[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
A REVIEW OF TRIA AND ITS
EFFECT ON THE ECONOMY:
HELPING AMERICA MOVE FORWARD
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON
CAPITAL MARKETS, INSURANCE AND
GOVERNMENT SPONSORED ENTEREPRISES
AND THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
APRIL 28, 2004
__________
Printed for the use of the Committee on Financial Services
Serial No. 108-81
U.S. GOVERNMENT PRINTING OFFICE
95-263 WASHINGTON : 2004
_________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866)512-1800;
DC area (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP,
Washington, DC 20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois KEN LUCAS, Kentucky
MARK GREEN, Wisconsin JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona MIKE ROSS, Arkansas
VITO FOSSELLA, New York CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
MELISSA A. HART, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
TOM FEENEY, Florida DAVID SCOTT, Georgia
JEB HENSARLING, Texas ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey CHRIS BELL, Texas
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida BERNARD SANDERS, Vermont
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Robert U. Foster, III, Staff Director
Subcommittee on Capital Markets, Insurance and Government Sponsored
Enterprises
RICHARD H. BAKER, Louisiana, Chairman
DOUG OSE, California, Vice Chairman PAUL E. KANJORSKI, Pennsylvania
CHRISTOPHER SHAYS, Connecticut GARY L. ACKERMAN, New York
PAUL E. GILLMOR, Ohio DARLENE HOOLEY, Oregon
SPENCER BACHUS, Alabama BRAD SHERMAN, California
MICHAEL N. CASTLE, Delaware GREGORY W. MEEKS, New York
PETER T. KING, New York JAY INSLEE, Washington
FRANK D. LUCAS, Oklahoma DENNIS MOORE, Kansas
EDWARD R. ROYCE, California MICHAEL E. CAPUANO, Massachusetts
DONALD A. MANZULLO, Illinois HAROLD E. FORD, Jr., Tennessee
SUE W. KELLY, New York RUBEN HINOJOSA, Texas
ROBERT W. NEY, Ohio KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona JOSEPH CROWLEY, New York
JIM RYUN, Kansas STEVE ISRAEL, New York
VITO FOSSELLA, New York, MIKE ROSS, Arkansas
JUDY BIGGERT, Illinois WM. LACY CLAY, Missouri
MARK GREEN, Wisconsin CAROLYN McCARTHY, New York
GARY G. MILLER, California JOE BACA, California
PATRICK J. TOOMEY, Pennsylvania JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia STEPHEN F. LYNCH, Massachusetts
MELISSA A. HART, Pennsylvania BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota RAHM EMANUEL, Illinois
PATRICK J. TIBERI, Ohio DAVID SCOTT, Georgia
GINNY BROWN-WAITE, Florida NYDIA M. VELAZQUEZ, New York
KATHERINE HARRIS, Florida
RICK RENZI, Arizona
Subcommittee on Oversight and Investigations
SUE W. KELLY, New York, Chair
RON PAUL, Texas, Vice Chairman LUIS V. GUTIERREZ, Illinois
STEVEN C. LaTOURETTE, Ohio JAY INSLEE, Washington
MARK GREEN, Wisconsin DENNIS MOORE, Kansas
JOHN B. SHADEGG, Arizona JOSEPH CROWLEY, New York
VITO FOSSELLA, New York CAROLYN B. MALONEY, New York
JEB HENSARLING, Texas JIM MATHESON, Utah
SCOTT GARRETT, New Jersey STEPHEN F. LYNCH, Massachusetts
TIM MURPHY, Pennsylvania ARTUR DAVIS, Alabama
GINNY BROWN-WAITE, Florida CHRIS BELL, Texas
J. GRESHAM BARRETT, South Carolina
C O N T E N T S
----------
Page
Hearing held on:
April 28, 2004............................................... 1
Appendix:
April 28, 2004............................................... 39
WITNESSES
Wednesday, April 28, 2004
Abernathy, Hon. Wayne A., Assistant Secretary for Financial
Institutions, United States Department of the Treasury......... 9
Hillman, Richard J., Director, Financial Markets and Community
Investment, United States General Accounting Office............ 14
Serio, Hon. Gregory V., Superintendent, New York State Insurance
Department..................................................... 11
APPENDIX
Prepared statements:
Kelly, Hon. Sue W............................................ 40
Oxley, Hon. Michael G........................................ 42
Gillmor, Hon. Paul E......................................... 44
Kanjorski, Hon. Paul E....................................... 46
King, Hon. Peter T........................................... 48
Abernathy, Hon. Wayne A...................................... 49
Hillman, Richard J........................................... 57
Serio, Hon. Gregory V........................................ 80
Additional Material Submitted for the Record
Kelly, Hon. Sue W.:
American Insurance Association, The Council of Insurance
Agents and Brokers, Independent Insurance Agents and
Brokers of America, Property Casualty Insurers Association
of America, Reinsurance Association of America and UWC
Strategic Service on Unemployment & Workers' Compensation,
prepared statement......................................... 107
Coalition to Insure Against Terrorism, prepared statement.... 115
Group Life Coalition, American Council of Life Insurers, The
Financial Services Roundtable, prepared statement.......... 136
Letter to Secretary John W. Snow from various Members of
Congress................................................... 139
Mortgage Bankers Association, prepared statement................. 141
National Association of Insurance Commissioners, prepared
statement...................................................... 146
The American Council of Life Insurance, prepared statement....... 148
A REVIEW OF TRIA AND ITS
EFFECT ON THE ECONOMY:
HELPING AMERICA MOVE FORWARD
----------
Wednesday, April 28, 2004
U.S. House of Representatives,
Subcommittees on Capital Markets, Insurance, and
Government, Sponsored Enterprises and
Subcommittee on Oversight and Investigations
Committee on Financial Services,
Washington, D.C.
The subcommittees met, pursuant to call, at 10:02 a.m., in
Room 2128, Rayburn House Office Building, Hon. Richard Baker
and Hon. Sue Kelly [chairmen of the subcommittees] presiding.
Present: Representatives Baker, Kelly, Royce, Gillmor, Ose,
Shays, Hensarling, Garrett, Brown-Waite, Barrett, Kanjorski,
Maloney, Gutierrez, Velazquez, Sherman, Moore, Capuano, Lucas,
Crowley, Clay, Israel, Matheson, Miller, Emanuel, Scott and
Bell.
Chairman Baker. [Presiding.] I would like to call our
subcommittees's meeting to order this morning. This morning, we
have a joint meeting of the Capital Markets, Insurance and
Government Sponsored Enterprises Subcommittee, together with
the Oversight and Investigations Subcommittee chaired by Ms.
Kelly, for the purpose of receiving comment on the advisability
of an extension of and the effectiveness of the current
Terrorism Risk Insurance Act adopted by the Congress in 2002.
As all of us are painfully aware, the events of September
11 brought about the necessity for change in many aspects of
American life. One area not given a great deal of attention,
but extremely important for the functioning of our commercial
enterprises is that of our insurance network necessary to
enable the production, distribution and sale of almost every
commodity and many activities in daily life.
Because of the enormous exposures created by the
concentration of loss in this terrible event, it was necessary
for the Congress to act to provide a backstop to the private
marketplace to enable appropriate adjustments to be made in the
free market system to prepare for what we hope will never
happen again. As we approach the expiration mandated by the
legislation of this network, it is now appropriate and
advisable for the committee to hear comment as to whether the
market is sufficiently prepared for a transition to a free
market remedy, or whether it is appropriate for some extension
of the current guarantees to be considered by the Congress in
light of the difficulty of assessing the current risks.
It is also appropriate to note that the legislation did
require the Treasury Department to prepare an analytical study
and assessment of the adequacy of the system and to make such
report to the Congress by June 30 of the following year. It has
been my observation that perhaps it would be advisable in light
of that professional analysis to wait on the conclusion of that
report and study before the Congress makes final
determinations. The report requirements go to the very issues
of whether extensions are warranted or not, and I believe would
be greatly influential in the Congress's final determinations
as to whether the market structures are adequate to face the
long-term needs of insurance coverage.
I am pleased this morning to have the witnesses before us
who can give us informed insight on these matters and I look
forward to their testimony.
Mr. Kanjorski?
Mr. Kanjorski. Mr. Chairman, we meet today for the first
time in the 108th Congress to examine the effectiveness of the
Terrorism Risk Insurance Act. As you know, I worked closely
with you during the 107th Congress to enact this important
economic stabilization law.
Prior to the terrorist attacks on the World Trade Center
and the Pentagon, most Americans took their security for
granted. These attacks, however, altered how we each assess
risk. This adjustment was especially apparent in the insurance
industry.
Prior to 2001, many insurers could not price for terrorism
risk and offered it for free. Ultimately, the industry
sustained approximately $40 billion in losses on September 11
as a result of its poor economic judgment. Subsequently, it
turned to the Congress to seek assistance in protecting the
American public against future terrorism attacks, particularly
in the short term.
Terrorism insurance is critical to protecting jobs and
promoting America's economic security. Unfortunately,
reinsurers curtailed the supply of terrorism reinsurance and
insurers began to exclude terrorism coverage from customers's
policies in the wake of the 2001 terrorist attacks. Eventually,
we belatedly approved the Terrorism Risk Insurance Act to
address these pressing problems.
Seventeen months have now passed since the Terrorism Risk
Insurance Act became law. It is therefore an appropriate time
for us to begin to examine the effectiveness of this statute.
Because we crafted the law to last just 37 months, it is also
an appropriate time for us to begin deliberations over the
program's future.
Today, Mr. Chairman, we will hear from several insurance
experts on these important matters. I am especially pleased
that our witnesses will report that the Terrorism Risk
Insurance Act has worked to increase the availability of
Terrorism Risk Insurance. As I understand, it has also lowered
the cost of such insurance, contributed significantly to
stabilizing the overall insurance marketplace, and advanced
delayed economic development projects.
We wisely designed the Terrorism Risk Insurance Act as a
temporary backstop to get our nation through a period of
economic uncertainty until the private sector could develop the
models to price for terrorism reinsurance. I agreed with this
decision. The reinsurance industry is dynamic and we should not
disrupt the development of new products.
Nevertheless, I now believe that we might have decided to
sunset this program too soon. In designing the law, we sought
to give insurers a transitional period. The General Accounting
Office, however, has recently determined that the industry has
made little progress to date in providing terrorism insurance
without government involvement. This finding causes me
significant concern.
Although the law will expire at the end of 2005, many
industry participants have also already called upon the
Congress to act expeditiously in 2004 to extend the life of the
Terrorism Risk Insurance Program in order to prevent short-term
market disruptions. I agree.
As I have previously noted, terrorism insurance plays an
important role in the efficient functioning of our economy. We
should therefore pursue appropriate action before the end of
the 108th Congress to provide greater stability to our capital
markets in the short term, while they work to develop private
sector solutions to these problems for the long term. It is
also my expectation that the Treasury Department will decide as
soon as possible to extend the ``make available'' provisions of
the law that require companies to offer terrorism insurance on
the same terms and conditions as other property-and-casualty
products.
In debating any plan to extend the Terrorism Risk Insurance
Act, we additionally ought to work to incorporate group life
insurance into the federal backstop program. Group life
products have characteristics similar to commercial property-
and-casualty insurance in that there is often an excessive
concentration of risk within a small geographic area. Despite a
lack of terrorism reinsurance, group life insurers have
remained in the marketplace, fully exposed to future terrorism
events. This reality has created significant anxiety in the
life insurance industry and uncertainty for individuals who
obtain life insurance through their employers.
In closing, Mr. Chairman, time is of the essence. I stand
ready to work with you and all other interested parties on
these matters in the upcoming months. I am also looking forward
to hearing from each of our witnesses to learn of their
insights on these matters.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Paul E. Kanjorski can be
found on page 46 in the appendix.]
Chairman Baker. I thank the gentleman.
The Chair of the Subcommittee on Oversight, Ms. Kelly?
Chairwoman Kelly. Thank you. I want to thank you, my
colleague, Mr. Baker, for being willing to hold this hearing.
This is a very important issue for the people of America. I
thank Mr. Kanjorski and Mr. Gutierrez for also their
cooperation in holding this hearing.
