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April 18, 2014

CAPITAL & CREDIT / TERRORISM INSURANCE
New TRIA Reports from President’s Working Group, Insurance Broker Marsh; Smaller Firms Boost Terrorism Coverage in the Wake of Boston Bombings; Cities Fret About Future Ability to Manage Terrorism Risk

CAPITAL & CREDIT / U.S. ECONOMY
Yellen Reassures Markets With “Dovish” Interest Rate Stance, Amid Ongoing Labor Market Weakness, Low Inflation; Greenspan, White House Economist to Address Roundtable Meeting


CAPITAL & CREDIT / TERRORISM INSURANCE

New TRIA Reports from President’s Working Group, Insurance Broker Marsh; Smaller Firms Boost Terrorism Coverage in the Wake of Boston Bombings; Cities Fret About Future Ability to Manage Terrorism Risk  

2014_04_17 TRIA PWG cover

Read the key findings of The President’s Working Group on Financial Markets (PWG) in a report to Congress yesterday on TRIA

The private market for terrorism insurance is “tightening” amid uncertainty over the scheduled expiration of the Terrorism Risk Insurance  Act (TRIA), and “does not have the capacity to provide reinsurance for terrorism risk to the extent currently provided by TRIA.”  These were among the key findings of The President’s Working Group on Financial Markets (PWG) in a report to Congress yesterday regarding the long-term availability and affordability of terrorism insurance (earlier reports came out in 2006 and 2010).

The report was produced with input from a variety of stakeholders, including terrorism insurance consumers/ policyholders, reinsurers, and regulators at the state and national levels. [See Sept. 16, 2013 comment letter to the PWG from The Real Estate Roundtable and its partners in the Coalition to Insure Against Terrorism (CIAT).]

If TRIA is not reauthorized before its Dec. 31 sunset date, PWG wrote, terrorism risk insurance will become less available and more expensive, and coverage will become more limited.

At National Journal’s latest “TRIA Triage” event on Monday, Rep. Randy Hultgren (R-IL) spoke of the uncertainty already plaguing private terrorism insurance markets in advance of the law’s expiration at year-end.

“We hear a lot that [TRIA] doesn’t expire until the end of December. In reality, people are making decisions now on new projects,” Hultgren said at Monday’s forum, which was underwritten by Zurich Insurance Group. “It doesn’t help us at all to get closer to that date” (National Journal, April 15).

Jeff DeBoer TRIA_Triage_294

Roundtable President and CEO DeBoer, left, has made a new grass-roots appeal to Roundtable members to "write, call or tweet" members of Congress to extend TRIA.

Hultgren also alluded to the difficulty of modeling and pricing for terrorism risk, noting, “The uniqueness of this, the risk of this, the uncertainty is unlike everything else.”

Roundtable President and CEO Jeffrey DeBoer made a similar point as a panelist at another “TRIA Triage” event this past fall — and in a new grass-roots appeal to Roundtable members last week (Roundtable Weekly, April 11). Speaking at National Journal’s Nov. 2013 forum, DeBoer said although the original 2002 law was intended to be temporary — a bridge to a time when reinsurers could return to the market place — insurers remain unable to effectively quantify and price the unique and catastrophic risks associated with terrorism (Roundtable Weekly, Nov. 29, 2013).

He also warned that insurers would begin to write exclusions into new policies — leading to potentially devastating gaps in coverage, forcing commercial real estate loans into technical default, and making it virtually impossible for property owners to obtain new credit (since loan covenants typically require terrorism coverage on the underlying collateral).

Cities Worry About Continued Ability to Manage Terrorism Risk

In a letter to the leadership of the Senate Banking and House Financial Services committees on Wednesday, the National League of Cities also warned of devastating gaps in coverage if TRIA is not extended in a timely manner.

 2014_04_16 TRIA image National League of Cities 

In a letter to the leadership of the Senate Banking and House Financial Services committees on Wednesday, the National League of Cities also warned of devastating gaps in coverage if TRIA is not extended in a timely manner.

“While TRIA is not set to expire until the end of the year, the renewal period for risk insurance for many  cities is quickly approaching,” the League stated in its April 16 letter.

“If Congress does not reauthorize TRIA soon, many cities could experience difficult negotiations, increased premiums and increased assumption of risk that they cannot afford. Without adequate terrorism insurance coverage, our cities’ economy, jobs, and well-being are put at risk by terrorists’ actions that are designed to undermine our economy and destroy our way of life.”

Boston Bombings Prompt Higher Take-Up Rates Among Smaller, Mid-Sized Businesses

One city still coming to grips with the issue of terrorism insurance is Boston, which this week marked the one-year anniversary of the tragic Boston Marathon bombings.

According to a Bloomberg report yesterday, many small and mid-sized businesses across the country that had previously never considered terrorism coverage are now carrying it — spurred by reports of broken windows, lost merchandise, and lost revenue facing businesses in the immediate vicinity of the 2013 blasts.

Among his 5,000 small and mid-sized customers, says Philip Edmundson of Boston-based national brokerage William Gallagher Associates, 80 percent now carry terrorism coverage — compared to 50 percent before the blasts.

“The Marathon attack changed the calculus,” Edmundson said. “It taught us terrorism is a risk to businesses of every scale and size.” The thinking now is, “Hey, this could happen to me,” he added.

The April 17 Bloomberg report cited a Roundtable survey — taken some 12-14 months after 9/11 — showing $15.5 billion of commercial real estate projects in 17 states either stalled or canceled as lenders shunned assets that lacked terrorism coverage.

