Tags: Senate | terror | insurance | bank

Insurance Industry Wins at Senate Banking

By    |   Tuesday, 10 June 2014 07:57 AM

On June 3, the Senate Banking Committee voted unanimously to report favorably S. 2244, the Terrorism Risk Insurance Program Reauthorization Act of 2014, which reauthorizes the existing Act for an additional seven years. The vote represents a compromise between critics who believe the industry should have done more to wean itself from what was supposed to be a temporary program when it was enacted in 2002, and the industry and real estate lobbies, which campaigned for the longest possible extension, at least 10 years and preferably a permanent extension.

Before the attacks of 9/11, terrorism risk was included in property and casualty policies as a freebie. After that event, someone was going to have to pay for losses that could reach tens of billions of dollars, and the default underwriter would be the U.S. government, just as it later proved to be for the "too big to fail" banks. This writer attended the meeting where the original version was approved and heard a leading lobbyist for the American Insurance Association exclaim with delight: "We might not have to pay it back!" She was referring to the temporary backstop the government would provide in the immediate aftermath of a massive terrorism event.

Rather than use the temporary program as a means of figuring out how to develop a workable terrorism policy, the industry used it to perfect its arguments for a permanent program. In the debate over this bill, the industry's creativity had reached the point of brazenly contending that since the government was ultimately going to pay for such a big event anyway, the industry was doing the country a favor by agreeing to absorb an agreed-upon amount. Under S. 2244, that amount will be $22.7 billion, and the industry's co-pay for amounts over that threshold is to increase gradually from 15 percent to 20 percent.

Critics such as Sen. Tom Coburn, R-Okla., have called on the industry to charge a premium before the event in order to cushion the burden on taxpayers, but instead it got away with a plan akin to what the banks have achieved through the Dodd-Frank Act of supposedly recovering the cost of the bailout from whoever's left standing after the fact. Coburn admonished the committee that everyone knows this provision would not be enforced, and he is urging the Senate to develop a more realistic plan for consideration on the Senate floor.

Whenever this bill is brought up by the full Senate, it is certain to pass. Therefore, an executive session of the committee tends to call forth ideas for amendments that can be tacked on when the bill comes up on the floor. Also, under Senate rules — or lack of rules — these amendments do not have to relate to the bill to which they will be attached. Here are some examples that were discussed by Senators at this meeting:
  • Fed Board composition. Sen. David Vitter, R-La., has been making presentations before the committee to document that the membership of the Federal Reserve Board tends to over-represent Eastern, metropolitan banks. He plans to propose an amendment requiring that at least one Federal Reserve governor have a background in community banking.
  • Insurance industry capital. In yet another victory for the insurance industry, Sens. Mike Johanns, R-Neb., and Sherrod Brown, D-Ohio, have called on the Fed to interpret capital rules mandated by the Collins amendment to Dodd-Frank so that they will not apply bank-like rules to the insurance industry. The Fed has insisted it lacks the authority to make this accommodation; this amendment would provide the authority.
  • Exempt end users from margin. Dodd-Frank provides that so-called end users of derivatives who use them to hedge their operations are exempt from having to put up margin to support these positions. The Johanns amendment would require the regulators, principally the Commodity Futures Trading Commission to implement this exemption.
(The Senate press release can be found here.)

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On June 3, the Senate Banking Committee voted unanimously to report favorably S. 2244, the Terrorism Risk Insurance Program Reauthorization Act of 2014, which reauthorizes the existing Act for an additional seven years.
Senate, terror, insurance, bank
Tuesday, 10 June 2014 07:57 AM
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