of approximately $32 billion in dollars then and $42 

billion in today’s dollars. 

Also, in a 2003 publication from one of the companies testifying 

today, we read that Swiss Re basically agrees that property and 

business interruption losses resulting from terrorism are insurable, 

even in the aftermath of September 11th. We had that exchange, 

but I just re-read that document, and that is the attestation in the 

document. 

So we have read in testimony that the TRIA program trigger could increase substantially to $1 billion from $100 million, in the 

case of Mr. Beshar, and to as much as $50 billion in the words of 

Mr. Ellis. And this, of course, assumes that the private sector could 

insure the losses up to the program trigger. 

So let me ask the panel specifically, what are the most important 

factors when discussing where to draw the line on insurability of 

terrorism insurance? Clearly, size and frequency of events is important. The type of attack, whether it is a conventional attack or 

something beyond that, has to be a factor. The lines of insurance 

covered, as we discussed, also weigh in on this calculation. 

Mr. Smith, if I could start with you, do you agree that certain 

lines of coverage—property and business interruption, for example—are easier to price when looking at terrorism risk? Are these 

insurable without a government backdrop, as is implied in the 

study cited earlier by Mr. Garrett? 

Mr. SMITH. My recollection of the study, Congressman, is that it 

is a broad study. It talks about different types of perils that can 

be covered and different types of covers that we can put in place. 

But it does make reference to government programs. It may not 

mention TRIA specifically, given the timing of it, but it does talk 

about government programs and the ability to backstop. 

So the element of terrorism that I would encourage us to stay 

keenly focused on is that, unlike natural catastrophes and other 

large catastrophic events, the top end on these types of attacks are 

phenomenal. They are just beyond what— 

Mr. ROYCE. We understand that. But I am looking at this report. 

As we have seen so far, it says that business and interruption 

losses resulting from terrorism are insurable, even in the aftermath 

of September 2001, provided certain criteria are met. The liability 

for losses caused by terrorism must be limited in normal property 

and business interruption policies. 

I think it strongly implies that in these cases, the market could 

have sufficient capital. But go ahead with your observations. 

Mr. SMITH. Congressman, I believe that we are in the market. 

We are actively in the market. We deploy tremendous capital 

36 

against terrorism risk in the United States. And so to our investors, to people across the globe who rely upon us to make responsible decisions, I think that is the context that it is and are in the 

market. 

Mr. ROYCE. Okay. Let me go to Mr. Beshar. You put the program trigger at $1 billion. My question is, why draw the line there? 

Couldn’t the private sector cover a conventional attack at $10 billion, or $20 billion, or even $30 billion? 

Mr. BESHAR. Congressman Royce, just as a point of clarification, 

in our written testimony we referenced a number of different views 

that exist in the marketplace, from abolishing the program in its 

entirety to raising the trigger to $1 billion. That is not the position 

of Marsh & McLennan. 

Mr. ROYCE. Yes, I understand. But I am asking you right now 

to comment on a question. Wouldn’t there be $10 billion, $20 billion 

in the market? Anyway, I think my time is up. But I would like 

to follow up with some questions to the panel. And I appreciate the 

opportunity, Mr. Chairman. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Massachusetts, the ranking member of the Housing and Insurance Subcommittee, Mr. Capuano, for 5 minutes. 

Mr. CAPUANO. Thank you, Mr. Chairman. I want to thank the 

panel for being here today. You are the second-best panel of the 

day. 

[laughter] 

Mr. Chairman, I would also like to ask unanimous consent to 

submit a group of 28 different communications all in support of extending TRIA. 

Chairman HENSARLING. Without objection, although I don’t know 

if the Member’s earlier opinion is universally held. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Mr. Ellis and Mr. Woo, I just want to—I respect your testimony. 

I will accept the fact that we just disagree on certain things. That 

is fine. It is not a big deal. I could be wrong, I guess. That is possible. 

But I would like to just probe for a minute exactly where our differences lie. And I would just ask you, if tomorrow—we are in hurricane season—a hurricane rolled up on Galveston, Texas, a Category 5, and wreaked $100 billion worth of damage, and killed 700 

people, would you suggest that the United States Government 

should not participate in that response, that we should just sit on 

our hands because it was a local disaster? 

Mr. Ellis? 

Mr. ELLIS. No, sir. Not at all. 

Mr. CAPUANO. I didn’t expect that you would, but I just wanted 

to hear it. Mr. Woo, do you suggest that we would sit on our hands 

or we should sit on our hands? 

Mr. WOO. If I can make a modeler’s comment, which is— 

Mr. CAPUANO. It is a simple question. Do you think the United 

States Government should sit on its hands if a Category 5 hurricane hit Galveston tomorrow? 

Mr. WOO. Well, no. 

Mr. CAPUANO. I appreciate that. So the answer is, even you believe that there is some role for the Federal Government in natural 

37 

disasters. And I respect that. Now, we are arguing where the line 

should be. And that is a fair argument. That is always a fair argument. 

I just wanted to see what kind of purists—and I am glad I am 

not dealing with a purist, because that is really not fun. But, look, 

we are going to have differences of opinion. I accept them, and I 

respect them. 

And I just—I also want to know, did any of the panel, did you 

see a CBS News report today which said that Al Qaida has just 

been found to be trying to get chemical weapons in a Somali lab? 

Did anybody read that report? 

I presume it is true, it came from a reputable news source, and 

it is based on a court case in New York City. On the presumption 

that is true, and the presumption—let’s presume for a minute that 

Al Qaeda does succeed in getting itself chemical weapons somewhere around the world, either developing them or getting them 

from somebody else, let’s presume for the moment that they still 

hate us, and they still want to wreak damage on us. 

And let’s presume that, God forbid, they actually can get them 

to the United States and set them off. Does anybody on the panel 

think that the United States Government should not respond if Al 

Qaeda were to set off a chemical device in the United States of 

America? Do you think we should sit on our hands and do nothing, 

because—let the private market deal with it? 

Mr. Beshar, do you think that? 

Mr. BESHAR. No. 

Mr. CAPUANO. I didn’t—Mr. Smith? 

Mr. SMITH. Absolutely not. 

Mr. CAPUANO. Ms. Abraham? 

Mr. Woo, do you think? 

Mr. WOO. No. 

Mr. CAPUANO. Mr. Ellis? 

Mr. ELLIS. No. 

Mr. CAPUANO. So we clearly understand that there is a role for 

the Federal Government in dealing with both natural disasters and 

terrorism when things get so bad that no one else can deal with 

this. And now we are arguing about detail, which is a fair point. 

Details are important, and where the line is, is a fair point. 

I guess for the three people who are professionals in this market, 

if I were to tell you I want to build a huge structure that is going 

to cost $450 million, and I want to put $300 million out to bond 

to pay for that humongous structure, a big icon in the middle of 

my community, but I said, you know what, I don’t really want to 

have terrorism insurance on that facility, or for the people going 

to that facility when it is done, what would you do if I said, 

‘‘Please, buy my bonds?’’ Would you say yes? And if you said yes, 

would you say, ‘‘okay, and I want to pay you the lowest possible 

rate?’’ Or would you charge a premium if I said I don’t want to 

have terrorism insurance? 

Mr. Beshar, I know that some of you do buy, some of you don’t 

buy, but I also know that all of you know the market. If you can’t— 

I wouldn’t ask you to answer on behalf of your companies. That 

would be wrong. But you are professionals. On your own personal 

38 

experience, what would you say to somebody who wanted to do 

that? 

Mr. BESHAR. I think a lot of bank lenders and bondholders would 

require the existence of terrorism coverage, for example. And in the 

absence of that, there probably would be some pricing ramifications 

to it. 

Mr. CAPUANO. Mr. Smith? 

Mr. SMITH. It would be irresponsible as an investor. 

Mr. CAPUANO. Ms. Abraham? 

Ms. ABRAHAM. I would agree with Mr. Smith. 

Mr. CAPUANO. So if I were to build a humongous icon of a football stadium, and if I would have named it Kyle Field, I would then 

be—the market would want me to have terrorism insurance or ask 

my taxpayers to pay more, probably a lot more, to pay off those 

bonds. 

I just wanted to get the facts straight. And I appreciate your 

input. Thank you all. My time has run out. 

Chairman HENSARLING. We are glad the gentleman from Massachusetts has learned his Texas geography lesson. 

[laughter] 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, for 5 minutes. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Just following up a little bit on that last comment with regards 

to the regulators, I think it is important to note that there may not 

be the ability to build big structures if we don’t have this backstop, 

if the regulators require that there be a terrorism policy in place 

in order for them—for the lending institution to have their i’s dotted and t’s crossed. It may prohibit the ability of these large 

projects. Has anybody studied that effect at all? Mr. Smith, have 

you seen that at all anywhere? 