TRIAMarsh CIAT TRIA event Image

Insurance broker Marsh & McLennan Cos. will hold a TRIA forum on Capitol Hill this coming Tuesday , where it will unveil a new report on terrorism insurance take-up rates.

Roundtable’s Edward Walter to Participate in Capitol Hill Forum Next Week

Insurance broker Marsh & McLennan Cos. will hold a TRIA forum on Capitol Hill this coming Tuesday, where it  unveil a report showing increased terrorism insurance take-up rates among mid-sized and large companies, among other key findings.  In yesterday’s Bloomberg article, Marsh Senior Vice President Tarique Nageer reportedly attributed part of the spike in take-up rates to businesses responding to the Boston tragedy.

Marsh’s April 22 TRIA event will feature Roundtable board member Edward Walter (Host Hotels and Resorts), who has spoken at numerous TRIA forums on behalf of CIAT; Robert Hartwig (Insurance Information Institute); Duncan Ellis (Marsh); and Phillip Dendy (The University of Texas System).

The University of Texas system recently wrote to House Financial Services Committee Chair Jeb Hensarling (R-TX) about the urgency of reauthorizing TRIA [Roundtable Weekly, March 14]. Hensarling and Rep. Randy Neugebauer (R-TX), chairman of the Financial Services subcommittee on housing and insurance, are among those calling for more industry “skin in the game” or suggesting that the law be allowed to expire at year-end..

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CAPITAL & CREDIT / U.S. ECONOMY

Yellen Reassures Markets With “Dovish” Interest Rate Stance, Amid Ongoing Labor Market Weakness, Low Inflation; Greenspan, White House Economist to Address Roundtable Meeting  

Despite “modest to moderate” economic expansion in most parts of the country in recent months [See the Fed’s April 16 "Beige Book"] — and a generally improving labor market — Federal Reserve Chair Janet Yellen on Wednesday said unemployment remains unacceptably high, and that the economy may need another two years before it is running close to full steam.  She also signaled concern about potential deflation, offering assurances that the central bank would guard against any such scenario.

 Janet Yellen chair

On a subject with tremendous implications for commercial real estate — including valuations, future borrowing, and owners' ability to service existing debt —  Federal Reserve Chair Janet Yellen reaffirmed plans to maintain a flexible stance on interest rates

“We have indeed had a disappointingly slow recovery and our consistent expectations for a pickup in growth have been dashed over a number of years,” Yellen said in response to questions at the Economic Club of New York.

On a subject with tremendous implications for commercial real estate — including valuations, future borrowing, and owners' ability to service existing debt —  she reaffirmed plans to maintain a flexible stance on interest rates. “We will remain very focused on removing accommodation when the right time has come,” she said (The Wall Street Journal, April 17).

Last year, the Fed set a 6.5 percent unemployment rate as the threshold at which it would consider raising interest rates. In mid-March, at Yellen’s first policy-setting meeting, she indicated the bank would now focus on a broader, more qualitative set of factors in making any interest rate decisions — including the health of the job market, signs of inflation, and new developments in financial markets.

This week, she used what The Washington Post characterized as “fuzzy” language to describe the basis for any future changes in interest rate policy, saying only that the Fed will consider progress toward its goals of 2 percent inflation and full employment in deciding how long to keep rates near zero.

As the Post stated yesterday, “The Fed is trying to walk a fine line between preparing investors and the public for an interest-rate increase as the economy improves, while . . . providing assurance that rates will still remain low by historical standards for years to come.”

The Fed’s latest Beige Book, released Wednesday, showed modest or moderate economic growth in 8 of the 12 Federal Reserve Districts. Two districts, Cleveland and St. Louis, reported a decline in economic activity.

In addition to improved hiring and consumer spending, retailers reported an uptick in traffic (coinciding with improved weather); manufacturers saw fewer disruptions; banks reported stronger demand for business loans; and industrial output and capacity both increased.

 Jason Furman 2 White House x200

White House Council of Economic Advisors Chairman Jason Furman will address the Spring Roundtable meeting later this month.

On the downside, the housing sector remained sluggish over the past six weeks, with residential construction starts down from a year ago, The Wall Street Journal reported April 16.

Although the Beige Book showed “generally positive” labor-market conditions, a U.S. Labor Department report on April 4 showed only 192,000 jobs created in March (vs. the 206,000 projected by most economists).  In conjunction with the Administration report, White House Council of Economic Advisors Chairman Jason Furman said the “sectoral pattern of job growth” for March “was very consistent with the pace over the last year. You saw a lot of jobs, for example, in construction, which is going to be — has been — an important source of our recovery and it’s important that it continues to be that way” (CNBC.com, April 4).

Furman is scheduled to address the Spring Roundtable Meeting later this month.

The Roundtable gathering will also feature former Fed Chairman Alan Greenspan, who will discuss financial markets and the global economy as well as his 2007 memoir (The Age of Turbulence) and a new book titled, The Map and the Territory: Risk, Human Nature, and the Future of Forecasting.

Also on the program for the April 29 meeting are top House and Senate lawmakers, and a special election preview with political prognosticator Charlie Cook. 

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For questions about content/editorial matters, please contact The Roundtable's Xenia Jowyk at xjowyk@rer.org or (202) 639-8400. For layout or email delivery issues, contact RER's Scott Sherwood at rweekly@rer.org or (202) 639-8400.

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