[Congressional Bills 107th Congress]
[From the U.S. Government Publishing Office]
[S. 1743 Introduced in Senate (IS)]
107th CONGRESS
1st Session
S. 1743
To create a temporary reinsurance mechanism to enhance the availability
of terrorism insurance.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
November 29, 2001
Mr. Hollings (for himself, Mrs. Boxer, and Mr. Wyden) introduced the
following bill; which was read twice and referred to the Committee on
Commerce, Science, and Transportation
_______________________________________________________________________
A BILL
To create a temporary reinsurance mechanism to enhance the availability
of terrorism insurance.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``National Terrorism
Reinsurance Fund Act''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
Sec. 2. Findings.
Sec. 3. Purpose.
Sec. 4. National terrorism reinsurance program.
Sec. 5. Fund operations.
Sec. 6. Coverage provided.
Sec. 7. Secretary to determine if loss is attributable to terrorism.
Sec. 8. Mandatory coverage by property and casualty insurers for acts
of terrorism.
Sec. 9. Pass-throughs and other rate increases.
Sec. 10. Credit for reinsurance.
Sec. 11. Administrative provisions.
Sec. 12. Inapplicability of certain laws.
Sec. 13. Sunset provision.
Sec. 14. Definitions.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) The terrorist attacks on the World Trade Center and
Pentagon on September 11, 2001, have inflicted possibly the
largest loss ever incurred by insurers and reinsurers.
(2) The magnitude of the loss, and its impact on the
current capacity of the reinsurance market, threaten the
ability of the property and casualty insurance market to
provide coverage to building owners, businesses, and American
citizens.
(3) It is necessary to create a temporary reinsurance
mechanism to augment the capacity of private insurers to
provide insurance for terrorism related risks.
SEC. 3. PURPOSE.
The purpose of this Act is to facilitate the coverage by property
and casualty insurers of the peril for losses due to acts of terrorism
by providing additional reinsurance capacity for loss or damage due to
acts of terrorism occurring within the United States, its territories,
and possessions.
SEC. 4. NATIONAL TERRORISM REINSURANCE PROGRAM.
(a) In General.--The Secretary of Commerce shall establish and
administer a program to provide reinsurance to participating insurers
for losses due to acts of terrorism.
(b) Advisory Committee; Membership.--There is established an
advisory committee to provide advice and counsel to the Secretary in
carrying out the program of reinsurance established by the Secretary.
The advisory committee shall consist of 10 members, as follows:
(1) 3 representatives of the property and casualty
insurance industry, appointed by the Secretary.
(2) A representative of property and casualty insurance
agents, appointed by the Secretary.
(3) A representative of consumers of property-casualty
insurance, appointed by the Secretary.
(4) A representative of a recognized national credit rating
agency, appointed by the Secretary.
(5) A representative of the banking or real estate
industry, appointed by the Secretary.
(6) 2 representatives of the National Association of
Insurance Commissioners, designated by that organization.
(7) A representative of the Department of the Treasury,
designated by the Secretary of the Treasury.
(c) National Terrorism Reinsurance Fund.--
(1) Establishment.--To carry out the reinsurance program,
the Secretary shall establish a National Terrorism Reinsurance
Fund which shall be available, without fiscal year
limitations--
(A) to make such payments as may, from time to
time, be required under reinsurance contracts under
this Act;
(B) to pay such administrative expenses as may be
necessary or appropriate to carry out the purposes of
this Act, but such expenses may not exceed $5,000,000
for each of fiscal years 2002, 2003, and 2004; and
(C) to repay to the Secretary of the Treasury such
sums, including interest thereon, as may be borrowed
from the Treasury for purposes of this Act.
(2) Credits to fund.--The Fund shall be credited with--
(A) reinsurance premiums, fees, and other charges
which may be paid or collected in connection with
reinsurance provided under this Act;
(B) interest which may be earned on investments of
the Fund;
(C) receipts from any other source which may, from
time to time, be credited to the Fund; and
(D) Funds borrowed by the Secretary from the
Treasury.
