Pandemic Risk Insurance Proposals Include House Legislation Modeled on TRIA

House Democrats and the insurance industry recently released separate proposals aimed at expanding the availability of pandemic-related business interruption insurance. (Bloomberg Law, May 28)

  • Legislation introduced on May 26 by Congresswoman Carolyn B. Maloney (D-NY), above, senior member of the House Financial Services Committee, would create the Pandemic Risk Reinsurance Program – a federal backstop that would provide capacity for pandemic risk insurance and maintain marketplace stability with the private sector, modeled after the Terrorism Risk Insurance Act (TRIA). 
  • Rep. Maloney’s bill – the Pandemic Risk Insurance Act of 2020 (PRIA), H.R. 7011 – has 20 Democratic cosponsors, including four who serve on the House Financial Services Committee.  (PRIA Section-by-Section Summary, Bill text and Rep. Maloney news release).
  • Rep. Maloney commented on the introduction of PRIA this week with stakeholders during a remote news conference.  “We want to solve a market failure by allowing companies to purchase business interruption insurance that covers pandemics so that they can stay in business and keep their workers employed.  To solve this marketplace failure, we need to create a federal backstop just like we did with TRIA,” said Rep. Maloney.  “That’s why I’ve introduced the Pandemic Risk Insurance Act.  This will help relieve some of the economic losses that business are suffering and will protect businesses and the economy from future pandemics.” (PRIA introduction video, May 26)
  • Under PRIA, Maloney stated. “… policyholders and insurers and the federal government will share the risks.  With this backstop, the insurance industry will have more certainty and will be able to safely underwrite this unique risk.”  (PRIA Section-by-Section Summary)
  • Rep. Maloney also noted the insurance industry’s May 21 proposal for a federal program to help businesses meet the financial challenges from future pandemics.  “It was encouraging to see last week the insurance industry’s agreement with so many members of Congress and policyholders from across the country that pandemic insurance is a viable, actuarially sound product – and that there is an immediate need to create a mechanism to provide relief for millions of struggling business owners.”
  • The insurance industry-backed Business Continuity Protection Program, proposed in advance of Rep. Maloney’s PRIA bill, would provide revenue replacement assistance for payroll, employee benefits and operating expenses following a presidential viral emergency declaration. (National Association of Mutual Insurance Companies news release, May 21)
  • The proposals from Rep. Maloney and the insurance industry are prospective, and do not address losses associated with the current coronavirus pandemic.  The Trump administration, lawmakers and state insurance regulators have warned against measures that would have insurers retroactively pay for current pandemic claims.  (Politico, May 21 and Insurance Journal, May 27)
  • The Real Estate Roundtable, along with its industry partners, continues to work constructively with policymakers and stakeholders to develop and enact an effective pandemic risk/business continuity program.

Pandemic risk insurance will be a policy focus during The Roundtable’s Remote Annual Meeting and policy advisory committee meetings on June 11-12.

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Industry Requests TALF Expansion to Include a Broader Range of Commercial Real Estate Assets, CMBS; Congressional Efforts Seek to Address Pandemic Business Interruption Insurance Policies

U.S. Capitol Dome with flag

Six real estate industry organizations, including The Real Estate Roundtable, wrote to federal regulators on April 14 to communicate the urgent and growing need to include a wider range of investment grade commercial real estate debt instruments in the Fed’s Term Asset-Backed Securities Loan Facility (TALF) credit facility. Currently, TALF eligible collateral is limited to triple-A rated tranches of outstanding (legacy) commercial mortgage backed securities (CMBS), commercial mortgage loans and newly issued collateralized loan obligations.  (TALF letter, April 14)

