The property/casualty insurance industry was without a federal terrorism reinsurance program for about two weeks, between its expiration on Dec. 31, and long-awaited Congressional action to renew it in early January. Even so, that brief gap put tremendous pressure on the market, AIG Chief Financial Officer David Herzog said.
“We and other insurance companies had to make an important decision to stand behind our clients and put our balance sheets at risk in the event that something unforeseen would happen during the period when coverage had lapsed,” Herzog said.
The American International Group executive added he was thankful that the Terrorism Risk Insurance Act, or TRIA, was reinstated, because he didn’t believe “any prudent insurance company could provide that coverage long-term without the backstop of the government.”
“It was wise of our leaders to reinstate it,” Herzog added.
Herzog is a member of the Federal Advisory Committee on Insurance (FACI), a group of executives, academics and regulators that advises the Federal Insurance Office (FIO) on its various tasks, including the implementation of TRIA. FACI met at the U.S. Department of the Treasury in Washington, D.C. on Feb. 10, and he spoke to the committee about his perspective on the TRIA law. Herzog’s remarks underscored why the federal reinsurance program in place since the Sept. 11, 2001 attacks is so important to the property/casualty industry.
“It is necessary,” Herzog said. “It creates jobs, and enables companies to take risks, whether that is in real estate, media or energy, [in] all the major cities in the country where they could find themselves as targets. We are pleased that [TRIA] was reinstated and continue to look for ways to prevent and help our clients prevent risks they are susceptible to.”
Along those lines, the Treasury Department announced in early February that it has begun to implement the extended TRIA law, which contains some changes. As part of this process, FIO released interim guidance addressing the immediate application of TRIA.
Michael McRaith, the FIO director, told the FACI that his office has “a lot of work to do before implementing the new [TRIA] policies and procedures … something we hope to implement later this year.”