[House Report 107-300]
[From the U.S. Government Publishing Office]



107th Congress                                            Rept. 107-300
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 2

======================================================================



 
                     TERRORISM RISK PROTECTION ACT

                                _______
                                

               November 19, 2001.--Ordered to be printed

                                _______
                                

    Mr. Thomas, from the Committee on Ways and Means, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3210]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Ways and Means, to whom was referred the 
bill (H.R. 3210) to ensure the continued financial capacity of 
insurers to provide coverage for risks from terrorism, having 
considered the same, report favorably thereon with an amendment 
and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
 I. Legislative Background and Summary................................9
        A. Purpose and Summary...................................     9
        B. Background and Need for Legislation...................     9
        C. Legislative History...................................    10
II. Explanation of the Revenue Provisions of the Bill................10
        A. Study of Reserves for Property and Casualty Insurance 
            for Terrorist or Other Catastrophic Events...........    10
III.Vote of the Committee............................................12

IV. Budget Effects of the Bill.......................................13
        A. Committee Estimate of Budgetary Effects...............    13
        B. Statement Regarding New Budget Authority and Tax 
            Expenditures Budget Authority........................    13
        C. Cost Estimate Prepared by the Congressional Budget 
            Office...............................................    13
 V. Other Matters To Be Discussed Under the Rules of the House.......20
        A. Committee Oversight Findings and Recommendations......    20
        B. Statement of General Performance Goals and Objectives.    21
        C. Constitutional Authority Statement....................    21
        D. Information Relating to Unfunded Mandates.............    21
        E. Applicability of House Rule XXI 5(b)..................    21
        F. Tax Complexity Analysis...............................    21
VI. Changes in Existing Law Made by the Bill, as Reported............22

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Terrorism Risk 
Protection Act''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title and table of contents.
Sec. 2. Congressional findings.
Sec. 3. Designation of Administrators.
Sec. 4. Submission of premium information to Administrator.
Sec. 5. Triggering determination and covered period.
Sec. 6. Federal cost-sharing for commercial insurers.
Sec. 7. Assessments.
Sec. 8. Terrorism loss repayment surcharge.
Sec. 9. Administration of assessments and surcharges.
Sec. 10. Study of reserves for property and casualty insurance for 
terrorist or other catastrophic events.
Sec. 11. State preemption.
Sec. 12. Consistent State guidelines for coverage for acts of 
terrorism.
Sec. 13. Consultation with State insurance regulators and NAIC.
Sec. 14. Sovereign immunity protections.
Sec. 15. Study of potential effects of terrorism on life insurance 
industry.
Sec. 16. Definitions.
Sec. 17. Extension of program.
Sec. 18. Regulations.

SEC. 2. CONGRESSIONAL FINDINGS.

  The Congress finds that--
          (1) the terrorist attacks on the World Trade Center and the 
        Pentagon of September 11, 2001, resulted in a large number of 
        deaths and injuries, the destruction and damage to buildings, 
        and interruption of business operations;
          (2) the attacks have inflicted possibly the largest losses 
        ever incurred by insurers and reinsurers;
          (3) while the insurance and reinsurance industries have 
        committed to pay the losses arising from the September 11 
        attacks, the resulting disruption has created widespread market 
        uncertainties with regard to the risk of losses arising from 
        possible future terrorist attacks;
          (4) such uncertainty threatens the continued availability of 
        United States commercial property casualty insurance for 
        terrorism risk at meaningful coverage levels;
          (5) the unavailability of affordable commercial property and 
        casualty insurance for terrorist acts threatens the growth and 
        stability of the United States economy, including impeding the 
        ability of financial services providers to finance commercial 
        property acquisitions and new construction;
          (6) in the past, the private insurance markets have shown a 
        remarkable resiliency in adapting to changed circumstances;
          (7) given time, the private markets will diversify and 
        develop risk spreading mechanisms to increase capacity and 
        guard against possible future losses incurred by terrorist 
        attacks;
          (8) it is necessary to create a temporary industry risk 
        sharing loan program to ensure the continued availability of 
        commercial property and casualty insurance and reinsurance for 
        terrorism-related risks;
          (9) such action is necessary to limit immediate market 
        disruptions, encourage economic stabilization, and facilitate a 
        transition to a viable market for private terrorism risk 
        insurance; and
          (10) in addition, it is necessary promptly to conduct a study 
        of whether there is a need for reserves for property and 
        casualty insurance for terrorist or other catastrophic events.

SEC. 3. DESIGNATION OF ADMINISTRATORS.

  (a) In General.--Not later than December 1, 2001, the President shall 
designate a Federal officer or officers to act as the Administrator or 
Administrators responsible for carrying out this Act and the 
responsibilities under this Act to be carried out by each such officer.
  (b) Sense of Congress.--It is the sense of the Congress that in 
determining the Administrator responsible for making any 
determinations, for purposes of this Act, as to whether a loss was 
caused by an act of terrorism and whether such loss was caused by one 
or multiple such events, pursuant to section 5(b), the President should 
consider the appropriate role of the Assistant to the President for 
Homeland Security.

SEC. 4. SUBMISSION OF PREMIUM INFORMATION TO ADMINISTRATOR.

  To the extent such information is not otherwise available to the 
Administrators, the appropriate Administrator may require each insurer 
to submit, to the appropriate Administrator or to the NAIC, a statement 
specifying the aggregate premium amount of coverage written by such 
insurer for properties and persons in the United States under each line 
of commercial property and casualty insurance sold by such insurer 
during such periods as the appropriate Administrator may provide.

SEC. 5. TRIGGERING DETERMINATION AND COVERED PERIOD.

  (a) In General.--For purposes of this Act, a ``triggering 
determination'' is a determination by the appropriate Administrator 
that the insured losses resulting from the event of an act of terrorism 
occurring during the covered period (as such term is defined in 
subsection (b)), or the aggregate insured losses resulting from 
multiple events of acts of terrorism all occurring during the covered 
period, meet the requirements under either of the following paragraphs:
          (1) Industry-wide loss test.--Such industry-wide losses 
        exceed $1,000,000,000.
          (2) Capital surplus and industry aggregate test.--Such 
        industry-wide losses exceed $100,000,000 and some portion of 
        such losses for any single commercial insurer exceed--
                  (A) 10 percent of the capital surplus of such 
                commercial insurer (as such term is defined by the 
                appropriate Administrator); and
                  (B) 10 percent of the commercial property and 
                casualty premiums written by such commercial 
                insurer; except that this paragraph shall not apply 
                to any commercial insurer that has been making 
                commercial property and casualty insurance 
                coverage available for less than 4 years as of the 
                date of the determination under this subsection.
  (b) Covered Period.--For purposes of this Act, the ``covered period'' 
is the period beginning on the date of the enactment of this Act and 
ending on January 1, 2003.
  (c) Determinations Regarding Events.--For purposes of subsection (a), 
the appropriate Administrator shall have the sole authority for 
determining whether--
          (1) an occurrence or event was caused by an act of terrorism;
          (2) insured losses from acts of terrorism were caused by one 
        or multiple events or occurrences; and
          (3) whether an act of terrorism occurred during the covered 
        period.

SEC. 6. FEDERAL COST-SHARING FOR COMMERCIAL INSURERS.

