[House Report 109-327]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    109-327

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



 
             TERRORISM RISK INSURANCE REVISION ACT OF 2005

                                _______
                                

December 6, 2005.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                    DISSENTING AND ADDITIONAL VIEWS

                        [To accompany H.R. 4314]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 4314) to extend the applicability of the Terrorism 
Risk Insurance Act of 2002, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................    15
Background and Need for Legislation..............................    15
Hearings.........................................................    17
Committee Consideration..........................................    18
Committee Votes..................................................    18
Committee Oversight Findings.....................................    19
Performance Goals and Objectives.................................    19
New Budget Authority, Entitlement Authority, and Tax Expenditures    19
Committee Cost Estimate..........................................    19
Congressional Budget Office Estimate.............................    20
Federal Mandates Statement.......................................    20
Advisory Committee Statement.....................................    20
Constitutional Authority Statement...............................    20
Applicability to Legislative Branch..............................    20
Section-by-Section Analysis of the Legislation...................    20
Exchange of Committee Correspondence.............................    24
Changes in Existing Law Made by the Bill, as Reported............    25
Additional Views.................................................    59
Dissenting Views.................................................    60

                               Amendment

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

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Terrorism Risk Insurance Revision Act 
of 2005''.

SEC. 2. EXTENSION OF PROGRAM AND PROGRAM CHANGES.

  (a) In General.--Title I of the Terrorism Risk Insurance Act of 2002 
(15 U.S.C. 6701 note) is amended--
          (1) by striking sections 101 through 106 and inserting the 
        following new sections:

``SEC. 101. CONGRESSIONAL FINDINGS AND PURPOSE.

  ``(a) Findings.--The Congress finds that--
          ``(1) the ability of businesses and individuals to obtain 
        property, casualty, group life, and NBCR insurance at 
        reasonable and predictable prices, in order to spread the risk 
        of both routine and catastrophic loss, is critical to economic 
        growth, urban development, and the construction and maintenance 
        of public and private housing, as well as to the promotion of 
        United States exports and foreign trade in an increasingly 
        interconnected world;
          ``(2) property, casualty, and life insurance firms are 
        important financial institutions, the products of which allow 
        mutualization of risk and the efficient use of financial 
        resources and enhance the ability of the economy to maintain 
        stability, while responding to a variety of economic, 
        political, environmental, and other risks with a minimum of 
        disruption;
          ``(3) the ability of the insurance industry to cover the 
        unprecedented financial risks presented by potential acts of 
        terrorism in the United States can be a major factor in the 
        recovery from terrorist attacks, while maintaining the 
        stability of the economy;
          ``(4) widespread financial market uncertainties have arisen 
        following the terrorist attacks of September 11, 2001, 
        including the absence of information from which financial 
        institutions can make statistically valid estimates of the 
        probability and cost of future terrorist events, and therefore 
        the size, funding, and allocation of the risk of loss caused by 
        such acts of terrorism;
          ``(5) a decision by property, casualty, group life, and NBCR 
        insurers to deal with such uncertainties, either by terminating 
        property, casualty, group life and NBCR coverage for losses 
        arising from terrorist events, or by radically escalating 
        premium coverage to compensate for risks of loss that are not 
        readily predictable, could seriously hamper ongoing and planned 
        construction, property acquisition, and other business 
        projects, generate a dramatic increase in rents, and otherwise 
        suppress economic activity; and
          ``(6) the United States Government should provide temporary 
        financial compensation to insured parties, contributing to the 
        stabilization of the United States economy in a time of 
        national crisis, while the financial services industry develops 
        the systems, mechanisms, products, and programs necessary to 
        create a viable financial services market for private terrorism 
        risk insurance.
  ``(b) Purpose.--The purpose of this title is to establish a temporary 
Federal program that provides for a transparent system of shared public 
and private compensation for insured losses resulting from acts of 
terrorism, in order to--
          ``(1) protect consumers by addressing market disruptions and 
        ensure the continued widespread availability and affordability 
        of property, casualty, group life, and NBCR insurance for 
        terrorism risk; and
          ``(2) allow for a transitional period for the private markets 
        to stabilize, resume pricing of such insurance, and build 
        capacity to absorb any future losses, while preserving State 
        insurance regulation and consumer protections.

``SEC. 102. DEFINITIONS.

