Money Laundering, Terrorism and Financial Institutions - USA Patriot Act Monitor

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1/4/2006 GAO Federal Safety Net Reduced by Terrorism Risk Insurance Extension Act
The Terrorism Risk Insurance Extension Act extends for two more years the federal safety net of the Terrorism Risk Insurance Act, adding Program Years 4 and 5. Property and Casualty Insurance now excludes commercial automobile insurance, burglary and theft insurance, surety insurance, professional liability insurance, and farmowners mult-peril insurance.  Directors and officers liability insurance is, however, explicitly retained.  The Extension Act also continues the reduction in federal economic support by instituting a $50 million Program Trigger in Year 4 (2006) going up to $100 million in Year 5 (2007).  The Insurer Deductible increases to 17.5% of direct earned premiums for Property and Casualty Insurance in 2006, and 20% in 2007. The federal share of compensation for insured losses above the Insurer Deductible, 90% during the first four years of the Program, drops to 85% in 2006.  The economic effect of the reduction in the safety net is depicted in the following graph from an article that will appear in the February Monitor. Area C is the ultimate federal liability.

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