  (a) In General.--Pursuant to a triggering determination, the 
appropriate Administrator shall provide financial assistance to 
commercial insurers in accordance with this section to cover insured 
losses resulting from acts of terrorism, which shall be repaid in 
accordance with subsection (e).
  (b) Amount.--Subject to subsection (c), with respect to a triggering 
determination, the amount of financial assistance made available under 
this section to each commercial insurer shall be equal to 90 percent of 
the amount of the insured losses of the insurer as a result of the 
triggering event involved.
  (c) Aggregate Limitation.--The aggregate amount of financial 
assistance provided pursuant to this section may not exceed 
$100,000,000,000.
  (d) Limitations.--The appropriate Administrator may establish such 
limitations as may be necessary to ensure that payments under this 
section in connection with a triggering determination are made only to 
commercial insurers that are not in default of any obligation under 
section 7 to pay assessments or under section 8 to collect surcharges.
  (e) Repayment.--Financial assistance made available under this 
section shall be repaid through assessments under section 7 collected 
by the appropriate Administrator and surcharges remitted to the 
appropriate Administrator under section 8. Any such amounts collected 
or remitted shall be deposited into the general fund of the Treasury.
  (f) Emergency Designation.--Congress designates the amount of new 
budget authority and outlays in all fiscal years resulting from this 
section as an emergency requirement pursuant to section 252(e) of the 
Balanced Budget and Emergency Deficit Control Act of 1985 (2 U.S.C. 
901(e)). Such amount shall be available only to the extent that a 
request, that includes designation of such amount as an emergency 
requirement as defined in such Act, is transmitted by the President to 
Congress.

SEC. 7. ASSESSMENTS.

  (a) In General.--In the case of a triggering determination, each 
commercial insurer shall be subject to assessments under this section 
for the purpose of repaying financial assistance made available under 
section 6 in connection with such determination.
  (b) Aggregate Assessment.--Pursuant to a triggering determination, 
the appropriate Administrator shall determine the aggregate amount to 
be assessed among all commercial insurers, which shall be equal to 90 
percent of the lesser of--
          (1) the amount of industry-wide losses resulting from the 
        triggering event involved; and
          (2) $20,000,000,000.
  (c) Allocation of Assessment.--
          (1) In general.--The appropriate Administrator shall allocate 
        the aggregate assessment amount determined under subsection (b) 
        among all commercial insurers. The portion of the aggregate 
        assessment amount that is allocated as an assessment on each 
        commercial insurer shall be based on the percentage, written by 
        that insurer, of the aggregate written premium, for all 
        commercial insurers, for the calendar year preceding the 
        assessment.
          (2) Payment requirement.--Upon notification by the 
        appropriate Administrator of an assessment under this section, 
        each commercial insurer shall be required to pay to the 
        appropriate Administrator, in the manner provided under section 
        9 by the appropriate Administrator, the amount equal to the 
        assessment on such commercial insurer (subject to the 
        limitation under paragraph (3)).
          (3) Annual limitation on amount allocated to each commercial 
        insurer.--
                  (A) In general.--Of any assessments under this 
                section on a commercial insurer, the portion required 
                to be paid by any commercial insurer during a calendar 
                year shall not exceed the amount that is equal to 3 
                percent of the aggregate written premium for such 
                insurer for the preceding calendar year.
                  (B) Multiple payments.--If any amounts required to be 
                repaid under this section for a calendar year are 
                limited by operation of subparagraph (A), the 
                appropriate Administrator shall provide that all such 
                remaining amounts shall be reallocated among all 
                commercial insurers (in the manner provided in 
                paragraph (1)) over such immediately succeeding 
                calendar years, and repaid over such years, as may be 
                necessary to provide for full payment of such remaining 
                amounts, except that the limitation under subparagraph 
                (A) shall apply to the amounts paid in any such 
                successive calendar years.
                  (C) Administrative flexibility.--
                          (i) Timing of assessments.--Assessments under 
                        this section in connection with a triggering 
                        demonstration shall be made, to the extent that 
                        the appropriate Administrator considers 
                        practicable and appropriate, at the beginning 
                        of the calendar year immediately following the 
                        triggering determination.
                          (ii) Estimates and corrections.--If the 
                        appropriate Administrator makes an assessment 
                        at a time other than provided under clause (i), 
                        the appropriate Administrator may--
                                  (I) require commercial insurers to 
                                estimate their aggregate written 
                                premiums for the year in which the 
                                assessment is made; and
                                  (II) make a subsequent refund or 
                                require additional payments to correct 
                                such estimation at the end of the 
                                calendar year.
          (4) Deferral of contributions.--The appropriate Administrator 
        may defer the payment of part or all of the assessment required 
        under paragraph (2) to be paid by a commercial insurer, but 
        only to the extent that the appropriate Administrator 
        determines that such deferral is necessary to avoid the likely 
        insolvency of the commercial insurer.

SEC. 8. TERRORISM LOSS REPAYMENT SURCHARGE.

  (a) Imposition and Collection.--If, pursuant to a triggering 
determination, the appropriate Administrator determines that the 
aggregate amount of industry-wide losses resulting from the triggering 
event involved exceeds $20,000,000,000, the appropriate Administrator 
shall--
          (1) establish and impose a policyholder premium surcharge, as 
        provided under this section, on commercial property and 
        casualty insurance written after such determination, for the 
        purpose of repaying financial assistance made available under 
        section 6 in connection with such triggering determination; and
          (2) provide for commercial insurers to collect such surcharge 
        and remit amounts collected to the appropriate Administrator.
  (b) Amount and Duration.--The surcharge under this section shall be 
established in such amount, and shall apply to commercial property and 
casualty insurance written during such period, as the appropriate 
Administrator determines is necessary to recover the aggregate amount 
of financial assistance provided under section 6 to cover insured 
losses resulting from the triggering event that exceed $20,000,000,000.
  (c) Other Terms.--The surcharge under this section shall--
          (1) be based on a percentage of the amount of commercial 
        property and casualty insurance coverage that a policy 
        provides; and
          (2) be imposed with respect to all commercial property and 
        casualty insurance coverage written during the period referred 
        to in subsection (b).

SEC. 9. ADMINISTRATION OF ASSESSMENTS AND SURCHARGES.

  (a) Manner and Method.--The appropriate Administrator shall provide 
for the manner and method of carrying out assessments under section 7 
and surcharges under section 8, including the timing and procedures of 
making assessments and surcharges, notifying commercial insurers of 
assessments or surcharge requirements, collecting payments from and 
surcharges through commercial insurers, and refunding of any excess 
amounts paid or crediting such amounts against future assessments.
  (b) Timing of Coverages and Assessments.--The appropriate 
Administrator may adjust the timing of coverages and assessments 
provided under this Act to provide for equivalent application of the 
provisions of this Act to commercial insurers and policies that are not 
based on a calendar year.
  (c) Application to Self-Insurance Arrangements.--The appropriate 
Administrator may, in consultation with the NAIC, apply the provisions 
of this Act, asappropriate, to self-insurance arrangements by 
municipalities and other entities, but only if such application is 
determined before the occurrence of a triggering event and all of the 
provisions of this Act are applied uniformly to such entities.
  (d) Adjustment.--The appropriate Administrator may adjust the 
assessments charged under section 7 or the percentage imposed under the 
surcharge under section 8 at any time, as the appropriate Administrator 
considers appropriate to protect the national interest, which may 
include avoiding unreasonable economic disruption or excessive market 
instability.

SEC. 10. STUDY OF RESERVES FOR PROPERTY AND CASUALTY INSURANCE FOR 
                    TERRORIST OR OTHER CATASTROPHIC EVENTS.

