[Congressional Record Volume 147, Number 163 (Thursday, November 29, 2001)]
[Senate]
[Pages S12163-S12166]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HOLLINGS (for himself, Mrs. Boxer, and Mr. Wyden):
  S. 1743. A bill to create a temporary reinsurance mechanism to 
enhance the availability of terrorism insurance; to the Committee on 
Commerce, Science, and Transportation.
  Mr. HOLLINGS. Mr. President, in light of the need to provide 
additional capacity and reassurance to the insurance industry for 
terrorism risks without burdening the taxpayer, balanced with the need 
to protect consumers from excessive increased in commercial insurance 
rates, I rise today to introduce the National Terrorism Reinsurance 
Fund Act.
  This legislation will create a fund from assessments on the 
commercial insurance industry as a whole to for the purpose of 
providing a temporary backstop for terrorism losses for primary 
insurance companies doing business in the U.S. The Fund and assessment 
mechanisms would provide the first $50 billion of protection for the 
insurance industry. In addition to this fund, the bill provides a 
program to provide direct Federal aid on a temporary basis for losses 
over $50 billion, in order to increase insurance market capacity and 
ensure the availability of reinsurance in relation to acts of 
terrorism. The overall program is to last for 3 years only and is to be 
administered by the Secretary of Commerce.
  All terrorism-related events causing losses beyond $50 billion will 
be governed by a direct Federal grant program. Once a company has 
incurred losses of more than 10 percent of its premiums from the 
previous year, it can apply for assistance from the Fund and the 
Federal Government. For the first year, the government will cover up to 
90 percent of a company's losses. For the second and third years, the 
government will cover up to 80 percent of that company's losses. This 
aid will be applicable up to losses of $100 billion. For events casing 
losses beyond this amount, the Secretary is required to seek guidance 
from Congress. Additionally, provisions have been included to ensure 
the industry shoulders the appropriate financial responsibility and to 
prevent unreasonable increases in insurance rates.
  Simply put the legislation accomplishes the following goals: 1. it 
provides insurance companies the assistance they need to continue 
writing terrorism coverage; 2. it ensures the availability of insurance 
coverage for American businesses and consumers; 3. it avoids an 
unnecessary and potentially massive bailout of an insurance industry by 
forcing them to use their own resources to ensure the availability of 
terrorism reinsurance while setting direct Federal aid at levels 
sufficient to account for the industry's current positive 
capitalization; and 4. it strikes the right balance regarding the 
interests of industry, taxpayers and the consumers of insurance and the 
marketplace in general.
  I look forward to working with other Senators to obtain swift passage 
of this important legislation.
  I ask unanimous consent that the text of the bill be printed in the 
Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1743

       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:

[[Page S12164]]

       (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

[[Page S12165]]

       (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--
       (A) unreasonable; and
       (B) 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

[[Page S12166]]

     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.
                                 ______