WASHINGTON, DC--Commercial real estate executives won't relaxuntil the terrorism insurance backstop is passed, according to thelatest Real Estate Roundtable survey. The Senatevoted to renew the terrorism insurance law on July 17for seven years. House legislation proposing a five-year extensioncleared committee in June, but that remains in limbo until Congressreconvenes in September.

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"Commercial real estate remains on a generally positive path,yet there is significant concern about Washington inaction on arange of policy matters affecting our industry," said RoundtablePresident and CEO Jeffrey D. DeBoer, in a preparedstatement. "The most pressing of these is TRIA, whosepotential expiration could trigger a wave of technical defaults,renewed problems for banks and bond holders, and lost jobs asfinancing for new and existing projects dries up," he said.

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Data for the current survey was gathered July 7–22 byChicago-based FPL Associates on The Roundtable'sbehalf, a time period that produced economic reports illustratingthe ongoing economic recovery. Yet respondents are still concernedabout that as well. The "Future" index, for example, has reached 67after a two-point drop last quarter, but is one point lower than atthis time last year. This is a reflection of a lingering warinessamong industry executives about prospects for a sustainableeconomic recovery, The Roundtable concludes.

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"Survey respondents also cite interest rate policy — and thebroader issue of borrowing costs — as a 'wild card' that could hurtproperty valuations," DeBoer also said.

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On the other hand the "Overall" and "Current" indices roseslightly (to 70 and 72, respectively) since the previous quarter.It is here, The Roundtable concluded, that the positive reportsabout higher-than-expected GDP growth during April, May and June,and the creation of 240,000-plus jobs, on average, during each ofthe past six months, was reflected.

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Still, the uncertainty over TRIA is casting a shadow over thesegains. DeBoer reports that the lack of legislation is alreadyaffecting policyholders seeking to renew terrorism insurancepolicies beyond year-end. One problem appears to be the varyingapproaches that the two Congressional chambers are taking. Areport, "TRIA after 2014" by the Wharton RiskManagement and Decision Processes Center, highlights thisissue.

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One measure of particular interest to insurers, regulators andrating agencies is the ratio of the insurer's TRIA deductibleamount in relation to its surplus, according to the report. Ahigher deductible/surplus (D/S) ratio implies that the insurer ismore exposed to losses from a terrorist attack, with a D/S ratiogreater than 0.15 generally regarded as a high measure of relativeexposure to terrorism.

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According to its analysis, a D/S ratio of 0.15 has already beenreached or exceeded by a number of insurers under the currentdesign of the TRIA program. “Should the deductible level beincreased again,” the report said, “some companies could face asignificant risk of insolvency or financial distress after a severeterrorist attack because they will not have sufficient capital topay their claims. Other insurers might stop selling insurance tosome of their commercial clients to avoid having too high aconcentration of terrorism exposure in one location,” such a largecity.

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However, an analysis by Marsh that was reported in CFO.com, suggests insurers are feelingfairly sanguine about the issue. The demand for policy exclusionsof terrorism coverage if the law sunsets "has subsided forinsurers," according to comments made by Duncan Ellis, the propertyinsurance leader for Marsh, during a webcast on Thursday on whichthe publication reported.

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