Mr. SMITH. I can’t cite a specific study, Congressman. But our experience has been that a large global corporation, if they are going 

to make an investment somewhere, they will take into account 

what is the extent of terror coverage, wherever they are going, and 

what is the likelihood of terrorist attacks. So we have a particular 

challenge in our country to keep those global investments coming 

here. 

Mr. LUETKEMEYER. So there may be the possibility of somebody 

not coming here with investment if we didn’t have this in place. Is 

that what you are saying? 

Mr. SMITH. Absolutely. That would happen. 

Mr. LUETKEMEYER. Okay. 

Ms. Abraham, you made the comment, and it kind of spurred a 

question from me with regards to activities that sometimes occur 

on college campuses. Do you, with your company, cover political 

speeches, or band concerts, or some other sort of art shows, or anything there that could spur an attack of anything? Are those things 

that you cover? 

Ms. ABRAHAM. Absolutely. Colleges and schools and universities 

are often magnets of controversy. And whether or not it is—I think 

all of the debates were held on college campuses, as controversial 

as the Presidential debates, as controversial as those were. But 

39 

concerts, and speakers, college campuses are the first format, the 

first forum for controversial exercise of First Amendment rights. 

Mr. LUETKEMEYER. So if terrorism insurance— 

Ms. ABRAHAM. And we absolutely cover any liability that would 

come to the university from events occurring from that. 

Mr. LUETKEMEYER. If your company would not be available to the 

universities, if that coverage would not be available to the universities, what would happen? 

Ms. ABRAHAM. We currently do provide that coverage. And after 

January 2, 2014, policies written after that point would not have 

this coverage. If TRIA goes away, our reinsurers have told us that 

the unlimited, the broad capacity that we have now would disappear, and they would not have, as members of United Educators, 

the broad liability coverage for terrorism that they currently have. 

Mr. LUETKEMEYER. So the inference would be there, the normal 

assumption of how this would all play out then would be probably, 

at the very least, a restriction of those types of activities on the 

campus, if not a lot of it going away all together? 

Ms. ABRAHAM. I am a trustee of a college in Washington State. 

I think there would be very hard thinking about attracting elements to a campus and holding events that would cause more of 

a magnet or more of a potential—and emphasize the iconic nature 

that they already have within the country. So, yes, I think that is 

true. 

Mr. LUETKEMEYER. Mr. Smith, if TRIA goes away and the markets—the Wild, Wild West, everything opens up, how much additional cost do you think the average policy would go up to be able, 

again, like I say, build that big building or sponsor that concert? 

How much of more an increase do you anticipate would happen if 

TRIA went away? 

Mr. SMITH. It is hard to have an exact number, but the market 

would become extremely disrupted. Some people would not be able 

to get terrorism coverage. Others would have to acquire it at an extremely high price. So, it would be an enormous disruption to the 

market. 

Mr. LUETKEMEYER. I would think, though, that after a while the 

market would settle down. There would be a period of disruption, 

but eventually it would settle down. Now it is going to be disrupted 

forever and ever? 

Mr. SMITH. Not in the United States. 

Mr. LUETKEMEYER. Okay. 

Mr. SMITH. And I’m sorry, I wish I had a better answer, but not 

here in our country. 

Mr. LUETKEMEYER. It is interesting, from the standpoint that we 

are talking about something here that is really a backstop for all 

the activities or these terrorist activities that could occur, have occurred in the past. When we look at other catastrophic losses, a lot 

of those have been—the tab for them has been picked up by the 

government eventually as a backstop anyway. And what we are 

trying to do here really kind of, in my thinking, is quantify our 

limit or somehow the government’s exposure to the loss by having 

the private sector take part of it and being able to price that accordingly. It is kind of an interesting situation, kind of backwards. 

40 

But, very quickly, I just have one quick question for Mr. Ellis. 

You made the comment that TRIA can actually cause insurers to 

take on more risk. I have a hard time believing that somebody 

would want to lessen their security so they could actually have the 

opportunity to have more of an attack, but that is like one of your 

comments a while ago. Does that— 

Mr. ELLIS. I am not sure I am following what you are referring 

to, Congressman. I indicated— 

Chairman HENSARLING. If you could be brief, the Congressman’s 

time has expired. Can you summarize your answer quickly? 

Mr. ELLIS. Sure, yes, Mr. Chairman. 

No, I am saying that if you don’t price it appropriately, then you 

don’t take the efforts to mitigate your risk, and it may be not 

knowledgeable, but you would do more to reduce your price. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Scott, for 5 minutes. 

Mr. SCOTT. Yes. We don’t know what or we don’t know when, we 

don’t know who. But one thing is for certain: We know that, as we 

are sitting in this room, there are people all over this world who 

are plotting terrorist attacks against the United States. 

And before I get to that, I must respond to something that Chairman Hensarling—whom I respect so greatly—said regarding the 

taxpayers’ expense, but the budget office said to me these words, 

that the TRIA has provided a necessary service at nearly zero cost 

to the taxpayer. So, I want to make sure that is out there. 

Now, back to my point, we don’t know where, we don’t know 

when, but we are targets. We are here. And Mr. Woo and Mr. Ellis, 

you all have made some interesting points, but we know—you can 

count the times in New York City alone, as Mrs. Maloney pointed 

out, that attacks have been prevented. And, Mr. Woo, in your calculations of this, the regularity of attacks. 

I am out of Atlanta, Georgia, where we had the Olympics attacks, where we have constant surveillance. We have our intelligence sources that I cannot tell you in public how many, when, 

where, how, but we have to be serious about this. This ought to be 

in place right now. It ought to be at least 10 years so we can plan 

appropriately. 

And let’s get off of this nonsense that we can play around with 

this. We owe it to the American people who are themselves the targets, not knowing when, not knowing where, not knowing who, but 

knowing they are on their way. 

Now, Mr. Ellis, it is amazing to me how you and others who are 

opposing TRIA can be certain that a market could exist without 

TRIA, especially given that insurance companies and reinsurance 

companies all say that they would have to leave that market without the certainty of TRIA. How do you respond to that? How can 

you— 

Mr. ELLIS. Congressman Scott, especially among the insurance 

companies, there is absolutely—they are getting reinsurance for 

free. Of course they are going to say that they are not going to— 

why would they negotiate with themselves right now? 

And as far as—I just point out, I completely agree with you that 

there are people all around the world who are scheming to hurt us. 

41 

I absolutely agree. TRIA doesn’t stop that. TRIA doesn’t prevent 

terrorism. TRIA doesn’t—it is a way to respond for—to recover 

from terrorism— 

Mr. SCOTT. Yes, I know it doesn’t do that. 

Mr. ELLIS. —doesn’t do any prevention. 

Mr. SCOTT. I know it doesn’t do that, but TRIA prepares for the 

storm before the hurricane is raging. It is there to give protection 

awareness. The point is, we are not being realistic about the continuity. When you say, okay, sure, maybe short term, what is short 

term? When we know that we are in a serious situation. There is 

no country on this planet that is a target of terrorists like the 

United States of America. 

But I only have 55 seconds, and I wanted to get to you, Ms. 

Abraham. Tell me, in your opinion—and, Mr. Smith, if you could— 

what happens if we in Congress wait until the last minute to authorize TRIA? And what would be the real-world effects if this Financial Services Committee drags its feet on moving this legislation forward? 

Ms. ABRAHAM. That is a great question. I will take a first stab 

at it very quickly. 

Our reinsurance treaty is under negotiation now for January 1st, 

and that would begin covering policies that we underwrite that 

would expire over the course after TRIA expires. And so, we are in 

a position, on January 1st of this year, of having a reinsurance 

treaty that will not cover, if there is not certainty with TRIA. 

So it is disruption, and it is confusion, and I am in a real quandary as to what we should tell our colleges and universities, because we are in this as of January 1, 2014, not December 31st. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman responsible for bringing 

us together today. The gentleman from New York, Mr. Grimm, is 

recognized for 5 minutes. 

Mr. GRIMM. Thank you, Mr. Chairman, and you can thank me 

later for all the fun we are having. Seriously, thank you, Mr. 

Chairman. 

Excellent discussion. But I just want to tidy it up a little bit, because I think some of the questions are misleading. And most of 

all, let’s remember, no one is saying that TRIA prevents terrorism. 

This is all about recovery from a terrorist act. That is first of all. 

And the underlying premise that every Member I have ever spoken to, if there is a catastrophic event, regardless whether it is terrorism or not, if a community is devastated, that mayor is going 

to come out, that governor is going to come out, most likely the 

president of the United States is going to come and they are going 

to say we are going to rebuild it better and stronger and the taxpayer is going to be on the hook. If anyone doesn’t believe that, 

then they don’t know the history of this Congress, and Hurricane 

Sandy is a good reminder. 

So this is about protecting the taxpayer as much as we can. This 

is the fiscally conservative, prudent way to do so. 