  (a) In General.--The Secretary of the Treasury shall conduct a study 
of issues relating to permitting property and casualty insurance 
companies to establish deductible reserves against losses for future 
acts of terrorism, including--
          (1) whether such tax-favored reserves would promote (A) 
        insurance coverage of risks of terrorism and (B) the 
        accumulation of additional resources needed to satisfy 
        potential claims resulting from such risks,
          (2) the lines of business for which such reserves would be 
        appropriate, including whether such reserves should be applied 
        to personal or commercial lines of business,
          (3) how the amount of such reserves would be determined,
          (4) how such reserves would be administered,
          (5) a comparison of the Federal tax treatment of such 
        reserves with other insurance reserves permitted under Federal 
        tax laws,
          (6) an analysis of the use of tax-favored reserves for 
        catastrophic events, including acts of terrorism, under the tax 
        laws of foreign countries, and
          (7) whether it would be appropriate to permit similar 
        reserves for other future catastrophic events, such as natural 
        disasters, taking into account the factors under the preceding 
        paragraphs.
  (b) Report.--Not later than 4 months after the date of the enactment 
of this Act, the Secretary of the Treasury shall submit a report to 
Congress on the results of the study under subsection (a), together 
with recommendations for amending the Internal Revenue Code of 1986 or 
other appropriate action.

SEC. 11. STATE PREEMPTION.

  (a) Covered Perils.--A commercial insurer shall be considered to have 
complied with any State law that requires or regulates the provision of 
insurance coverage for acts of terrorism if the insurer provides 
coverage in accordance with the definitions regarding acts of terrorism 
under the regulations issued by the Administrators.
  (b) Rate Laws.--If any provision of any State law prevents an insurer 
from increasing its premium rates in an amount necessary to recover any 
assessments pursuant to section 7, such provision is preempted only to 
the extent necessary to provide for such insurer to recover such 
losses.
  (c) File and Use.--With respect only to commercial property and 
casualty insurance covering acts of terrorism, any provision of State 
law that requires, as a condition precedent to the effectiveness of 
rates or policies for such insurance that is made available by an 
insurer licensed to transact such business in the State, any action 
(including prior approval by the State insurance regulator for such 
State) other than filing of such rates and policies and related 
information with such State insurance regulator is preempted to the 
extent such law requires such additional actions for such insurance 
coverage. This subsection shall not be considered to preempt a 
provision of State law solely because the law provides that rates and 
policies for such insurance coverage are, upon such filing, subject to 
subsequent review and action, which may include actions to disapprove 
or discontinue use of such rates or policies, by the State insurance 
regulator.

SEC. 12. CONSISTENT STATE GUIDELINES FOR COVERAGE FOR ACTS OF 
                    TERRORISM.

  (a) Sense of Congress Regarding Covered Perils.--It is the sense of 
the Congress that--
          (1) the NAIC, in consultation with the appropriate 
        Administrator, should develop appropriate definitions for acts 
        of terrorism and appropriate standards for making 
        determinations regarding events or occurrences of acts of 
        terrorism;
          (2) each State should adopt the definitions and standards 
        developed by the NAIC for purposes of regulating insurance 
        coverage made available in that State;
          (3) in consulting with the NAIC, the appropriate 
        Administrator should advocate and promote the development of 
        definitions and standards that are appropriate for purposes of 
        this Act; and
          (4) after consultation with the NAIC, the appropriate 
        Administrator should adopt definitions for acts of terrorism 
        and standards for determinations that are appropriate for this 
        Act.
  (b) Insurance Reserve Guidelines.--
          (1) Sense of congress regarding adoption by states.--It is 
        the sense of the Congress that--
                  (A) the NAIC should develop appropriate guidelines 
                for commercial insurers and pools regarding maintenance 
                of reserves against the risks of acts of terrorism; and
                  (B) each State should adopt such guidelines for 
                purposes of regulating commercial insurers doing 
                business in that State.
          (2) Consideration of adoption of national guidelines.--Upon 
        the expiration of the 6-month period beginning on the date of 
        the enactment of this Act, the appropriate Administrator shall 
        make a determination of whether the guidelines referred to in 
        paragraph (1) have, by such time, been developed and adopted by 
        nearly all States in a uniform manner. If the appropriate 
        Administrator determines that such guidelines have not been so 
        developed and adopted, the appropriate Administrator shall 
        consider adopting, and may adopt, such guidelines on a national 
        basis in a manner that would supercede any State law regarding 
        maintenance of reserves against such risks.
  (c) Guidelines Regarding Disclosure of Pricing and Terms of 
Coverage.--
          (1) Sense of congress.--It is the sense of the Congress that 
        the States should require, by laws or regulations governing the 
        provision of commercial property and casualty insurance that 
        includes coverage for acts of terrorism, that the price of any 
        such terrorism coverage, including the costs of any terrorism 
        related assessments or surcharges under this Act, be separately 
        disclosed.
          (2) Adoption of national guidelines.--If the appropriate 
        Administrator determines that the States have not enacted laws 
        or adopted regulations adequately providing for the disclosures 
        described in paragraph (1) within a reasonable period of time 
        after the date of the enactment of this Act, the appropriate 
        Administrator shall, after consultation with the NAIC, adopt 
        guidelines on a national basis requiring such disclosure in a 
        manner that supercedes any State law regarding such disclosure.

SEC. 13. CONSULTATION WITH STATE INSURANCE REGULATORS AND NAIC.

  The Administrators shall consult with the State insurance regulators 
and the NAIC in carrying out this Act. The Administrators may take such 
actions, including entering into such agreements and providing such 
technical and organizational assistance to insurers and State insurance 
regulators, as may be necessary to provide for the distribution of 
financial assistance under section 6 and the collection of assessments 
under section 7 and surcharges under section 8.

SEC. 14. SOVEREIGN IMMUNITY PROTECTIONS.

  (a) Federal Cause of Action for Damages From Terrorist Acts Resulting 
in Triggering Determination.--
          (1) In general.--If a triggering determination occurs 
        requiring an assessment under section 7 or a surcharge under 
        section 8, there shall exist a Federal cause of action, which 
        shall be the exclusive remedy, for damages claimed pursuant to, 
        or in connection with, any acts of terrorism that caused the 
        insured losses resulting in such triggering determination.
          (2) Substantive law.--The substantive law for decision in any 
        such action shall be derived from the law, including choice of 
        law principles, of the State in which such act of terrorism 
        occurred, unless such law is inconsistent with or preempted by 
        Federal law.
          (3) Jurisdiction.--Pursuant to each triggering determination, 
        the Judicial Panel on Multidistrict Litigation shall designate 
        one or more district courts of the United States which shall 
        have original and exclusive jurisdiction over all actions 
        brought pursuant to this subsection that arise out of the 
        triggering event involved.
          (4) Offset for relief payments.--Any recovery by a plaintiff 
        in an action under this subsection shall be offset by the 
        amount, if any, received by the plaintiff from the United 
        States pursuant to any emergency or disaster relief program, or 
        from any other collateral source, for compensation of losses 
        related to the act of terrorism involved.
  (b) Damages in Actions Regarding Insurance Claims.--In an action 
brought under this section for damages claimed by an insured pursuant 
to, or in connection with, any commercial property and casualty 
insurance providing coverage for acts of terrorism that resulted in a 
triggering determination:
          (1) Prohibition of punitive damages.--No punitive damages 
        intended to punish or deter may be awarded.
          (2) Noneconomic damages.--
                  (A) In general.--Each defendant in such an action 
                shall be liable only for the amount of noneconomic 
                damages allocated to the defendant in direct proportion 
                to the percentage of responsibility of the defendant 
                for the harm to the claimant.
                  (B) Definition.--For purposes of subparagraph (A), 
                the term ``noneconomic damages'' means damages for 
                losses for physical and emotional pain, suffering, 
                inconvenience, physical impairment, mental anguish, 
                disfigurement, loss of enjoyment of life, loss of 
                society and companionship, loss of consortium, hedonic 
                damages, injury to reputation, and any other 
                nonpecuniary losses of any kind or nature.
  (c) Right of Subrogation.--The United States shall have the right of 
subrogation with respect to any claim paid by the United States under 
this Act.
  (d) Protective Orders.--The United States or any appropriate 
Administrator carrying out responsibilities under this Act may seek 
protective orders or assert privileges ordinarily available to the 
United States to protect against the disclosure of classified 
information, including the invocation of the military and State secrets 
privilege.