In the last 2 1/2 years, our country has been engaged in a
war against terror that has permeated virtually every aspect of
American life. Congress and the Administration have responded
to our new realities with comprehensive reforms that seek to
eradicate the threat posed by fanatical terror networks to our
citizens, our economy and our way of life.
Today's hearing highlights a law that has made a
significant contribution to this effort. The Terrorism Risk
Insurance Act ensures the availability of terrorism insurance
that is crucial to our economic security. After 9-11, the
marketplace for terrorism insurance vanished. With losses from
the terrorist attacks exceeding $40 billion and uncertainty in
the marketplace, insurers and reinsurers began to exclude
terrorism coverage from commercial policies. Hospitals, office
buildings, malls, stadiums, museums, and even small businesses
located near these large facilities had difficulty finding
terrorism insurance coverage. Without this insurance,
commercial development stalled and workers missed out on jobs.
As the availability of coverage continued to disappear and
threaten our economic security, it was clear that the market
for terrorism insurance would not return on its own. Something
needed to be done to provide stability and avoid market
disruptions. Congress, with strong support from the
Administration, passed legislation to address the uncertainty
in the market, protect American jobs, and strengthen the
resiliency of our economy.
TRIA established a 3-year program to pay the federal share
of compensation for insured losses resulting from foreign acts
of terrorism. In TRIA, our goals were clear: make terrorism
insurance affordable and available to policyholders in the
short term, while also giving the market time to develop
resources and mechanisms to ensure viability beyond the
expiration of the Act.
Today, the committee will examine the effectiveness of TRIA
and its impact on the economy. Thus far, the results of TRIA
have been very positive. Terrorism insurance is widely
available and a growing number of businesses are accessing this
coverage. By enabling commercial policyholders to obtain
terrorism insurance, TRIA has provided a boost to construction
and job creation, strengthened economic growth and security,
and reduced the impact of any future terrorist attack. Overall,
TRIA has been an important stabilizing factor in the market, as
we will hear from the General Accounting Office today.
But as the program moves closer to expiration in 2005, we
must examine the future of terrorism insurance and whether the
private market will be able to make coverage available without
a federal backstop. While there is no doubt that our country is
better prepared today than it was prior to 9-11, we remain on
heightened alert and still face the threat of terrorist
activity. This uncertainty makes it difficult to determine
methods to price coverage and to ensure a viable marketplace
without a federal backstop. As a result, it remains unclear
whether there will be a sustainable marketplace after TRIA
expires.
Given the state of the insurance marketplace and the
continued war against terror, there is compelling reason to
continue the federal backstop for terrorism insurance until we
can ensure a viable marketplace that enables businesses to
receive coverage. To begin with, it is crucial that the
Treasury Department extend the requirement that private
insurers continue to ``make available'' terrorism reinsurance.
This provision, which sunsets at the end of 2004,
guarantees that commercial policyholders have access to
terrorism coverage. A wide range of businesses and
organizations, from the transportation, energy and real estate
industries to manufacturing, construction, entertainment and
retail sectors, are rightfully concerned that the failure to
extend the ``make available'' provision will ultimately impact
their operations, business development and ability to create
jobs. This clearly threatens both our economic growth and our
security.
When it comes to the security of our country and our
economy, we must take every necessary precaution to defend the
American people. The Administration is doing everything
possible to strengthen our security, from efforts to secure our
nation's borders, ports and major transportation systems to
additional resources to dry up terrorist financing.
The TRIA program is essential to the economic security of
the American people. I want to thank Chairman Oxley and
Subcommittee Chairman Baker for their cooperation in holding
this important and timely hearing on terrorism insurance. Their
leadership and perseverance, along with that of the President,
is the reason that Congress was initially able to pass this
monumental legislation, despite significant obstacles.
I also want to commend the Treasury Department and the
National Association of Insurance Commissioners for their
collaborative work on these important issues under
extraordinary circumstances. The Treasury Department and state
insurance commissioners have been faced with an extremely
difficult task of developing a reinsurance market through an
unprecedented program. As we speak, businesses and insurers are
beginning to make decisions that impact operations beyond the
potential sunset of the ``make available'' language. As a
result of these operational realities, I urge the Treasury
Department to provide Congress with information on the future
of TRIA in a timely manner in order to help the businesses make
informed decisions about the future.
We need to make informed decisions about the future of this
program. I look forward to continuing to work with the public
and private sectors to protect and preserve the economic
security of the American people.
Thank you for letting me speak.
Chairman Baker. Thank you for your statement, Ms. Kelly,
and your interest in this subject.
[The prepared statement of Hon. Sue W. Kelly can be found
on page 40 in the appendix.]
Mr. Gutierrez?
Mr. Gutierrez. After listening carefully to the preceding
opening statements, I find that my opening statement should be
submitted for the record in its entirety, if it is okay with
everybody on the committee.
Chairman Baker. I do not think anybody is going to object.
Mr. Gutierrez. Thank you, Mr. Chairman.
Chairman Baker. Reluctantly so made part of the official
record.
Are there members with further statements? Mr. Israel? And
then I will come to you, Mr. Scott.
Mr. Israel?
Mr. Israel. Thank you, Mr. Chairman. Let me thank you and
Chairman Kelly and Ranking Members Kanjorski and Gutierrez for
this hearing.
I also want to take this opportunity to welcome Mr. Serio,
the Superintendent of the New York State Insurance Department.
Mr. Serio knows that my congressional district is less than 50
miles from ground zero. In the aftermath of 9-11, one of the
leading concerns for businesses in New York City and near New
York City was the need to get back up on our feet and rebuild
as quickly as possible. One of the major obstacles to doing
that was in fact the apparent inability of the insurance
industry to assess and absorb the risk of another large-scale
terrorist threat.
I was very proud to be a part of this committee when we
acted quickly to create a federal government backstop for
terrorism insurance in the event of another catastrophic
occurrence. It is a profound example of what this committee can
do when members from both sides of the aisle work together with
each other and with industry to a common goal and a common
sense goal.
Mr. Chairman, I believe that TRIA has worked fairly well.
It has in fact allowed businesses in my district and businesses
in New York City, where many of my constituents work, to
continue uninterrupted. However, as we have heard, we are now
faced with the possibility of a sunset and we cannot allow this
to happen. I was very proud to sign a letter written by Ranking
Member Frank encouraging the Secretary of the Treasury to
exercise his ability to extend the ``make available''
provisions of TRIA and I think that this is an important and
necessary first step.
But I do not believe it goes far enough. TRIA needs to be
reauthorized. During the original consideration of this
legislation, there was a great deal of debate regarding how
long the authorization should last. The final product settled
on three years, with the Department of the Treasury being
required to issue a report in 6 months before the program
expires, detailing any problems with the program.
I fear that we may have painted ourselves into a bind with
this language and on this timetable. By the time the report is
submitted to Congress, I believe it is going to be too late for
Congress to fully get and act upon the concerns that that
report may raise. Indeed, I strongly believe that TRIA must be
reauthorized before June of next year to allow industry
adequate time to ensure the continuation of current policies.
So in order to give us adequate time to consider this and
any other concerns that may come to light in the Treasury
report without disrupting the market, I am very proud to be
working with Mr. Capuano on crafting a clean, quick, short-term
extension of TRIA until December of 2006. I believe that by
acting on such a measure, we will fulfill our responsibility to
ensure the orderly continuation of the insurance market in
high-risk areas, and at the same time allow ourselves
sufficient time to conduct a full and necessary review of this
new and important program.
I look forward to working with Mr. Capuano and all members
of this committee to ensure the continuity of our markets and
the continuity of capital.
I thank the Chairman and yield back the balance of my time.
Chairman Baker. I thank the gentleman.
Mr. Scott?
Mr. Scott. Thank you very much, Mr. Chairman. I certainly
look forward to the testimony of this very distinguished panel.
I want to thank the Chairman and Ranking Member of both the
Capital Markets and Oversight Subcommittees, Mr. Kanjorski, Mr.
Gutierrez, as well, for holding this hearing today on the
Terrorism Risk Insurance Act. I also look forward to some very
good information to be exchanged and questions asked in today's
testimony.
Access to terrorism insurance is very essential to business
confidence and continued economic growth. From the written
testimony, I understand that TRIA has been successful in
providing an insurance backstop for consumers, thus enabling
millions of dollars in business transactions to proceed.
However, this law is only a temporary backstop for property and
casualty insurance risk. According to the Bush Administration,
the United States remains at a high state of alert and could be
the target of terrorist actions this year, and especially
because this being a very critical important election year.
In my area of metropolitan Atlanta, we have the world's
busiest airport located in my district. In addition to that, we
have Fort McPherson that handles ForceCom, controls all the
logistics and command for the forces in Iraq and in
Afghanistan; also Fort Gillem, which handles all of the call-up
and processing for our Reservists and National Guard in the
eastern half of the United States east of the Mississippi,
which is approximately 65 percent of those call-ups, all
processed in my district.
We also have the Centers for Disease Control located in my
district. The World Congress Center, trade and convention
facilities, and two of the highest recognized brand names in
the world in Coca-Cola and CNN. And very, very important and
critical financial service institutions and sensitive sites
that are at risk, making Atlanta potentially high target and as
a matter of fact has been on several lists of terrorist targets
for terrorist attacks.
So quite naturally, I am very concerned that businesses and
my constituents in my district will come to expect a permanent
terrorism insurance backstop, regardless if they use it now to
make sure future business decisions. As we move forward in
today's hearings, we should ask that if the law expires, how
that will affect private markets.
Thank you again, Mr. Chairman, and I await the statements
from our panel.
Chairman Baker. I thank the gentleman.
Are there any other members? The gentleman is recognized.
Mr. Garrett. I thank the chairman for holding this hearing
today. As was previously indicated, obviously the visual
effects of 9-11 are burned in our minds. The economic effects
and the dollar and cents ones are sometimes a little bit harder
for us to comprehend.
Overall, though, of course all the numbers in the last few
weeks and months are showing that the economy is turning around
and things are picking up and we are on to a robust economic
recovery. But the net effect of 9-11 was over $50 billion has
been paid out in insurance claims due to that attack, the
largest manmade insurance disaster in history. The effect of
that was that many reinsurers were simply unable to price for
future such risk due to the unique nature of those attacks.
When an insurer is unable to price for a risk, well then they
simply stop offering the insurance coverage. That was the
impact of that attack.
Now, when we recognize these possible negative impacts on
the insurance market and therefore the economy, I have to
commend the members of this committee here before me who acted
quickly and responsibly to come up with a solution to it. This
measure was necessary to simply stabilize the terrorism market
in the United States.
I join my colleagues on the other side of the aisle who
have already pointed out that TRIA has been successful in
accomplishing the goals that were laid out by Congress. It has
provided a program that shares the commercial property and
casualty losses between the federal government and the private
insurance market in a way that obviously has worked and
benefited this economy. For that reason, I share their concerns
also and share their feelings that we should make available
provisions and TRIA should be extended prior to the September 1
deadline.
One member has indicated already the issue of timing. My
experience, having been in the industry, is that timing is a
significant aspect for carriers because it is not an industry
that can simply snap into a response on the spur of the moment;
that notices will be going out not literally as we speak, but
shortly as we speak, because of the nature of the business and
the nature of renewals. So that is something that we all have
to be mindful of, of how the industry actually respond to and
how their paperwork actually flows with regard to any insurance
product and market.
Finally, I would just say this. Where I come from, I am
from the State of New Jersey. I live in the metropolitan area.
As I say, we still have the visual impact of 9-11 there, but
also from an economic point of view many businesses are still
recovering from that attack to this day. The importance
therefore, of the reinstitution of TRIA is even more heavily
important for my district as well.
I thank you again, Mr. Chairman, for holding these hearings
today.
Chairman Baker. I thank the gentleman for his statement.
Does any other member desire to make an opening statement?
If not, this is a joint hearing with Ms. Kelly's subcommittee
and Ms. Kelly is going to take the chair for our panel of
witnesses.
Chairwoman Kelly. [Presiding.] I am going to take the chair
from here.