(3) Investment in obligations issued or guaranteed by
united states.--If the Secretary determines that the moneys of
the Fund are in excess of current needs, he may request the
investment of such amounts as he deems advisable by the
Secretary of the Treasury in obligations issued or guaranteed
by the United States.
(4) Loans to fund.--The Secretary of the Treasury shall
grant loans to the Fund in the manner and to the extent
provided in this Act.
(d) Underwriting Standards.--In order to carry out the
responsibilities of the Secretary under this Act and protect the Fund,
the Secretary shall establish minimum underwriting standards for
participating insurers.
(e) Monitoring of Terrorism Insurance Rates.--
(1) Secretary to establish special committee on rates.--The
Secretary shall establish a special committee on rates, the
size and membership of which shall be determined by the
Secretary, except that the committee shall, at a minimum,
include--
(A) representatives of providers of insurance for
losses due to acts of terrorism;
(B) representatives of purchasers of such
insurance;
(C) at least 2 representatives of NAIC; and
(D) at least 2 independent insurance actuaries.
(2) Duties.--The special committee on rates shall meet at
the call of the Secretary and shall--
(A) review reports filed with the Secretary by
State insurance regulatory authorities;
(B) collect data on rate disclosure practices of
participating insurers for insurance for covered lines
and for losses due to acts of terrorism; and
(C) provide such advice and counsel to the
Secretary as the Secretary may require.
SEC. 5. FUND OPERATIONS.
(a) Funding by Premium.--
(1) In general.--For the year beginning January 1, 2002,
and each subsequent year of operation, participating insurers
shall pay into the Fund an annual reinsurance contract premium
of not less than 3 percent of their respective gross direct
written premiums for covered lines for the calendar year. The
annual premium shall be paid in installments at the end of each
calendar quarter. The reinsurance contract premium and any
annual assessment may be recovered by a participating insurer
from its covered lines policyholders as a direct surcharge
calculated as a uniform percentage of premium.
(2) Additional credit risk premium.--If the Secretary
determines that a participating insurer has a credit rating
that is lower than the second from highest credit rating
awarded by nationally recognized credit rating agencies, the
Secretary may charge an additional credit risk premium, of up
to 0.5 percent of gross direct written premiums for covered
lines received by that insurer, to compensate the Fund for
credit risk associated with providing reinsurance to that
insurer.
(b) Initial Capital.--
(1) Loan.--The Fund shall have an initial capital of
$2,000,000,000, which the Secretary shall borrow from the
Treasury of the United States. Upon application by the
Secretary, the Secretary of the Treasury shall transfer that
amount to the Fund, out of amounts in the Treasury not
otherwise appropriated, at standard market rates.
(2) Repayment of start-up loan.--The Secretary shall use
premiums received from assessments in calendar year 2002 to
repay the loan provided to the Fund under paragraph (1).
(c) Shortfall Loans.--
(1) In general.--If the Secretary determines that the
balance in the accounts of the Fund is insufficient to cover
anticipated claims, administrative expenses, and maintain
adequate reserves for any other reason, after taking into
account premiums assessed under subsection (a) and any other
amounts receivable, the Secretary shall borrow from the
Treasury an amount sufficient to satisfy the obligations of the
Fund and to maintain a positive balance of $2,000,000,000 in
the accounts of the Fund. Upon application by the Secretary,
the Secretary of the Treasury shall transfer to the Fund, out
of amounts in the Treasury not otherwise appropriated, the
requested amount as an interest-bearing loan.
(2) Interest rate.--The rate of interest on any loan made
to the Fund under paragraph (1) shall be established by the
Secretary of the Treasury and based on the weighted average
credit rating of the Fund before the loss that made the loan
necessary.
(3) $50 billion loan limit.--Notwithstanding any other
provision of this Act, the total amount of loans outstanding at
any time from the Treasury to the Fund may not exceed the
amount by which $50,000,000,000 exceeds the Fund's assets.
(4) Repayment of loans by assessment.--Any loan under
paragraph (1) shall be repaid from reserves of the Fund,
assessments of participating insurers, or a combination
thereof. If an assessment is necessary, the maximum annual
assessment under this subsection shall be not more than 3
percent of the direct written premium for covered lines. The
reinsurance contract premium and any annual assessment may be
recovered by a participating insurer from its covered lines
policyholders as a direct surcharge calculated as a uniform
percentage of premium.
