A post-9/11 public-private insurance scheme offering coverage for US locations deemed most at risk of an international terrorism attack should be continued beyond its projected December 2007 cut-off point.

That’s the view of Evan Greenberg, president and CEO of Ace Ltd., who spoke at an investors’ conference in New York on the need for the current arrangement to be extended to cover high-risk cities.

New York, Washington DC, San Francisco and Chicago are top of the list, but other areas such as Boston, Seattle and Los Angeles are viewed as moderately at risk within the scope of the Terrorism Risk Insurance Act.

The Act was signed into law by US President George W. Bush in November 2002 and creates a “backstop” for insurance claims that relate to an act of terrorism in the US, with the US Government playing a reinsurance role up to a maximum of $100 billion in one year.

It was designed initially as a short-term solution while the private insurance market searched for ways to insure against terrorism.

The Terrorism Risk Assurance Act was due to end in December 2005 but has since been extended to the end of 2007. Speaking at the Millennium Broadway Hotel, Mr. Greenberg said: “Critical to our industry and the economic security of the US is terrorism. The Terrorism Risk Insurance Act ‘TRIA’ should be credited with increasing the availability and affordability of terrorism risk assurance. TRIA should be extended permanently.

“The industry is required to make coverage available and in return, given the industry’s capital base, the Government provides a back-stop over and above the industry’s retention.”

The Act initially became triggered if a declared terrorism act caused losses of $5 million or more. In 2006 that trigger point was raised to $50 million and for the current year is $100 million.

Insurance companies are required to cover losses to a point, with the US Government providing assistance above that point.

The Ace CEO warned: “If the quid pro quo was eliminated and the Government removed the backstop the industry would limit its writing in line with capital and there would be a shortage of coverage, particularly in the major cities.

“Ace has shown leadership on what the design of a permanent solution should look like, which combines both increased private sector and complimentary public sector sharing the risk.

“We will continue to be strong advocates for the extension of TRIA.” Mr. Greenberg told the Merrill Lynch insurance investors conference that the US would do itself a favour if it had a standardised insurance industry framework across its 50 states.

He said individual state regulation was “inconsistent and contradictory from state to state, costly and in many cases politically motivated” and “stifles competition and impacts affordability and availability of coverage”.

Mr. Greenberg gave as an example the change in regulations in Florida, which has seen the state double its involvement in the insurance sector to provide low-cost reinsurance through the Florida Hurricane Catastrophe Fund to state-run Citizens Property Insurance.

The regulation change has been made to ensure premium savings of around five to 10 percent are passed on to residents.

It effectively prices private insurance companies out of that market.

“The recent changes in Florida in my opinion are short-sighted and politically motivated. It will prove to be a short term expedient and, over any reasonable length of time, prove to be economically unsound and irresponsible, putting the State’s economy and its citizens in a very vulnerable position,” Mr. Greenberg said.

“On the other side, from a trade perspective, the US has a competitive advantage in financial services. This is an export industry for this country, regulation and accounting of insurance is globalising along with business. Yet due to 50 state regulations we do not have an effective voice at the global trade table.

“Congress should enact an Optional Federal Charter and freedom of rate form. An OFC would be an option to our current state-by-state regulatory system. Smaller companies that don’t conduct national or international business could choose to stay in the state-by-state system.”

However, the Ace CEO doubted there would be much progress in this direction during the current US Congress.

And with regard to an overall US insurance industry standard across the various states, Mr. Greenberg said he shared the concerns of others that the US and New York in particular are in danger of losing their competitiveness in the global financial services industry pointing specifically to its regulatory and legal environment.

“The US insurance industry is 40 percent of the global market. I’m concerned about the continued competitiveness of our industry. It is not as competitive as it could be, it is the US consumer who suffers and our competitive profile and global trade as well,” he said.

When it came to Ace he felt the company remained undervalued in terms of its share price within the US. During 2006 Ace achieved a record income of $2.3 billion through its insurance and reinsurance business.

“We have made an accumulative underwriting profit since conception 21 years ago. In my opinion these results are not yet recognised in Ace’s share price. Our price to book value trades at a discount when compared to our US-based peers,” he commented.

“I believe this is due to the lingering misconception that we share the same characteristics as other Bermuda companies, most of which are predominantly reinsurers.

“The facts actually show we are a global insurance company that happens to be Bermuda-based. We operate locally in more than 50 countries and nearly half of our people and earnings are based in the US. Over 40 percent of our business originates in our international operation.”

Ace CEO Greenberg calls for terrorism ‘backstop’ extension