California Legislature—2013–14 Regular Session

Assembly Joint Resolution No. 34

Introduced by Assembly Member Cooley

February 13, 2014

Assembly Joint Resolution No. 34—Relative to Terrorism Risk Insurance.

LEGISLATIVE COUNSEL’S DIGEST

AJR 34, as introduced, Cooley. Terrorism risk insurance.

This measure would, among other things, urge the President and Congress of the United States to take action as soon as possible to extend the Terrorism Risk Insurance Program Reauthorization Act of 2007 to protect the California and national economies.

Fiscal committee: no.

WHEREAS, Insurance helps protect the California economy
from the adverse effects of the risks inherent in economic growth
and development while also providing the resources necessary to
rebuild physical and economic infrastructure, offers
indemnification for business disruption, and provides coverage
for medical and liability costs from injuries and loss of life in the
event of catastrophic losses to persons or property; and

WHEREAS, The terrorist attacks of September 11, 2001,
resulted in claims paid by insurers to their policyholders eventually
totaling some $32.5 billion, making this the second most costly
insurance event in United States history; and

WHEREAS, The sheer enormity of the loss, combined with the
possibility of future attacks, produced financial shockwaves that
shook insurance markets causing insurers and reinsurers to exclude
coverage arising from acts of terrorism from virtually all
commercial property and liability policies; and

WHEREAS, The lack of terrorism insurance contributed to a
paralysis in the state and national economies, especially in
construction, tourism, business travel, and real estate finance; and

WHEREAS, The United States Congress originally passed the
Terrorism Risk Insurance Act of 2002 (TRIA) (Public Law
107-297), in which the federal government partnered with
commercial property-casualty insurers on a shared loss program
that provided the certainty and stability needed to reestablish a
functional private market for terrorism risk insurance, and
reauthorized this arrangement through the Terrorism Risk
Extension Act of 2005 (Public Law 109-144) and the Terrorism
Risk Insurance Program Reauthorization Act of 2007 (TRIPRA)
(Public Law 110-160); and

WHEREAS, TRIPRA and its predecessors have fostered private
market participation, and therefore, have limited taxpayer exposure;
and

WHEREAS, Under TRIPRA the shared loss program is triggered
only after industrywide losses attributable to annual certified
terrorism events exceed $100 million; and

WHEREAS, Quota share coverage under TRIPRA is provided
to individual insurers after the insurer has incurred losses related
to terrorism equal to 20 percent of the insurer’s previous year
earned premium for property-casualty lines; and

WHEREAS, After an individual insurer has reached that
threshold, the insurer pays 15 percent of residual losses and the
federal government pays the remaining 85 percent; and

WHEREAS, The Terrorism Risk Insurance Program has an
annual cap of $100 billion of aggregate insured losses, beyond
which neither the federal government or commercial
property-casualty insurers have any responsibility for terrorism
losses for those insurance lines covered by TRIPRA; and

WHEREAS, Without question, TRIPRA and its predecessors
are the principal reason for the continued stability in the insurance
and reinsurance market for terrorism insurance to the benefit of
California’s economy; and

WHEREAS, Absent an extension by Congress, TRIPRA will
expire on December 31, 2014; and

WHEREAS, The National Association of Insurance
Commissioners (NAIC) has “not seen evidence that the insurance
marketplace is capable or willing to voluntarily take on a
substantial portion of the risk of providing coverage of acts of
terrorism”; and

WHEREAS, The threat of a large-scale terrorist attack in the
United States is still high and, according to experts, is concentrated
in five metropolitan areas nationwide with two of them, the San
Francisco and Los Angeles areas, in California; and

WHEREAS, Failure by Congress to extend TRIPRA would
likely result in insurers individually managing, and potentially
reducing, their exposure to terrorism risk, and according to Fitch
Ratings, failure to extend TRIPRA “could induce commercial
insurers to retreat from larger metropolitan areas, reducing
availability of coverage and raising premiums”; and

WHEREAS, Without adequate terrorism insurance coverage,
banks will not extend loans for commercial transactions, such as
mortgages, construction projects, and other capital-intensive
initiatives; and

WHEREAS, The lack of private terrorism insurance to cover
losses from future terrorist attacks may require the federal
government to cover those losses without the benefit of the private
market share of losses established under TRIPRA; and

WHEREAS, Without the encouragement of private market
participation established by TRIPRA, a limited availability of
insurance against terrorism would have a severe adverse effect on
California’s economy as financiers might be reluctant to lend,
businesses might be reluctant to invest, and commercial consumers
might be unable to afford insurance in the state’s major population
centers; now, therefore, be it

Resolved by the Assembly and the Senate of the State of
California, jointly, That we urge the President and the Congress
of the United States to support a long-term extension of TRIPRA;
and be it further

Resolved, That we urge the President and the Congress of the
United States to take action as soon as possible to extend TRIPRA;
and be it further

Resolved, That the Chief Clerk of the Assembly transmit copies
of this resolution to the President and Vice President of the United
States, to the Speaker of the House of Representatives, to the
Majority Leader of the Senate, and to each Senator and
Representative from the State of California in the Congress of the
United States.