SEC. 15. STUDY OF POTENTIAL EFFECTS OF TERRORISM ON LIFE INSURANCE 
                    INDUSTRY.

  (a) Establishment.--Not later than 30 days after the date of 
enactment of this Act, the President shall establish a commission (in 
this section referred to as the ``Commission'') to study and report on 
the potential effects of an act or acts of terrorism on the life 
insurance industry in the United States and the markets served by such 
industry.
  (b) Membership and Operations.--
          (1) Appointment.--The Commission shall consist of 5 members, 
        as follows:
                  (A) The appropriate Administrator, as designated by 
                the President.
                  (C) 4 members appointed by the President, who shall 
                be--
                          (i) a representative of direct underwriters 
                        of life insurance within the United States;
                          (ii) a representative of reinsurers of life 
                        insurance within the United States;
                          (iii) an officer of the NAIC; and
                          (iv) a representative of insurance agents for 
                        life underwriters.
          (2) Operations.--The chairperson of the Commission shall 
        determine the manner in which the Commission shall operate, 
        including funding, staffing, and coordination with other 
        governmental entities.
  (c) Study.--The Commission shall conduct a study of the life 
insurance industry in the United States, which shall identify and make 
recommendations regarding--
          (1) possible actions to encourage, facilitate, and sustain 
        provision by the life insurance industry in the United States 
        of coverage for losses due to death or disability resulting 
        from an act or acts of terrorism, including in the face of 
        threats of such acts; and
          (2) possible actions or mechanisms to sustain or supplement 
        the ability of the life insurance industry in the United States 
        to cover losses due to death or disability resulting from an 
        act or acts of terrorism in the event that--
                  (A) such acts significantly affect mortality 
                experience of the population of the United States over 
                any period of time;
                  (B) such loses jeopardize the capital and surplus of 
                the life insurance industry in the United States as a 
                whole; or
                  (C) other consequences from such acts occur, as 
                determined by the Commission, that may significantly 
                affect the ability of the life insurance industry in 
                the United States to independently cover such losses.
  (d) Recommendations.--The Commission may make a recommendation 
pursuant to subsection (c) only upon the concurrence of a majority of 
the members of the Commission.
  (e) Report.--Not later than 120 days after the date of enactment of 
this Act, the Commission shall submit to the House of Representatives 
and the Senate a report describing the results of the study and any 
recommendations developed under subsection (c).
  (f) Termination.--The Commission shall terminate 60 days after 
submission of the report as provided for in subsection (e).

SEC. 16. DEFINITIONS.

  For purposes of this Act, the following definitions shall apply:
          (1) Act of terrorism.--
                  (A) In general.--The term ``act of terrorism'' means 
                any act that the appropriate Administrator determines 
                meets the requirements under subparagraph (B), as such 
                requirements are further defined and specified by the 
                appropriate Administrator in consultation with the 
                NAIC.
                  (B) Requirements.--An act meets the requirements of 
                this subparagraph if the act--
                          (i) is unlawful;
                          (ii) causes harm to a person, property, or 
                        entity, in the United States;
                          (iii) is committed by a group of persons or 
                        associations who--
                                  (I) are not a government of a foreign 
                                country or the de facto government of a 
                                foreign country; and
                                  (II) are recognized by the Department 
                                of State or the appropriate 
                                Administrator as a terrorist group or 
                                have conspired with such a group or the 
                                group's agents or surrogates; and
                          (iv) has as its purpose to overthrow or 
                        destabilize the government of any country or to 
                        influence the policy or affect the conduct of 
                        the government of the United States by 
                        coercion.
          (2) Appropriate administrators.--The term ``appropriate 
        Administrator'' means, with respect to any function or 
        responsibility of the Federal Government under this Act, the 
        Federal officer designated by the President pursuant to section 
        3 as responsible for carrying out such function or 
        responsibility.
          (3) Affiliate.--The term ``affiliate'' means, with respect to 
        an insurer, any company that controls, is controlled by, or is 
        under common control with the insurer.
          (4) Aggregate written premium.--The term ``aggregate written 
        premium'' means, with respect to a year, the aggregate premium 
        amount of all commercial property and casualty insurance 
        coverage written during such year for persons or properties in 
        the United States under all lines of commercial property and 
        casualty insurance.
          (5) Commercial insurance.--The term ``commercial insurance'' 
        means property and casualty insurance that is not insurance for 
        homeowners, tenants, private passenger nonfleet automobiles, 
        mobile homes, or other insurance for personal, family, or 
        household needs.
          (6) Commercial insurer.--The term ``commercial insurer'' 
        means any corporation, association, society, order, firm, 
        company, mutual, partnership, individual, aggregation of 
        individuals, or any other legal entity that is engaged in the 
        business of providing commercial property and casualty 
        insurance for persons or properties in the United States. Such 
        term includes any affiliates of a commercial insurer.
          (7) Commercial property and casualty insurance.--The term 
        ``commercial property and casualty insurance'' means property 
        and casualty insurance that is commercial insurance.
          (8) Control.--A company has control over another company if--
                  (A) the company directly or indirectly or acting 
                through one or more other persons owns, controls, or 
                has power to vote 25 percent or more of any class of 
                voting securities of the other company;
                  (B) the company controls in any manner the election 
                of a majority of the directors or trustees of the other 
                company; or
                  (C) the appropriate Administrator determines, after 
                notice and opportunity for hearing, that the company 
                directly or indirectly exercises a controlling 
                influence over the management or policies of the other 
                company.
          (9) Covered period.--The term ``covered period'' has the 
        meaning given such term in section 5(b).
          (10) Industry-wide losses.--The term ``industry-wide losses'' 
        means the aggregate insured losses sustained by all insurers, 
        from coverage written for persons or properties in the United 
        States, under all lines of commercial property and casualty 
        insurance.
          (11) Insured loss.--The term ``insured loss'' means any loss 
        in the United States covered by commercial property and 
        casualty insurance.
          (12) Insurer.--The term ``insurer'' means any corporation, 
        association, society, order, firm, company, mutual, 
        partnership, individual, aggregation of individuals, or any 
        other legal entity that is engaged in the business of providing 
        property and casualty insurance for persons or properties in 
        the United States. Such term includes any affiliates of an 
        insurer.
          (13) NAIC.--The term ``NAIC'' means the National Association 
        of Insurance Commissioners.
          (14) Property and casualty insurance.--The term ``property 
        and casualty insurance'' means insurance against--
                  (A) loss of or damage to property;
                  (B) loss of income or extra expense incurred because 
                of loss of or damage to property; and
                  (C) third party liability claims caused by negligence 
                or imposed by statute or contract.
        Such term does not include health or life insurance.
          (15) State.--The term ``State'' means the States of the 
        United States, the District of Columbia, the Commonwealth of 
        Puerto Rico, the Commonwealth of the Northern Mariana Islands, 
        Guam, the Virgin Islands, American Samoa, and any other 
        territory or possession of the United States.
          (16) State insurance regulator.--The term ``State insurance 
        regulator'' means, with respect to a State, the principal 
        insurance regulatory authority of the State.
          (17) Triggering determination.--The term ``triggering 
        determination'' has the meaning given such term in section 
        5(a).
          (18) Triggering event.--The term ``triggering event'' means, 
        with respect to a triggering determination, the event of an act 
        of terrorism, or the events of such acts, that caused the 
        insured losses resulting in such triggering determination.
          (19) United states.--The term ``United States'' means, 
        collectively, the States (as such term is defined in this 
        section).

SEC. 17. EXTENSION OF PROGRAM.

