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Filling the terror cover gap when Congress failed to act

Filling the terror cover gap when Congress failed to act

Terrorism insurance is a key component of Silverstein Properties Inc.'s risk management program.

The company owned the original World Trade Center that fell in the terrorist attacks of Sept. 11, 2001. Not surprisingly, Silverstein has been a major advocate for the federal government's terrorism insurance backstop, which was created by the Terrorism Risk Insurance Act of 2002.

Shari Natovitz, Silverstein's senior vice president and director of risk management, said she and the company took an active role in working with Congress and others to extend the program — which is commonly known as TRIA — during its most recent reauthorization in 2015. The program was slated to expire on Dec. 31, 2014, unless specifically reauthorized.

“Everyone in our company was involved and aware of the potential impacts if TRIA was not reauthorized,” said Ms. Natovitz. “We were committed to supporting our trade organizations, which were lobbying and educating Congress. We were working individually with our representatives. Our asset management department established an ongoing dialogue with investors and lenders.”

She took steps to help ensure that Silverstein would not be caught in a bad position if lawmakers did not renew it by its scheduled sunset.

She said that in 2013, when Silverstein's property/casualty coverage renewed, the company expanded the terms to expire in September 2015 to make sure that it had reinsurance commitments.

Ms. Natovitz said that the company's broker — Willis of New York Inc., which is now Willis Towers Watson P.L.C. — “incorporated a provision for the reinsurance which had a 15% vertical limit at the time to flip and becomes 100% primary. Of course, there was a significant price tag with that.”

She said that the company's reinsurance had cost anywhere from $2,500 per million dollars of limit purchased to $4,500 per million dollars of limit depending on the location. “When we flipped to direct primary, the cost ranged from $10,000 per million to $30,000 per million,” she said.

“That was our pre-12/16 organization in terms of a strategy plan,” said Ms. Natovitz, noting that Dec. 16, 2014, was the day the Senate adjourned without renewing the program. But as the end of the year — and the sunset for TRIA — approached, “we began to prepare for the possibility that we would have to purchase additional limits, so our next step was identifying in each of our lender agreements what our buying requirements were in regard to terrorism coverage. Sometimes they were capped by an individual limit; more often the agreement had a spending cap/requirement.”

Although the Senate adjourned in mid-December 2014 without passing the reauthorization bill because a single senator — former Sen. Tom Coburn, R-Okla. — managed to block it, congressional leaders promised that passing the measure would be a top priority when Congress reconvened in January 2015.

Silverstein attempted to secure a 30-day waiver from its lenders before purchasing temporary additional limits, as “we all believed Congress would reauthorize TRIA,” said Ms. Natovitz. But because of the complexity of many of the lending agreements, that wasn't always possible.

“After investing almost a week in attempting to get those waivers, we were receiving indications that capacity was being drawn out of the marketplace and on Dec. 28 made the decision that we would have to buy up to our spending caps to satisfy the lending agreement to secure as much coverage as was reasonably available in the market,” she said. The buying process continued through Dec. 31.

As Ms. Natovitz puts it, her brokers don't remember much about Christmas and New Year's as they scrambled to ensure that Silverstein Properties would have adequate terrorism insurance cover in the absence of the federal guarantee.

“Willis was phenomenal,” she said. “They did an extraordinary job.

“It was very complicated to put that together for all of the buildings,” said Ms. Natovitz. “It wasn't just about the placement, it was about communicating with the investors, who would have to bear the cost, and lenders who were concerned about the actual insurance in place.”

Although the 12 days in December cost Silverstein “several million dollars” because of minimum additional premium, Ms. Natovitz said the firm considers the efforts made to bridge the time period a success for Silverstein and risk management for two reasons.

“We satisfied our lenders and investors we were doing the most appropriate things for buildings that were under our management,” Ms. Natovitz said. “Secondly, as a result, when TRIA was reinstated, we did not reinstate the two single property captives, we added them” to the Silverstein Properties Insurance Co. captive, which, she said, “created a much better coverage platform for those individual buildings and created cost efficiencies for all of the buildings.”

And congressional leaders kept their word. Reauthorization of TRIA was the first item on the 2015 legislative calendar, and President Barack Obama signed the bill extending the program through 2020 into law on Jan. 12, 2015.

“When the program was reauthorized after a 12-day gap, we undid the temporary measures in place and reorganized our captives to ensure more robustness should this happen again,” Ms. Natovitz said.

“We were relieved,” she said, but the delay did cost Silverstein and Willis “days of manpower” as well as adding to Silverstein's insurance premium cost.

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