We have also heard about why not changing the numbers—$10 

billion or $10 million or $100 billion, $1 billion—$100 million is 

only the trigger that says now it is a TRIA event if it was an act 

of terrorism. But if there was an act, and all the insurance compaVerDate Nov 24 2008 15:52 Jun 06, 2014 Jkt 086680 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\86680.TXT TERRI
42 

nies were collectively responsible, the 20 percent deductible would 

equal $34 billion. So the event would have to be more than $34 billion in losses before the cost-sharing even kicks in. 

Now, before that, there is 15 percent shared first by the insur- ance companies. So, there is $34 billion in the 20 percent 

deductibles possibly, then there is 15 percent in front of that, then 

the taxpayer. I think that is fiscally responsible and prudent. 

But I want to go to Mr. Smith for a second. If an insurance company takes on too much risk, because we have heard about raising 

these numbers, the problem with raising these numbers is the 

smaller insurance companies drop out, they just can’t—they can’t 

take that risk. They are not big enough. So then you are left with 

just a few large insurance companies, which will have concentration risk in major cities so that doesn’t work, either. That is why 

this is well-thought-out, and you have to really understand insurance to completely understand that. 

But if an insurance company did take on too much risk, wouldn’t 

they lose their rating by the rating industry, especially if they are 

AAA or AA? 

Mr. SMITH. Very possible, correct. 

Mr. GRIMM. Ms. Abraham, you mentioned it is counterintuitive 

by capping the liability, can you explain that? Because I understand that if you increase—if you capped the liability, the midsized companies can then enter the market. If there is no cap, they 

cannot, the small insurance companies without a doubt. Can you 

just elaborate on that? 

Ms. ABRAHAM. That is absolutely right, Congressman, and it allows the reinsurers, as they are pricing their risk, to reinsure a 

small insurance company, to understand and charge for the appropriate level of risk. It is extremely difficult to price an unlimited, 

unknown risk that we have no control in preventing. 

But by capping the liability, the reinsurers and insurers understand this is what I have to price for, this is what I have to charge 

for, this is what I have to reserve for. So it provides a level of certainty which allows us in a very unknown environment to put capital at risk. So we are able to go and actually understand how 

much we could lose— 

Mr. GRIMM. But, again, if the losses are—knowing what you can 

lose also means that if I am a smaller company and there is too 

much at risk there, I simply can’t participate. 

Ms. ABRAHAM. Absolutely, sir. 

Mr. GRIMM. And if the smaller companies can’t participate, you 

are left with just the larger companies. 

Ms. ABRAHAM. And a lot of capacity exits the market. We bring, 

as small as we are, a lot of capacity to the market, and you want 

all of those small and mid-sized companies—many are mutuals— 

in the market, providing capacity. So, we are part of that flow. 

Mr. GRIMM. Thank you. I would posit—and I mentioned in my 

remarks, that when it comes to the workers’ comp portion, you 

don’t know how many employees could be—a massive hospital 

could have 2,000 to 3,000 employees at any time, and the same 

with a university. 

So, Mr. Ellis, I would ask you, with the workers’ comp portion 

being somewhat of an unlimited risk, because of the number of emVerDate Nov 24 2008 15:52 Jun 06, 2014 Jkt 086680 PO 00000 Frm 00046 Fmt 6633 Sfmt 6633 K:\DOCS\86680.TXT TERRI
43 

ployees, and also, employees could be maimed—an employee, not 

only could they be killed, but they could be on disability for the rest 

of the lives, it is almost impossible to calculate for that many employees what the risk would be. And it is mandated by the State 

to have that insurance. 

What CEO, what president of any company, whether an insurance company or any financial company, would take on an unlimited risk if they were prudent? Can you name even one that would 

take on an unlimited risk if they were prudent, executive, president or CEO? 

Mr. ELLIS. I can’t name anybody who would take on unlimited 

risk if they were prudent, but I don’t believe that is exactly how 

that would end up being in the workers’ comp, and they would be 

able to lay off some of the risk in other markets. And that is part 

of the whole thing that—where I think we just disagree, Congressman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the witnesses for 

appearing. I thank the ranking member, as well, for her statements, and I would like to associate myself with the statements of 

the ranking member. 

While I have really paid close attention to all of the testimony, 

and I appreciate what all of you have said, I do want to ask a few 

questions of just a few of you, and I hope that the others won’t feel 

that somehow I am slighting you in any way, because, candidly 

speaking, I assume that all of you can give us additional credible 

testimony. 

But, Mr. Ellis, you have indicated that you believe a short extension would be in our best interest, if it must be extended at all. Is 

this correct? 

Mr. ELLIS. Yes, Congressman. 

Mr. GREEN. And what I would like for your colleagues on the 

panel to do is explain why they perceive a short extension to be 

something that is antithetical to our best interests, so let’s start 

with Mr. Smith. Mr. Smith, why would you oppose a short extension? 

Mr. SMITH. Because it is an unnecessary disruption to the marketplace. This is a wonderfully well-thought-out program. It is 

functioning extremely well. The longer we can renew it, the less 

disruption we have to the marketplace. 

Mr. GREEN. And let’s go to—all right, Mr. Woo? 

Mr. WOO. My opening statement, in my testimony, was that terrorism has become and will remain a catastrophe insurance risk, 

so I personally would recommend not just an extension for a finite 

period of time, but one without a specific time limit, simply because 

this issue is not one which will ever go away. Okay? 

So, I do consider that some thought should be given to the whole 

issue, not just in the short or medium term, but in the long term, 

as Mr. Smith said, that the market’s ability is important, that this 

whole issue of the backstop be addressed. 

And I am speaking as someone who lives in England, where we 

have a terrorism insurance pool which has no finite term or limitaVerDate Nov 24 2008 15:52 Jun 06, 2014 Jkt 086680 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\86680.TXT TERRI
44 

tion. That is because the terrorism risk in London is permanent. 

It doesn’t go away; there will be terrorism risk in London for as 

long as one can consider. 

So my personal response to your question, Congressman, is that 

there should be serious consideration given for a long-term reauthorization of TRIA, and that is something which to my mind 

should be discussed. 

Mr. GREEN. I see that Ms. Abraham wants to respond, and I 

have another question. 

Ms. ABRAHAM. We are in the business of taking risks. We understand that. But uncertainty in this is disruptive. It is difficult to 

plan a major construction project, it is difficult to plan a major program when you don’t know whether these risks will be there and 

covered in the foreseeable future. 

Mr. GREEN. Do we find that we have some companies—let’s call 

them megacompanies—that would have serious concerns about locating in a country that does not provide this kind of insurance? 

Does this help us to attract business, Mr. Smith? 

Mr. SMITH. Absolutely. Given the corporate governance that is in 

place today and all the enterprise risk management that is occurring at all these large corporations, they have a very sophisticated 

decision tree they go through as to where they are going to make 

their investments. 

We have a challenge here in our country, because of our risk of 

terrorism. Without great coverage, it is going to be very difficult for 

us. 

Mr. GREEN. All right. Let me do this with the remainder of my 

time—and, Mr. Chairman, if you find that I go beyond the time 

that I have left, would you just kindly sound the gavel and I will 

cease and desist. 

But what I would like to do is read the list of entities that are 

supportive of extending TRIA. And the list is rather long, but I 

think it is important to not only place these in the record, but for 

the American people to know what is actually in the record. 

So, here is the list: The National Association of REALTORS®, 

the U.S. Chamber of Commerce, the American Gaming Association, 

the International Association of Amusement Parks and Attractions, 

the Jewish Federations of North America, the National Association 

of Insurance Commissioners. 

We have a joint letter from the national sports leagues and organizations, the National Conference of Insurance Legislators, the 

National Conference of State Legislatures, New Mexico Mutual, the 

American Public Transportation Association, the U.S. Conference of 

Mayors, the workers’ compensation Fund, the National Association 

of Mutual Insurance Companies, the National Association of Real 

Estate Investment Trust, the Commercial Real Estate Development 

Association, the International Council of Shopping Centers, Inc., 

the Building Owners and Managers Association International, the 

Real Estate Roundtable, the CRE Financial Council, and the Real 

Estate Board of New York. 

I yield back the balance of my time. 

Mr. NEUGEBAUER [presiding]. I thank the gentleman. Is he requesting that those be made part of the record, as well? 

Mr. GREEN. Yes, sir. Thank you, Mr. Chairman. 

45 

Mr. NEUGEBAUER. Without objection, it is so ordered. 

Now the gentleman from Ohio, Mr. Stivers, is recognized for 5 

minutes. 

Mr. STIVERS. Thank you, Mr. Chairman. I appreciate it. 

I am going to try to get to four questions, so I am going to ask 

some yes-or-no questions. The first question is for Mr. Beshar, Mr. 

Smith, and Ms. Abraham. 