SEC. 6. COVERAGE PROVIDED.
(a) In General.--The Fund shall provide reinsurance for losses
resulting from acts of terrorism covered by reinsurance contracts
entered into between the Fund and participating insurers that write
covered lines of insurance within the meaning of section 14(5)(A) or
that have elected, under section 14(5)(C), to voluntarily include
another line of insurance.
(b) Retention.--The Fund shall reimburse participating insurers for
losses resulting from acts of terrorism on direct losses in any
calendar year in excess of 10 percent of a participating insurer's
average gross direct written premiums and policyholders' surplus for
covered lines for the most recently ended calendar year for which data
are available, based on each participating insurer's annual statement
for that calendar year as reported to NAIC.
(c) Reimbursement Amount.--If a participating insurer demonstrates
to the satisfaction of the Secretary that it has paid claims for losses
resulting from acts of terrorism equal to or in excess of the amount of
retention required by subsection (b), then the Fund shall reimburse the
participating insurer for--
(1) 90 percent of its covered losses in calendar year 2002;
and
(2) a percentage of its covered losses in calendar years
beginning after calendar year 2002 equal to--
(A) 90 percent if the insurer pays an assessment
equal to 4 percent of the insurer's average gross
direct written premiums and policyholders' surplus for
the most recently ended calendar year;
(B) 80 percent if the insurer pays an assessment
equal to 3 percent of the insurer's average gross
direct written premiums and policyholders' surplus for
the most recently ended calendar year; and
(C) 70 percent if the insurer pays an assessment
equal to 2 percent of the insurer's average gross
direct written premiums and policyholders' surplus for
the most recently ended calendar year.
(d) $50,000,000,000 Limit.--Except as provided in subsection (e),
the Fund may not reimburse participating insurers for covered losses in
excess of a total Fund reimbursement amount for all participating
insurers of $50,000,000,000.
(e) Losses Exceeding $50,000,000,000 Limit.--If the Secretary
determines that reimbursable losses in a calendar year from an event
exceed $50,000,000,000, the Secretary--
(1) shall pay, out of amounts in the Treasury not otherwise
appropriated--
(A) 90 percent of the covered losses occurring in
calendar year 2002 in excess, in the aggregate, of
$50,000,000,000 but not in excess of $100,000,000; and
(B) 80 percent of the covered losses occurring in
calendar year 2003 or 2004 in excess, in the aggregate,
of $50,000,000,000 but not in excess of $100,000,000;
and
(2) shall notify the Congress of that determination and
transmit to the Congress recommendations for responding to the
insufficiency of available amounts to cover reimbursable
losses.
(f) Reports to State Regulator; Certification.--
(1) Reporting terrorism coverage.--A participating insurer
shall--
(A) report the amount of its terrorism insurance
coverage to the insurance regulatory authority for each
State in which it does business; and
(B) obtain a certification from the State that it
is not providing terrorism insurance coverage in excess
of its capacity under State solvency requirements.
(2) Reports to secretary.--The State regulator shall
furnish a copy of the certification received under paragraph
(1) to the Secretary.
SEC. 7. SECRETARY TO DETERMINE IF LOSS IS ATTRIBUTABLE TO TERRORISM.
(a) Initial Determination.--If a participating insurer files a
claim for reimbursement from the Fund, the Secretary shall make an
initial determination as to whether the losses or expected losses were
caused by an act of terrorism.
(b) Notice and Hearing.--The Secretary shall give public notice of
the initial determination and afford all interested parties an
opportunity to be heard on the question of whether the losses or
expected losses were caused by an act of terrorism.
(c) Final Determination.--Within 30 days after the Secretary's
initial determination, the Secretary shall make a final determination
as to whether the losses or expected losses were caused by an act of
terrorism.
(d) Standard of Review.--The Secretary's determination shall be
upheld upon judicial review if based upon substantial evidence.