  (a) Authority.--If the appropriate Administrator determines that 
action under this section is necessary to ensure the adequate 
availability in the United States of commercial property and casualty 
insurance coverage for acts of terrorism, the appropriate Administrator 
may provide that the provisions of this Act shall continue to apply 
with respect to a period or periods, as established by the 
Administrator, that begin after the expiration of the covered period 
specified in section 5(b) and end before January 1, 2005.
  (b) Covered Period.--If the appropriate Administrator exercises the 
authority under subsection (a), notwithstanding section 5(b) and 
section 16(9), the period or periods established by the appropriate 
Administrator shall be considered to be the covered period for purposes 
of this Act.

SEC. 18. REGULATIONS.

  The appropriate Administrators shall issue any regulations necessary 
to carry out this Act.

                       I. SUMMARY AND BACKGROUND


                         A. Purpose and Summary

    The bill, H.R. 3210, as amended (the ``Terrorism Risk 
Protection Act''), serves to ensure the continued financial 
capacity of insurers to provide coverage for risks from 
terrorism.
    The revenue provisions of the bill provide for a study 
relating to tax reserves for property and casualty insurance 
for terrorist or other catastrophic events.

                 B. Background and Need for Legislation

    The terrorist attacks of September 11, 2001, in addition to 
causing injuries and loss of life, have caused destruction and 
damage to buildings and interruption of business operations. 
The attacks resulted in new uncertainties with regard to the 
risk of losses arising from possible future terrorist attacks, 
necessitating a study of issues relating to tax reserves for 
property and casualty insurance for terrorist or other 
catastrophic events.

                         C. Legislative History

    H.R. 3210, the ``Terrorism Risk Protection Act,'' was 
introduced November 1, 2001, by Mr. Oxley, and referred to the 
Committee on Financial Services, and in addition to the 
Committees on Ways and Means, and the Budget. The bill was 
marked up in the Financial Services Committee of the House on 
November 7, 2001, and ordered to be reported as amended. The 
bill, as introduced, includes a provision relating to a tax 
reserve for terrorism coverage under commercial lines of 
business that is within the jurisdiction of the Committee on 
Ways and Means of the House.

                            COMMITTEE ACTION

    The Committee on Ways and Means marked up the revenue 
provisions of the bill on November 16, 2001, and reported the 
provisions, as amended, on November 16, 2001, by a voice vote, 
with a quorum present.

         II. EXPLANATION OF THE REVENUE PROVISIONS OF THE BILL


A. Study of Reserves for Property and Casualty Insurance for Terrorist 
           or Other Catastrophic Events (sec. 10 of the bill)


                       Present Law and Background

Present law

    In determining taxable income, a property and casualty 
insurance company includes its underwriting and investment 
income or loss (sec. 832(b)(1)(A)). Underwriting income 
generally means the premiums earned on insurance contracts 
during the taxable year, reduced by the amount of the deduction 
allowed for additions to reserves for losses incurred and for 
expenses incurred (sec. 832(b)(2)). The amount of premiums 
earned means gross premiums for the year, reduced by the 
increase in unearned premiums (those which are treated as 
earned in a future year).\1\ The amount of losses incurred 
includes the increase in discounted unpaid losses (sec. 
832(b)(5)(A) (ii)). Unpaid losses are discounted separately for 
each line of business, applying tax discounting rules that take 
account partially of the time value of money (sec. 846). In 
general, unpaid losses mean the amount of unpaid losses 
reflected on the annual statement approved by the National 
Association of Insurance Commissioners that the taxpayer is 
required to file with insurance regulatory authorities of a 
State. Generally, this amount includes losses incurred that 
have been reported to the company, and also losses that have 
been incurred but not reported, but not losses that have not 
been incurred.
---------------------------------------------------------------------------
    \1\ Section 832(b)(4). A property and casualty insurance company 
generally is required to reduce its deduction for increases in unearned 
premiums by 20 percent, to limit mismatching of income and expenses.
---------------------------------------------------------------------------

Description of H.R. 3210 as introduced

            Non-tax provisions
    The bill, as introduced, provides for temporary Federal 
government cost-sharing for commercial insurers of up to $100 
billion, for 90 percent of the amount of insured losses 
resulting from acts of terrorism in the event of a ``triggering 
determination'' during the period from date of enactment to 
January 1, 2003. The financial assistance is to be repaid 
through assessments and surcharges. The bill provides for 
assessments by a Federal government administrator against 
property and casualty insurers, and surcharges against property 
and casualty insurance policyholders, following the occurrence 
of a triggering determination. The triggering determinations 
include the events that (1) industry-wide terrorism losses 
exceed $1 billion for the year; and (2) industry-wide losses 
exceed $100 million for the year and exceed 10 percent of the 
capital surplus of, and 10 percent of the commercial insurance 
premiums written by, any single insurer (among other criteria).
            Tax provisions
    The bill as introduced provides a permanent rule allowing 
an additional deduction to property and casualty insurers for 
increases in a ``terrrorism commercial business reserve.'' 
Under the bill, the terrorism commercial business reserve means 
an amount held in a segregated account (or other separately 
identifiable arrangement or account) that is set aside to pay 
or to reinsure future unaccrued claims arising from declared 
terrorism losses, or to pay other claims if directed by a State 
insurance commissioner to avoid the company's insolvency. An 
increase in the reserve for any taxable year is treated as 
deductible, and a decrease in the reserve for a taxable year is 
includable in the company's income.
    The amount of the reserve allowed to any particular 
property and casualty insurance company is determined as that 
company's allocable share of a national limit of $40 billion 
($13.34 billion for 2002). The $40 billion amount is a 
cumulative total, and is increased for inflation after 2002. 
The company's share of this national limit for any calendar 
year is determined by the ratio of (1) the company's net 
written premiums for commercial lines of business that cover 
declared terrorism losses, to (2) net written premiums for all 
companies for commercial lines of business that cover declared 
terrorism losses.
    If in any taxable year, a company's deduction exceeds its 
share of the national limit, then the excess is included in 
income for the next taxable year. If the excess is distributed 
out of the account for the reserve, then the excess is not 
taken into account in determining the opening balance of the 
reserve for the next year.
    Under the bill, a declared terrorism loss means the amount 
of losses and loss adjustment expenses incurred in commercial 
lines of business, as well as any nonrecoverable assessments, 
surcharges, or other liabilities that are borne by the company, 
that are attributable to a declared terrorism event. A declared 
terrorism event means any event declared by the President to be 
an act of terrorism against the United States for purposes of 
this provision.
    Effective date.--The tax provisions of the bill are 
effective for taxable years beginning after December 31, 2001.

                           Reasons for Change

    The Committee believes that changes in the market for 
property and casualty insurance covering risks of terrorist 
acts following the events of September 11, 2001, necessitate a 
prompt study of the issues relating to permitting property and 
casualty insurance companies to establish deductible reserves 
against losses for future acts of terrorism (as well as for 
other future catastrophes, such as natural disasters).

                        Explanation of Provision

    The provision deletes the tax provisions of H.R. 3210 as 
introduced.
    The provision requires the Secretary of the Treasury to 
conduct a study of issues relating to permitting property and 
casualty insurance companies to establish deductible reserves 
against losses for future acts of terrorism. No later than 4 
months after the date of enactment, the Secretary is required 
to report to Congress the results of the study, with 
recommendations for changes to the Internal Revenue Code of 
1986 or other appropriate action. The issues to be studied 
include--
          (1) Whether such tax-favored reserves for property 
        and casualty insurance companies would promote 
        insurance coverage of risks of terrorism and the 
        accumulation of additional resources needed to satisfy 
        potential claims resulting from such risks,
          (2) The lines of business for which such reserves 
        would be appropriate, including whether the reserves 
        should be applied to personal or commercial lines of 
        business,
          (3) How the amount of such reserves would be 
        determined,
          (4) How such reserves would be administered,
          (5) A comparison of the Federal tax treatment of such 
        reserves and of other insurance reserves permitted 
        under present Federal tax law,
          (6) An analysis of the use of tax-favored reserves 
        for catastrophic events, including acts of terrorism, 
        under the tax laws of foreign countries, and
          (7) Whether it would be appropriate to permit similar 
        reserves for other future catastrophic events, such as 
        natural disasters, taking into account the factors 
        under the preceding paragraphs.