Insurance is the business of pricing risk. And because the information related to both the likelihood and intensity of terrorism 

events is classified information—this is the yes-or-no part of the 

question—do private insurers have access to classified information 

with which they could price the risk associated with both the likelihood and the intensity of terrorism acts? 

Ms. ABRAHAM. No. 

Mr. STIVERS. We can just go down the— 

Mr. SMITH. No. 

Mr. STIVERS. Okay. 

Ms. ABRAHAM. No. 

Mr. STIVERS. Verbal responses would be best. 

Mr. SMITH. Okay. 

Mr. STIVERS. No, no, no. I got three noes, right? One of them was 

a shaking of a head. This question is also for the same three folks. 

Are acts of war insurable or uninsurable risks, if you could give me 

verbal responses? 

Mr. BESHAR. Generally excluded. 

Mr. SMITH. Same, generally excluded. 

Ms. ABRAHAM. Generally excluded. 

Mr. STIVERS. Generally uninsurable, because governments have 

historically taken on that role. 

Ms. ABRAHAM. Correct. 

Mr. STIVERS. So acts of terrorism are merely acts of war by nonstate actors, and this is more a statement, because I want to get 

to my last couple of questions—because they are the same things 

of acts of war by non-state actors, they should be treated the same 

way, in my opinion. So, thank you for your answering that question. 

Mr. Grimm did a good job of talking about the private money 

that comes in front of any government money that would be associated with TRIA, but I think it is important to talk about how the 

government money would work, and how it would work with TRIA 

and without TRIA. 

So—and this is one that may take a little longer—but because 

there is 133 percent recoupment of any taxpayer-related costs of 

events over time, do you believe—and, again, for the three insurance professionals—that the system under TRIA would result in 

higher or lower total cost for the taxpayers than a non-TRIA system? 

Ms. ABRAHAM. I believe it would be lower. TRIA would have a 

lower recovery than without it. 

Mr. STIVERS. It would cost the taxpayers less, right? 

Ms. ABRAHAM. It would cost the taxpayers less, correct. 

Mr. STIVERS. Because there is private money in front and there 

is an incentive with the recoupment— 

Ms. ABRAHAM. Correct. 

46 

Mr. STIVERS. —to make sure that is the difference between the 

TRIA system and, say, the flood insurance system. Our flood insurance system has no recoupment, and the only people who buy it are 

people who are guaranteed to file claims. 

So, you wouldn’t make those policies in the private insurance 

world because there is that moral hazard that only people who are 

going to file a claim are going to take it out. 

For the other two insurance professionals, do you believe the 

total cost of the government would be higher or lower because of 

the recoupment mechanisms in TRIA? 

Mr. SMITH. We believe it would be lower. 

Mr. BESHAR. We agree. 

Mr. STIVERS. Great. Thank you for that. 

The last thing that I want to ask everybody on the panel relates 

to the term of a TRIA bill. There has been some disagreement on 

the term of the TRIA bill. I came to Congress to reduce uncertainty 

for businesses, and I believe a longer-term TRIA bill reduces uncertainty more than a shorter-term TRIA bill. 

For everyone on the panel, do you believe a longer-term TRIA bill 

will reduce uncertainty? And you can give me a few seconds of why, 

because we have a minute and 30 seconds. 

Mr. BESHAR. Yes. Yes, it absolutely will. 

Mr. SMITH. Yes. 

Ms. ABRAHAM. Absolutely. 

Mr. WOO. Absolutely. 

Mr. ELLIS. It reduces uncertainty, but it also doesn’t allow Congress to actually reform and change the program, because we know 

the only time they look at it is when it comes up for reauthorization. It was supposed to be a temporary transition. 

Mr. STIVERS. I understand it was intended to be a temporary 

transition, and I appreciate that, but it does reduce uncertainty, 

which I think is really important as we try to get our economy back 

on track. 

And so for those reasons, I think the TRIA bill is pretty well 

thought out; I think it will result in lower cost to the taxpayers, 

and I think it will actually work well. 

I am going to yield the balance of my time—45 seconds to the 

gentleman from New York, the sponsor of the bill. 

Mr. GRIMM. Thank you very much. I appreciate the gentleman 

yielding. 

I just wanted to know two things. One, the correlation of flood 

insurance has been brought up before; it doesn’t work well. We all 

know that. I would say that what we should be doing is looking at 

TRIA to use as a model for flood insurance. So, TRIA really works; 

it is doing well, and that could be the fix for flood insurance. That 

is number one. So, I like the argument, I just think it is being used 

in reverse. 

The other idea, that this was because the legislation was originally temporary, that is a big argument on why we need to sunset 

it. It shouldn’t be temporary. It should be permanent. It is a program that works; it works well, and it protects taxpayers, which 

makes it fiscally responsible. So, when something is working well, 

we should keep it. 

Those are my only comments, and I yield back. 

47 

Mr. NEUGEBAUER. I thank the gentleman. 

And now, the gentlewoman from Alabama, Ms. Sewell, is recognized for 5 minutes. 

Ms. SEWELL. Thank you, Mr. Chairman. First, I want to thank 

all of our witnesses for your testimony today and the time that you 

are taking to both educate us as well as to make sure that we are 

making the right kinds of legislative decisions. 

I especially want to thank Mr. Beshar and his colleagues at 

Marsh & McClennan for your continued use of your expertise in 

helping younger Members like myself understand the importance of 

TRIA and answering the questions that we may have. And I want 

to thank you for personally doing that. 

My question to you is we have talked a lot about the time, the 

sunset, whether it should be 5 years or 10 years. Mr. Beshar, I was 

wondering if you could elaborate on other fine-tuning that we can 

do in TRIA and the reauthorization of other provisions related to 

TRIA, workers’ compensation or trying to reduce their ambiguity in 

other areas of this Act since we are taking up the totality of the 

act. 

Mr. BESHAR. Congresswoman Sewell, thank you for your gracious 

comments. Two suggestions. First, we spoke about NBCR, so that 

if coverage is provided on the underlying policy to validate that 

concern, TRIA would backstop that. And then second, cyber terrorism. What does it mean? What is the best way to try to address 

that new emerging risk? 

Ms. SEWELL. Mr. Smith, would you have any additions as to 

what other things we can be looking at? 

Mr. SMITH. Our aspiration is it renews the way it is for a long 

period of time. We are more than willing to engage in debate on 

specifics as far as modeling how this might work out, but we would 

hope to just renew as is. 

Ms. SEWELL. Okay. Are there any ambiguities with respect to 

workers’ compensation or others that— 

Ms. ABRAHAM. Mr. Beshar mentioned earlier his third point for 

improvement on the bill, and that is clarity on the certification 

process. I think that would help. Again, uncertainty is never good 

when you are running a business or running a university, and clarity around that would help. 

Ms. SEWELL. Can either one of you explain to me sort of the relationship between the private insurer and the government in paying 

claims as a result of a terrorist attack, how that works now, and 

whether that is a good thing or a bad thing? 

Mr. SMITH. Let me make sure I understand your question. As far 

as the mechanisms as to if there is an act of terrorism— 

Ms. SEWELL. Yes. The levels of payment, how the payment structure would work as between private insurer and government. Basically, I want to know how much money are the taxpayer is on the 

hook for. 

Mr. SMITH. Right. To Congressman Grimm’s earlier point, you can think of $34 billion as kind of the starting point. Most acts of 

terrorism that are likely to occur are going to be in what we call 

the lower layers. The first layer is the primary insurers, the second 

layer is the reinsurers, and the third layer is the TRIA program, 

the government backstop. 

48 

So, it is going to take a substantial event to get to that third 

layer. Most things that we would see are going to be in those lower 

layers. 

Ms. SEWELL. Great. 

I yield back the rest of my time. Thanks. 

Mr. NEUGEBAUER. I thank the gentlewoman. Now, the gentleman 

from South Carolina, Mr. Mulvaney, is recognized for 5 minutes. 

Mr. MULVANEY. Thank you, Mr. Chairman. 

A couple of different questions all across-the-board. 

Dr. Woo, I will start with you. Help me understand. Is this 

modelable or not? I hear that maybe it is. I hear that maybe it 

isn’t. Maybe it might become more modelable over time as we have 

more experience. Help me understand where we are on that. 

Mr. WOO. Thank you, Congressman. Can I just answer the question about the need for classified information? There is information 

which is in the public domain which is the outcome of terrorist 

trials. In every democratic country, someone who has been arrested 

on terrorist charges has the right to have his day in court. If he 

is convicted, that counts as a plot. If he is acquitted, it is not a plot. 

And on the basis of terrorist courtroom outcomes across the 

Western alliance, not just in America but in Britain, France, Germany, and so on, we can calculate how many terrorist convictions 

there have been and we can figure out what proportion of those 

have not been interdicted. 