  ``In this title, the following definitions shall apply:
          ``(1) Act of terrorism.--
                  ``(A) Certification.--The term `act of terrorism' 
                means any act that is certified by the Secretary, in 
                concurrence with the Secretary of State, and the 
                Attorney General of the United States--
                          ``(i) to be an act of terrorism;
                          ``(ii) to be a violent act or an act that is 
                        dangerous to--
                                  ``(I) human life;
                                  ``(II) property; or
                                  ``(III) infrastructure;
                          ``(iii) to have resulted in damage within the 
                        United States, or outside of the United States 
                        in the case of--
                                  ``(I) an air carrier or vessel 
                                described in paragraph (5)(B); or
                                  ``(II) the premises of a United 
                                States mission; and
                          ``(iv) to have been committed by an 
                        individual or individuals as part of an effort 
                        to coerce the civilian population of the United 
                        States or to influence the policy or affect the 
                        conduct of the United States Government by 
                        coercion.
                  ``(B) Limitation.--No act shall be certified by the 
                Secretary as an act of terrorism if the act is 
                committed as part of the course of a war declared by 
                the Congress, except that this clause shall not apply 
                with respect to any coverage for workers' compensation 
                or group life insurance.
                  ``(C) Determinations final.--Any certification of, or 
                determination not to certify, an act as an act of 
                terrorism under this paragraph shall be final, and 
                shall not be subject to judicial review.
                  ``(D) Nondelegation.--The Secretary may not delegate 
                or designate to any other officer, employee, or person, 
                any determination under this paragraph of whether, 
                during the effective period of the Program, an act of 
                terrorism has occurred.
          ``(2) Affiliate.--The term `affiliate' means, with respect to 
        an insurer, any insurer that owns, is owned by, or is under 
        common ownership with another insurer.
          ``(3) Casualty insurance.--The term `casualty insurance' 
        means--
                  ``(A) insurance, including excess insurance and 
                surety insurance, against legal liability for losses 
                caused by the death, injury, or disability of any 
                person or for damage to property, with provision for 
                medical, hospital and surgical benefits to the injured 
                persons; and
                  ``(B) for the purposes of this Act, does not include 
                any type of commercial automobile or workers' 
                compensation insurance.
          ``(4) Covered line of insurance.--The term `covered line of 
        insurance' means--
                  ``(A) commercial property insurance, commercial 
                casualty insurance, workers' compensation insurance and 
                group life insurance; and
                  ``(B) does not include--
                          ``(i) Federal crop insurance issued or 
                        reinsured under the Federal Crop Insurance Act 
                        (7 U.S.C. 1501 et seq.), or any other type of 
                        crop or livestock insurance that is privately 
                        issued or reinsured;
                          ``(ii) private mortgage insurance (as that 
                        term is defined in section 2 of the Homeowners 
                        Protection Act of 1998 (12 U.S.C. 4901)) or 
                        title insurance;
                          ``(iii) financial guaranty insurance issued 
                        by monoline financial guaranty insurance 
                        corporations;
                          ``(iv) insurance for medical malpractice;
                          ``(v) health or life insurance, except group 
                        life insurance;
                          ``(vi) flood insurance provided under the 
                        National Flood Insurance Act of 1968 (42 U.S.C. 
                        4001 et seq.);
                          ``(vii) reinsurance or retrocessional 
                        reinsurance; or
                          ``(viii) commercial automobile insurance.
          ``(5) Direct earned premium.--The term `direct earned 
        premium' means a direct earned premium for commercial property, 
        commercial casualty, workers' compensation, or group life 
        insurance issued by any insurer for insurance against losses 
        occurring at the locations described in subparagraphs (A) and 
        (B) of paragraph (10).
          ``(6) Exempt commercial purchaser.--The term `exempt 
        commercial purchaser' means any person purchasing commercial 
        insurance that meets the following requirements:
                  ``(A) The person employs or retains a qualified risk 
                manager to negotiate insurance coverage.
                  ``(B) The person meets at least two of the following 
                criteria:
                          ``(i) The person possesses a net worth in 
                        excess of $20,000,000.
                          ``(ii) The person generates annual revenues 
                        in excess of $50,000,000.
                          ``(iii) The person employs more than 500 full 
                        time or full time equivalent employees per 
                        individual insured or is a member of affiliated 
                        group employing more than 1,000 employees in 
                        the aggregate.
                          ``(iv) The person pays annual aggregate 
                        nationwide insurance premiums in excess of 
                        $100,000 for covered lines of insurance.