Before we move to our panel, I would like to enter into the
record several documents that include a letter that 18
Republicans sent to Secretary Snow in support of extending the
``make available'' provision; another letter on ``make
available'' from the Real Estate Roundtable; a support letter
requesting the extension of TRIA from the American Insurance
Association, the Council of Insurance Agents and Brokers, the
Independent Insurance Agents and Brokers, the Property-Casualty
Insurers Association of America, the Reinsurance Association of
America, and the UWC, Strategic Services on Unemployment and
Workers Compensation.
Another TRIA support letter from Group Life Coalition, the
ACLI, and the Financial Services Roundtable; and a support
letter from the Coalition to Insure Against Terrorism, which is
a broad coalition of businesses and organizations from the
transportation, energy and real estate industries, to
manufacturing, construction, entertainment and retail sectors.
With unanimous consent, I am entering these into the
record. So moved.
[The following information can be found on pages 139, 107,
136 and 115 in the appendix.]
We now turn to our panel. Our first witnesses representing
the Department of Treasury, is Mr. Wayne Abernathy. Mr.
Abernathy is the Assistant Secretary of Treasury for Financial
Institutions, where he oversees Treasury's Terrorism Risk
Insurance Program. I commend you, sir, for your work on such a
difficult task and I look forward to your testimony.
It is also a great pleasure to have the opportunity to
welcome back to the committee again Mr. Greg Serio,
Superintendent of Insurance back from the great State of New
York. New York knows first-hand the threat and devastation of
terrorism. In the aftermath of 9-11, many individuals responded
in a way that represents the best of America's spirit. I
believe that Superintendent Serio is one of those individuals.
In addition to his work on terrorism insurance issues, Mr.
Serio serves in the leadership of NAIC, and has been an active
participant in the insurance roadmap the committee is
exploring. We thank you very much for your valuable service and
your testimony here today. It is a pleasure to see you.
Our third witness is Richard J. Hillman, Director of
Financial Markets and Community Investment at the General
Accounting Office. I thank you, Mr. Hillman, for being here,
and the GAO for their comprehensive report on the state of
terrorism insurance.
Without objection, your written statements will be made a
part of the record. You will all be recognized for a 5-minute
summary of your testimony. I just want to remind you that the
lights in the boxes at the end of the table, the green light
indicates that you have 5 minutes for your testimony; the
yellow light means you have 1 minute remaining; and of course
the red light means stop.
With that, we will proceed with you, Mr. Abernathy, and
thank you for being here.
STATEMENT OF HON. WAYNE A. ABERNATHY, ASSISTANT SECRETARY FOR
FINANCIAL INSTITUTIONS, UNITED STATES DEPARTMENT OF THE
TREASURY
Mr. Abernathy. Thank you, Chairwoman Kelly, Chairman Baker,
Ranking Member Kanjorski, Ranking Member Gutierrez, members of
the two subcommittees. It is a pleasure to be here today to
report on the Terrorism Risk Insurance Program as we approach
the mid-stream of that program as established by Congress.
TRIA establishes a temporary federal program of insured
commercial property and casualty terrorism losses. TRIA, in
effect, places the federal government in the reinsurance
business through December 31, 2005. TRIA has been successful in
achieving the fundamental goals of enhancing the availability
and affordability of commercial property and casualty Terrorism
Risk Insurance. No longer are heard the concerns from real
estate developers that new project financing has been frozen.
Preliminary accounts indicate that premiums have decreased
significantly throughout the early stages of TRIA and continue
to do so. Reports are that the demand for this coverage is low,
but coverage is available and those that desire coverage have
been able to obtain it. Whether the low take-up rate reflects a
lack of interest in terrorism coverage even with the federal
backstop; a lack of awareness of the availability of coverage;
an assessment by business of low terrorism loss risk, or some
combination, will require careful study and analysis.
Treasury has five main administrative goals: first, to
ensure that the program was ready for use from the day it was
signed into law; second, to implement TRIA in a transparent
manner that is fair and easily understood; third, to rely as
much as possible on the state insurance regulatory structure;
fourth, to allow participation in a manner consistent with the
normal course of business; and fifth, to ensure that benefits
can be provided in the most expedited manner.
As I have often reflected, implementing TRIA has been like
building a house by starting with the roof. The coverage came
first. TRIA's first action was to issue a series of interim
guidance notices beginning on December 3, 2002, about 1 week
after TRIA was signed into law. This allowed us to respond
quickly to implementation issues and to prevent confusion prior
to the issuance of formal regulations. Even while the interim
guidance process went forward, we began formal rulemakings.
It is important to stress that while we have been moving
progressively through the rulemaking process, the program from
the beginning has been and continues to be fully operational.
These rules have been refinements and improvements on practices
and operations, but from the earliest days we have had
procedures and resources ``at the ready'' to respond to any
covered insurable event that might arise.
Treasury also created and staffed a Terrorism Risk
Insurance Program office to administer the Act. TRIP office
director Jeffrey Bragg brings deep experience from the property
and casualty insurance market, as well as experience as a
former administrator of the federal flood, riot and crime
insurance programs. In almost no time, he has assembled an
outstanding team of insurance professionals who have been
willing at some sacrifice to interrupt successful private
careers to help administer this important program.
TRIA is an interesting hybrid. It provides a federal
reinsurance backstop to insurance programs that are regulated
almost exclusively at the state level. This would be
unmanageable without the cooperation of the state insurance
regulators. Throughout the implementation process, Treasury has
consulted and worked closely with the NAIC and the NAIC's
assistance has been invaluable.
An important requirement of TRIA is to keep a careful eye
on market conditions and report to Congress by June 30, 2005.
Specifically, Treasury is required by the statute to assess the
effectiveness of the program, the likely capacity of the
industry after termination of the program, and the availability
and affordability of such insurance for various policyholders.
Together with this analysis, Treasury is also required to
compile information on premium rates. To ensure that we do this
with a comprehensive view, Treasury has contracted with an
outside research firm to conduct a nationally representative
survey. Companies chosen for the survey will be contacted
several times to capture effects of changes in TRIA's insurer
deductibles in successive program years. The first survey wave
was mailed to over 30,000 policyholders and almost 500
insurers. A second wave to collect 2004 data is planned for
early this fall. The last survey wave is planned for January
and February of 2005.
This phased structure will allow us to move beyond
snapshots and anecdotal evidence to a broader and more dynamic
view of the conditions in the marketplace. Anything less would
not provide the full and reliable information, the kind of
basis that is needed to make a careful, trustworthy and
responsible evaluation that is called for by Congress in the
statute.
The Secretary of the Treasury is required to determine by
September 1, 2004 whether to extend TRIA's ``make available''
provisions into the third year of the program, that is, through
December 31, 2005. Treasury is now developing a base of
information from which to make this determination. We encourage
any who have views on this question to share those views with
Treasury with as much detail as they can provide.
We must all remember that the basic goal of TRIA as called
for by President Bush was to develop a temporary backstop for
property and casualty commercial insurance against terrorism
risk so that private markets would have a chance to adjust. We
would encourage interested parties to think creatively and to
consider methods to allow for broader private sector
involvement in the market for managing property and casualty
terrorism risk.
Treasury looks forward to completing our review and
considering the many complicated issues presented to us in a
thorough manner, with the best information that can be
obtained. Our obligations to the taxpayers and the need for the
long-term health and vitality of our financial services markets
require nothing less.
While we hope that we will never be called upon to trigger
the coverage under TRIA, the program stands ready today as it
has from its earliest days to meet its responsibilities.
Thank you.
[The prepared statement of Hon. Wayne A. Abernathy can be
found on page 49 in the appendix.]
Chairwoman Kelly. Thank you very much, Mr. Abernathy.
Mr. Serio?
STATEMENT OF HON. GREGORY V. SERIO, SUPERINTENDENT, NEW YORK
STATE INSURANCE DEPARTMENT
Mr. Serio. Good morning, Madam Chair, Mr. Chairman, and
members of the subcommittee. Thank you for the opportunity to
come before you today to relate New York's experiences with the
Terrorism Risk Insurance Risk. It is greatly appreciated.
Let me get right to the point. TRIA is a success by any
measure and has been very effective in stabilizing a tumultuous
insurance marketplace in the aftermath of September 11 and it
has been a key factor in stabilizing and reenergizing New
York's economy. As we have opined several times over the past 2
years, sometimes before these subcommittees, TRIA was and is an
insurance buyers law, allowing the continuation of critical
insurance coverages for those who needed to or wanted to
maintain the level of coverage routinely available prior to
September 11.
The success of this initiative cannot and should not be
measured simply by the number of businesses who have availed
themselves of terrorism risk protections through TRIA. Some
businesses chose to go without coverage for terrorism risk.
That is their decision. Others chose to rely upon the already
meaningful protections offered by the standard fire insurance
policy widely available in the United States prior to September
11, 2001, and still in place in New York and other states to
this day.
For those businesses that wanted or needed terrorism
insurance protection, though, TRIA became their safety net.
Coverages were required to be made available at the same limits
and terms as the other property-casualty coverages, thus
assuring all risk protection for those who needed it for
lending agreements, contractual obligations, or frankly their
own peace of mind.
The businesses of New York who availed themselves of the
opportunity to establish captive insurance companies, to better
manage and frankly afford the terrorism risk coverage through
the benefits of TRIA should also be counted among those who
consider TRIA a success. Yet those who did the responsible
thing by establishing self-insurance mechanisms to manage
terrorism risk do not get included among those who opted to
take up TRIA-provided terrorism coverage, even though the
covering of risk placed through captives is one of the
strongest provisions of the TRIA law and of the decisions made
by the Treasury Department.
President Bush, the Congress, especially the leadership
shown by the House Financial Services Committee and these
subcommittees before whom we appear today, together with the
Treasury Department and the manner with which they have managed
the TRIA program, are all owed a debt of gratitude in moving
with singularity of purpose to help protect New York's
businesses and those of the country.
As the National Association of Insurance Commissioners
indicated in a letter to Secretary Snow, and I believe you have
a copy of it and I would appreciate it if that would be made a
part of the record as well, we think the continuation of the
``make available'' provision of TRIA beyond September 1 is
crucial. Maintaining a steady flow of insurance to the business
community will keep business and the economy moving without
fear of or actual disruption caused by the lack of availability
of all-risk insurance coverage.
TRIA has been one of the main ingredients in the recovery
and renewal of lower Manhattan and the New York economy and it
should continue to provide that positive stabilizing element as
we continue to strengthen. The restoration of the national
economy and the economies of all major cities that depend upon
insurance as a key component are also benefit from a decision
to maintain the ``make available'' provision in TRIA.
There is already much discussion taking place on the larger
issue of the continuation of TRIA. As with the ``make
available'' issue, early consideration and deliberation on the
reauthorization of TRIA is also in everyone's collective best
interest. Even as Treasury performs its due diligence on the
law's effectiveness, there can and should be discussions on
steps to be taken to ensure the continuity of coverage that is
TRIA's hallmark along with the business cycle of insurance.
Again, the mere potential for disruption should be avoided.
Already there is a school of thought and a growing body of
evidence that TRIA should be continued and improved. Straight
reauthorization of the Act without deliberation on improving
private participation in terrorism risk coverage, the
availability of state-based options, better managing the still-
unaddressed concentration of risk issue, and other
considerations would not be advisable.
Rather, reconsideration of the group life insurance
participation in TRIA, an issue on which we respectfully
disagree with Treasury's final determination to leave group
life out of the TRIA program, maintaining and expanding TRIA's
protections for captive and other self-insurance mechanisms,
and addressing straight-on the complexities of workers
compensation issues in the terrorism risk context, that being
heavy concentration risk with long-term liabilities making it
particularly challenging, could all improve the TRIA Act.
Knowing of and appreciating the federal government's
concern over permanentizing TRIA, something we do not advocate
at this point, is important to this discussion, but a public-
private partnership with meaningful federal government
participation is critical to the continued stabilization of the
commercial insurance marketplace, at least in the near term.
That participation in fact should well be calibrated to the
viability of long-term solutions to the terrorism and
catastrophe risk and insurance challenges before us now.
Short-term continuity of coverage through TRIA, together
with productive discussions on long-term remedies, I believe is
in everyone's best interest. To that end, New York, taken with
the commissioners of the District of Columbia and the other
states most affected by terrorism risk, have been meeting with
congressional and Treasury staff, insurance brokers, carriers,
and most importantly our respective business communities, to
spearhead the discussion on appropriate changes and
improvements at TRIA, greater private sector participation in
the Terrorism Risk Insurance market and state options for
improving these markets.
