Treasury's Snow Frosty to TRIA

In testimony before the House Financial Services Committee on July 13 and the Senate Banking Committee on July 14, Treasury Secretary John Snow told lawmakers the Bush Administration "opposes a straight extension of the program" popularly known as "TRIA" (the Terrorism Risk Insurance Act of 2002). Snow called on lawmakers to enact a "revamped" program, which would put more risk exposure on insurers. Snow said the Administration has concluded an extension of TRIA in its current form would hinder private insurance market solutions needed to deal with terrorism risk. In a recent report to Congress assessing the TRIA program, the Treasury Department said, "The Administration would accept an extension only if it includes a significant increase to $500 million of the event size that triggers coverage, increases the dollar deductibles and percentage co-payments, and eliminates from the program certain lines of insurance." The current program caps insurer losses at $100 million.

House Financial Services Committee Chairman Mike Oxley (R-OH) said he is "committed to delivering a bill to the House floor this year," although he agreed with the need for reforms to make the insurance market more responsive. Several Members invoked the London bombing as proving the continued necessity for a TRIA program. Secretary Snow offered that "No one's talking about [ending] the backstop." Representative Richard Baker (R-LA), Chairman of the Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, echoed Snow's remarks, stating that TRIA places taxpayers' money at risk and was not meant to be a "guarantor of profits [for the insurance industry], but a bridge to an effective marketplace."

During the July 14 Senate Banking Committee hearing, Chairman Richard Shelby (R-AL) agreed with the Administration's position and endorsed a program "narrow in scope" that would allow the development of a functioning marketplace. Responding to questions about the exclusion of group life insurance from TRIA, Snow commented that "Group life does not present the sort of accumulation risk that TRIA was intended to cover." Treasury's report had noted no change in availability or terms for group life after September 11, 2001. Ben Bernanke, Chairman of the White House Council of Economic Advisors, also a witness at the Senate hearing, stated the insurance industry is in a better position to "handle substantial - not unlimited - risk." Bernanke suggested that since 2002, insurers have increased their terrorism risk capacity. Bernanke said the Administration is "comfortable" with an extension of TRIA, if it increases insurers' exposure to terrorism risk. Senator Christopher Dodd (D-CT) rejected the Administration's argument. He said, "I don't see any data in the [Treasury] report or basis for that conclusion." Chairman Shelby told reporters after the hearing to be "patient" about when the Senate Banking Committee would consider TRIA. He said the Senate Banking Committee will likely mark-up legislation regarding Fannie Mae and Freddie Mac in September, implying that TRIA extension would be taken up later.