                          ``(v) The person is a not-for-profit 
                        organization or public entity generating annual 
                        budgeted expenditures of at least $30,000,000.
                          ``(vi) The person is a municipality with a 
                        population in excess of 50,000 persons.
          ``(7) Exempt commercial purchaser certification.--The term 
        `exempt commercial purchaser certification' means a written 
        certification that the insurer offering a policy to an exempt 
        commercial purchaser has obtained, at least within the previous 
        12 months, a certification signed by the qualified risk 
        manager, the chief executive officer, or the chief financial 
        officer of the exempt commercial purchaser, certifying with 
        respect to the insurance to which the requirements of section 
        103(c)(1) apply to that insurer that--
                  ``(A) the purchaser has an employee that meets the 
                definition of a qualified risk manager under this 
                section;
                  ``(B) the purchaser meets the definition of an exempt 
                commercial purchaser in accordance with this section;
                  ``(C) the purchaser is aware that the policy being 
                considered for purchase contains forms and rates that 
                are not subject to State regulatory review or approval;
                  ``(D) the purchaser has or has retained the necessary 
                expertise to negotiate its own policy language and 
                rates; and
                  ``(E) the purchaser agrees to the use of exempted 
                rates and forms by its insurer or insurers.
          ``(8) Group life insurance.--The term `group life insurance' 
        means an insurance contract that provides term life insurance 
        coverage, accidental death coverage, or a combination thereof, 
        for a number of individuals under a single contract, on the 
        basis of a group selection of risks, but does not include 
        `Corporate Owned Life Insurance' or `Business Owned Life 
        Insurance,' each as defined under the Internal Revenue Code of 
        1986, or any similar product.
          ``(9) Home state.--The term `home State' means as follows:
                  ``(A) In the case of a policy written for commercial 
                risks that are primarily located in a State, such term 
                means such State.
                  ``(B) If subparagraph (A) does not apply, such term 
                means the State where the commercial policyholder has 
                its principal place of business (such as where the 
                policyholder's headquarters are located, as determined 
                by the predominant physical location in the United 
                States of the officers and senior management of the 
                policyholder).
          ``(10) Insured loss.--The term `insured loss' means any loss 
        resulting from an act of terrorism (including an act of war, in 
        the case of workers' compensation and group life insurance) 
        that is covered by primary or excess property, casualty, 
        workers' compensation, or group life insurance issued by an 
        insurer if such loss--
                  ``(A) occurs within the United States; or
                  ``(B) occurs to an air carrier (as defined in section 
                40102 of title 49, United States Code), to a United 
                States flag vessel (or a vessel based principally in 
                the United States, on which United States income tax is 
                paid and whose insurance coverage is subject to 
                regulation in the United States), regardless of where 
                the loss occurs, or at the premises of any United 
                States mission.
          ``(11) Insurer.--The term `insurer' means any entity, 
        including any affiliate thereof--
                  ``(A) that is--
                          ``(i) licensed or admitted to engage in the 
                        business of providing primary or excess 
                        insurance in any State;
                          ``(ii) not licensed or admitted as described 
                        in clause (i), if it is an eligible surplus 
                        line carrier listed on the Quarterly Listing of 
                        Alien Insurers of the NAIC, or any successor 
                        thereto;
                          ``(iii) approved for the purpose of offering 
                        a covered line of insurance by a Federal agency 
                        in connection with maritime, energy, or 
                        aviation activity;
                          ``(iv) a State residual market insurance 
                        entity or State workers' compensation fund; or
                          ``(v) any other entity described in section 
                        103(f), to the extent provided in the rules of 
                        the Secretary issued under section 103(f);
                  ``(B) that receives direct earned premiums for any 
                type of covered line of insurance coverage, other than 
                in the case of entities described in subsections (d) 
                and (f) of section 103; and
                  ``(C) that meets any other criteria that the 
                Secretary may reasonably prescribe.
          ``(12) Insurer deductible.--The term `insurer deductible' 
        means--
                  ``(A) for the Transition Period, the value of an 
                insurer's direct earned premiums over the calendar year 
                immediately preceding the date of enactment of this 
                Act, multiplied by 1 percent;
                  ``(B) for Program Year 1, the value of an insurer's 
                direct earned premiums over the calendar year 
                immediately preceding Program Year 1, multiplied by 7 
                percent;
                  ``(C) for Program Year 2, the value of an insurer's 
                direct earned premiums over the calendar year 
                immediately preceding Program Year 2, multiplied by 10 
                percent;
                  ``(D) for Program Year 3, the value of an insurer's 
                direct earned premiums over the calendar year 
