Oxley: Insurers Must Pay For Terror Re

By Steven Brostoff, Washington Editor

NU Online News Service, Sept. 11, 10:29 a.m. EST,Washington?Payback must be a feature of any finallegislation creating a federal backstop for insured losses causedby terrorism, House Financial Services Committee Chairman MikeOxley, R-Ohio, said.

"I cannot in good conscience approve a bill that simply opensthe Treasury vaults in place of private insurance, turning the U.S.taxpayer into a giant insurance subsidy," Rep. Oxley said at aseminar sponsored by the Center for Strategic and InternationalStudies in Washington.

Rep. Oxley added that he believes any plan should betransitional rather than permanent. While there may be a lack ofreinsurance today, he said, reinsurers will return.

He noted an old saying that the reinsurance industry is drivenby two forces, fear and greed. After the Sept. 11 attacks, Rep.Oxley said, fear drove reinsurers away from the U.S. market.

However, he said, the U.S. is the largest market in the world,and it doesn't make sense for reinsurers to take a pass on thismarket. Greed, Rep. Oxley said, will drive reinsurers back.

But Maurice R. Greenberg, chairman of New York-based AIG,challenged Rep. Oxley's comments.

How long will terrorism be a threat, he asked? No one can saythat it will be one year or two years, Mr. Greenberg said. Thebattle against terrorism is continuous.

Moreover, he said, the insurance industry needs reinsurance, notloans. The industry is willing to pay premiums for reinsurance, Mr.Greenberg said, but there must be a reinsurer of last resort, andthis is a proper role for government.

In addition, Mr. Greenberg said, he does not agree thatreinsurers will come back to the U.S. market at the same level asbefore.

European companies, he said, face substantial losses from thesummer floods that devastated much of central Europe. And becauseof the structure of their portfolios, European companies sufferedmore than U.S. companies from the decline in the stock market, Mr.Greenberg said.

The insurance industry is not looking for a bailout, heemphasized. But the fact is that insurance companies cannot handlecertain losses, he said. If terrorists attack a nuclear facility,Mr. Greenberg said, the resulting losses would be beyond thefinancial capacity of the industry.

"I'm not going to bet the company on a single event," Mr.Greenberg said. "The company has been in business for 80 years. I'mnot going to preside over its demise."

And a loan program, he said, will not solve the problem. Mr.Greenberg said that financial rating agencies would treat the loansas a contingent liability.

State insurance departments, he said, would then limit theamount of business insurance companies could write.

Mr. Greenberg added that the payback provision in the Housebill, H.R. 3210, is obscure. Under H.R. 3210, insurance companiescould pass through the cost of the loans to commercialpolicyholders.

But Mr. Greenberg said that an insurance company cannot chase apolicyholder that moves to another company.

The industry, he said, is united in opposing a loan program.

Rep. Oxley responded that he and Mr. Greenberg have differentconstituents. Mr. Greenberg's constituents are his shareholders,Rep. Oxley said. Rep. Oxley said his own constituents aretaxpayers.

Every member of Congress has that constituency, he said, andmembers have an obligation to them.

Rep. Oxley said, however, that he has made clear that he iswilling to negotiate in good faith with the Senate. The Senatepassed legislation, S. 2600, that calls for a quota share program,with the federal government paying up to 90 percent of insuredlosses with no payback provision.

Between what the Senate passed and what the House passed thereis common ground, Rep. Oxley said. He is confident, he said, thatCongress will pass legislation before adjournment, possibly beforethe end of this month.

But he also staked out a strong position on anothercontroversial issue, tort reform.

Rep. Oxley said that while he approaches the tort issue in thespirit of compromise, he will not sign off on a bill that opensU.S. business owners and building owners up to legal attacksimmediately after they suffered through a terrorist attack.

In particular, Rep. Oxley said, he does not believe thatPresident Bush intends to sign a bill that allows trial lawyers torecover punitive damages from American businesses after a terroristattack.

Mr. Greenberg also blasted those who want to subject Americanvictims of a terrorist attack to punitive damages. It is"un-American," Mr. Greenberg said, for one citizen to sue anotherfor punitive damages after an attack.

"It is hard to rationalize intellectually," he said.