Terrorism Risk Insurance Act Extended Through 2020
On January 13, 2015, President Barack Obama signed into law legislation extending the Terrorism Risk Insurance Act of 2002 (as amended, “TRIA”). Under this new legislation, TRIA has been extended until December 31, 2020, and the required aggregate losses needed to trigger the Federal government’s back-stop of the insurance industry’s losses due to an act of terrorism will increase over the six year extension period from the current $100 million threshold to $200 million. Also, insurers’ co-pay will increase from 15 percent to 20 percent over the six year extension period.
As highlighted in our August 2014 article, “Real Estate Industry Awaits Vote on Terrorism Risk Act Extension”, TRIA was originally passed by Congress in response to the inability of developers and owners to obtain terrorism insurance resulting from the insurance industry’s re-examination of its risk exposure following the September 11, 2001 terrorist attacks. Under TRIA, the federal government assumed the financial risk of a large portion of the losses incurred by insurance companies in excess of $100 million due to an act of terrorism. TRIA has been widely credited with stabilizing the market for terrorism insurance and, consequently the market for financing of commercial real estate, following 9/11.
The U.S. Senate voted to reauthorize TRIA for extension during the summer of 2014. However, the U.S. House of Representatives stood divided on whether to extend TRIA throughout the second half of 2014. In fact, as a result of typical politics and legislative wrangling, the program technically expired effective December 31, 2014. Throughout the process, the concerns of the real estate industry grew, fearing that the failure to extend TRIA could result in the market for terrorism insurance coming to a standstill, and, accordingly, destabilizing the finance ability of many real estate properties across the country.
With the extension of TRIA, the federal government has voted to continue to ensure stability in the market for lender-required terrorism insurance at economically viable rates. Fear averted.
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