                immediately preceding Program Year 3, multiplied by 15 
                percent;
                  ``(E) for Program Year 4--
                          ``(i) except as provided in clause (ii), the 
                        value of an insurer's direct earned premium for 
                        a covered line of insurance over the calendar 
                        year immediately preceding Program Year 4, 
                        multiplied by--
                                  ``(I) for workers' compensation 
                                insurance, 16 percent;
                                  ``(II) for group life insurance, 21.5 
                                percent;
                                  ``(III) for property insurance, 20 
                                percent; and
                                  ``(IV) for casualty insurance, 25 
                                percent; and
                          ``(ii) with respect to NBCR terrorism 
                        coverage, the value of an insurer's direct 
                        earned premium for a covered line of insurance 
                        over the calendar year immediately preceding 
                        Program Year 4, multiplied by the following 
                        percentages which shall be treated as sub-
                        deductibles that apply in lieu of the 
                        deductibles set forth in clause (i) for NBCR 
                        terrorism losses--
                                  ``(I) for workers' compensation 
                                insurance, 7.5 percent;
                                  ``(II) for group life insurance, 7.5 
                                percent;
                                  ``(III) for property insurance, 7.5 
                                percent; and
                                  ``(IV) for casualty insurance, 7.5 
                                percent; and
                          ``(iii) if, for any covered line of 
                        insurance, an insurer incurs insured losses 
                        caused by NBCR terrorism, such NBCR insured 
                        losses shall be applied against both the 
                        deductible set forth in clause (i) and the NBCR 
                        terrorism deductible set forth in clause (ii) 
                        for that covered line of insurance;
                  ``(F) for any Additional Program Years--
                          ``(i) except as provided in clause (ii), the 
                        value of an insurer's direct earned premium for 
                        a covered line of insurance over the calendar 
                        year immediately preceding that year, 
                        multiplied by the insurer deductible for each 
                        covered line of insurance for the preceding 
                        calendar year plus an additional percentage, as 
                        follows--
                                  ``(I) for workers' compensation 
                                insurance, 2.0 percent;
                                  ``(II) for group life insurance, 2.5 
                                percent;
                                  ``(III) for property insurance, 2.5 
                                percent; and
                                  ``(IV) for casualty insurance, 5.0 
                                percent; and
                          ``(ii) with respect to NBCR terrorism 
                        coverage, the value of an insurer's direct 
                        earned premium for a covered line of insurance 
                        over the calendar year immediately preceding 
                        that year, multiplied by the NBCR terrorism 
                        deductible for the preceding year for that 
                        covered line of insurance plus the following 
                        additional percentages, all of which shall be 
                        treated as subdeductibles that apply in lieu of 
                        the deductibles listed in clause (i) for NBCR 
                        terrorism insured losses--
                                  ``(I) for workers' compensation 
                                insurance, 0.75 percent;
                                  ``(II) for group life insurance, 0.75 
                                percent;
                                  ``(III) for property insurance, 0.75 
                                percent; and
                                  ``(IV) for casualty insurance, 0.75 
                                percent; and
                          ``(iii) if, for any covered line of 
                        insurance, an insurer incurs insured losses 
                        caused by NBCR terrorism, such NBCR insured 
                        losses shall be applied against both the 
                        deductible set forth in clause (i) and the NBCR 
                        terrorism deductible set forth in clause (ii) 
                        for that covered line of insurance;
                  ``(G) notwithstanding subparagraphs (A) through (F), 
                for the Transition Period and any other Program Year or 
                other calendar year, if an insurer has not had a full 
                year of operations during the calendar year immediately 
                preceding such Period or year, such portion of the 
                direct earned premiums of the insurer as the Secretary 
                determines appropriate, subject to appropriate 
                methodologies established by the Secretary for 
                measuring such direct earned premiums; and
                  ``(H) if, in any calendar year, aggregate industry 
                insured losses exceed $1,000,000,000, the insurer 
                deductibles for the next calendar year shall be reduced 
                by 0.1 percent for each $1,000,000,000 in insured 
                losses that have occurred during the preceding calendar 
                year, except that no insurer deductible shall be 
                reduced below 5 percent.
          ``(13) NAIC.--The term `NAIC' means the National Association 
        of Insurance Commissioners.
          ``(14) Ownership.--An insurer `owns' another insurer if the 