Typically, what happens is you have 10 guys who have been convicted in court. You have 10 plots, and maybe one out of those 10 

is a plot which the intelligence staff did not know about. This does 

not require classified information because it is all public domain information. 

Again, it is known that obviously there are rumors of plots and 

so on, but that is fine. But in a democracy, a plot— 

Mr. MULVANEY. Is it fair to say we are getting more information 

as we move forward? 

Mr. WOO. The point I would like to make is that—I would not 

be making these comments in 2007. It is just that there is a time 

lag of about 2 to 3 years for people who have been indicted on terrorism charges to have their day in court. 

And here I am speaking in 2013, and I have done analysis of all 

the terrorist convictions in court in the Western alliance. And it is 

on that basis that our estimate of frequency is calculated. It does 

not require any intelligence information. 

Mr. MULVANEY. Thank you very much. 

Mr. Ellis, I very rarely agree with Mr. Capuano, although when 

I do, I like to celebrate that fact. One of the things he said was that 

he didn’t like the program very much but he couldn’t think of anything else. Help me think of something else. Give me ideas of 

things we should be looking at that possibly could replace this or 

act as substitutes. 

Mr. ELLIS. Congressman, certainly— 

Mr. MULVANEY. Other than just having the government write a 

check at the end, which is not acceptable to me. It probably is to 

him, but that is where we would disagree. 

Mr. ELLIS. Yes, Congressman. I did lay out a few ideas in my testimony. I think it really is about increasing the skin in the game 

49 

for the insurers and allowing the industry to continue to develop. 

Because right now, the reinsurance industry is really only playing 

in that 20 percent deductible. 

So if you can change the deductible, you can change the threshold of what is an event, then that is going to eventually move the 

government out of the role of being the reinsurer. And you can see 

that in the— 

Mr. MULVANEY. It would involve moving the deductible down, 

correct, not up? 

Mr. ELLIS. Right. The deductible—yes. Yes. Increasing the 

amount that is retained by the insurance companies that they then 

have is what I am saying. 

Mr. MULVANEY. Mr. Beshar, I guess that will lead to this question, a follow up on—excuse me, Mr. Smith. 

Mr. Grimm asked about the triggers. There is some discussion 

about whether we should increase the triggers. And my understanding is that if we do that, it actually might weaken the program and make less capital available to fewer participants in the 

program. Am I understanding that correctly? 

Mr. SMITH. We believe very strongly that is what will happen. 

The small and mid-sized insurers are numerous and they provide 

tremendous capital into this space. As you lift up the limits, you 

are going to squeeze out the small and the mid-sized insurers, and 

that is not a good outcome. 

Mr. MULVANEY. With that, I will yield the balance of my time 

back to the Chair. 

Mr. NEUGEBAUER. I thank the gentleman. 

And now the gentleman from Washington, Mr. Heck, is recognized for 5 minutes. 

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

Waters. 

I want to add my expression of gratitude to the five of you for 

spending so much time with us this afternoon. And even though 

they have departed, I would like to acknowledge Congressmen 

Grimm and Capuano for their advocacy and leadership in this area. 

Mr. Smith, you drew the short straw. This program’s opponents 

have suggested that you are being crowded out of profitable opportunities by TRIA and yet you say you are not. I am tempted, 

tongue-in-cheek, to ask you what is it that they know about your 

business that you don’t know. 

But instead I would rather ask you, beyond the oft-repeated 

premise that by their very nature acts of terrorism do not lend 

themselves to actuarial projections, what more can you say to give 

color or depth to why it is you can’t or won’t enter this market in 

a more robust fashion in the absence of TRIA? 

Mr. SMITH. Sure. The dynamic that is in place is that the nature 

of the terrorism risks are the serious events that are so large and 

the prospects for frequency are so unpredictable. 

We have legions of Ph.D.s who work with Swiss Re across the 

globe. We have been building models for 150 years. We know the 

flood business inside and out. So, we would love to engage around 

the NFIP. We could bring much value to that. 

But when it comes to terrorism, it mathematically doesn’t work. 

The upward occurrence limits are too high and the unpredictability 

50 

of frequency, it is just not there. And so we are playing, we are contributing, we are committing capital because we are comfortable in 

the layer that we are in. 

And we know that we can pay billions of dollars of claims in the 

years ahead in that layer. We know that. We are comfortable with 

that. But if that upper limit goes away, if the backstop goes away— 

and we do not believe that is in any way, shape, or form subsidized 

reinsurance. 

If it was subsidized reinsurance, the dynamic goes away, and 

then we are more comfortable going up and taking more risk. If 

that goes away, we go away. We will not play in terrorism risk if 

the backstop goes away. 

We can’t. It would not be financially prudent to our shareholders 

and to all of our policyholders across the globe, all the governments, and all the insurance companies that we back. We wouldn’t 

be able—we just can’t do it. 

Mr. HECK. Thank you. 

I would interject that I thought the gentleman from Ohio had 

this exactly right. There is a material effect on our economy and 

economic growth if we don’t do this correctly, and it is one of the 

very good reasons to be supportive of some continued direction 

here. 

Mr. Beshar, in your addendum you had the following statement 

I would like to briefly follow up on: ‘‘Notably, as the severity and 

frequency of cyber attacks have grown more prominent, several 

proposals have been made to clarify that TRIA could apply as reinsurance in the event of a massive cyber attack. Were that clarification realized, TRIA could spur additional capacity in the cyber market.’’ 

My question is, do you have any suggestions about exactly how 

we might clarify in this regard? If so, please provide them. 

Mr. BESHAR. It is something that I think really warrants further 

study. It is clearly something that wasn’t envisioned as recently as 

2007. So as people speak about cyber 9/11 and cyber Pearl Harbor 

and speak about it with a degree of emphasis in terms of the potential for catastrophe, we have to figure out what is the best way of 

incorporating that into TRIA. 

There is an increasing cyber liability market that is developing 

right now. It tends to be at more modest levels. People buying coverages for $10 million, $20 million. And so, this is something really 

very different. Where is the right flex point between the private 

market and what the government might do? 

Mr. HECK. Okay. I get that you are not yet ready with the specific recommendations. But I, for one, feel that the threat here is 

so real, and has the potential to have such a magnitude of impact 

that if you are right, and we are not yet ready, we ought to at least 

get started on the process. 

So at a minimum, I would request that anybody listening who 

has any skin in this game suggest language about how we might 

undertake that process. Because the threat of cyber attacks is very 

real. 

Thank you, Mr. Chairman, for your indulgence. I yield back the 

balance of my time that I don’t have anymore. 

Mr. NEUGEBAUER. I thank the gentleman. 

51 

The gentleman from Illinois, Mr. Hultgren, is recognized for 5 

minutes. 

Mr. HULTGREN. Thank you very much, Mr. Chairman. 

Thank you all for being here. 

First of all, Mr. Beshar, if I could address this first question to 

you. I am just really trying to understand triggers here, and wonder if you could describe how a terrorism event is certified to trigger TRIA coverage if necessary? 

What agencies or departments are responsible for gathering information? What determinations are required? And do we think it 

works? Is that the right way for the triggers to happen? 

Mr. BESHAR. I am dealing with this from memory, but my understanding is that it is the Attorney General, the Secretary of State, 

and the Secretary of the Treasury, that all three of them have to 

agree to certify an event as a TRIA-covered event. 

And so our recommendation was that may well be the sound 

process, the right people involved in making the determination. But 

to just try to put some sort of a time focus, there are obviously circumstances where it may not be immediately clear whether it is a 

terrorist event or not. 

So the idea that it takes some time is perfectly appropriate. We 

were just suggesting that there be some sort of a limit on that 

time. 

Mr. HULTGREN. Remind me again of your suggestion of what 

would make a common-sense limit. My guess is there would be 

needs immediately, or very quickly, to respond if something like 

this happened. 

As you also said, we may find out more information as time goes 

on. So I wonder, too, if there is a possibility to have a response, 

but maybe a follow up, or a look back after 60 days or something 

like that. 

But is there some thought of what a reasonable amount of time 

would be, our current process, how long it would take: what you 

would recommend as a reasonable length? 

Mr. BESHAR. We would suggest 90 days, with some sort of provision that if there is not clarity, then it can obviously be extended. 

Mr. HULTGREN. Okay. 

Dr. Woo, if I can address this to you and get your thoughts, first 

of all—and maybe somebody has already said this—but I definitely 

think we need a catastrophist here in Congress watching over everything that is going to happen over the next couple of weeks. 

What a great title. 

Dr. Woo, I wonder, the World Trade Center attack totaled about 

$42 billion in today’s dollars and insured losses, but the majority 

of that was property. 

Modeling for a terrorist attack, can you talk a little bit about 

how you model the potential losses from workers’ compensation 

claims, and for a wider-area event, how you model that? And also 

maybe how State mandates and State-based regulations might 

make it more difficult to model some of this specifically to workers’ 

compensation? 

