House Report 107-300 - TERRORISM RISK PROTECTION ACT

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

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

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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).

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.