        insurer, directly or indirectly or acting through one or more 
        other persons, owns 25 percent or more of any class of voting 
        securities of the other insurer.
          ``(15) NBCR terrorism.--The term `NBCR terrorism' means an 
        act of terrorism involving nuclear, biological, chemical, or 
        radioactive reactions, releases, or contaminations, to the 
        extent any insured losses are caused by any such reactions, 
        releases, or contaminations.
          ``(16) Person.--The term `person' means any individual, 
        business or nonprofit entity (including those organized in the 
        form of a partnership, limited liability company, corporation, 
        or association), trust or estate, or a State or political 
        subdivision of a State or other governmental unit.
          ``(17) Program.--The term `Program' means the Terrorism 
        Insurance Program established by this title.
          ``(18) Program years.--
                  ``(A) Transition period.--The term `Transition 
                Period' means the period beginning on the date of 
                enactment of this Act and ending on December 31, 2002.
                  ``(B) Program year 1.--The term `Program Year 1' 
                means the period beginning on January 1, 2003 and 
                ending on December 31, 2003.
                  ``(C) Program year 2.--The term `Program Year 2' 
                means the period beginning on January 1, 2004 and 
                ending on December 31, 2004.
                  ``(D) Program year 3.--The term `Program Year 3' 
                means the period beginning on January 1, 2005 and 
                ending on December 31, 2005.
                  ``(E) Program year 4.--The term `Program Year 4' 
                means the period beginning on January 1, 2006 and 
                ending on December 31, 2006.
                  ``(F) Additional program years.--The term `Additional 
                Program Year' means any additional one-year period 
                after Program Year 4 during which the Program is in 
                effect, which period shall begin on January 1 and end 
                on December 31 of the same calendar year.
          ``(19) Property insurance.--The term `property insurance' 
        means--
                  ``(A) except as provided in subparagraph (B), 
                insurance on real or personal property of every kind, 
                including excess insurance, against loss or damage from 
                any and all hazard or cause and against loss 
                consequential upon such loss or damage, including 
                business interruption insurance, other than non-
                contractual legal liability for such loss or damage; 
                and
                  ``(B) does not include any type of commercial 
                automobile or workers' compensation insurance.
          ``(20) Qualified risk manager.--The term `qualified risk 
        manager' means any person who meets all of the following 
        criteria:
                  ``(A) The person is an employee of, or third party 
                consultant retained by, the commercial policyholder.
                  ``(B) The person provides skilled services in loss 
                prevention, loss reduction, or risk and insurance 
                coverage analysis, and purchase of insurance.
                  ``(C) The person possesses at least 1 of the 
                following credentials:
                          ``(i) A bachelor's or higher degree in risk 
                        management issued by an accredited college or 
                        university.
                          ``(ii) A designation as a Chartered Property 
                        and Casualty Underwriter (in this subparagraph 
                        referred to as `CPCU') issued by the American 
                        Institute for CPCU/Insurance Institute of 
                        America.
                          ``(iii) A designation as an Associate in Risk 
                        Management (ARM) issued by American Institute 
                        for CPCU/Insurance Institute of America.
                          ``(iv) A designation as a Certified Risk 
                        Manager (CRM) issued by the National Alliance 
                        for Insurance Education & Research.
                          ``(v) A designation as a RIMS Fellow (RS) 
                        issued by the Global Risk Management Institute.
                          ``(vi) At least 5 years of experience in 1 or 
                        more of the following areas of commercial 
                        property insurance or commercial casualty 
                        insurance:
                                  ``(I) Risk financing.
                                  ``(II) Claims administration.
                                  ``(III) Loss prevention.
                                  ``(IV) Risk and insurance coverage 
                                analysis.
          ``(21) Secretary.--The term `Secretary' means the Secretary 
        of the Treasury.
          ``(22) State.--The term `State' means any State of the United 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Commonwealth of the Northern Mariana Islands, 
        American Samoa, Guam, each of the United States Virgin Islands, 
        and any territory or possession of the United States.
          ``(23) United states.--The term `United States' means the 
        several States, and includes the territorial sea and the 
        continental shelf of the United States, as those terms are 
        defined in the Violent Crime Control and Law Enforcement Act of 
        1994 (18 U.S.C. 2280, 2281).
          ``(24) Workers' compensation.--The term `workers' 
        compensation' means insurance against loss from liability 
        imposed by law upon employers to compensate employees and their 
        dependents for injury sustained by the employees arising out of 
        and in the course of the employment, irrespective of negligence 
        or of the fault of either party.
          ``(25) Rule of construction for dates.--With respect to any 
        reference to a date in this title, such day shall be 
        construed--
                  ``(A) to begin at 12:01 a.m. on that date; and
                  ``(B) to end at midnight on that date.

