TRIA Extension Signed; Key Changes Adopted 

Today, President Bush signed into law an extension of the Terrorism Risk Insurance Act of 2002 (TRIA) that was slated to expire on December 31, 2005. This scaled down TRIA extension runs through December 31, 2007. For more background on this issue, see recent Heads-Up items.

Here is a synopsis of changes to TRIA that were adopted under the extension:

• Covered Lines of Insurance: Most of the same lines of insurance are covered under the extension, except that the following lines of coverage are deleted: commercial automobile coverage, professional liability coverage (other than Directors & Officers), surety coverage, burglary and theft coverage, and farm-owners multi-peril coverage.
• TRIA Program Triggers: Under the TRIA extension, in order for the federal program to kick-in and provide loss coverage, insurance industry aggregate insured losses from a single terrorist event in 2006 must meet a $50 million dollar threshold, and in 2007, must meet a $100 million dollar threshold.
• Insurer Deductibles: Under the extension, the deductible for an insurer is a percent of the prior year's direct earned premiums of the insurer. In 2006, the insurer deductible is 17.5% of prior year's direct earned premiums. In 2007, the insurer deductible is 20% of prior year's direct earned premiums.
• Recoupment of Federal Payouts via Policyholder Surcharges: In 2006, the mandatory recoupment by the federal government will be the difference between $25 billion and aggregate insurer retention (deductibles and co-shares); surcharge limited to 3% of premium in covered lines per year. In 2007, the mandatory recoupment by the federal government will be the difference between $27.5 billion and aggregate insurer retention (deductibles and co-shares); surcharge will be limited to 3% of the premium in covered lines per year.
• Study of Long-term availability of TRIA Program: The President's Working Group on Financial Markets will be required to report to Congress by September 30, 2006, concerning the long-term availability and affordability of terrorism insurance, including the availability and affordability of group life coverage and nuclear, biological, chemical, and radiological terrorism insurance coverage.
• Litigation Management: The TRIA extension codified the United States Department of the Treasury regulations that require advance approval of certain settlements which an insurer intends to submit for coverage under TRIA.