SEC. 8. MANDATORY COVERAGE BY PROPERTY AND CASUALTY INSURERS FOR ACTS
OF TERRORISM.
(a) In General.--An insurer that provides lines of coverage
described in section 14(5)(A) or 14(5)(B) may not--
(1) exclude or limit coverage in those lines for losses
from acts of terrorism in the United States, its territories,
and possessions in property and casualty insurance policy
forms; or
(2) deny or cancel coverage solely due to the risk of
losses from acts of terrorism in the United States.
(b) Terms and Conditions.--Insurance against losses from acts of
terrorism in the United States shall be covered with the same
deductibles, limits, terms, and conditions as the standard provisions
of the policy for non-catastrophic perils.
SEC. 9. PASS-THROUGHS AND OTHER RATE INCREASES.
(a) Limitation on Rate Increases for Covered Risks.--Except as
provided in subsection (b), a participating insurer that provides lines
of coverage described in section 14(5)(A) or 14(5)(B) may not increase
annual rates on covered risks during any period in which the insurer
participates in the Fund by a percent in excess of the sum of--
(1) the percent used to determine the insurer's assessment
under section 5(a)(1); and
(2) if there is an assessment against the insurer under
section 5(c)(4), a percent equivalent to the percent assessment
of the insurer's gross direct written premium for covered
lines.
(b) Terrorism-Related Increases in Excess of Pass-Throughs.--
(1) Reports by insurers.--Not less than 30 days before the
date on which a participating insurer increases the premium
rate for insurance on any covered line of insurance described
in section 14(5) based, in whole or in part, on risk associated
with insurance against losses due to acts of terrorism, the
insurer shall file a report with the State insurance regulatory
authority for the State in which the premium increase is
effective that--
(A) explains the need for the increased premium;
and
(B) identifies the portion of the increase properly
attributable to risk associated with insurance offered
by that insurer against losses due to acts of
terrorism; and
(C) demonstrates, by substantial evidence, why that
portion of the increase is warranted.
(2) Reports by state regulators.--Within 15 days after a
State insurance regulatory authority receives a report from an
insurer required by paragraph (1), the authority--
(A) shall transmit a copy of the report to the
Secretary;
(B) may include a determination with respect to
whether an insurer has met the requirement of paragraph
(1)(C); and
(C) may include with the report any commentary or
analysis it deems appropriate.
SEC. 10. CREDIT FOR REINSURANCE.
Each State shall afford an insurer obtaining reinsurance from the
Fund credit for such reinsurance on the same basis and to the same
extent that credit for reinsurance would be available to that insurer
under applicable State law when reinsurance is obtained from an
assuming insurer licensed or accredited in that State.
SEC. 11. ADMINISTRATIVE PROVISIONS; REPORTS AND ANALYSIS.
(a) In General.--In carrying out this Act, the Secretary may--
(1) issue such rules and regulations as may be necessary to
administer this Act;
(2) enter into reinsurance contracts, adjust and pay claims
as provided in this Act, and carry out the activities necessary
to implement this Act;
(3) set forth the coverage provided by the Fund to
accomplish the purposes of this Act;
(4) provide for an audit of the books and records of the
Fund by the General Accounting Office;
(5) take appropriate action to collect premiums or
assessments under this Act; and
(6) audit the reports, claims, books, and records of
participating insurers.
(b) Reports From Insurers.--Participating insurers shall submit
reports on a quarterly or other basis (as required by the Secretary) to
the Secretary, the Federal Trade Commission, and the General Accounting
Office setting forth rates, premiums, risk analysis, coverage,
reserves, claims made for reimbursement from the Fund, and such
additional financial and actuarial information as the Secretary may
require regarding lines of coverage described in section 14(5)(A) or
14(5)(B).
(c) FTC Analysis and Enforcement.--The Federal Trade Commission
shall review the reports submitted under subsection (b), treating the
information contained in the reports as privileged and confidential,
for the purpose of determining whether any insurer is engaged in unfair
methods of competition or unfair or deceptive acts or practices in or
affecting commerce (within the meaning of section 5 of the Federal
Trade Commission Act (15 U.S.C. 45)).