Governor Pataki from New York, in a workers compensation
reform bill that he submitted to the legislature just 2 weeks
ago, provides one such option by calling for a change in the
way workers compensation insurance is written in New York. By
diffusing the concentration of risk, by allowing multiple
insurers on a single workers compensation risk. Changing the
statutory requirement on the risk coverage to allow a
syndication of workers compensation risk may just be one way
for us to effectively manage this issue, and one way that can
serve as a catalyst for additional discussions along these
lines.
Thank you for allowing me to present these views this
morning. I look forward to answering your questions.
[The prepared statement of Hon. Gregory V. Serio can be
found on page 80 in the appendix.]
Chairwoman Kelly. Thank you very much, Mr. Serio.
Mr. Hillman?
STATEMENT OF RICHARD HILLMAN, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, UNITED STATES GENERAL ACCOUNTING OFFICE
Mr. Hillman. I am pleased to be here today to discuss our
report on the implementation of the Terrorism Risk Insurance
Act of 2002 or TRIA and the Act's impact on the insurance
market. Our report being released today on the implementation
of TRIA has two objectives. First, we describe the progress
made by Treasury and insurance industry participants in
implementing TRIA. We found that Treasury has made significant
progress in implementing the provisions of TRIA, but has
important work to complete in order to comply with all of its
responsibilities under the Act.
Second, we discuss the changes in the market for terrorism
insurance under TRIA. As requested, my testimony today focuses
on the second of these two objectives, that is, how TRIA has
affected the market for terrorism insurance, and more generally
the economy.
Additionally, I have included appendices to this statement
that provide background information on TRIA and describe
completed and ongoing engagements that GAO has under way for
this committee that relates to increasing the insurance
industry's capacity to provide insurance for terrorism and
national catastrophe risks.
In summary, it appears that Congress's first objective in
creating TRIA, to ensure that business activity did not
materially suffer from a lack of available terrorism insurance,
largely has been achieved. Since TRIA was enacted in November
2002, terrorism insurance generally has been available to
businesses. In particular, TRIA has benefited commercial
policyholders in major metropolitan areas perceived to be at
the greatest risk to a terrorist attack.
Prior to TRIA, we reported concerns that some development
projects had already been delayed or canceled because of the
unavailability of insurance and continued fears that other
projects would also be adversely affected. We also conveyed
widespread concern that general economic growth and development
could be slowed by lack of available terrorism insurance. Since
TRIA's enactment, terrorism insurance has generally been widely
available even for development projects in perceived high-risk
areas, largely because of the requirement in TRIA that insurers
make available coverage for terrorism on terms not differing
materially from other coverage.
However, despite increased availability of coverage,
limited industry data suggests that only 10 to 30 percent of
the commercial policyholders are purchasing terrorism
insurance. According to industry experts, purchases have been
higher in areas considered to be high-risk of another terrorist
attack. However, many policyholders with businesses or
properties not located in perceived high-risk locations are not
buying coverage, perhaps because they view any price for
terrorism insurance as high relative to their perceived risk
exposure.
Some industry experts are concerned that those most at risk
from terrorism are generally ones buying terrorism insurance.
In combination with low purchase rates, should a terrorist
event occur, these conditions could impede business recovery
efforts for those businesses without terrorism coverage or
cause financial problems for insurers.
Moreover, we found that even policyholders who have
purchased terrorism insurance remain exposed to significant
risks arising from certified events, including losses from
nuclear, biological or chemical agents or radioactive
contamination. Since September 11, 2001, the insurance industry
has moved to tighten longstanding exclusions from coverage for
losses from such events. As a result, these exclusions and
these policyholders who choose to buy terrorism insurance may
be exposed to potentially significant losses.
Nearly 1 1/2 years after TRIA's enactment, we found that
there has been little progress towards Congress's second
objective, to give private industry a transitional period
during which it could begin pricing terrorism insurance and
develop ways to cover losses after TRIA expires. Industry
sources indicate that under TRIA insurance market participants
have made no progress to date toward the development of
reliable methods for pricing terrorism risks and little
movement toward any mechanism that would enable insurers to
provide terrorism insurance to businesses without government
involvement.
According to industry sources, TRIA's ceiling on the
potential losses has enabled reinsurers to return cautiously to
the market. That is, some reinsurers are offering coverage for
terrorism risks within the limits of the insurer deductibles
and the 10 percent share that the insurers would pay under
TRIA. However, insurance experts said that without TRIA caps on
the potential losses, both insurers and reinsurers likely still
would be unwilling to sell terrorism insurance coverage because
they have not found a reliable way to price their exposure to
terrorist losses. Without being able to set appropriate prices,
such losses could lead to their insolvency.
Not only have no private sector mechanism emerged for
supplying terrorism insurance after TRIA expires, but to date
there also has been little discussion of possible alternatives
for ensuring the availability and affordability of terrorism
coverage after TRIA expires. Congress may benefit from informed
assessment of possible alternatives, including both wholly
private alternatives and alternatives that could involve some
government participation or action. Such an assessment could be
part of Treasury's TRIA-mandated study to assess the likely
capacity of the property and casualty insurance industry to
offer insurance for terrorism risks after termination of the
program.
As a result, as part of the response to the TRIA-mandated
study, our report being released today recommends that the
Secretary of the Treasury consult with the insurance industry
and other interested parties and identify for Congress an array
of alternatives that may exist for exploring the availability
and affordability of terrorism insurance after TRIA expires.
These alternatives could assist Congress during its
deliberations on how best to insure the availability and
affordability of terrorism insurance after December 2005.
Madam Chair, Mr. Chairman, this concludes my statement. I
would be pleased to respond to any questions.
[The prepared statement of Richard J. Hillman can be found
on page 57 in the appendix.]
Chairwoman Kelly. Thank you very much.
Just to keep you all amused in the audience, I am going to
pass the gavel back to my colleague, Mr. Baker.
Chairman Baker. [Presiding.] I thank the gentlelady for her
distinguished leadership of the committee. You have set a high
standard for me to emulate, so I will do my best.
Ms. Kelly does have obligations on the floor and I am going
to yield my time for her to be recognized to go first to
questions. Ms. Kelly?
Chairwoman Kelly. Thank you very much.
One of the problems that we know that the market is
experiencing, Mr. Abernathy, is the fact that policyholders are
having to make decisions about their policies this year, rather
than next year for next year. I am concerned that this creates
an uncertainty for many people. That uncertainty needs to be
addressed.
The ``make available'' provision is crucial, I believe, to
our economic security. We need this decision as soon as
possible to create a certainty in the market that people can
deal with. How quickly will Treasury move on this issue?
Mr. Abernathy. Chairwoman Kelly, we concur with that
entirely, your sentiment on that. The decision needs to be made
as soon as we possibly can. We want to make sure that the
decision is made, however, based not upon anecdotal
information, which is all that we have up to this point, and
rather unspecific information. We have received so far a wide
array of very unspecific inputs with regard to that issue that
expresses sentiment, and that is important. But what we would
like to have is greater detail in the information that is being
provided and to make sure that it is of a more comprehensive
nature. We think that can be done fairly quickly.
Chairwoman Kelly. How quickly?
Mr. Abernathy. What we are planning to do as far as
gathering what we would feel is a comprehensive set of
information that would allow us to make a good decision as
quickly as possible is put out in the Federal Register a
request for information from everybody. We figure we can get
that request out most widely through the Federal Register and
we plan to publish that tomorrow.
Chairwoman Kelly. You are going to publish the request for
comments tomorrow in the Federal Register. Is that what I
understood you to say?
Mr. Abernathy. That is right. It is very specific, saying,
please give us information in these following areas that allows
us to make that decision. We are having a fairly contracted
comment period of just 30 days.
Chairwoman Kelly. Since the Treasury has to complete this
study, and you are going to get these comments, at the very
least wouldn't it be prudent for Congress to think about
extending, at least officially consider, extending TRIA for any
policy that is written prior to 2005?
Mr. Abernathy. That is a separate issue from the ``make
available'' issue.
Chairwoman Kelly. Right.
Mr. Abernathy. I do not know that we have any particular
comment to make with regard to what happens after 2005, because
in that particular case we have even less information on which
to make any kind of determination. We are engaged already, as I
outlined in my testimony, in a fairly elaborate information-
gathering process that is designed to examine TRIA as the
evolving statute that Congress intended.
I think a fair way of looking at TRIA is that it is
actually three programs. It changes every year. In the first
year, you had one particular program with certain parameters,
which have changed this year, and which are scheduled to change
next year. For that reason, we believe that in order to get the
kind of information you need to make recommendations with
regard to what happens after 2005, you have to gather
information on each of those periods.
Chairwoman Kelly. I have a very short period of time left,
but I would really like to hear very quickly from Mr. Serio and
Mr. Hillman on those questions.
Mr. Serio. On the ``make available,'' we think that it
needs to be decided sooner than later. I think waiting until
September 1 probably does not serve anybody's interest here. I
know that Treasury is doing what they can to find out firm
information. I think, though, that just by seeing the nature of
the businesses that have taken the offer to buy terrorism
insurance under TRIA shows that there has been a demonstrable
interest in the coverage. I think if you focus it on, like the
Coalition for Insurance Against Terrorism, there is a wide
range of industries that have taken this up either through
direct coverages or through captives, showing that there has
been a significant, but targeted, use of TRIA.
I think those same industries could well see the same need
for that in a renewal period after September 1, and to that
extent alone keeping it out there for them to buy we think is a
worthwhile policy goal.
But there is a merging of the issue of ``make available''
and the continuation of TRIA in some form. Even the ``make
available,'' and if a decision was made by Treasury to move
ahead with the ``make available,'' because of the business
cycle, you are already into the question about the continuation
of the program itself. So there really would be a very small
window with respect to the effectiveness of a decision to
continue to ``make available,'' which would then raise the
question, particularly if you are in a 45-or 60-or 90-day
renewal cycle, what will this get me in terms of terrorism
protection for the year period of my policy that I am about to
renew?
I am assuming that ``make available'' is still there
between September and December of 2004. That raises the
question that when the policy does come up for renewal and you
have that rollover into 2006, a question that I know both the
GAO and us and all of you have been looking at is this question
of whether that coverage stops dead on December 31, 2005. Our
opinion is that it does without further amplification or
clarification of that issue. That is what raises so much of
this question and this uncertainty in the economy.
If a business person is using their portion of business
decision properly, they cannot simply take it as an article of
faith that there may be a continuation into a 2006 policy year
when they are in fact renewing that coverage. That will stop a
business decision at the beginning of the process, not when the
program expires.
Chairwoman Kelly. Thank you.
Mr. Hillman, did you want to add to that? My time is up, so
if you could say something very quickly, I would appreciate it,
if you would like to.
Mr. Hillman. Yes, the ``make available'' decision is a very
important issue, particularly for insurers. Timing is a
significant aspect. There are paperwork flows, there are rate
and form reviews that need to take place. The sooner that
Treasury acts, the better.
Chairwoman Kelly. Thank you.
Mr. Chairman, I thank you for allowing me to do this. I
have floor obligations and I will be back, but thank you.
Chairman Baker. I thank the gentlelady.
Mr. Kanjorski?
Mr. Kanjorski. Thank you, Mr. Chairman.
Mr. Abernathy, I am going to take 30 seconds to review the
history of terrorism reinsurance and to compliment the former
member of the President's cabinet, Secretary O'Neill. I had the
occasion within the first months of 9-11 to work with Mr.
O'Neill in putting this package together with Mr. Baker and the
Chairman. I think that he is an unsung hero, if you will; that
he was here; he understood the problems of the industry, of the
communities, of the economic development field. I think we
moved expeditiously in the Congress within 3 months to
structure a reinsurance bill, and then ran into some problems.
Those problems I anticipate could occur again. I am leery of
what may happen.