``SEC. 103. TERRORISM INSURANCE PROGRAM.

  ``(a) Establishment of Program.--
          ``(1) In general.--There is established in the Department of 
        the Treasury the Terrorism Insurance Program.
          ``(2) Authority of the secretary.--Notwithstanding any other 
        provision of State or Federal law, the Secretary shall 
        administer the Program, and shall pay the Federal share of 
        compensation for insured losses in accordance with subsection 
        (e).
          ``(3) Mandatory participation.--Each entity that meets the 
        definition of an insurer under this title shall participate in 
        the Program.
  ``(b) Conditions for Federal Payments.--No payment may be made by the 
Secretary under this section with respect to an insured loss that is 
covered by an insurer, unless--
          ``(1) the person that suffers the insured loss, or a person 
        acting on behalf of that person, files a claim with the 
        insurer;
          ``(2) the insurer provides clear and conspicuous disclosure 
        to the policyholder of the premium charged for insured losses 
        covered by the program and the Federal share of compensation 
        for insured losses under the Program--
                  ``(A) in the case of any policy that is issued before 
                the date of enactment of this Act, not later than 90 
                days after that date of enactment;
                  ``(B) in the case of any policy that is issued within 
                90 days of the date of enactment of this Act, at the 
                time of offer, purchase, and renewal of the policy; and
                  ``(C) in the case of any policy that is issued more 
                than 90 days after the date of enactment of this Act, 
                on a separate line item in the policy, at the time of 
                offer, purchase, and renewal of the policy;
          ``(3) the insurer processes the claim for the insured loss in 
        accordance with appropriate business practices, and any 
        reasonable procedures that the Secretary may prescribe; and
          ``(4) the insurer submits to the Secretary, in accordance 
        with such reasonable procedures as the Secretary may 
        establish--
                  ``(A) a claim for payment of the Federal share of 
                compensation for insured losses under the Program;
                  ``(B) written certification--
                          ``(i) of the underlying claim; and
                          ``(ii) of all payments made for insured 
                        losses; and
                  ``(C) certification of its compliance with the 
                provisions of this subsection.
  ``(c) Mandatory Availability.--Each entity that meets the definition 
of an insurer under section 102--
          ``(1) shall make available, in all of its covered lines of 
        insurance policies, coverage for insured losses that does not 
        differ materially from the terms, amounts, and other coverage 
        limitations applicable to losses arising from events other than 
        acts of terrorism;
          ``(2) shall make available, in any of its covered lines of 
        insurance policies that exclude coverage for losses resulting 
        from NBCR terrorism, coverage for losses resulting from NBCR 
        terrorism that may differ materially from the terms, amounts, 
        and other coverage limitations applicable to losses arising 
        from events other than NBCR terrorism; and
          ``(3) shall make available, in any life insurance policy, 
        coverage that does not preclude future lawful foreign travel by 
        the person insured, and shall not charge a premium for such 
        coverage that is excessive and not based on a good faith 
        actuarial analysis.
  ``(d) State Residual Market Insurance Entities.--
          ``(1) In general.--The Secretary shall issue regulations, as 
        soon as practicable after the date of enactment of this Act, 
        that apply the provisions of this title to State residual 
        market insurance entities, State workers' compensation funds, 
        and State workers' compensation reinsurance pools.
          ``(2) Treatment of certain entities.--For purposes of the 
        regulations issued pursuant to paragraph (1)--
                  ``(A) a State residual market insurance entity that 
                does not share its profits and losses with private 
                sector insurers shall be treated as a separate insurer; 
                and
                  ``(B) a State residual market insurance entity that 
                shares its profits and losses with private sector 
                insurers shall not be treated as a separate insurer, 
                and shall report to each private sector insurance 
                participant its share of the insured losses of the 
                entity, which shall be included in each private sector 
                insurer's insured losses.
          ``(3) Treatment of participation in certain entities.--Any 
        insurer that participates in sharing profits and losses of a 
        State residual market insurance entity shall include in its 
        calculations of premiums any premiums distributed to the 
        insurer by the State residual market insurance entity.
  ``(e) Insured Loss Shared Compensation.--
          ``(1) Federal share.--
                  ``(A) In general.--Subject to subparagraphs (B) and 
                (C), the Federal share of compensation under the 
                Program to be paid by the Secretary for insured losses 
                of an insurer during each Program Year shall be equal 
                to that portion of the amount of such insured losses 
                for each covered line of insurance that exceeds the 
                applicable insurer deductible required to be paid 
                during such Program Year, multiplied by a percentage 
                based on aggregate industry insured losses for a 
                Program Year, which shall be as follows:
                          ``(i) 80 percent of the aggregate industry 
                        insured losses of less than $10,000,000,000;
                          ``(ii) 85 percent of the aggregate industry 
                        insured losses between $10,000,000,000 and 
                        $20,000,000,000;
                          ``(iii) 90 percent of the aggregate industry 
                        insured losses between $20,000,000,000 and 
                        $40,000,000,000; and
                          ``(iv) 95 percent of the aggregate industry 
                        insured losses above industry losses above 
                        $40,000,000,000;
                and shall be prorated by insurer based on each 
                insurer's percentage of the aggregate industry insured 
                losses for that Program Year.
                  ``(B) Program trigger.--No compensation shall be paid 
                by the Secretary under subsection (a) unless the 
                aggregate industry insured losses exceed--
