Liberty Mutual CEO Advocates Long-Term Terrorism Insurance Plan

March 31, 2006

Declaring the Terrorism Risk Insurance Act (TRIA) “an essential policyholder protection,” Edmund F. (Ted) Kelly, Liberty Mutual Group chairman, president and CEO, this week urged the National Association of Insurance Commissioners and the President’s Working Group on Financial Markets to encourage passage of a long-term terrorism risk bill that works for the insurance industry and buyers.

Kelly issued his call during a public hearing convened by the National Association of Insurance Commissioners (NAIC) in New York City.

“Congress passed a short-term solution to a long-term problem,” Kelly said referring to the two-year TRIA extension passed by Congress in the fall of 2005. “For too many members of congress and the administration, TRIA appears to be a bailout for the insurance industry. This perception couldn’t be further from reality.”

Noting that the NAIC has a formal role as consultant to the President’s Working Group on Financial Markets, Kelly encouraged commissioners to be a strong advocate for terrorism risk legislation.

The Working Group will deliver its report to congress on the question of a long-term solution by September 30, 2006.

“Tell the Working Group that the industry is severely limited in its ability to price for terrorism risk,” Kelly said to commissioners. “There are no models to tell us anything about frequency, and the models that assess severity are frightening in their estimates of loss.”

Kelly also urged the NAIC to advise the Working Group that:
— The industry has almost no way to exclude or limit its exposure in workers compensation, thus threatening its claims paying ability. The situation is similar for property insurance in states with a standard fire policy, and in those states that have not approved terrorism exclusions, such as Florida, New York and Georgia.

— Accounting rules and the tax code conspire to prevent insurers from effectively reserving for a terrorist event.

— Individual companies’ solvency and ability to pay policyholder claims fully and without interruption following a major terrorist attack are threatened without TRIA.

Finally, Kelly praised the commissioners for dealing with this issue now rather than when TRIA starts to expire on January 1, 2007. “Time is of the essence. The threat of terrorism is a security issue for the entire economy, not just the insurance sector,” Kelly said.

Boston-based Liberty Mutual Group is a global insurer and sixth largest property and casualty insurer in the U.S. whose largest line of business is private passenger automobile


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