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Terror cover report is good news, bad news


IT COULD CERTAINLY have been worse. The President's Working Group on Financial Markets could have bluntly recommended that the federal terrorism insurance backstop be permitted to expire on Dec. 31, 2007. Fortunately, the group's much-anticipated report on the terrorism insurance marketplace stopped short of doing so, and for that risk managers and insurers alike can breathe at least a temporary sigh of relief.

Yet, while admitting that the program created by the Terrorism Risk Insurance Act has been a success in many ways, the report still inexplicably holds that the mere existence of the program somehow has crowded out a private reinsurance market for terrorism risk.

We find it hard to believe anyone could say that. Until Congress enacted TRIA in late 2002, there was no private market for terrorism reinsurance to speak of, and even now, there's not much of one--a mere $6 billion to $8 billion for an exposure in which a single event can wreak tens of billions of dollars of insured damage.

In fact, we believe the report has it backwards. It is the backstop that created such a market as there is. The knowledge that there is as much as $100 billion in federally backed--and repayable--guarantees has allowed insurers to write terrorism coverage. Rather than crowd out a market, the TRIA-created backstop allowed a primary market to flourish.

We wish the working group had acknowledged more forcefully the necessity of having a backstop in place. It's up to the new Congress to waste no time in assuring that a long-term solution to the problem of terrorism insurance is implemented as early next year as possible.