September 13, 2004

Joseph R. Lebens, FCAS, MAAA

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Extending TRIA

CARe Special Interest Seminar

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Currently there are three extensions to TRIA under consideration

H.R. 4634 sponsored by Pete Sessions (R-Texas), et al.

H.R. 4772 sponsored by Michael Capuano (D-Massachusetts),

Steve Israel (D-New York), et al.

S. 2764 sponsored by Christopher Dodd (D-Connecticut),

Bob Bennett (R-Utah), et al.

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Each of the extension billsmodifies the existing TRIA in several areas

Length of extension

Lines covered

Mandatory availability

Individual insurer deductibles

Recoupment trigger of mandatory surcharge on commercial policyholders

Long-term solution study

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Each bill seeks to extend TRIA for at least two years beyond the current expiration date

H.R. 4634

H.R. 4772

S. 2764

Policy Run-off

TRIA expires 12/31/2005

2006 2007 2008

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Each of the three bills addresswhich lines of business should be covered

H.R. 4634 – Identical to TRIA with a new group life study due by June 1, 2005

H.R. 4772 – Adds group life insurance to the commercial P/C lines already covered

S. 2764 – Directs Treasury to issue rule within 90 days of enactment of how to include group life insurance Separate retention amounts may be considered

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Insurers are required to continuethe “make available” requirement of TRIA

H.R. 4634 – For policies written in 2006 and 2007

H.R. 4772 – For policies written in 2006 and 2007, including the run-off of those policies during 2008

S. 2764 – For policies written in 2006 and 2007, including the run-off of those policies during 2008

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Individual insurer deductibles continueto be a percentage of the prior year’s DEP

H.R. 4634 H.R. 4772 S. 2764

‘04 ‘06 ‘07 ‘06 ‘07 ‘08 ‘06 ‘07 ‘08

20%

15%

‘03

10%

5%

‘05

TRIA

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The aggregate retention amounts forthe insured loss compensation section vary

H.R. 4634 H.R. 4772 S. 2764

‘04 ‘06 ‘07 ‘06 ‘07 ‘08 ‘06 ‘07 ‘08‘03

$10B

‘05

TRIA

$15B

$20B

? for 2008

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Each bill requires some study andrecommendation for a long-term solution

H.R. 4634 – By June 1, 2005, the Secretary shall conduct a study and submit a report to Congress alternatives that “do not involve a Federal financial backstop.”

H.R. 4772 – The Comptroller General shall submit a report to Congress by June 30, 2007

S. 2764 – The Presidential Working Group on Financial markets shall consult with the NAIC, insurance industry reps, and policyholders and submit recommendations for a long term solution to Congress by June 30, 2006

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Under TRIA, insurers bore the brunt of smallerlosses and paid a lesser percentage of large events

Source: Tillinghast Industry Terrorism Pricing Model

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With H.R. 4634, insurers bear the bruntof the losses while policyholders bear little

Source: Tillinghast Industry Terrorism Pricing Model

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With H.R. 4772, policyholders receive even more of a break at a cost to the government

Source: Tillinghast Industry Terrorism Pricing Model

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Like TRIA, S. 2764 has policyholders picking up a moderate share of losses less than $30B

Source: Tillinghast Industry Terrorism Pricing Model

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Projected CBO scorings1 of the bills implies that insurers pay the most under H.R. 4634

TRIA 2002 $2,689m

H.R. 4634 $1,133m

H.R. 4772 $1,359m

S. 2764 $1,224m

Source: Tillinghast Industry Terrorism Pricing Model