                       III. VOTE OF THE COMMITTEE

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the following statements are made 
concerning the votes of the Committee on Ways and Means in its 
consideration of the revenue provisions of the bill, H.R. 3210.

                       MOTION TO REPORT THE BILL

    The bill was ordered reported by voice vote, with a quorum 
present.

                     IV. BUDGET EFFECTS OF THE BILL


               A. Committee Estimate of Budgetary Effects

    In compliance with clause 3(d)(2) of the rule XIII of the 
Rules of the House of Representatives, the following statement 
is made concerning the effects on the budget of the revenue 
provision of the bill, H.R. 3210, as reported.
    The revenue provision of the bill, as reported, is 
estimated to have no effect on budget receipts for fiscal years 
2002-2006.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget 
                               Authority

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee states that the 
revenue provisions of the bill involve no new or increased 
budget authority (as detailed in the statement by the 
Congressional Budget Office (``CBO''); see Part IV.C., below). 
The Committee further states that the revenue provisions 
involve no increased tax expenditures. (See Part IV.A., above.)

      C. Cost Estimate Prepared by the Congressional Budget Office

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, requiring a cost estimate 
prepared by the CBO, the following statement by CBO is 
provided.

                                     U.S. Congress,
                               Congressional budget Office,
                                 Washington, DC, November 19, 2001.
Hon. William ``Bill'' M. Thomas,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3210, the 
Terrorism Risk Protection Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
and Megan Carroll (for federal costs), Susan Sieg Tompkins (for 
the state and local impact), and Jean Talarico (for the 
private-sector impact).
            Sincerely,
                                          Dan L. Crippen, Director.
    Enclosure.

H.R. 3210--Terrorism Risk Protection Act

    Summary: H.R. 3210 would require an administrator appointed 
by the President to provide up to $100 billion in financial 
assistance to commercial property and casualty insurers for 
losses from terrorist acts committed after enactment of the 
bill and prior to January 1, 2003. (The administrator would 
have the authority to extend the program for two more years.) 
The administrator would provide such assistance only after 
insured losses exceed $1 billion for the entire industry (or 
lesser amounts if individual insurance companies are 
particularly affected as specified by the bill). After either 
threshold is met, the administrator would pay insurance 
companies 90 percent of subsequent covered losses. Under the 
bill, if insured losses from a terrorist act required the 
administrator to provide financial assistance, the 
administrator could recoup that cost through charges assessed 
on the insurance industry and purchasers of commercial property 
and casualty insurance.
    CBO cannot predict how much insured damage terrorists would 
cause in any specific year. Instead our estimate of the cost of 
financial assistance provided under H.R. 3210 represents an 
expected value of payments from the program--a weighted average 
that reflects the probabilities of various outcomes, from zero 
damages up to very large damages due to possible future 
terrorist attacks. The expected value can be thought of as the 
amount of an insurance premium that would be necessary to just 
offset the risk of providing this insurance; indeed, our 
estimate of the expected cost for H.R. 3210 is based on 
premiums collected for terrorism insurance in the United 
Kingdom and insurance practices in the United States.
    On this basis, CBO estimates that enacting section 6 of 
H.R. 3210 would increase direct spending by about $7.3 billion 
over the 2002-2006 period and by $8.5 billion over the next 10 
years. Under the bill, the administrator could recoup the cost 
of providing financial assistance through assessments and 
surcharges; hence, over many years, CBO expects that an 
increase in spending for financial assistance would be nearly 
offset (on a cash basis) by a corresponding increase in 
governmental receipts (revenues). We assume, however, that the 
administrator would not impose any assessments or surcharges 
until one year after federal assistance is provided and that 
those amounts would be collected over several years. Thus, CBO 
estimates that H.R. 3210 would increase governmental receipts 
by about $1.4 billion over the 2002-2006 period and by $5.3 
billion over the next 10 years. Because H.R. 3210 would affect 
direct spending and receipts, pay-as-you-go procedures would 
apply.
    H.R. 3210 contains several intergovernmental and private-
sector mandates, as defined in the Unfunded Mandates Reform Act 
(UMRA), on insurers and policy holders of commercial property 
and casualty insurance. CBO estimates that the aggregate net 
costs of complying with those mandates would not exceed the 
annual thresholds established by UMRA ($56 million for 
intergovernmental mandates and $113 million for private-sector 
mandates in 2001, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3210 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2002     2003     2004     2005     2006
----------------------------------------------------------------------------------------------------------------
                                           CHANGES IN DIRECT SPENDING

Estimated budget authority.........................................      800    1,700    2,200    1,700      900
Estimated outlays..................................................      800    1,700    2,200    1,700      900