Mr. WOO. Thank you very much, Congressman. Of course, workers’ compensation applies to natural hazards, as well as for terVerDate Nov 24 2008 15:52 Jun 06, 2014 Jkt 086680 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\86680.TXT TERRI
52 

rorism. And so at RMS, we have a model, a workers’ compensation, 

say for earthquakes, as well as for terrorism. 

Now, as far as the claims consequences of an event are concerned, there are similar ambiguities between earthquakes and terrorism. We don’t exactly know how many people would be affected 

in a given event. 

And so what I have tried to focus on is on the threat dimension 

of terrorism. And the key point I would like to emphasize is simply 

that terrorism is a control process. We can’t control earthquakes. 

We can’t control hurricanes. 

But there are people out there, the FBI and the CIA, who are 

trying to control these. And if I can just quote from Robert Mueller, 

when he left office he said that through the hard work of his staff, 

dedication, and adaptability, the FBI is better able to predict and 

prevent terrorism and crime. 

It is not my job to predict the next terrorist event, but it is their 

job. It is the FBI’s job, okay. My job is to figure out what the net 

result is of the terrorists trying to cause loss. And what the FBI’s 

job is, is to stop it, okay, these key points. Can I just make this 

point, that the need for TRIA is based on what Donald Rumsfeld 

would have called the ‘‘known knowns,’’ which are: (A) that the terrorists are trying to cause a maximum loss; (B) they target highvalue properties in big cities; and (C) that responsibility for stopping these losses rests with the Federal Government. 

So it is the ‘‘known knowns’’ which make the renewal of TRIA 

essential. And again, I come back—I know that there is a lot of 

controversy about the modelability of terrorism risk. 

And in fact, if I can just say that in less than 2 weeks’ time, I 

should be giving a keynote address at the Casualty Actuarial Society in Chicago at the major catastrophe insurance conference. And 

as they have very kindly given me 75 minutes to explain myself in 

terms of the modelability of terrorism risk. Anyone who is skeptical 

about it, please send their staff along to Chicago. 

Mr. HULTGREN. It is a little hard in 5 minutes to get much, but 

I appreciate it. 

And again, thank you all. We will follow up with questions that 

we have as well, if that is all right. So thank you for being here. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman, for 5 minutes. 

Mr. SHERMAN. Thank you, Mr. Chairman. 

We have a system for providing insurance for the property, we 

have workers’ comp for the personal losses suffered by individuals 

who are working. Under our current system, if somebody is not 

working and happens to be the victim of a great terrorist attack, 

do they have any coverage? Somebody just happens to be visiting 

the World Trade Center, because they want to see what the building looks like. 

Ms. ABRAHAM. I would think there is a liability component potentially associated with it; not just a visitor, but if there is something 

where the evacuation plans weren’t as efficiently developed, there 

is a potential for liability associated with it, but generally speaking, 

I would say no. 

53 

Mr. SHERMAN. Okay. 

Do any of you favor collecting monies in advance by the U.S. 

Government, rather than just a post-event, ex ante approach? 

Mr. Ellis? 

Mr. ELLIS. Yes, Congressman. We do support the idea of a premium and having that approach. 

Mr. SHERMAN. Anyone else? 

Mr. ELLIS. We believe the program is constructed in the most efficient manner possible. So, we do not. 

Mr. SHERMAN. Okay. 

Watching this hearing has been—there is so little disagreement. 

We have two major proposals that are pretty similar. It seems odd 

that we have a lot of anonymity. 

Who on the panel would argue for a major change in the two 

pieces of legislation, other than the gentleman, Mr. Ellis, who is of 

a different view than the rest of the panel? 

Mr. Ellis, the floor is yours. 

Mr. ELLIS. Thank you, Congressman. As I said in my testimony, 

we just think that if Congress decides to extend the program, that 

we need to, just as we did in 2005, continue to move it more onto 

the shoulders of the private sector, and to protect the taxpayer. 

And so that is what we are looking at, as far as any kind of reauthorization. 

Mr. SHERMAN. So it is not that you like what we did in 2005, it 

is just you thought that was a step better than the previous legislation. You want to go one step further beyond that; is that correct? 

Mr. ELLIS. Sir, in my dozen years of being an advocate for taxpayers, I have learned that a lot of times I have to swallow incremental progress. And so, that is what we are looking at. 

Mr. SHERMAN. I would point out that for those who want to protect the Treasury, not only do you have to look at what risks do 

we have of under TRIA, but every time there is a disaster of the 

magnitude of a major hurricane, we end up writing checks for far 

more than we are technically liable for. 

And I know Citizens for Common Sense might argue for us to be 

more stingy, but I don’t think that is what my future colleagues 

will do. 

Mr. Ellis, does it make sense to be fighting to limit the legal liability of taxpayers if, when we have the major publicized instance, 

we are going to write checks far and in excess of that? 

Mr. ELLIS. No matter what, even with TRIA, we are going to be 

writing checks. There is going to be the public infrastructure, there 

is the rebuilding. There are roads. That has always been the case. 

And that is not insured. 

So essentially, we recognize that. And Mr. Capuano asked me 

about that earlier, do I think that there will be a Federal role after 

a major disaster, whether it is a hurricane, or whether it is a terrorist attack. And, yes, and I think it is appropriate. 

But it needs to be—I want to see that the checks are as small 

and are reasonable and appropriate to help these communities recover and become more resilient in the future. And my concern 

about not actually pricing this terrorism risk appropriately is, 

again, it doesn’t prevent the terrorist event, but it will help companies mitigate the risk more effectively, or encourage them to. 

54 

Mr. SHERMAN. For the first time ever, I am going to yield back 

my time when I still have time. Thank you. 

Chairman HENSARLING. The Chair takes note. 

The gentleman from Florida, Mr. Ross, is now recognized for 5 

minutes. 

Mr. ROSS. Thank you, Mr. Chairman. 

I would like to begin by first explaining why I, as a capital purist 

and one who believes in free markets as the best regulator of all, 

who also served in the Florida legislature, and chaired a committee 

that oversaw the efforts to bring back the private market and our 

property insurance, and who, quite frankly, was one of two votes 

against the expansion of a government-run insurance company in 

the State of Florida that cost me my chairmanship. 

But I still believe that in this particular situation, a TRIA bill 

is necessary. And I go back to the fundamental principles of insurance that not only do we need to have prefunding of events in an 

actuarially adequate fashion, but also that we have adequate capital set aside, and that those who are responsible for maintaining 

and administering that risk have the ability to do risk management. 

And unfortunately, when it comes to terrorism, risk management 

is predominantly a function of homeland security. 

So, Mr. Woo, I agree with you that there may be a way to assess 

or predict or forecast terrorist events, but until such time as we 

learn how to mitigate against these, I foresee maybe State Farm 

sponsoring gas masks, Farmers Insurance sponsoring flak jackets, 

and maybe AIG sponsoring F-16s in order to mitigate against attack, which of course is an absurdity. 

But I bring that out as saying that if we are going to say that 

we want a private market backed, then we need to allow them to 

have what traditionally private markets have in providing insurance. I think adequate capital is necessary. 

Mr. Ellis, you talked about in your opening that in 1992 after 

Hurricane Andrew, the markets dried up, but then the reinsurance 

came back. It came back as a result of a legislative change that created a Florida Hurricane Catastrophe Fund not unlike TRIA. It 

came back because they allowed pup-companies which were subsidies of major insurance companies to be based in Florida and 

limit their liability. They came back because they had joint underwriting associations for homeowners and also the wind storm pool. 

What I am getting at is that as much of a purist as I am, practically speaking from a political perspective, government is going to 

be involved, and to that end, how do we minimize government exposure. 

Mr. Ellis, I agree with you on pre-funding. I think that is absolutely important that if we are going to look at transitioning over 

into a market to come back, we have to have some sense of prefunding. 

Mr. Woo, based on your assessment, let me ask you, can you actuarially, adequately price terrorism insurance? 

Mr. WOO. I think the question has to be put in the context of 

other catastrophe perils like the natural hazards. If you take Hurricane Irene, on its path towards New York City at one stage, RMS 

55 

did a review, an analysis to show that when it was a Category III 

in the Atlantic, the loss potential was $200 billion. 

Mr. ROSS. I agree with you, Mr. Woo, but we also have a cone— 

we know 5 days in advance pretty much where it is going to go. 

We have ways to mitigate and prepare once we know that the 

event is about ready to occur. We don’t have that luxury in terrorism. 

So my question to you is, can you actuarially, adequately price 

terrorism insurance? 

Mr. WOO. Well, what— 

Mr. ROSS. You can’t, can you? And that is the key here because 

if you could actuarially, adequately price terrorism insurance, 

would it be less than, equal to, or greater than what people are 

paying now? 

