Browse Tag: Terrorism Risk Insurance Act

NAR Commercial Podcast: FASB Lease Accounting Update, TRIA Up For Reauthorization

NAR's Bill ArmstrongIn the latest NAR Commercial Podcast, Bill Armstrong brings us up to date on new developments in lease accounting and on terrorism insurance legislation.  The highlights:

FASB/IASB Lease Accounting: Is The Straight Line Expense Method In The New Rules? 

The Federal Accounting Standards Board (FASB) and International Accounting Standards Board (IASB) will be reissuing a set of proposed rules for lease accounting. Known as an exposure draft, the proposed rules are sked to be issued in May. It’s been two and a half years since the original rules were issued in August 2012.  While not a done deal yet, it looks as though FASB  and IASB are moving toward a straight line expense method, which is similar to the current lease accounting rule.

We don’t know exactly what will be in the draft, said Bill,  but all indications appear that straight line accounting method is preferred by both boards. And that would be very good news for commercial REALTORS®.

On the other hand, the boards are also moving to capitalization of leases, except for leases of less than 12 months. The capitalization of leases could be problematic for property owners,  because more bloated balance sheets could appear as larger debt with could hurt financing opportunities among other things.  As the new proposed rules are released in May, you can be sure NAR will be the first to comment on these rules, as NAR wants to ensure the rules accurately depict the unique character of commercial real estate.

TRIA Terrorism Insurance Legislation Up For Renewal

Bill: “I’d like to touch on a new piece of legislation that’s been introduced that provides for risk insurance for business in the event of an act of terrorism. The attacks of 9/11/01 not only had a profound effect on our nation’s spirit, but they also produced an enormous economic impact., the loss of a million jobs, the delay or cancellation of $15 bilion in real estate transactions, and a 6-year low in commercial construction.  Out of the nation’s loss, the Terrorism Risk Insurance Act (TRIA) was enacted in 2002. TRIA protects consumers, business, the overall economy and nation by providing adequate levels of property and casualty insurance for the nation’s small and large businesses in the wake of a catastrophic terrorist attack.

The program has helped protect billions of dollars in new construction and created thousands of new jobs. Reauthorized twice in 2005 and 2007. TRIA is set to expire at 2104 unless Congress act to reauthorize.   In fact, the looming expiration date has already begun to affect the availability of some commercial loans.  Just last month, Rep Michael Grimm of NY and other House lawmakers introduced legislation to reauthorize the program through 2019.

Bill: “This legislation must be passed. Without TRIA, the private insurance market won’t pick up the slack. Here’s why: terrorism is a unique, man-made risk that’s impossible to predict in terms of timing, location or magnitude of attack. In short, major terrorism isn’t an insurable risk, at least not for the private sector. Nearly all isnurers wil exclude terrorism coverage for large or high-profile commercial riss. Only the federal government is aware of an can fully protect against terrorist threats. In addition, only the government has the capacity to provide the needed levels of this type of insurance. Without it our economy, jobs and well-being will remain vulnerable to terrorists who hope to destroy us financially.  That’s why its so important that TRIA be reauthorized. Reauthorization means coverage will continue so that business wil continue.

Follow the jump for the complete Bill Armstrong podcast.

 

 

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Terrorism Risk Insurance Act House Testimony From NAR Commercial Committee Vice-Chair

In 2002, Congress passed and President Bush signed into law the Terrorism Risk Insurance Act, a bit of federal insurance market subsidy aimed at maintaining access to sufficient insurance coverage for owners and borrowers/buyers of commercial property.  Private insurers, faced with a radically expanded scale and scope of terrorism after 9/11, had been leaving the market in droves, finding it beyond their ability to quantify the risk of terrorism coverage.  The destabilized market for private coverage settled down after TRIA was passed, but the jitters — and rising coverage costs — resurfaced in 2005 and 2007 when Congress debated extending TRIA, past its original expiration date.

At the time, the impact on commercial property mortgages became clear; property owners could be in risk of default on mortgages if private insurance carriers ceased offering the now-required terrorism risk coverage on their properties. The program was extended to 2014, but the debate on continued extension has picked up again now.

The coverage is not in any way limited to showcase properties in primary markets; some reports indicate 85% of commercial mortgages carry the coverage required by lenders.

Appearing earlier this week before the House Subommittee on Financial Services for the TRIA debate was Linda St. Peter, the operations manager of Prudential Connecticut Realty in Wallingford, Conn., and vice-chair of NAR’s commercial committee.  Ms. St. Peter’s testimony recommending lawmakers extend the program before the market again becomes nervous about the program’s continued authorization.

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