  • The TALF, previously used during the 2008 financial crisis, was relaunched on March 23 in response to the Covid-19 crisis to “enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration (SBA), and certain other assets.”  (Fed news release, March 23)
  • Immediately after the TALF was relaunched, an industry coalition on March 24 urged the Federal Reserve, Treasury, and Federal Housing Finance Agency to expand the TALF to include non-agency CMBS – including legacy private-label conduit and single-asset single borrower (SASB) assets. The coalition, which includes The Roundtable, stated the inclusion of private-label assets would stabilize asset prices and shore up the balance sheets of market participants.  (Joint Industry letter, March 24)
  • On April 9, the Federal Reserve announced that it would broaden the range of TALF eligible collateral to include triple-A rated tranches of both outstanding (legacy) CMBS, commercial mortgage loans and newly issued collateralized loan obligations. However, the updated term sheet excludes single-asset single borrower (SASB) CMBS and commercial real estate collateralized loan obligations (CRE CLOs).
  • According to the April 14 letter, “Commercial and multifamily real estate assets that were perfectly healthy just weeks ago now face massive stress and a wave of payment and covenant defaults. As the economy shuts down and American workers face massive layoffs, it is now clear that many tenants will not be able to meet their debt obligations. This will soon cascade through the over $4 trillion commercial real estate debt market and exponentially increase the pressure on the financial system.”

To bolster the health of the CMBS market, the industry coalition recommends the following investment grade instruments be added as eligible TALF assets:

  • Legacy and new issuance, investment grade, non-agency CMBS;
  • Investment grade Agency Credit Risk Transfer (CRT) securities;
  • Legacy and new issuance Single-Asset, Single-Borrower (SASB) CMBS;
  • Commercial real estate (CRE) collateralized loan obligations (CLOs); and
  • U.S. commercial real estate (CRE) first mortgage loans (which have capital charges equivalent to investment grade/NAIC CM 1 and 2 and loans in good standing, or can obtain a rating agency letter confirming that the pledged loan is rated at least single-A).

The coalition letter explains that a broader, deeper, and more effective TALF would complement and minimize the direct lending that will be required of the Federal Reserve’s other credit facilities, which are supported by the $454 billion provided under the CARES Act.

The coalition also notes that expansion of the TALF’s scope and the Fed’s further support of the highly illiquid non-bank financial sector would forestall further disruption and economic dislocations in the commercial real estate sector.

Pandemic Risk Insurance Coverage

Two preliminary legislative proposals in Congress seek to address increasing requests for the property and casualty industry to extend business interruption (BI) insurance policies to cover pandemic risk related claims – and the general lack of pandemic risk commercial insurance availability.

  • A recent effort in the House led by Rep. Carolyn Maloney (D-NY) seeks to develop the Pandemic Risk Insurance Act of 2020 (PRIA), which would create the Pandemic Risk Reinsurance Program. PRIA would seek to create “a system of shared public and private compensation for business interruption losses resulting from future pandemics or public health emergencies.”  (Rep. Maloney Dear Colleague letter, April 10 Roundtable Weekly)
  • Rep. Maloney’s pandemic program would be prospective – not retrospective.  “Like the Terrorism Risk Insurance Act (TRIA), the federal government would serve as a backstop to maintain marketplace stability and to share the burden alongside private industry,” according to Maloney.
  • In the Senate, Sen. Steve Daines (R-MT) is working on a broader concept that is both retrospective and prospective.  Known as the  Workplace Recovery Act, the measure would provide direct retrospective reimbursement through a Federal Automated Security Trust program to every business for operating losses, limited to 90% of past revenues.
  • The Senate proposal would also establish a new government-funded business interruption insurance add-on for every privately administered commercial insurance plan to protect against future national pandemics.
  • The National Association of Insurance Commissioners issued a statement recently warning that such efforts “would create substantial solvency risks for the sector, significantly undermine the ability of insurers to pay other types of claims, and potentially exacerbate the negative financial and economic impacts the country is currently experiencing.” (NAIC statement, March 25)

As with terrorism risk insurance, The Roundtable is working with policymakers and stakeholders to help develop an effective risk insurance program that addresses the economic impact of the current pandemic crisis and provides the economy with the coverage it needs to deal with future pandemic risks. 

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