(d) GAO Review.--The Comptroller General shall provide for review
and analysis of the reports submitted under subsection (b), and, if
necessary, provide of audit of reimbursement claims filed by insurers
with the Fund.
(e) Reports by Secretary.--No later than March 31st of each
calendar year, the Secretary shall transmit to the Senate Committee on
Commerce, Science, and Technology and the House of Representatives
Committee on Commerce an annual report on insurance rate increases for
the preceding calendar year in the United States based upon the reports
received by the Secretary under this Act. The Secretary may include in
the report a recommendation for legislation to impose Federal
regulation of insurance rates on covered lines of insurance if the
Secretary determines that premium rates for insurance on covered lines
of insurance are--
(1) unreasonable; and
(2) attributable to insurance for losses from acts of
terrorism.
SEC. 12. INAPPLICABILITY OF CERTAIN LAWS.
(a) In General.--State laws relating to insurance rates, insurance
policy forms, insurance rates on any covered lines of insurance
described in section 14(5)(A) or 14(5)(B), insurer financial
requirements, and insurer licensing do not apply to contracts entered
into by the Fund. The Fund is not subject to State tax and is exempt
from Federal income tax. The reinsurance contract premium paid and
assessments collected by insurers shall not be subject to local, State,
or Federal tax. The reinsurance contract premium and assessments
recovered from policyholders shall not be subject to local, State, or
Federal tax.
(b) Exception for Unfair Trade Practice Laws.--Notwithstanding
subsection (a), nothing in this Act supersedes or preempts a State law
that prohibits unfair methods of competition in commerce, unfair or
deceptive acts or practices in commerce, or unfair insurance claims
practices.
SEC. 13. SUNSET PROVISION.
(a) Assessment and Collection of Premiums.--The Secretary shall
continue the premium assessment and collection operations of the Fund
under this Act as long as loans due from the Fund to the United States
Treasury are outstanding.
(b) Provision of Reinsurance.--The Secretary shall suspend other
operations of the Fund for new contract years on the close of business
on December 31, 2004, and may suspend the offering of reinsurance
contracts for new contract years at any time before that date if the
Secretary determines that the reinsurance provided by the Fund is no
longer needed for covered lines due to market conditions.
(c) Review of Private Reinsurance Availability.--The Secretary
shall review the cost and availability of private reinsurance for acts
of terrorism at least annually and shall report the findings and any
recommendations to Congress by June 1 of each year the Fund is in
operation.
(d) Dissolution of Fund.--
(1) Distribution for reserves.--When the Secretary
determines that all Fund operations have been terminated, the
Secretary shall dissolve the Fund. Any unencumbered Fund assets
remaining after the satisfaction of all outstanding claims,
loans from the Treasury, and other liabilities of the Fund
shall be distributed, on a pro rata basis based on premiums
paid, to any insurer that--
(A) participated in the Fund during its operation;
and
(B) demonstrates, to the satisfaction of the
Secretary, that any amount received as a distribution
from the Fund will be permanently credited to a reserve
account maintained by that insurer against claims for
industrywide aggregate losses of $2,000,000,000 from--
(i) acts of terrorism in the United States;
or
(ii) the effects of earthquakes, volcanic
eruptions, tsunamis, or hurricanes.
(2) Retention requirement for tapping reserve.--Amounts
credited to a reserve under paragraph (a) may not be used by an
insurer to pay claims until the insurer has paid claims for
losses resulting from acts or events described in paragraph
(1)(B) in excess of 10 percent of that insurer's average gross
direct written premiums and policyholders' surplus for covered
lines for the most recently ended calendar year for which data
are available.
(3) Officer and director penalties for misuse of
reserves.--Any officer or director of an insurer who knowingly
authorizes or directs the use of any amount received from the
Fund under paragraph (1) for any purpose other than an
appropriate use of amounts in the reserve to which the amount
is credited shall be guilty of a Class E felony and sentenced
in accordance with the provisions of section 3551 of title 18,
United States Code.
(4) Residual distribution to treasury.--Any unencumbered
Fund assets remaining after the distribution under paragraph
(1) shall be covered into the Treasury of the United States as
miscellaneous receipts.