                                               CHANGES IN REVENUES

Assessments and surcharges.........................................        0      100      200      500      600
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that H.R. 
3210 will be enacted by the end of 2001 and its provisions will 
remain in effect until December 31, 2004. We estimate that H.R. 
3210 would increase direct spending by $8.5 billion and 
governmental receipts by $5.3 billion over 2002-2011 period.
            Direct spending
    H.R. 3210 would require the administrator to provide up to 
$100 billion in financial assistance to commercial property and 
casualty insurers for losses above certain thresholds due to 
future terrorist acts. Under the bill, the administrator would 
provide such assistance as a result of terrorist acts that 
occur before January 1, 2003, but the administrator could 
extend the program to cover events through calendar year 2004. 
(If the program is extended beyond 2002, we interpret the $100 
billion as being an annual limit.) For this estimate, CBO 
assumes that the administrator would extend the program through 
2004.
    By offering financial assistance to commercial property and 
casualty insurers for acts of terrorism, H.R. 3210 would expose 
the federal government to potentially huge liabilities. For any 
year, CBO has no basis for estimating the likelihood of 
terrorist attacks or the amount of insured damage they may 
cause. Instead, our estimate of the cost of these provisions 
reflects how much the government might be expected to pay to 
insurers on average.
    In the following sections, we describe our method for 
estimating the expected-value cost of providing financial 
assistance under H.R. 3210, explain how we convert that 
expected-value cost to annual estimates of cash outlays, and 
discuss some of the reasons why the cost to the federal 
government is so uncertain.
    Terrorism Insurance in the United Kingdom.--Because very 
limited information is available about how the insurance 
industry would set premiums for terrorism insurance in the 
United States, we examined the government-backed insurance pool 
that spreads the risk of terrorist acts among insurers in the 
United Kingdom (this program is called Pool Re).
    CBO could not estimate the cost of H.R. 3210 to the federal 
government by examining the U.S. insurance industry's 
perception of the likelihood of terrorist acts. Representatives 
of the insurance industry have testified that estimating the 
risk of terrorist acts is nearly impossible because sufficient 
historical data do not exist. We explored the possibility of 
using premiums paid in the U.S. for terrorism insurance prior 
to September 11, 2001, to estimate the minimum premium required 
to compensate the government for its risk; however, such 
information is not available. This led us to examine the United 
Kingdom's experience with terrorism insurance.
    In 1993, the British government created Pool Re to provide 
terrorism reinsurance (insurance for insurance companies) to 
the commercial property insurance market in the United Kingdom. 
Participating insurers must offer terrorism coverage at risk-
based rates established by Pool Re and then remit any premiums 
collected from their customers to the pool. After a small 
deductible, Pool Re pays 100 percent of the costs of a 
terrorist act. If claims from terrorist acts exhaust the pool's 
resources, the British government is liable for the shortfall.
    Calculating the Expected Value of Claims.--Over the 1993-
2000 period, annual premiums collected by Pool Re have ranged 
from about $530 million in the early years of the program to 
about $75 million in 2000. On average, annual premiums have 
been roughly $325 million. The pool has reduced its premium 
rates in recent years as the number of terrorist attacks in the 
United Kingdom (and the perceived threat of future attacks) 
dropped. For this estimate, CBO assumes that the average 
premiums over the eight-year period accurately reflect the 
terrorist risk to covered losses in the United Kingdom. In some 
years, there may be many costly attacks; in others, there may 
be none.
    To compare premiums collected by Pool Re to those that 
would be required to compensate the federal government for its 
risk under H.R. 3210, we made adjustments to account for 
differences between Pool Re and the proposed U.S. program. CBO 
expects that, if premiums were charged to cover the potential 
costs of H.R. 3210, they would have to be significantly larger 
than those collected by Pool Re. Pool Re covers losses only for 
property damage and business interruption, while the program 
proposed under the bill also would cover casualty and related 
risks. Based on information from the insurance industry about 
the relative proportion of property and casualty insurance, we 
estimate that including these lines would roughly double the 
premiums required under Pool Re. In addition, CBO increased the 
average premium amount for Pool Re by a factor of 7 to account 
for differences in the sizes of the two countries' economies 
and insurance markets. We did not make any adjustments for 
differences in the risk of terrorist acts that each country 
faces because we cannot quantify such differences.
    After making the adjustments described above, CBO estimates 
that the expected-value cost of a federal program that is 
analogous to Pool Re would be about $4.5 billion a year. 
However, two key differences between Pool Re and the program 
outlined in H.R. 3210 require additional adjustments. First, 
H.R. 3210 would require the industry to absorb losses of $1 
billion before the administrator would provide any assistance. 
By comparison, deductibles required by Pool Re are negligible. 
Second, H.R. 3210 would cap federal assistance at $100 billion 
a year; coverage under Pool Re has no cap.
    To make these further adjustments, we assumed that the 
probability of terrorist attacks is skewed toward events that 
would cost less than $4.5 billion a year. After taking into 
account the $1 billion industry-wide deductible and the $100 
billion cap on federal assistance, CBO estimates that the 
administrator would need to charge about $3 billion annually 
for coverage over the 2002-2004 period to fully compensate the 
government for the risk it would assume under H.R. 3210. 
Assuming the program operates for three years, the expected 
cost to thegovernment would total $9 billion. Those outlays, 
however, would be spread out over many years, as explained below.
    Timing of Federal Spending.--To estimate federal spending 
for this program on a cash basis, CBO used information from 
insurance experts on historical rates at which property and 
casualty claims are paid. Based on such information, CBO 
estimates that the expected value of federal spending under 
H.R. 3210 would total $8.5 billion over the 2002-2011 period, 
and about $500 million after 2011. In general, following a 
catastrophic loss, it takes many years to complete insurance 
payments because of disputes over the value of covered losses 
by property and business owners. For this estimate, we assumed 
that financial assistance to property and casualty insurers 
would be paid over several years, with most of the spending 
occurring within the first five years.
    Costs Are Uncertain.--While this estimate reflects CBO's 
best judgment on the basis of available information, costs are 
a function of inherently unpredictable future terrorist 
attacks. As such, actual costs could cover an extremely broad 
range. Moreover, there is a greater risk that our estimated 
costs are too low rather than too high.
    Our expected losses under this program could be too low 
because we assumed losses would have to exceed $1 billion 
before the administrator would provide assistance. Under the 
bill, however, the administrator also could provide assistance 
if aggregate losses exceed $100 million and at least one 
company is particularly adversely affected. In addition, there 
are a number of differences between Pool Re and the program 
that would be established under this legislation that are 
unknown--for example, the difference between U.S. and British 
tort law--but these differences would push the likely cost of 
the bill higher.
            Revenues
    CBO estimates that under H.R. 3210 the administrator would 
collect $5.3 billion over the 2002-2011 period through 
assessments on the insurance industry and surcharges on policy 
holders.
    Assessments.--If a terrorist act requires the administrator 
to provide financial assistance, the administrator would recoup 
that cost through charges paid by the insurance industry and 
purchasers of commercial property and casualty insurance. The 
first $18 billion of financial assistance could be recovered by 
assessing each insurer based on its portion of aggregate 
property and casualty insurance premiums for the preceding 
calendar year. Each company's assessment would be limited to 3 
percent of aggregate premiums. The administrator could delay 
when a company would be required to pay the assessment if such 
a delay were necessary to prevent the insurer from becoming 
insolvent. Because we assume the probability of terrorist 
attacks would be skewed toward events that would cost less than 
$4.5 billion, we anticipate that assessments would account for 
most of the amounts the administrator would collect. On an 
expected-value basis, CBO estimates that assessments to recover 
the cost of federal assistance would generate revenues totaling 
$4.3 billion over the next 10 years.
    Surcharges.--The administrator would recover any assistance 
provide between $20 billion and $100 billion by imposing a 
surcharge on all premiums for commercial property and casualty 
insurance. Surcharges would apply to insurance sold following a 
terrorist attack that necessitated federal assistance. H.R. 
3210 would require the administrator to impose surcharges for 
as long as is necessary to recover the aggregate financial 
assistance. Thus, the government could collect surcharges for 
many years depending on the level of financial assistance. We 
estimate that surcharges would total $1 billion over the next 
10 years.
    Timing.--CBO expects that the administrator probably would 
not recoup the entire cost of financial assistance during the 
2002-2011 period. Based on information from the insurance 
industry on aggregate premiums collected in recent years, CBO 
estimates that the administrator could recoup no more than 
about $10 billion a year. The bill would allow the 
administrator to reduce annual charges to avoid unreasonable 
economic disruption, excessive market instability, or undue 
burdens on small businesses. Therefore, if annual losses are 
very high, we expect that the administrator would limit annual 
collections by spreading them over many years. CBO assumes it 
would take the administrator at least 10 years to recoup the 
costs of any financial provided under H.R. 3210. Thus, we 
estimate that many of the collections from assessments and 
surcharges would occur after 2011.
    Risk of Insolvency.--In addition, although the bill would 
allow the administrator to delay when an insurance company pays 
its assessment, the bill would not provide the administrator 
with the authority to increase the assessment on the remaining 
insurance companies if a company is unable to pay. Thus, the 
federal government also would bear the risk that an insurance 
company would become insolvent during the assessment period. 
Historically, the credit risk of insurance companies has been 
very low, but the government would be exposed to such risk only 
following a very costly attack. Because we expect the 
probability of such a costly attack is very low, we included a 
small adjustment for the risk of insolvency in our estimate.
    Credit Reform Does Not Apply.--The provisions of the 
Federal Credit Reform Act do not apply to H.R. 3210. Under that 
act, a direct loan is defined as a defined as a disbursement of 
funds to a nonfederal borrower under a contract that requires 
the repayment. A disbursement cannot be considered a direct 
loan, however, if the duty to repay the government arises from 
anexercise of sovereign power, tort liability, or some other 
noncontract obligation. H.R. 3210 would require insurance companies and 
potentially policy holders to compensate the government for its costs, 
but it would do so through an exercise of sovereign power, not through 
loan repayment contracts. Therefore, CBO believes that the financial 
assistance and subsequent collections would not constitute a loan 
program.
    Pay-as-you-go considerations: The Balance Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in outlays and governmental receipts that are subject 
to pay-as-you-go procedures are shown in the following table. 
Only the effects in the current year and the following four 
years are counted for pay-as-you-go purposes.

