On Thursday, Apr. 10th, Senator Chuck Schumer (D-NY) introduced S. 2244, a bill to reauthorize the Terrorism Risk Insurance Act (TRIA), currently set to expire at the end of 2014, for seven more years. Lead cosponsors of this bipartisan legislation are Senators Heller (R-NV), Reed (D-RI), Kirk (R-IL), Murphy (D-CT) and Johanns (R-NE). Along with extending the program, the bill also makes some changes to its mandatory recoupment amount ($27.5 billion to $37.5 billion) and reduces the federal share of the compensation for insured losses (from 85% to 80%).
TRIA was originally passed in 2002 following the September 11th terrorist attacks, when private insurers were leaving the terrorism insurance market, making coverage almost impossible to find, which caused market disruptions and halted construction projects and development deals. The law created a federal reinsurance risk-sharing program, allowing private terrorism insurance to remain commercially available at virtually no cost to taxpayers. Since its original passage in 2002, the program has been extended two times, in 2005 and 2007; both times, the extensions were passed at the last minute, causing uncertainty in the market as to the program’s future. The Senate moving now to introduce a bill is a good sign that the program may be renewed this spring, as opposed to waiting until the end of the year; House Financial Services Chairman Jeb Hensarling (R-TX) has indicated that passing a reauthorization bill is one of his top priorities, and House leadership has also supported reauthorization.
TRIA is an important factor in commercial real estate. Many lenders and investors require terrorism insurance to finance large construction projects; if the program were to expire with nothing to replace it, insurers would probably exclude it from property coverage to manage their risk. It is also an important structural protection in the Commercial Mortgage Backed Securities (CMBS) market – without it, some firms may decline to rate or cap their ratings on such transactions, causing CMBS borrowers to face the threat of default or bond downgrades. For these reasons, NAR will closely analyze all legislation and continue to be a leader in the push to reauthorize the program in a timely manner.