SEC. 14. DEFINITIONS.
In this Act:
(1) Secretary.--Except where otherwise specifically
provided, the term ``Secretary'' means the Secretary of
Commerce.
(2) NAIC.--The term ``NAIC'' means the National Association
of Insurance Commissioners.
(3) Fund.--The term ``Fund'' means the National Terrorism
Reinsurance Fund established under section 4.
(4) Participating insurer.--The term ``participating
insurer'' means every property and casualty insurer writing on
a direct basis a covered line or lines of insurance in any
jurisdiction of the United States, its territories, or
possessions, including residual market insurers.
(5) Covered line.--
(A) In general.--The term ``covered line'' means
any one or a combination of the following, written on a
direct basis, as reported by property and casualty
insurers in required financial reports on Statutory
Page 14 of the NAIC Annual Statement Blank:
(i) Fire.
(ii) Allied lines.
(iii) Commercial multiple peril.
(iv) Ocean marine.
(v) Inland marine.
(vi) Workers compensation.
(vii) Products liability.
(viii) Commercial auto no-fault (personal
injury protection), other commercial auto
liability, or commercial auto physical damage.
(ix) Aircraft (all peril).
(x) Fidelity and surety.
(xi) Burglary and theft.
(xii) Boiler and machinery.
(xiii) Any other line of insurance that is
reported by property and casualty insurers in
required financial reports on Statutory Page 14
of the NAIC Annual Statement Blank which is
voluntarily elected by an participating insurer
to be included in its reinsurance contract with
the Fund.
(B) Other lines.--For purposes of clause (xiii),
the lines of business that may be voluntarily selected
are the following:
(i) Farmowners multiple peril.
(ii) Homeowners multiple peril.
(iii) Mortgage guaranty.
(iv) Financial guaranty.
(v) Private passenger automobile insurance.
(C) Election.--The election to voluntarily include
another line of insurance, if made, must apply to all
affiliated insurers that are members of an insurer
group. Any voluntary election is on a one-time basis
and is irrevocable.
(6) Losses.--The term ``losses'' means direct incurred
losses from an act of terrorism for covered lines, plus defense
and cost containment expenses. Notwithstanding the preceding
sentence, a loss shall not be recognized as a loss for the
purpose of determining the amount of an insurer's retention or
reimbursement under this Act unless the claim for the loss has
been paid within 12 months after the terrorism event occurs and
other loss adjustments.
(7) Covered losses.--The term ``covered losses'' means
direct losses in excess of the participating insurer's
retention.
(8) Terrorism; act of terrorism.--
(A) In general.--The terms ``terrorism'' and ``act
of terrorism'' mean any act, certified by the Secretary
in concurrence with the Secretary of State and the
Attorney General, as a violent act or act dangerous to
human life, property or infrastructure, within the
United States, its territories and possessions, that is
committed by an individual or individuals acting on
behalf of foreign agents or foreign interests (other
than a foreign government) as part of an effort to
coerce or intimidate the civilian population of the
United States or to influence the policy or affect the
conduct of the United States government.
(B) Acts of war.--No act shall be certified as an
act of terrorism if the act is committed in the course
of a war declared by the Congress of the United States
or by a foreign government.
(C) Finality of certification.--Any certification,
or determination not to certify, by the Secretary under
subparagraph (A) is final and not subject to judicial
review.
(9) Insurer.--
(A) In general.--The term ``insurer'' means an
entity writing covered lines on a direct basis and
licensed as a property and casualty insurer, risk
retention group, or other entity authorized by law as a
residual market mechanism providing property or
casualty coverage in at least one jurisdiction of the
United States, its territories, or possessions.
(B) Voluntary participation.--A State workers'
compensation, auto, or property insurance Fund may
voluntarily participate as an insurer.
(10) Contract year.--The term ``contract year'' means the
period of time that obligations exist between a participating
insurer and the Fund for a given annual reinsurance contract.
(11) Retention.--The term ``retention'' means the level of
direct losses retained by a participating insurer for which the
insurer is not entitled to reimbursement by the Fund.
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