If you will recall, although the Congress was prepared with
a piece of legislation within 3 months, we had the piece of
legislation go over to the White House for review and of course
Treasury and the White House saw the piece of legislation as an
engine to carry tort reform. As a result thereof, we had a
delay of almost a year before we had the enactment of this
statute, which I think I have seen estimates that in the State
of New York something like $20 billion of commercial
development was held up and discouraged from occurring because
of the lack of insurance coverage.
In anticipation that politics have not changed in this city
and are not likely to change in the next several years, it
seems to me that it is absolutely essential that the Congress
and the Administration sends a message now to the insurance
industry that we are going to take another 2-year extension or
one-year extension of the Act as it exists, or even with some
corrections, and one correction I think would be group
insurance.
But to not do that and to wait until the report is finally
filed 6 months before the expiration of the Act would only
create another engine. I do not see that that would be in
anyone's interest, either from the industry standpoint, the
economic standpoint of the country, and even from a political
standpoint. This is something that we had some great bipartisan
effort on. I can speak for my side of the aisle that we did not
expect or appreciate the attempt to use this as a vehicle to
carry an entirely different issue to get enacted into law when
we had something that was very vital.
Can you give us some assurances that you are going to be
able to look at this in terms of whether or not we can get an
extension of a year or 2 years and do it very quickly? I have
discussed with the Chairman that I think we have a bipartisan
agreement on this committee right now to enact an extension of
at least 1 year, and possibly 2 years of the conditions that
exist in the statute today. My own preference would be to see
if we can perfect it and cover group insurance, but even if we
cannot, we should act for two purposes, one to stabilize the
market, as the New York Commissioner has indicated; and two,
not to skew your eventual study, because at this point, with
the shortness of the existence of this policy, things are going
to change and the industry is going to change in anticipation
of the end of the government program supporting reinsurance.
So I guess I am putting you on the spot, but purposely. Are
we going to go through this song and dance again of using this
as an engine at the end of the period of time, to carry some
other unrelated piece of legislation or issue? Or are we going
to direct ourselves to doing what is proper for American
industry and the insurance industry and the American population
in terms of getting good effective legislation into the field
as soon as possible to make sure there is no hiatus that could
occur or the fear thereof?
Mr. Abernathy. Thank you, Congressman. In a sense, you are
putting me on the spot, but that is why I am here. I am here
frankly to continue what I think has been a very successful
cooperation between the executive branch and the Congress on
the whole issue of Terrorism Risk Insurance.
Frankly, it was the hard work of President Bush to convince
a lot of members of Congress about the importance of Terrorism
Risk Insurance, and I think in the end----
Mr. Kanjorski. I am going to interrupt you, Mr. Abernathy.
I sat in the White House and on those conference committees.
That was not the intent. It was the full intent of this
Administration to pass tort reform and it held up this
legislation for almost a year. To make some argument that the
President was instrumental, I was there when Mr. Lindsey was
there and other aides of the President, and they were putting
the brakes on this unless they could get tort reform. It was
only with embarrassment at the end that the American industry
and the insurance industry came in and said we absolutely need
this and we are losing all this construction that it ever
occurred.
So it was not some magnificent leadership by the
Administration, the President or anyone else. It was hardcore
politics. I sat in the conference room for hours when it was
debated, so do not give me the argument that it was the great
leadership of the President putting this together and getting
this done. It was almost in spite of the Administration's
objectives and the use of this legislation for political
purposes that held it up.
Mr. Abernathy. I respectfully disagree with that,
Congressman. I was involved with that exercise. I was a witness
to putting together the legislation. Frankly, I think with
regard to the tort issues, the only question on the part of the
Administration was to make sure that this effort to provide
Terrorism Risk Insurance did not open up an avenue for abusive
lawsuits to have a free rein and access to the Treasury and the
taxpayer's pocket. The legislation as it was finally enacted,
we believe, closed that opportunity, to make sure that the
backstop is available only for providing compensation for real
victims of terrorism, and not creating opportunities for
abusive lawsuits.
I believe that it was only because President Bush pushed
very hard against a number of people who were very skeptical
about opening up a brand new federal program that in the end
this program was able to be enacted. We look forward to
continuing that cooperation with you throughout the life of
this program and with a very careful and proper evaluation of
what should take place after 2005 when the scheduled deadline
of the Act is here.
Mr. Kanjorski. If I may press you on that, what are we
going to do? Is the Administration not going to take a position
now in the next several months and are you going to leave it up
to the Congress just to pass a reauthorization bill, or are you
going to be supportive of a reauthorization bill for a limited
period of time so that we can take this out of the political
realm and get some certainty in the marketplace?
Mr. Abernathy. We certainly concur with your desire to keep
this out of the political realm. In our view, there is no left
or right, Republican or Democrat view with regard to terrorism
and fighting terrorism and its consequences, and taking away
from the terrorists the potential fruits of what they seek,
which is a disruption of our economy. But at that same time, we
think that whatever decision is made ought to be made upon the
best information that can be gained and is available. There is
a process that the Act laid out for us to follow, and we are
following that and intend in that process to continue close
consultations with the Congress.
Mr. Kanjorski. That seems to me to say that you have no
intention of taking a position until you complete the study,
which is 6 months before the expiration of the Act. Let me ask
you this simple question, if the Congress of the United States
enacts reauthorization within the next several months, is the
President prepared to sign it, do you believe? Or would there
be a recommendation from the Secretary that the Act be signed
into law?
Mr. Abernathy. Certainly, I am not in any position to make
any statement with regard to that. Frankly, if Congress comes
forward with proposals that Members seek the Administration's
views on, we will be happy to enter into that discussion.
Mr. Kanjorski. Thank you, Mr. Chairman.
Chairman Baker. I thank the gentleman.
Mr. Abernathy, let me take a slightly different track, but
with an eye toward a similar end goal as that of Mr. Kanjorski.
In reviewing your written statement, you go, and this is really
for the members's benefit so that they understand the scope of
what is to be contemplated, the report to be issued by or
before June 30, 2005 is assigned to assess the effectiveness of
the program, likely capacity of the insurance industry,
availability and affordability.
To seek out those general goals, Treasury has already
contracted with an outside research firm. The first survey for
data went out in the fall of 2002 and 2003. A second wave is
planned for 2004, later this year. A last wave is for early
2005. The view is that in order to make the trustworthy and
responsible evaluation called for, this process is necessary.
You continue in this effort to consult with NAIC, a broad range
of experts and on and on.
The Secretary has been insistent we draw upon as many
sources as is possible. The completed results, based on the
surveys and these consultations, will conclude with the
effectiveness of TRIA in a proper professional assessment. In
coordination with that, you have the authority and
responsibility to make available the determination this year,
but the study that you are engaging in really will go to the
validity of extension of ``make available'' as well as the
possible extension of TRIA, and will only be arrived at subject
to that lengthy public vetting process which you have described
in your testimony.
My point in coming to some conclusion on this matter is
that the one thing the insurance industry has an abhorrence of
is uncertainty and surprise. There is no apparent downside, in
my view, to some extension, and we can talk about the time
period later, because that only gives certainty that the
current structure, which has received very positive comments
from all participants. I have not heard criticism of the
current methodology. So that it would seem to me that providing
market assurance that current structures will continue until
such time as the report is concluded, the Congress has the
ability to understand and pass the statutory reforms, or to
simply let TRIA dissipate, whatever the report may indicate.
If we were to take that view and then look at the calendar,
we have an August recess and normally a November adjournment
date. That really leaves Congress a 90-day effective
legislative period to respond to whatever those recommendations
may conclude. It would seem highly advisable to me in light of
that, and uncertainties associated with that calendar, that for
the sake of market function we should at least go out a year
and maybe two, because there is no disadvantage to having a
longer period of certainty, as long as we make it clear in this
regard. There will be one and only one extension. The study
will be determinative. We are not going to come back and make
this an annual extension program. The Congress wants to do this
appropriately after the professional study by folks who
understand it, in consultation with all stakeholders. We are
going to come to a conclusion and that, dear industry, is going
to be it.
So we do not do it with the presumption that the Congress
is in the business of insuring this risk in perpetuity, but
that when we make the transition it shall be based on the most
formal and comprehensive study possible.
Is there a counter-view to that that you would like to give
to the committee today? Or do you think those presumptions are
based in relatively sound facts?
Mr. Abernathy. I think those are concerns that we have
heard from a number of sources. There are various different
proposals that we have heard as to what should happen after
2005, whether there should be some kind of temporary extension.
One of the proposals that Mr. Serio made today that requires
some very careful looking at is if you continue with the same
structure of the program, the deadlines that are built in
there, maybe you should allow in the third year that any
insurance policy that is written during the third year would
still be able to extend with the particular backstop coverage
beyond that third year. That is something that is worthwhile
looking at.
Chairman Baker. But that would mean any new start would
then be prejudiced in the third year. If you were going to
start a new project, you would not have the availability of the
program and that would create a market disruption between
somebody who met the deadline and a new start. I cannot see
that being helpful for economic growth.
Mr. Abernathy. I think the suggestion is that that coverage
would continue even beyond the third year if the insurance
coverage were written during the third year. So that you would
be starting the third year; your coverage would continue beyond
there. I think that is something worthwhile looking at.
Frankly, the problem that we have is, we do not have enough
of a factual basis to be able to say which of these ideas
really carry the most merit.
Chairman Baker. That makes my point exactly. We have dealt
the card to the Administration's efforts to do the thoughtful
analysis, to come back to us with a report. What I am
suggesting to you is that a 90-day legislative clock, subject
to such a comprehensive study, is really not a clock that makes
legislative sense. We need to remove the volatility and
uncertainty from the markets. There is no apparent downside to
at least a 1 year, and maybe longer extension, to make sure we
have the legislative time to respond.
I am to this extent agreeing with Mr. Kanjorski that there
is no downside to making this determination in this Congress to
provide that 1-year extension solely for the purpose of
receiving your work, and that the downside of not doing that is
to throw markets in some degree of uncertainty either in the
near term or certainly by the end of 2005.
I have used my time, so I will come back to you if
circumstances permit us.
Mr. Scott, you would be next.
Mr. Scott. Thank you very much, Mr. Chairman.
Let me ask this question first. The Consumer Federation of
America believes that there are only nine major cities that
will not be covered by the private insurance market after the
2005 expiration of TRIA. Is there a need to curtail and limit
future extension of TRIA to just nine cities? And could you
tell us who those nine cities are?
Mr. Abernathy. Are you asking me, Mr. Scott?
Mr. Scott. Yes, I am sorry.
Mr. Abernathy. That is one of the suggestions that has been
made. The CFA has made it. Others have made it. One of the
questions of the program is, is Terrorism Risk Insurance
availability really just an issue for certain parts of the
country and not other parts of the country? That is one of the
questions that is begged by the fact that the take-up rates,
the participation rates in the program are so relatively low.
Some questions are even asked as to whether it is an issue
for entire cities? I think Mr. Serio could point out there are
people in Manhattan that are not buying insurance. They just do
not feel that there is a need. They might be right, they may be
wrong. Who knows? There are some who say, well, we ought to
make it mandatory for everybody and then have people whether
they feel they are at risk or not participate in the pool
because the bigger the pool, the more we are able to spread the
risk.
There are some who would say, well, why should I have to
participate in somebody else's risk? These are all the kinds of
questions that we need to address. Unfortunately, we have right
now more questions than we have information to answer those
questions.
Mr. Scott. Could you share with us for the record what
those nine cities are? Would you have that information?
Mr. Abernathy. We do not have any list of any particular
nine cities. I do not recall whether the CFA mentions the nine
cities or not, that they recommend.
Mr. Scott. Okay. The other part of my question is, if the
Treasury has until September 1, 2004 to determine if it will
extend the ``make available'' provision, how will that affect
an insurer's ability to offer products for future terms?
Mr. Abernathy. Thank you for asking that, because there has
been a fair amount of confusion as to how the ``make
available'' requirement will operate with regard to time frame.
The law requires that any insurance policy offered during the
whole year, through the end of the calendar year 2004, must
make Terrorism Risk Insurance available regardless of what the
decision is on September 1. So if on September 1 the decision
is not to extend, people still under the statute are required
throughout this calendar year to make their product available
for their policies that extend beyond that.
That is without prejudice to what that decision might be.
