Insurer profits may hinder TRIA extension

Property/casualty insurers' strong financial results in 2006 could hamper political discussions at the state and federal levels, said Greg Heidrich, senior vp of policy development and research for the Property Casualty Insurers Assn. of America in Des Plaines, Ill.

In Washington, the Terrorism Risk Insurance Act is facing expiration at the end of 2007, and several states are considering caps on personal lines rate increases, Mr. Heidrich said.

"Clearly, it's going to be a factor in a number of discussions. We're anticipating serious public policy discussions in a number of cat-prone states," he said.

If that happens, the industry will be prepared to educate lawmakers on why they should not raid the industry's coffers during good years, he said. "In a very cyclical industry, it is vital for companies to rebuild capital base if next year's storms are terrible," he said.

Mr. Heidrich said there could be dire consequences for insurance buyers if lawmakers decide not to reinstate TRIA.

"The good numbers are going to have an effect on public policy debate, and if you throw in one more uncertainty about the future of TRIA, it's going to make capital providers much less sure about where they will commit capital and where they have sufficient capital to write risks," Mr. Heidrich said

Mike Murray, assistant vp for financial analysis at the Jersey City, N.J.-based Insurance Services Office Inc., said it is important to reinstate TRIA as soon as possible because policies that are renewed in January could be affected.

"Because the current federal terrorism insurance backstop expires at the end of 2007, the issue will become important much sooner than that because policies typically have a one-year term. So that means that policies that are written towards the end of next month are already going to extend beyond the expiration of the current backstop," Mr. Murray said.