Mr. WOO. The key part to actual pricing is allowing for a factor 

for uncertainty. 

Mr. ROSS. Right. 

Mr. WOO. And uncertainty has an element of perception to it. I 

am the first to admit, sir, that obviously the perception of the uncertainty is very high within the insurance community. But if I can 

just make this point, which is that over time, again, with the kind 

of process I have mentioned, namely people tracking courtroom 

convictions, people tracking plots through social network analysis, 

and so over time, I think there will be a gradual better understanding of the nature of terrorism risk. 

Mr. ROSS. But the pricing is what concerns me, because right 

now, we have a government backstop and my history in government backstops, as you look at the National Flood Insurance Program, and as you look at citizens’ property and causality insurance 

program in the State of Florida, is it leads to bad behavior. 

It leads to building a high-risk area. It leads to rebuilding in 

high-risk areas. And so what I am saying is if we are going to bring 

back a market, we are going to have private capital at risk, we 

have to give them some opportunity. 

In my State, people say well, give us adequate actuarial pricing. 

I don’t know if we can do that in TRIA. I don’t think we can, and 

until we can answer that question, we have to have a government 

backstop. But I think we also have to look at Mr. Ellis’ points 

where we have to be able to pre-fund it. 

Because in the workers’ compensation—you don’t have exclusions 

in workers’ comp other than fraud and—basically other than fraud 

because it is a strict liability. How are you going to be able to fund 

workers’ compensation other than have a regulator who says, we 

don’t have much of a market so we are going to lower our standards, then you have thinly capitalized companies out there that are 

going to go to a guarantee fund? 

Any comments on that? I have 14 seconds. 

Mr. WOO. I don’t know if there is a distinction between 

modelability and insurability. As I said, TRIA is needed for the absolutely known knowns. Terrorists, unlike natural hazards, target 

high-value properties in central business districts. 

Mr. ROSS. I am not disagreeing with you, I think—yes, TRIA is 

needed. 

Mr. WOO. Okay, but— 

56 

Mr. ROSS. But we have to transition it over time. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, for 5 minutes. 

Mr. DUFFY. Thank you, Mr. Chairman, and I appreciate again 

the panel staying here so long today. 

Mr. Smith, I just want to understand what you do at Swiss Re, 

you guys offer primary insurance and reinsurance, is that correct, 

both products? 

Mr. SMITH. We are about 85 percent a reinsurance company, so 

mostly what we do is reinsurance. We have a small commercial insurance presence. 

Mr. DUFFY. Okay. 

Ms. Abraham? 

Ms. ABRAHAM. We are exclusively a primary insurance company. 

Mr. DUFFY. Do you buy reinsurance? 

Ms. ABRAHAM. Yes. 

Mr. DUFFY. Okay. 

Ms. ABRAHAM. We buy extensive reinsurance, and without TRIA, 

our reinsurers have said they would not provide the kind of protection that we want to provide. 

Mr. DUFFY. Mr. Smith, if at Swiss Re, you were trying to price 

your reinsurance with the terrorism component as part of your 

product without a government backstop, could you actually do that 

and would it be pretty expensive? 

Mr. SMITH. We believe that mathematically, that is not possible. 

So we feel, Congressman, that we cannot do that. 

Mr. DUFFY. Would it be expensive if you did try to price that? 

Mr. SMITH. It would be extremely expensive. 

Mr. DUFFY. Okay. 

On your primary products, the 15 percent that you offer the primary products on, for the terrorism reinsurance, through TRIA, 

what do you pay the Federal Government as a premium? 

Mr. SMITH. The only mechanism for payment to the government 

through TRIA is at the backend of a loss. There is no upfront. 

Mr. DUFFY. There is no premium that is paid to the Federal Government for taking on this risk, right? It is paid at the back end. 

In your business, at Swiss Re, you don’t say to your customers, 

we will take on the risk if you have losses, we will come back to 

you and re-collect for the payments that we have paid out, right? 

You have to collect the premium up front. And then if there are 

claims, you pay them out of the money that you collected. But that 

is not how this system is working with TRIA in the Federal Government, is it? 

Mr. SMITH. That is correct. 

Mr. DUFFY. Do you think it is a good deal for the American taxpayer— 

Mr. SMITH. Absolutely. 

Mr. DUFFY. —to try to collect on the back end? 

Mr. SMITH. Absolutely. 

Mr. DUFFY. Okay. So you would say that it is a bad idea to have 

some premium—we could debate how much that should be. We 

would probably agree that you can’t price the full risk, but there 

57 

probably should be some payment made to build up some fund so 

that if there is an attack, we can draw upon that fund. But your 

position would be there should be no pre-funding, we should come 

at the back end and try to collect it. Is that your position? 

Mr. SMITH. You can argue it either way. 

Mr. DUFFY. I am asking— 

Mr. SMITH. Our perspective is that the way it works today is extremely efficient because the— 

Mr. DUFFY. Because you don’t have to pay for it, right? It is free. 

Mr. SMITH. Well, we would— 

Mr. DUFFY. Of course— 

Mr. SMITH. —disagree with that. We cover what we cover. 

Mr. DUFFY. You don’t pay a premium. There is no premium for 

the American taxpayer taken on the risk. 

Mr. SMITH. Except they are not covering what I cover. We are 

at different layers. I pay what I pay, that is what I cover, that is 

what I charge for, and that is what I am on the hook for. 

Mr. DUFFY. Right, the Federal Government is on the hook for the 

terrorism component and— 

Mr. SMITH. The extreme upper layer. 

Mr. DUFFY. —there is no premium charge for that, right? 

Mr. SMITH. Right. 

Mr. DUFFY. And you don’t take on risk without charging a premium, right? 

Mr. SMITH. That is correct. 

Mr. DUFFY. How come it is a good deal for you to collect a premium, but it is a good deal for the American people to not collect 

a premium? Why is it a great standard for you at Swiss Re and 

bad for America and the American taxpayer to collect some form 

of a premium to build some form of a fund to actually draw upon 

if there is an attack? 

Mr. SMITH. Again, Congressman, you can argue it either way, 

and you are asking—and our point of view is that the efficiency of 

how it is done today we think is rather brilliant because the odds 

of the U.S. Government of it getting it up into that layer are so 

small that to pre-fund it, how are you going to do that? You are 

going to have make— 

Mr. DUFFY. With a premium. 

Mr. SMITH. —you don’t have a model so you can’t model it. 

Mr. DUFFY. So the model is, ‘‘don’t collect anything?’’ 

Mr. SMITH. You have a model that—you have a— 

Mr. DUFFY. We could place some premium— 

Mr. SMITH. —mechanism in place to try to build a— 

Mr. DUFFY. [Off mike.] 

Mr. SMITH. —only if there is a claim paid. 

Mr. DUFFY. I am sure Ms. Abraham would love to say, ‘‘You will 

reinsure us for free, and we will pay you on the back end.’’ 

I support TRIA. I want you guys to be aware of that. I think we 

have to have some action here, but to say that we are not going 

to try to collect some form of a premium that may not correlate 

with the risk that the taxpayer is taking on, but some premium, 

to have a fund set up that we can draw upon if there is an attack. 

Mr. Ellis, do you agree that we should have some form of 

prefunding? 

58 

Mr. ELLIS. Absolutely, Congressman. 

Mr. DUFFY. Some premium should be paid, you would agree? 

Mr. ELLIS. Absolutely. Right now, there have been insurance 

companies that have been collecting terrorism insurance premiums 

from their clients for a decade, and haven’t paid anything for the 

Federal backstop that they have. 

Mr. DUFFY. I would just make a note to the panel, I think you 

could get better buy-in if there was some premium paid to the 

American taxpayer to offset the risk. They are not going to get a 

full premium, as you mentioned, Mr. Smith. You can’t assess it, but 

if we are paying some form of a premium for the American taxpayer risk, we will get a far better buy-in. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr, for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman. 

Thanks for your testimony today. I have a question for Mr. 

Smith, and a question for Dr. Woo, and I would like for both of you 

to respond to some testimony of each other. 

For Mr. Smith, Dr. Woo testified earlier that TRIA is insurance 

against counterterrorism failure. And I thought that was very interesting testimony. He said that—you heard his testimony, but 

what occurs to me, the takeaway from what he is saying is that 

perhaps as the Federal Government invests more aggressively in 

counterterrorism measures through the intelligence community and 

other assets, perhaps the need for the Federal backstop in TRIA 

might, as a percentage, decrease as the Federal Government maybe 

increases its efforts on the counterterrorism side. 

I would be interested in your reaction to that potential takeaway 

from his testimony. 

For Dr. Woo, I would be interested to hear you respond to Mr. 

Smith’s point, that while you say there may be some actuarial certainty, or some experience that you are gleaning from, since 9/11, 

based on convictions, that what seems to be pretty compelling from 

Mr. Smith is that the gravity and the seriousness, or the level of 

the catastrophe is so great, that it is very difficult to quantify. 