If the decision on September 1 is, or before September 1,
whenever we make that decision, and again I want to emphasize
we are committed to making it as soon as we can gather enough
information to do that, to make an informed decision. Should
the decision be yea, extend it into the third year, that would
then begin with January 1 and that requirement would continue
throughout the remainder of the program.
Mr. Scott. And one more, if I may, Mr. Chairman. Should the
Treasury Department reconsider its decision to include group
life insurance in TRIA, given that it is a basic benefit for
venerable, highly concentrated workers?
Mr. Abernathy. That was one of the early mandated questions
that was put to Treasury. That was one where our hands were
fairly tied. The Act did not say whether we thought it was
advisable or not to extend coverage to group life. The Act said
investigate whether or not two specific things are happening:
Is insurance available for group life, initially primary
insurance?; and is insurance group life reinsurance available?
Our study verified that group life reinsurance coverage had by
and large receded. There was little if any reinsurance being
made available for group life.
On the other hand, primary group life insurance has shown
no significant receding from the markets. That still seems to
be as available to day, with little change, as it was on
September 10. Because of that, the test under the statute was
not made, so we could not include it in the program.
Mr. Scott. A question on the timing of the Treasury survey
wave. If the last Treasury survey wave is sent to stakeholders
in February 2005, in your opinion does that provide enough
information for analysis to be made to make a recommendation
regarding the expiration of TRIA later that same year?
Mr. Abernathy. That is a very good question. We hope so. We
felt because of the structure of TRIA, it is really three
separate programs. We are right now in program two of TRIA that
operates under different numbers than last year. Next year, it
will be operating under yet a different set of numbers. The
purpose for that is to try to increase the space within which
the private markets operate.
So in order to be able to evaluate, as the law says, what
is going on on the ground, we need to test in each of those
years. We are hoping that we will get enough of a test in
January and February that we will be able to make some
determination as to how the program is operating in its third
year and whether the take-up rates, the market participation
rates are changing at all. That is early in the year, but I
think that is the best we can do, given the time frames
provided for under the Act.
Mr. Scott. Thank you very much, Mr. Chairman.
Chairman Baker. Thank you, Mr. Scott.
Mr. Hensarling?
Mr. Hensarling. Thank you, Mr. Chairman.
As I often do, I find myself concurring with Chairman Baker
with respect to the need for certainty. No editorial comment
from my colleague there.
[Laughter.]
Chairman Baker. I did not want to interrupt.
[Laughter.]
Mr. Hensarling. The need to bring certainty into this facet
of the insurance market, the need for quick action, and also
the need to ensure that Congress is not faced with a series of
renewals or extensions is important because I have a concern
about the federal government becoming a permanent fixture in
the property and casualty reinsurance business, and giving the
taxpayer this type of exposure.
Can anybody give me at this point, any of you gentlemen,
some sliver of hope that, particularly with respect to the
latter concern of the federal government being a permanent
fixture in this market, any sliver of hope that this will not
be the case? Starting with you, Mr. Abernathy?
Mr. Abernathy. That was the design of the statute. When the
statute was enacted, there was the concern that we might be
creating a permanent federal program. For that reason, it is
structured so that each year the coverage provided by the
federal government declines. The space that is not insured by
the federal government increases, with the hope that that would
be a glide-path to get the federal government out of the
program, particularly in the third year.
In fact, the design of the third year is to have as little
effective federal involvement in the marketplace as possible. I
have met with some insurance people who already say they think
under the second year, there really is not any federal program.
Some of the major insurers, they say, act as if there is no
TRIA now because of the various deductibles that would pretty
much cover anything they are doing anyway and they are carrying
significant risk on their own.
Mr. Hensarling. Any comment, Mr. Serio?
Mr. Serio. I do not know that anybody has an interest in
having the federal government as a permanent fixture in this
business either. But I think, as Mr. Abernathy said, it is that
glide-path that we are working on. When you get back into the
insurance economics of this, there has to be enough capacity
that has been built up in this marketplace not just to pay for
an event, they handled 9-11 very well, the problem was having
enough capacity to cover a future risk that they have to be
responsible for up front because the financial regulator
requires that.
So depending up what other things we can put in place
working with private industry in terms of giving them the
opportunity to build that kind of capital base, that they are
not currently allowed to build, will go a long way towards
allowing the federal government to glide out of and to get out
of this reinsurance program.
Mr. Hensarling. On a slight refinement on the question, if
I understood your testimony correctly, I think you stated that
there was really not much progress in establishing a viable
terrorism reinsurance market and that so far there has not been
a reliable way in which to assess the risk. We have obviously
had some passage of time since 9-11, so my question is what has
to happen to be able for the participants to be able to assess
this risk and when might this happen?
Mr. Hillman. Based upon the results of our work, what we
have generally come to the conclusion is that the problem that
insurers and reinsurers are having right after the terrorist
attacks on September 11 are the same problems that they are
having today. They simply have an inability to determine the
frequency or severity of another terrorist attack.
Understanding the enormity of possible losses associated with
such an event, they are pulling themselves away from the market
and will be unable to do so until such time that there would be
reliable information for them to be able to make some of those
assessments. Hopefully, that information will never come to
bear.
Mr. Hensarling. I think all you gentleman have given
evidence about the low take-up rates. Obviously, there are
primarily a couple of reasons why somebody does not purchase a
service or a product. I do not care what a set of golf clubs
costs because I am not a golfer, so I am not going to buy a set
of golf clubs. Which I guess begs the question why Chairman
Oxley allowed me on this committee, but I do not have time to
pursue that.
[Laughter.]
Another reason I might not buy something is because I do
not like the price. As much as I may want a new pickup truck,
they just might have priced me out of the market. I think
several of you gentlemen gave evidence that supposedly now with
TRIA in place that relative to the risk, this insurance is
affordable. So why aren't people taking it up? Obviously right
after 9-11, a number of real estate developments and projects
and construction were held up, but is that true today and why
do we see such a low participation rate?
Mr. Abernathy. We do not have any evidence that has been
brought to our attention that development projects are now
being put on ice because of lack of Terrorism Risk Insurance.
So far as we can tell, that phenomenon has now disappeared with
the current availability of the insurance coverage. With regard
to why the take-up rates are so low, that is a very interesting
issue. I think we can only speculate. We have a number of
anecdotal pieces of evidence as to why people are not picking
up the coverage, but we want to get a more comprehensive view
and that is why we are engaging in our various surveys.
Mr. Serio. Again, maybe it is a mistake to call it a low
take-up rate. I think the take-up rate has been appropriate to
those who either feel they need it or want it. Some have been
very comfortable with the protections that are afforded in the
standard fire policy that has been on the market for years.
That does provide some terrorism coverage. But for those who
have a contractual obligation to have this all-risk coverage
need access to a terrorism risk coverage. That is what TRIA has
provided.
Going back to Mr. Scott's question, it is not just a
question of geography of those who may need it. It is not just
businesses in New York City, but there are some businesses in
New York who do not have it. But depending upon the nature of
the business they are in, if they were neighbors to that Army
base in greater Atlanta, they may well need access to coverage
because they do not have other market alternatives. It goes
both to the location of the risk, as well as to the nature of
the risk and where they are relative to other trophy or
sensitive locations, as they call them, that you want to make
sure they have equal access to insurance coverage as somebody
who is not in that type of sensitive location.
Mr. Hillman. I think that is important to not understate
the importance of TRIA being able to provide for terrorism
coverage for high-risk target properties. That is exactly what
the Act has done and it has been extremely successful from that
standpoint. Why other commercial policyholders are not
accepting terrorism insurance could be for a variety of
reasons. As the Assistant Secretary from Treasury said, we have
anecdotal information ourselves which suggests that they may
just perceive their overall risk exposure to be such that any
amount that they might pay might be too high.
Mr. Hensarling. My time is up. Thank you, Mr. Chairman.
Chairman Baker. I thank the gentleman.
Mr. Capuano?
Mr. Capuano. Thank you, Mr. Chairman.
Gentlemen, I am not going to repeat a lot of things that
have been said. We have had a lot of good questions and a lot
of good answers already. But Mr. Abernathy, I would like to
make sure that I understand what the law was when we passed it.
There is nothing in the law that I remember that says you
cannot make interim reports or other reports prior to the June
2005 deadline. Is that correct?
Mr. Abernathy. That is correct, sir.
Mr. Capuano. So there is nothing here that I am aware of
that would prohibit you or your agency from making
recommendations or taking actions today.
Mr. Abernathy. Nothing whatsoever.
Mr. Capuano. Okay. If that is the case, I feel the same
way, we all agree, I think, that business decisions will have
to be made before we have the answers to all of the questions
that have been asked today that no one can be expected to have
the answers to. Do we agree on that?
Mr. Abernathy. I think those types of business decisions
are made all the time. There is always an element of
uncertainty that you have to cope with.
Mr. Capuano. I agree with you. But with all the questions
that you are looking for answers for, which I do not disagree
with you, I think your approach to it on some levels is 100
percent correct. We would like to get as many answers as we can
before we make decisions. I totally agree. But there is no hope
of that before certain decisions relative to terrorism
insurance have to be made by the end of this year. Is that a
wrong assumption?
Mr. Abernathy. We are going to do our best to have a good
body of evidence that is focused on the specific ``make
available'' issue as soon as we possibly can. Fortunately, that
is a very narrow question and we are confident that we can get
enough information to make a reasonably sound decision well in
advance.
Mr. Capuano. Would you also be able to make available
information that is also tied directly to the existence or
extension of TRIA? Or do you think that they are two completely
separate issues?
Mr. Abernathy. They are not completely separate, because as
we make that decision with regard to ``make available,'' the
Act says we are to look at the same factors that we are
supposed to evaluate in connection with the June 2005 report.
Mr. Capuano. Okay. So there is a fair amount of overlap
both in your provisions and into the business decisions that
have to be made by insurers and people who are looking to buy
insurance.
Mr. Abernathy. There is some overlap, but again the ``make
available'' decision is a very narrow decision, and whatever
that decision is I do not think should be seen as in any way
suggesting what recommendations we might make next year.
Mr. Capuano. Okay, fair enough. I think we just disagree,
because I would argue that there is a lot more overlap relative
to business decisions that have to be made than you seem to
agree. But that is fair enough. At least there is some, we
agree with that.
All that being said, I have been actually happily surprised
at the general consensus that I have heard today by the members
of the committee that we are all in agreement that we have to
head towards extending this provision. I would have to agree
with some of the concerns that were made that I am not sure
that I want this permanent. I am not so sure that I like all
the provisions. I am sure I do not like all the provisions that
are there. But I also am not sure that it is time to tinker
with it because we have so many questions that are left
unanswered. If we tinker with it, you skew the answers and
maybe changing something that you do not want to change, et
cetera, et cetera.
So I would urge you in your agency to look at this a little
bit more quickly and to take back what you have heard here
today that we went ahead on a general consensus, again not by a
vote, but a general consensus is I think it is fair to say that
we want to head towards extending TRIA for at least a year,
maybe longer, not because we love every aspect of it. We still
have questions and concerns, and I think we will have some
serious disagreement when the time comes because we do not have
the answers to those questions.
I would particularly urge you, though I know that your
agency would never be influenced by politics, it is an election
year, and not that those things would ever have an influence on
a decision such as this, but in an election year when you have
a bipartisan consensus, take advantage of it. All the things
can be lining up to get this thing done reasonably smoothly so
that we can get to the arguments.
I do think that there will be a time for us to have these
discussions and arguments and I hope it will be next year, if
you want the truth, but I think it is important that we get
beyond all the internal problems we have, allow people to make
business decisions so it will give people like you and us the
time to make thoughtful reads of the information we get, maybe
a lot of the information, as you know, will lead to more
questions that we will have to search out.
I look at a consensus here. I look at the fact that the Sox
just beat the Yankees six out of seven, and I have to tell
you----
Unknown. Mr. Chairman, Mr. Chairman. Could we get back to
the subject at hand, Mr. Chairman?
[Laughter.]
Mr. Capuano. It just tells me that everything is lined up
right.
[Laughter.]
And if everything is lined up right, we should take
advantage of it.
Unknown. I object, Mr. Chairman.
[Laughter.]
Mr. Capuano. Thank you, Mr. Chairman. I yield back.
