CBO Paper: Federal Reinsurance for Terrorism Risks: Issues in Reauthorization   [open pdf - 468KB]

"The terrorist attacks of September 11, 2001, cost insurers of all types nearly $36 billion in insured losses, reducing both their financial ability and willingness to cover future acts of terrorism. Global reinsurers-private firms that purchase portions of the policies and premium income generated by other insurers-covered the majority of losses but subsequently limited the availability of that coverage sharply or priced it at such elevated rates that it was virtually unattainable. With the exit of private reinsurers from the marketplace and the reluctance of primary insurers to assume risk for acts of terrorism, the insurance industry began to show signs of disruption, which had the potential to reduce economic activity. In response to that market contraction, lawmakers passed the Terrorism Risk Insurance Act (TRIA) in November 2002. Intended as a temporary measure, the law was designed to help insurers recover from the economic shock of covering catastrophic losses and to give the industry time to develop more accurate ways of modeling terrorism risk. Another motivating factor was that the inability of private firms to obtain terrorism coverage seemed to exacerbate an already existing slowdown in the construction industry and a related loss of jobs. The TRIA program provided federal reinsurance to private insurers, increasing the availability of coverage and lowering the price of obtaining such coverage. Because the market disruption was expected to be short-lived, TRIA was set to expire at the end of calendar year 2005, and federal reinsurance was offered without charge."

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Listed on August 8, 2007 [Critical Releases]