                          ``(i) $50,000,000, with respect to insured 
                        losses occurring in Program Year 4;
                          ``(ii) $100,000,000, with respect to insured 
                        losses occurring in the Additional Program Year 
                        beginning on January 1, 2007;
                          ``(iii) with respect to each Additional 
                        Program Year thereafter that coverage is 
                        provided under the Program, the amount that is 
                        equal to the sum of (I) the dollar amount 
                        applicable under this subparagraph for the 
                        Program Year preceding such Additional Program 
                        Year, and (II) $50,000,000;
                except that the applicable Program Trigger amount shall 
                be reduced by $10,000,000 for each $1,000,000,000 in 
                insured losses occurring in any preceding year, 
                provided that the Program Trigger shall not be reduced 
                below $50,000,000 for any year.
                  ``(C) Prohibition on duplicative compensation.--The 
                Federal share of compensation for insured losses under 
                the Program shall be reduced by the amount of 
                compensation provided by the Federal Government to any 
                person under any other Federal program for those 
                insured losses.
          ``(2) TRIA capital reserve funds.--
                  ``(A) Establishment.--Any insurer may establish a 
                TRIA Capital Reserve Fund (in this section referred to 
                as a `CRF') in which it may hold funds in a fiduciary 
                capacity on behalf of the Secretary.
                  ``(B) Funding.--An insurer may fund a CRF by making 
                an election, in advance, to treat some or all of the 
                premiums it has disclosed pursuant to section 103(b)(2) 
                as TRIA program fee charges imposed by the Secretary. 
                Any such premiums for which such an election has been 
                made must be maintained in segregated accounts in a 
                fiduciary capacity on behalf of the Secretary. Such 
                funds may be invested in any otherwise legally 
                permissible manner but all interest, dividends, and 
                capital accumulations also shall be retained in such 
                segregated accounts on behalf of the Secretary.
                  ``(C) Use.--Funds from a CRF shall be collected and 
                used by the Secretary to offset, in whole or in part, 
                the Federal share of compensation provided to all 
                insurers under the Program as provided for in paragraph 
                (1), except that an insurer may first use the funds in 
                a CRF of that insurer to satisfy any one or more of the 
                following:
                          ``(i) The applicable insurer deductibles for 
                        the insurer.
                          ``(ii) The portion of the insurer's losses 
                        that exceed the insurer deductible but are not 
                        compensated by the Federal share pursuant to 
                        paragraph (1).
                          ``(iii) The insurer's obligations to pay for 
                        insured losses if the program trigger 
                        established in paragraph (1)(B) is not 
                        satisfied.
                          ``(iv) Any risk sharing obligations the 
                        insurer may have under any agreements made 
                        pursuant to or in accordance with paragraph 
                        (3).
                  ``(D) Termination.--
                          ``(i) Termination of program.--Upon 
                        termination of the Program under section 
                        108(a), and subject to the Secretary's 
                        continuing authority under section 108(b) to 
                        adjust claims in satisfaction of the Federal 
                        share of compensation under the Program as 
                        provided in paragraph (1) of this subsection, 
                        10 percent of each insurer's CRF funds shall be 
                        remitted to the Secretary and the remainder 
                        shall be remitted to the insurer. The Secretary 
                        shall determine the manner in which the 
                        remittance of such income to the insurer shall 
                        be made.
                          ``(ii) Elimination of federal share of 
                        compensation.--If the Program remains in effect 
                        but the Federal share of compensation for 
                        insured losses under the Program is eliminated 
                        from the Program, the CRF funds shall be 
                        retained and used for the purposes set forth in 
                        subparagraph (C) of this paragraph. At such 
                        time as an insurer's liability for insured 
                        losses under the Program terminates, as a 
                        consequence of the insurer's termination of its 
                        business or otherwise, the insurer shall remit 
                        any remaining CRF funds to the Secretary.
          ``(3) Risk-sharing mechanisms.--
                  ``(A) Finding; rule of construction.--Congress finds 
                that it is desirable to encourage the growth of 
                nongovernmental, private market reinsurance capacity 
                for protection against losses arising from acts of 
                terrorism. Therefore, nothing in this title shall 
                prohibit insurers from developing risk-sharing 
                mechanisms (including mutual reinsurance facilities and 
                agreements) to voluntarily reinsure terrorism losses 
                between and among themselves that are not subject to 
                reimbursement under this section 103.
                  ``(B) Establishment of advisory committee.--The 
                Secretary shall appoint an Advisory Committee to--
                          ``(i) encourage the creation and development 
                        of such mechanisms;
                          ``(ii) assist the Secretary and be available 
                        to administer such mechanisms; and
                          ``(iii) develop articles of incorporation, 
                        bylaws, and a plan of operation for any long-
                        term reinsurance facility authorized or created 
                        in the future.
                  ``(C) Membership.--The Advisory Committee shall be 
                composed of nine members who are directors, officers, 
                or other employees of insurers that are participating 
                or that desire to participate in such mechanisms, and 
                who are representative of the affected sectors of the 