Chairman Baker. Mr. Capuano, that is y'all's problem.
[Laughter.]
Mr. Royce?
Mr. Capuano. Mr. Chairman, could I get a translation of
that ``y'all'' thing?
[Laughter.]
Chairman Baker. It would take longer than you have for me
to explain.
[Laughter.]
Mr. Royce?
Mr. Royce. Thank you, Chairman Baker.
Unfortunately, I believe that we are in the beginning
stages of a very long and protracted war against radical
terrorists of the Wahabi sect, of the most extreme branch of a
sect that are very nihilistic in terms of how they are going to
conduct a war that they have declared, basically. I think it is
critical that we think about how our economy and about how our
financial system deals and prepares for such a reality over the
long term.
The marketplace should and can be one of the greatest tools
in mitigating our country's vulnerability to damaging terrorist
attacks. By and large, I think the behavior in the market is
rational. As a result, participants will make financial
decisions based upon their expectations of a risk-weighted
return. If the marketplace truly believes it would bear the
brunt of losses due to terrorism, would it take some necessary
precautions to limit downside risks over the long haul? In
other words, maybe firms would strategically locate offices in
various locations, instead of in one high-risk location.
Terrorism is a terrible problem we face, but we should not
ignore its effects. I think the value of some assets change as
a result of the threat of terrorism. Less attractive assets
such as high-profile assets probably are going to have less
value. Many I think out in the market probably see more value
in technology firms producing homeland security products and
services. So the marketplace can force society to better
prepare and defend against terrorism if we are looking at this
over the long haul.
If Congress were to reauthorize TRIA, would it be signaling
to the market that business could continue as usual? Is this an
acceptable outcome? Congress would be inviting moral hazard
through adverse selection. Behavior would change as a result of
the taxpayer backstopping losses that this legislation, if it
is permanent, would constitute.
At the time of its creation, I believed that some form of a
federally guaranteed insurance backstop for terrorism was an
acceptable step. It was. Today, however, by extending this,
would we signal permanence? In the long run, would this create
serious distortions in the economy and would it basically,
looking out over time, assuming the premise is right that this
is a 20-year struggle, would it increase our vulnerability to
terrorism? Could this harm our ability to absorb economic
shocks over the next 20 years, resulting from an attack?
I appreciate that this subject presents many, many
problems. I know there are no easy answers to this. But Mr.
Abernathy, those are just some of the thoughts that I have as I
try to contemplate what is in store for us over the next
generation. But getting back to a question to you, are you
concerned that extending TRIA could create the perception of a
permanent government backstop? And could that create
distortions in the marketplace?
Mr. Abernathy. I think all who stepped forward to create
the very program that we have now carried with them the concern
that by creating this federal program, are we creating some
sort of moral hazard that will remove some of the motivation
that people have to mitigate some of the risks that they have.
We have certainly seen that with regard to the flood insurance
program. We have gone through reform after reform to try to
increase the incentive to mitigate the risk from flood
insurance and there are continual concerns that people are
still acting in ways that would be different if they did not
have a federal flood insurance backstop program. That was the
concern I think that everybody had when we were going forward
with this Terrorism Risk Insurance. Are we taking away some of
the incentive that people may have to mitigate their risks?
We take comfort that the Act as written makes it very clear
that this is a temporary program. It is structured as a
temporary program. When people come and present their various
ideas for extending this or that aspect of the program, one of
the questions that needs to be asked is, does the extension
contemplate continuing along that glide-path that removes the
federal government out of that or do you level off that glide-
path?
I do not know what the answer is to that, frankly, because
the discussions are continuing. But usually when I put that
question to people, they do not have an answer. The last time I
put it to someone, they said, well frankly, we think that the
federal reinsurance is too little at this point. We think year
two is too stingy in terms of federal support. So I do not know
what the answer is to that question other than it is a
continual risk that we have to work against.
Mr. Royce. Thank you, Mr. Abernathy.
Thank you, Mr. Chairman.
Chairman Baker. I thank the gentleman.
Mr. Miller?
Mr. Miller of North Carolina. I apologize for getting here
late and I do not know what kind of questions you may have
answered before I got here, but Mr. Abernathy you talked for a
moment about the two statutory analyses required for the
Department of Treasury to extend TRIA to group life insurance.
Mr. Abernathy. Yes, sir.
Mr. Miller of North Carolina. You said that Treasury's
analysis was that there was a ready supply still of primary
group life coverage, although there was not an adequate and
affordable catastrophic reinsurance.
Mr. Abernathy. That is correct. That was our finding.
Mr. Miller of North Carolina. So there was one step
satisfied, one of the criteria satisfied, and not the other,
and the statute requires that both be satisfied.
Mr. Abernathy. That is right.
Mr. Miller of North Carolina. I am curious as to the effect
of the lack of availability of catastrophic reinsurance. Are
insurance regulators who are charged with concerns for solvency
looking at the possibility of catastrophic loss and the effect
it might have on group life insurance?
Mr. Abernathy. I am not sure I understand the question,
Congressman.
Mr. Miller of North Carolina. Solvency concerns are usually
by the states.
Mr. Abernathy. Yes, that is right.
Mr. Miller of North Carolina. Do you know if the regulators
who are concerned with solvency are looking at the possibility
now of catastrophic losses and effect they might have on the
solvency of primary group life coverage?
Mr. Abernathy. I do not have any primary evidence or
information on that. I would defer to Mr. Serio about that and
his colleagues.
Mr. Miller of North Carolina. Okay.
Mr. Serio. Yes, we are in fact looking at that. That is
what has given us so much concern about the decision. The group
life industry's ability to continue to provide primary coverage
was good. It shows you the internal strength of the life
insurance industry, but it is putting that capital at risk for
an extraordinary event like the terrorist event that has a
large number of casualties.
That would be putting a lot of that capital at risk, and
that does concern the financial regulators, which is why we
have been promoting the idea, along with many of you here
today, of including group life in it simply because without the
reinsurance they are essentially assuming that risk themselves.
They are keeping that risk and retaining that themselves as
opposed to being given an opportunity to spread that risk like
most other lines of insurance do. That is why it is critical
that that be a part of the TRIA program.
Mr. Miller of North Carolina. Okay. I am sorry. You are
concerned about potential effect on solvency and also the
ability to pay claims?
Mr. Serio. Sure. Given the fact that it is so hard to make
estimates as to what a possible size of an event might be or an
impact might be, the whole point of the TRIA Act was to provide
that definitive backstop on property-casualty, to evaluate its
impact and possible benefit to group life. We think it is a
necessary and appropriate backstop so we do not get into that
question, of where you do have an event that had a significant
life loss.
Group life has the same concentration of risk character
that worker compensation has. That is what has given us so much
concern about this, that you will have thousands of lives in
one location that this could be affected at once.
Mr. Miller of North Carolina. Okay. Is the concern that
your Department has shared by the primary group life insurers
themselves?
Mr. Serio. We have in fact been in significant discussion
with them. The NAIC commissioners have been very concerned
about it. We have discussed it with them and they are
concerned. The industry is concerned about not having been
included within the TRIA provisions.
Mr. Miller of North Carolina. Okay. Do you favor, then,
changing the statutory criteria so it no longer requires that
both criteria be met to include group life insurance in TRIA?
Mr. Serio. I think to clarify those provisions to get TRIA
back to its original purpose of being that reinsurance backstop
I think would be adequate for including group life in any
clarification, and the statutory language would go a long way
to that.
Mr. Miller of North Carolina. Thank you.
Chairman Baker. I thank the gentleman.
Mr. Shays?
Mr. Shays. Thank you all very much.
I want to just say that I disagree with Mr. Kanjorski's
interpretation of the Administration's participation in this
effort. I obviously was very concerned about this issue, being
from one of the financial capitals of the world, the Fairfield
County, New York area, with lots of reinsurers and so on. I
felt the Administration was paying a tremendous amount of
attention to this issue.
I also do not believe that trying to deal with tort reform
has a political purpose. I think it is just essential that
ultimately we deal with that issue, but I realize it related
primarily to the issue of terrorism and tort reform, et cetera.
I want to be as clear as I can be, and I have a number of
questions, but I believe Mr. Serio says we need to continue
this, but we need to have the government and the insurance
industry work this out. That is basically, I sense, the
position of GAO.
Mr. Hillman. Our view is that it is important to look at
alternatives as soon as possible because we see no viable
alternative coming forth from the industry itself.
Mr. Shays. Right. And from New York we hear basically let's
continue this, at least in the short run.
Mr. Serio. Right. That is correct.
Mr. Shays. And from Treasury, I am getting an Alan
Greenspan kind of answer. I am a little unclear. I get a sense
you do not want it to be permanent, and you are kind of a
little neutral here and we have to work it out.
Mr. Abernathy. We are trying to operate within the
parameters that the statute sets forward. The statute declares
in a multitude of places that this is a temporary program with
a glide-path----
Mr. Shays. But you are not speaking definitively.
Mr. Abernathy. No, we are.
Mr. Shays. You are kind of still trying to sort this out
yourselves.
Mr. Abernathy. That is correct, because the statute also
says we should consider what should take place after 2005.
Mr. Shays. Right. I know what the statute says, but I also
know the Administration has opinions----
Mr. Abernathy. Yes.
Mr. Shays.--and has never been electing to show them, as it
should not.
Let me see, on GAO's statement basically it says, in
summary it appears the Congress's first objective in creating
TRIA was to ensure that business activity did not materially
suffer from a lack of available terrorism insurance largely has
been achieved. I agree with that. Then you say, while TRIA, on
page three actually, has improved the availability of terrorism
insurance particularly for high-risk properties in major
metropolitan areas, most commercial policyholders are not
buying the coverage. That interests me because I was told
basically, and this speaks to why we need to continue to debate
this issue, that the whole marketplace would literally fall
apart; that new buildings would not be built; existing
buildings would not get refinanced because there was no
terrorism insurance available.
So explain to me how we are able to see so many not have to
buy the terrorism insurance and still get the financing they
need.
Mr. Hillman. That was an interesting outcome of our study
as well, Congressman. It seems that perhaps most folks view
their risk exposure to be so low that almost any price that
they might have to pay for terrorism insurance would be too
high.
Mr. Shays. Right. But I thought that those financing
buildings, the banking community, would have demanded it. What
that implies is the banking community did not demand it. Maybe
Mr. Abernathy would speak to this.
Mr. Abernathy. I think the financing community, bankers or
others who are providing funding for economic development
projects are making those same sorts of assessments. In some
cases where they believe there might be a significant terrorism
risk because of the trophy nature of the project or where it
may be located, they are looking to whether or not there is
availability of insurance being applied. In other cases where
they believe the risk is low or nonexistent, they are not
demanding that there be that kind of coverage.
Mr. Shays. Is that somewhat a surprise to you? It is
logical in hindsight, but is it surprising?
Mr. Abernathy. It is a surprise in the sense that we did
not predict that before we got into the program. I do not know
that we knew what to expect would be the market reaction.
Mr. Shays. Let me ask another question. I always had
anticipated that this would not be permanent, but that we would
basically allow a hand-off that there would be a building up of
reserves by the insurance industry and therefore be able to
deal with it through their own capabilities. But I am being
told that they have not built up their reserves. I need that
explained to me.
Mr. Serio. Yes, this really goes to what happened as we
came out of 9-11. When you have $40 billion in losses mostly
paid within an 18-month period, still some left outstanding,
you had a serious drain on the reserves in the capital of the
marketplace. There are a number of estimates as to how much of
the total commercial property-casualty market was absorbed by
9-11.
There are a couple of different ways to regain capital:
investment income, the development of surpluses, a whole
pulling back on writing new business, and rates. Frankly, they
have had to go and replenish their rate structure or their
reserves through rate alone, and that is why you have such
pressure to raise rates.
Mr. Shays. I realize my light is out, so rates went up for
non-terrorist coverage?
Mr. Serio. Rates went up across the board. Absolutely.
Mr. Shays. Unrelated to terrorism coverage.