Even if you can quantify some experience based on convictions on 

declassified instances of terrorism, what seems pretty compelling 

from Mr. Smith is that it is very hard to quantify on an actuarial 

basis the severity of the losses that could occur. And that is why 

the risk is difficult to quantify. So, if both of you could respond to 

those two items. 

Mr. SMITH. I will go first. It is an interesting concept, but when 

you build mathematical models around such catastrophes, there 

are many elements to it. So he has an interesting theory about one 

element, but there is just not enough real data. 

There is no model that has been tested yet, and so for those of 

us who actually deploy capital, we just don’t feel comfortable that 

it is something that you can model. 

Mr. WOO. I would just like to make a comment about the massive amounts of investments the U.S. Government makes in 

counterterrorism. Precisely because of this huge investment, the effective cost of the TRIA backstop is really tiny compared with the 

59 

investment in counterterrorism. Okay, talking about many billions 

spent, tens of billions spent on counterterrorism. 

And the effective cost of the TRIA programs, notional cost is actually just a tiny fraction of that. Also, I would like to make the 

point that if there were to be a catastrophic terrorist attack involving a good number of operatives, almost certainly, this would be a 

consequence of some degree of negligence on the part of the security agencies. 

If I just mention what happened in Britain recently, there is a 

case of a soldier being killed on the streets of London, and people 

wanted to sue MI5 over it. 

Okay, so if I can just make the point, which is that as far as the 

taxpayer is concerned, the value of TRIA is that without it: (A) you 

wouldn’t have much private participation in the market, but also 

the potential liability of the Federal Government in the event of a 

massive attack would dwarf the backstop in TRIA. 

Mr. BARR. Let me quickly move on to a point that Mr. Beshar 

made earlier. In your testimony, your original testimony, you indicated that there is more capital in reinsurance now than before. 

Does this suggest that there is cause for reform to increase the 

thresholds? 

And for everyone on the panel, or for Mr. Beshar, Mr. Smith, and 

Ms. Abraham, if there are to be changes, obviously there are some 

skeptics or advocates for reforming TRIA. If this committee were 

to reform TRIA, what level of changes in the thresholds would be 

appropriate, and would not be disruptive to the marketplace? 

Mr. BESHAR. Clearly, there is additional capital and capacity in 

the insurance marketplace. The key question, Congressman Barr, 

is how much of that capital would actually be interested in writing 

terrorism risk? And that is a very hard thing to try to estimate. 

You have heard from Mr. Smith that it is not much, that essentially what is being underwritten right now is essentially the appetite that exists in the market. And so, I think that is a process that 

has to be analyzed further. 

Mr. BARR. Ms. Abraham, really quick, I am running out of time, 

but obviously a terrorist attack against one American is a terrorist 

attack against everyone. You talk about rural stadiums. And I 

come from a relatively rural district, the University of Kentucky is 

in my district. But in terms of— 

Ms. ABRAHAM. And we insure it. 

Mr. BARR. I am sure you do. And thank you for that. But in 

terms of shifting risk, what would you have to say about rural taxpayers bearing risk for large urban areas, which have a higher actuarial potential of bearing the— 

Chairman HENSARLING. A very brief answer, please. 

Ms. ABRAHAM. Some of that is done in the underwriting process. 

There is a credit and debit process. And vulnerabilities, location, 

preparedness, that is already factored into our underwriting process. So not every—the University of Kentucky does not pay the 

same price as the University of Nebraska. They are different based 

on their planning, and their location. So, it is different, and is 

factored into the pricing already. 

Chairman HENSARLING. The time of the gentleman has expired. 

60 

I would ask for unanimous consent that letters from the Financial Services Roundtable and the American Insurance Association 

be entered into the record. Without objection, it is so ordered. 

I would like to thank our witnesses again for their endurance, 

their patience, and their testimony today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing stands adjourned. 

[Whereupon, at 1:15 p.m., the hearing was adjourned.] 

(61) 

A P P E N D I X 

September 19, 2013 

62 


86680.001
63 


86680.002
64 


86680.003
65 


86680.004
66 


86680.005
67 


86680.006
68 


86680.007
69 


86680.008
70 


86680.009
71 


86680.010
72 


86680.011
73 


86680.012
74 


86680.013
75 


86680.014
76 


86680.015
77 


86680.016
78 


86680.017
79 


86680.018
80 


86680.019
81 


86680.020
82 


86680.021
83 


86680.022
84 


86680.023
85 


86680.024
86 


86680.025
87 


86680.026
88 


86680.027
89 


86680.028
90 


86680.029
91 


86680.030
92 


86680.031
93 


86680.032
94 


86680.033
95 


86680.034
96 


86680.035
97 


86680.036
98 


86680.037
99 


86680.038
100 


86680.039
101 


86680.040
102 


86680.041
103 


86680.042
104 


86680.043
105 


86680.044
106 


86680.045
107 


86680.046
108 


86680.047
109 


86680.048
110 


86680.049
111 


86680.050
112 


86680.051
113 


86680.052
114 


86680.053
115 


86680.054
116 


86680.055
117 


86680.056
118 


86680.057
119 


86680.058
120 


86680.059
121 


86680.060
122 


86680.061
123 


86680.062
124 


86680.063
125 


86680.064
126 


86680.065
127 


86680.066
128 


86680.067
129 


86680.068
130 


86680.069
131 


86680.070
132 


86680.071
133 


86680.072
134 


86680.073
135 


86680.074
136 


86680.075
137 


86680.076
138 


86680.077
139 


86680.078
140 


86680.079
141 


86680.080
142 


86680.081
143 


86680.082
144 


86680.083
145 


86680.084
146 


86680.085
147 


86680.086
148 


86680.087
149 


86680.088
150 


86680.089
151 


86680.090
152 


86680.091
153 


86680.092
154 


86680.093
155 


86680.094
156 


86680.095
157 


86680.096
158 


86680.097
159 


86680.098
160 


86680.099
161 


86680.100
162 


86680.101
163 


86680.102
164 


86680.103
165 


86680.104
166 


86680.105
167 


86680.106
168 


86680.107
169 


86680.108
170 


86680.109
171 


86680.110
172 


86680.111
173 


86680.112
174 


86680.113
175 


86680.114
176 


86680.115
177 


86680.116
178 


86680.117
179 


86680.118
180 


86680.119
181 


86680.120
182 


86680.121
183 


86680.122
184 


86680.123
185 


86680.124
186 


86680.125
187 


86680.126
188 


86680.127
189 


86680.128
190 


86680.129
191 


86680.130
192 


86680.131
193 


86680.132
194 


86680.133
195 


86680.134
196 


86680.135
197 


86680.136
198 


86680.137
199 


86680.138
200 


86680.139
201 


86680.140
202 


86680.141
203 


86680.142
204 


86680.143
205 


86680.144
206 


86680.145
207 


86680.146
208 


86680.147
209 


86680.148
210 


86680.149
211 


86680.150
212 


86680.151
213 


86680.152
214 


86680.153
215 


86680.154
216 


86680.155
217 


86680.156
218 


86680.157
219 


86680.158
220 


86680.159
221 


86680.160
222 


86680.161
223 


86680.162
224 


86680.163
225 


86680.164
226 


86680.165
227 


86680.166
228 


86680.167
229 


86680.168
230 


86680.169
231 


86680.170
232 


86680.171
233 


86680.172
234 


86680.173
235 


86680.174
236 


86680.175
237 


86680.176
238 


86680.177
239 


86680.178
240 


86680.179
241 


86680.180
242 


86680.181
243 


86680.182
244 


86680.183
245 


86680.184
246 


86680.185
247 


86680.186
248 


86680.187
249 


86680.188
250 


86680.189
251 


86680.190
252 


86680.191
253 


86680.192
254 


86680.193
255 


86680.194
256 


86680.195
257 


86680.196
258 


86680.197
259 


86680.198
260 


86680.199
261 


86680.200
262 


86680.201
263 


86680.202
264 


86680.203
265 


86680.204
266 


86680.205
267 


86680.206
268 


86680.207
269 


86680.208
270 


86680.209
271 


86680.210
272 


86680.211
273 


86680.212
274 


86680.213
275 


86680.214
276 


86680.215
277 


86680.216
278 


86680.217
279 


86680.218
280 


86680.219
281 


86680.220
282 


86680.221
283 


86680.222
284 


86680.223
285 


86680.224
286 


86680.225
287 


86680.226
288 


86680.227
289 


86680.228
290 


86680.229
291 


86680.230
292 


86680.231
293 


86680.232
294 


86680.233
295 


86680.234
296 


86680.235
297 


86680.236
298 


86680.237
299 


86680.238
300 


86680.239
301 


86680.240