----------------------------------------------------------------------------------------------------------------
                                                         By fiscal year, in millions of dollars--
                                        ------------------------------------------------------------------------
                                          2002   2003    2004    2005    2006   2007   2008   2009   2010   2011
----------------------------------------------------------------------------------------------------------------
Changes in outlays.....................    800   1,700   2,200   1,700    900    500    300    200    100    100
Changes in receipts....................      0     100     200     500    600    700    800    800    800    800
----------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: H.R. 3210 
contains several intergovernmental and private-sector mandates 
as defined by UMRA. CBO estimates that the costs to comply with 
all of the mandates in the bill would not exceed the thresholds 
established by UMRA ($56 million for intergovernmental mandates 
and $113 for private-sector mandates in 2001, adjusted annually 
for inflation).
            Assessments and surcharges
    The bill would require the administrator, through the use 
of the federal government's sovereign power, to recoup the 
costs of financial assistance provided to certain insurers 
through assessments paid by the insurance industry and 
surcharges paid by purchasers of commercial property and 
casualty insurance. This requirement to repay the federal 
government for financial assistance received would be both an 
intergovernmental and private-sector mandate under UMRA because 
both private entities and state and local governments would be 
affected.
    Specifically, section 7 would require commercial property 
and casualty insurers as well as self-insured risk pools to pay 
back, through assessments, 90 percent of either total industry-
wide losses or $20 billion, whichever is less. Taken 
individually, some insurers may benefit from the financial 
assistance while others face only the cost of the assessment. 
But for the insurance industry as a whole, the cost of the 
assessment would be no greater than the financial assistance 
received, so the net cost of this mandate would be zero.
    In addition, section 8 would require purchasers of 
commercial property and casualty insurance to repay, in the 
form of a surcharge, any federal assistance provided to certain 
insurers between $18 billion and $100 billion. Some purchasers 
of commercial property and casualty insurance would not receive 
a direct benefit under the bill or protection from higher 
premiums in its absence. Therefore, the surcharge would be a 
mandate that imposes costs on both private-sector purchasers 
and state and local governments (in their capacity as 
purchasers of insurance). CBO estimates that the expected value 
of the surcharges on policyholders would total less than $120 
million annually over the next five years.
            Preemptions
    Section 12 would preempt certain state insurance laws by 
providing that any insurer that complies with the provisions of 
the bill would be deemed to comply with any state law that 
regulates insurance for acts of terrorism. This section also 
would expressly preempt any state laws that limit the amount an 
insurer could add to premiums to recover any assessments, and 
laws that require certain actions by insurers in order for 
rates or policies to be effective.
    Section 13 of the bill would require states to adopt 
uniform guidelines for maintaining certain reserves and 
disclosing premium costs. Should states fail to adopt these 
guidelines, the administrator could adopt them on a national 
basis, superseding any related state laws. Neither the 
preemptions in section 12 nor the requirements of section 13, 
which are intergovernmental mandates as defined by UMRA, would 
impose significant costs on state, local, or tribal 
governments.
    Previous CBO estimate: On November 16, 2001, CBO 
transmitted a cost estimate for H.R. 3210, the Terrorism Risk 
Protection Act, as ordered reported by the House Committee on 
Financial Services on November 7, 2001. CBO estimates that the 
effects on direct spending would be the same under the two 
versions, but the revenue provisions and their estimated 
effects would differ. Both versions would increase governmental 
receipts from assessments and surcharges by anestimated $5.3 
billion over the 2002-2011 period. However, the version of the bill 
ordered reported by the Committee on Financial Services also included 
provisions that the Joint Committee on Taxation estimated would reduce 
tax revenues from non-life insurance companies by $21.4 billion over 
that period. Hence, we estimated that enacting that version would have 
the net effect of reducing governmental receipts by $7.1 billion over 
the next 10 years. Because the House Committee on Ways and Means did 
not include those provisions, CBO estimates that its version of H.R. 
3210 would increase governmental receipts by $5.3 billion over the 
2002-2011 period.
    In addition, while our estimate of total assessments and 
surcharges under both versions is the same, we estimate that, 
under the version ordered reported by the House Committee on 
Ways and Means, a greater proportion of the collections would 
come from surcharges that under the House Committee on 
Financial Services' version. While the mandates in both 
versions of the bill are the same, the higher surcharges would 
increase the cost of the mandate on purchasers of insurance. 
However, the aggregate costs of the mandates in both versions 
would not exceed the thresholds established in UMRA.
    Estimate prepared by: Federal costs: Mark Hadley, Megan 
Carroll, and Ken Johnson; impact on State, local, and tribal 
governments: Susan Sieg Tompkins; impact on the private sector: 
Jean Talarico.
    Estimated approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.

     V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE


          A. Committee Oversight Findings and Recommendations

    With respect to clause 3(c)(1) of rule XIII of the Rules of 
the House of Representatives (relating to oversight findings), 
the Committee advises that it was a result of the Committee's 
oversight review of any conditions or circumstances that may 
indicate the necessity or desirability of enacting new or 
additional legislation within its jurisdiction that the 
Committee determined that it is appropriate and timely to enact 
the study relating to tax reserves for property and casualty 
insurance for terrorist or other catastrophic events that is 
provided for in the bill, in light of the events of September 
11, 2001.

        B. Statement of General Performance Goals and Objectives

    With respect to clause 3(c)(4) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that the 
bill contains no revenue measure that authorizes funding, so no 
statement of general performance goals and objectives for which 
any measure authorizes funding is required.

                 C. Constitutional Authority Statement

    With respect to clause 3(d)(1) of the rule XIII of the 
Rules of the House of Representatives (relating to 
Constitutional Authority), the Committee states that the 
Committee's action in reporting this bill is derived from 
Article I of the Constitution, Section 8 (``The Congress shall 
have Power To lay and collect Taxes, Duties, Imposts and 
Excises * * *''), and from the 16th Amendment to the 
Constitution.

              D. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the revenue provisions of 
the bill do not contain Federal mandates on the private sector. 
The Committee has determined that the revenue provisions of the 
bill do not impose a Federal intergovernmental mandate on 
State, local, or tribal governments.

                E. Applicability of House Rule XXI 5(b)

    Rule XXI 5(b) of the Rules of the House of Representatives 
provides, in part, that ``A bill or joint resolution, 
amendment, or conference report carrying a Federal income tax 
rate increase may not be considered as passed or agreed to 
unless so determined by a vote of not less than three-fifths of 
the Members voting, a quorum being present.'' The Committee has 
carefully reviewed the revenue provisions of the bill, and 
states that those provisions of the bill do not involve any 
Federal income tax rate increases within the meaning of the 
rule.

                       F. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service Reform and 
Restructuring Act of 1998 (the ``IRS Reform Act'') requires the 
Joint Committee on Taxation (in consultation with the Internal 
Revenue Service and the Department of the Treasury) to provide 
a tax complexity analysis. The complexity analysis is required 
for all legislation reported by the Senate Committee on 
Finance, the House Committee on Ways and Means, or any 
committee of conference if the legislation includes a provision 
that directly or indirectly amends the Internal Revenue Code 
(the ``Code'') and has widespread applicability to individuals 
or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the revenue provisions of 
the bill contain no provisions that amend the Internal Revenue 
Code and that have ``widespread applicability'' to individuals 
or small businesses.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In compliance with clause 3(e) of rule XIII of the Rule of 
the House of Representatives, the Committee states that no 
changes in existing law are made by the revenue provision of 
the bill, as reported.

                                  
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