Mr. Serio. That is correct, and related to terrorism
because of the need to replenish that capacity. What we are
suggesting is that if you give the industry an opportunity to
create some ability to have catastrophe capacity in hand, you
do not have that whipsaw effect on the market going forward
after an event has occurred. Whether you are talking about a
terrorism event or any other kind of catastrophic event, there
is always a need to be able to replenish those reserves, unless
you are allowed to maintain them on hand. What we are
suggesting is that more should be allowed to be held on hand
for those types of events.
Mr. Shays. Could I have a quick follow-up? It will be very
short. I just need to be clear. Are we basically saying that
companies that are not required, who are not buying terrorism
insurance, then will not be covered for a terrorist act? That
now there is written in the policy, you have no coverage for
terrorism?
Mr. Serio. It depends on where you are. There are some
policies in some states that have general terrorism exclusions,
particularly on domestic terrorism which is not covered by
TRIA. There are others. I mentioned earlier the standard fire
policy provides coverage for terrorism if it results in a fire
type of loss. That terrorism will in fact be covered, but there
are policies that do exclude terrorism.
Mr. Shays. Thank you, Mr. Chairman.
Chairman Baker. I thank the gentleman.
Ms. Velazquez?
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Hillman, in the event of a terrorist attack by a non-
foreign-based group, TRIA will not apply. Is there any evidence
that the private market, and I know that Mr. Serio just touched
on this, but I would like you to explain it more. Is there any
evidence that the private market is offering coverage for acts
of domestic terrorism?
Mr. Hillman. To some extent in a limited degree insurance
is being made available for those types of in-country events.
Ms. Velazquez. Mr. Serio, would you like to comment on
that?
Mr. Serio. We are seeing that it really depends upon the
risk and the location of the risk, where there is some coverage
being provided. That all-risk coverage has been provided. I
think, in fact, TRIA probably has provided some relief by
giving a backstop for international or foreign terrorism risks,
and provided some capacity relief so that domestic coverage
could be maintained.
Ms. Velazquez. Mr. Abernathy, I also understand that many
insurers are excluding coverage for certain types of terrorist
attacks. In the event of a nuclear, chemical or biological
attack by a foreign interest, would losses generally be covered
by TRIA?
Mr. Abernathy. They would be covered by TRIA, but we have
left it up to the various states to determine whether or not
those particular events can be excluded. In the administration
of the Act, we have relied as much as we possibly can upon the
state regulators. Where states allow those exclusions, we do
not supersede that local decision.
Ms. Velazquez. Thank you.
Mr. Serio, given the variety of means in which property
damage could be inflicted during a terrorist attack, are you
seeing insurers in New York State offering insurance products
that will carve out certain types of terrorist attacks? If so,
what types and why is this happening?
Mr. Serio. They have tried. I am not sure we have allowed
it. We have allowed some exclusions in New York, but only so
much that they are already being covered by TRIA. So yes, the
carriers have come in. They have made application for
exclusions on certain types of hazards, nuclear among others.
Ms. Velazquez. And there is an intervention on your part,
your office?
Mr. Serio. Thank you for your patience. If a policyholder
wants coverage through TRIA, they have to be afforded that
opportunity to have it. Okay? The exclusion is only essentially
on a make available basis as well. They can essentially deny
the coverage or a policyholder can pass on the coverage, if you
will. So in that case, an exclusion will be allowed. But again,
it is at the buyer's discretion, not at the company's
discretion.
Ms. Velazquez. Thank you.
Mr. Hillman, I understand that the take-up rates of
terrorism insurance have been low. Could you discuss whether
the size of the business appears to be a determinant on whether
it purchases terrorism insurance. For instance, are smaller
businesses more or less likely to purchase this insurance than
larger firms?
Mr. Hillman. We have limited information on why the take-up
rate is as low as it is, but it does have an awful lot to do
with the extent to which you see a tremendous risk from a
geographical location standpoint, from a concentration
standpoint, as to whether or not policyholders find themselves
having to provide that coverage and, as we discussed, whether
or not financiers are willing to provide funds for developments
and the like.
Ms. Velazquez. Okay. Thank you, Mr. Chairman.
Chairman Baker. I thank the gentlelady.
Ms. Maloney?
Mrs. Maloney. Thank you so much, Mr. Chairman and Mr.
Kanjorski for holding this hearing on truly one of the most
important issues, I believe, before this body. I certainly join
with all of my colleagues in representing from my home state,
and applauding his testimony today, Superintendent of Insurance
Greg Serio. He is a major leader in our own state, and actually
has been a national leader by the amount of time that you have
been willing to come to Congress and speak across the country
on this. On behalf of my constituents, I thank you very, very
much.
I just want to say that after 9-11 I have never seen this
Congress so bipartisan. We came together. We passed a whole
series of legislation reacting to the disaster. All of the
initiatives were tremendously important. But the bill that has
the most significant long-term recovery, the biggest impact on
New York City's economy, the site of the terrorist attack, was
terrorism insurance. You can ask any professional, any
business, any person. Most professionals, most people, most
people working at ground zero, everyone believes that this
legislation is truly the economic stimulus bill for the New
York region.
We could not move forward until we could get this insurance
for our contractors, our legislators. I really compliment very
much GAO, and I have in my testimony many of the examples that
you had in that excellent report that you did, that showed the
vital, vital need for this.
I am very proud to have been part of a letter that 30
Democratic members of this committee signed urging Treasury to
extend the ``make available'' provisions of TRIA as soon as
possible so that the insurers and consumers will know whether
coverage will be available next year.
This is very, very important. We need it now. We need a
confirmation that this is going forward, and we need it as soon
as possible so that we do not experience another period where
the construction cranes are on mothballs and the workers are
not called to be at the job sites. It is absolutely critical. I
applaud every member of Congress that supported it in a
bipartisan way, and the President. I urge him to show some
leadership for the country and the city and other targeted
areas that have suffered and those that are threatened by
terrorist attack. We cannot wait for the study in six months.
We really need it now. Maybe we need another GAO study right
away.
I just read one report that the original TRIA and the
effort to extend it have been opposed by some consumer groups.
I found this very, very unusual, because I have a great
admiration for the Consumer Federation of America. My
understanding is that this consumer group, a group that I
regard very highly, has done an analysis where they use a model
that quantifies possible future terrorist attacks, putting
their likelihood at occurring every 6.9 years at a cost of $40
billion each. I just want to ask if anyone if familiar with
this model, what do you think of this model that was done by
the Consumer Federation. I would like to know, have private
insurance companies been able to come up with models that can
be used to underwrite future attacks?
All I can tell you is the City of New York's economic
development office, the Mayor's office, the individual
insurers, businesses, everyone said they could not do anything
until they got the reinsurance program passed. Building did not
start because people could not get insurance. If you could get
it, it jumped 20, 30, 40, 50 percent, which is terribly,
terribly unfair.
I heard you testify earlier, Mr. Abernathy, that you are
not going to complete this study particularly fast. I think we
need it right away. I want to add that my district, I represent
New York, I lost 500 constituents in 9-11, including the former
Commissioner of, I cannot even talk about it, of Insurance for
New York. But my home workers were very affected by group life
insurance policies that also are part of this. And also in my
home state, we have many insurance companies that hold these
risks. I am interested in the issue, not only the group life
insurance issue, from both the insurer and the insuree
perspective.
I was wondering also, Mr. Abernathy, if you could comment
on the decision of Treasury not to include group life under
TRIA last year, and your thoughts for this market going
forward. So I would like those questions answered. Also, again,
I cannot compliment enough your statements, and I quoted many
of your statements in my opening statement which I would like
to put in the record.
Thank you.
Mr. Abernathy. Yes, Congresswoman, I would be glad to
comment. I believe there are two areas you want me to talk
about, our group life decision and what our views are with
regard to going forward with regard to the Act overall.
With regard to group life, that was a decision that the
statute gave us that was very narrowly defined. The question
that the statute put before us is, Treasury should determine,
based upon the evidence, whether or not group life insurance,
primary insurance is available, and whether or not group life
reinsurance was available. The statute says if both are not
available, then we must include them under the program.
We consulted with people in the industry, with supervisors
around the nation, and the decision was pretty clear. There is
very little evidence that there is much, or at least at the
time of the decision, that there was much in the way of group
life reinsurance available. At the same time, there was very
little evidence that there had been any reduction in
availability of primary group life insurance. So the test under
the statute was not met, so we could not include them within
the program.
With regard to going forward, our view is that the statute,
while stating in many places that it is a temporary statute,
also makes it clear that we should evaluate how it is doing.
Not only how the Act is doing, but how is the marketplace
faring, and that we should, based upon what is going on on the
ground, make recommendations to the Congress no later than June
of next year on the variety of issues that are involved.
Frankly, the more we dig into this whole question, the more
questions we find. We find more questions than answers, but we
are going through a process that is trying to bring as much
information together so we can start answering some of those
questions.
Mrs. Maloney. GAO, you testified that the take-up rate is
only 10 to 30 percent. What steps might we take as a Congress
or as an insurance superintendent to increase this and thereby
spread the risk? I am surprised at that, but on the other hand
there are only a few areas that are the terrorist risk areas,
Chicago, New York, Washington, Detroit. These are the areas.
But if we do not have it in New York, I think Serio and others
can testify, you are not going to be able to build or do
anything. It will just kill our economy.
We have been called to a vote and I would like, Mr. Serio,
if you could answer the Consumer Federation question, and GAO,
I may have to run out before you can even answer it, to vote.
Chairman Baker. The gentlelady's time has expired. Mr.
Shays want to get something on the record as well.
Mrs. Maloney. Maybe he could answer in writing, if we do
not have time, because I think these are important questions.
Mr. Shays. Just a quick question. Thank you, Mr. Chairman.
The 10 to 30 percent in the GAO study, I realize I did not
ask a very needed question that was triggered by Ms. Maloney.
Are we seeing insurance at 60 or 70 percent in the greater New
York area and 5 percent elsewhere? How does it look
geographically?
Mr. Hillman. The several studies that looked at this issue
that we gathered information from did not provide specifics on
this, but it is clear from the studies that we did see that
there is a greater concentration of purchasing the insurance in
the Northeast area than in other parts of the country.
Mr. Shays. Could we ask GAO to tell us, to nail that down a
little better? It is very important.
Mrs. Maloney. Will the gentleman yield for half a second?
Mr. Shays. I yield.
Mrs. Maloney. What can we do to spread the risk?
I yield back.
Mr. Shays. That is another issue which I think you will
need to answer in writing as well. But I just need to know, are
we seeing a lot more terrorism insurance being written in the
Northeast, and if so how much.
Mr. Hillman. We can provide that information for the
record.
Mr. Shays. Thank you. I appreciate that.
Thank you, Mr. Chairman.
Chairman Baker. For general membership purposes, I have
been requested that we leave the hearing record open for at
least 30 days for exactly these purposes, to have additional
questions posed to our expert panel.
One thing I would like to get on the record which was not
discussed today, in response to concern about a permanent
reinsurance program, is the Act also has, and I recognize it is
conditioned, but there is a conditioned repayment obligation
which is unique to this particular extension of credit. The
view was that it was as a result of a catastrophic event, the
capital on hand may be impaired and that it would be a cyclical
problem that hopefully over time markets would rebuild and then
be able to face future obligations with more resiliency.
So that in essence, it is a short-term cash problem, and
that the United States government would step in to keep
economic function performing without interruption and advance
the capital necessary to get us by the window. But at such
future as the Treasury would determine that the industry had
recovered, and that there was an ability to repay the funds
advanced, with certain limitations on the premium increases
that could be assessed, taxpayer money could be regained at the
end of the day because we would not want to write a $10 billion
check from the United States Treasury and have the industry
show a $10 billion net profit. My constituents would understand
that pretty quickly.
So it is unique in that regard, and were we to extend it,
it would be my intent to make sure that that repayment
provision is also revisited to ensure it has the necessary
capabilities to be enforced in an appropriate window by
Treasury determination. I think that was important to add to
our consideration of this issue.
Having said that, we do have a vote pending. If there are
no further comments by our panelists, I want to thank you for
your time and participation. Each of you has helped
immeasurably in the committee's consideration of this difficult
issue.
Our meeting stands adjourned.
[Whereupon, at 12:03 p.m., the subcommittees adjourned.]
A P P E N D I X
April 28, 2004
[GRAPHIC] [TIFF OMITTED] 95263.001