Webel 2

Question 1

Terrorism Insurance changes b/f and after 911 & TRIA

Answer 1

Before 911: terrorism losses normally included in commercial insurance policies

After 911:

(1) Insurers and reinsurers pulled back from offering terrorism coverage
(2) fear that lack of this coverage would have a wide economic impact because insurance coverage is a significant factor in lending decision

After TRIA passage:

(1) Terrorism insurance became widely available and largely affordable
(2) Insurance industry greatly expanded its financial capacity
(3) still no longer-term private solution
(4) Fears persisted about economic problems if terrorism insurance not available
(5) Congress passed two extension to the program: 05-reduced government up-front exposures 07-accelerated post-event recoupment provisions

Question 2

Why government creates a TEMPORARY TRIA for industry (2 pts)

Answer 2

To give industry time to:

(1) gather the data
(2) create the structures and capacity necessary for private insurance

Question 3

Legislation changes in 114th Congress compared to Webel 1 (5 pts)

Answer 3

(1) Extend TRIA program nearly 6 years, to end of 2020
(2) Decrease federal loss sharing gradually from 85% to 80%
(3) Increase program trigger by $20mill/yr until it reaches $200mill from $100mill in 2015
(4) Increase insurance marketplace aggregate retention amount: a. by $2 bill per year until it reaches $37.5 bill from $27.5 bill b. after $37.5 bill, amount to be set by Secretary of the Treasury to equal the annual average of aggregate insurer deductible(20% insurer’s annual commercial DEP) for the previous three years
(5) Change mandatory recoupment to require 140% from previous 133% of federal payments be recouped

Question 4

Insurance market changes since creation of TRIA (4 pts)

Answer 4

(1) Private industry’s willingness and ability to cover terrorism risk have increased
(2) Prices for terrorism coverage have generally trended downward
(3) Approx. 60% of commercial policyholders purchased coverage over the past few years
(4) But price drops and coverage increase have occurred with TRIA in place, not clear if without it