                insurance industry. In making these appointments, the 
                Secretary shall solicit major trade associations of the 
                insurance industry to nominate lists of qualified 
                individuals representative of the commercial property 
                insurance, commercial casualty insurance, group life 
                insurance, and reinsurance industries.
          ``(4) Cap on annual liability.--
                  ``(A) In general.--Notwithstanding paragraph (1) or 
                any other provision of Federal or State law, if the 
                aggregate insured losses exceed $100,000,000,000 during 
                any Program Year (until such time as the Congress may 
                act otherwise with respect to such losses)--
                          ``(i) the Secretary shall not make any 
                        payment under this title for any portion of the 
                        amount of such losses that exceeds 
                        $100,000,000,000; and
                          ``(ii) no insurer that has met its insurer 
                        deductible shall be liable for the payment of 
                        any portion of that amount that exceeds 
                        $100,000,000,000.
                  ``(B) Insurer share.--For purposes of subparagraph 
                (A), the Secretary shall determine the pro rata share 
                of insured losses to be paid by each insurer that 
                incurs insured losses under the Program.
          ``(5) Notice to congress.--The Secretary shall notify the 
        Congress if estimated or actual aggregate insured losses exceed 
        $100,000,000,000 during during any Program Year and the 
        Congress shall determine the procedures for and the source of 
        any payments for such excess insured losses.
          ``(6) Final netting.--The Secretary shall have sole 
        discretion to determine the time at which claims relating to 
        any insured loss or act of terrorism shall become final.
          ``(7) Determinations final.--Any determination of the 
        Secretary under this subsection shall be final, unless 
        expressly provided, and shall not be subject to judicial 
        review.
          ``(8) Full recoupment of federal share.--The Secretary shall 
        collect, for repayment of the Federal financial assistance 
        provided in connection with all acts of terrorism (or acts of 
        war, in the case of workers' compensation and group life 
        insurance), terrorism loss risk-spreading premiums in an amount 
        equal to the total amount paid by the Secretary in accordance 
        with this section.
          ``(9) Policy surcharge for terrorism loss risk-spreading 
        premiums.--
                  ``(A) Policyholder premium.--Any amount established 
                by the Secretary as a terrorism loss risk-spreading 
                premium shall--
                          ``(i) be imposed as a policyholder premium 
                        surcharge on all covered lines of insurance 
                        policies in force after the date of such 
                        establishment;
                          ``(ii) begin with such period of coverage 
                        during the year as the Secretary determines 
                        appropriate; and
                          ``(iii) be based on a percentage of the 
                        premium amount charged for covered lines of 
                        insurance coverage under the policy.
                  ``(B) Collection.--The Secretary shall provide for 
                insurers to collect terrorism loss risk-spreading 
                premiums and remit such amounts collected to the 
                Secretary.
                  ``(C) Percentage limitation.--A terrorism loss risk-
                spreading premium may not exceed, on an annual basis, 
                the amount equal to 3 percent of the premium charged 
                for covered lines of insurance coverage under the 
                policy.
                  ``(D) Adjustment for urban and smaller commercial and 
                rural areas and different lines of insurance.--
                          ``(i) Adjustments.--In determining the method 
                        and manner of imposing terrorism loss risk-
                        spreading premiums, including the amount of 
                        such premiums, the Secretary shall take into 
                        consideration--
                                  ``(I) the economic impact on 
                                commercial centers of urban areas, 
                                including the effect on commercial 
                                rents and commercial insurance 
                                premiums, particularly rents and 
                                premiums charged to small businesses, 
                                and the availability of lease space and 
                                commercial insurance within urban 
                                areas;
                                  ``(II) the risk factors related to 
                                rural areas and smaller commercial 
                                centers, including the potential 
                                exposure to loss and the likely 
                                magnitude of such loss, as well as any 
                                resulting cross-subsidization that 
                                might result; and
                                  ``(III) the various exposures to 
                                terrorism risk for different lines of 
                                insurance.
                          ``(ii) Recoupment of adjustments.--Any 
                        recoupment amounts not collected by the 
                        Secretary because of adjustments under this 
                        subparagraph shall be recouped through 
                        additional terrorism loss risk-spreading 
                        premiums.
                  ``(E) Timing of premiums.--The Secretary may adjust 
                the timing of terrorism loss risk-spreading premiums to 
                provide for equivalent application of the provisions of 
                this title to policies that are not based on a calendar 
                year, or to apply such provisions on a daily, monthly, 
                or quarterly basis, as appropriate.
                  ``(F) Replenishment of tria capital reserve funds.--
                After any funds expended directly from the United 
                States Treasury are fully repaid, the balance of the 
                amounts collected under this paragraph shall be used to 
                fully replenish all insurer CRFs used by the Secretary 
                in accordance with the provisions of paragraph (2)(C) 
                that were not used by the insurer to satisfy its 
                obligations in accordance with clauses (i) through (iv) 
                of paragraph (2)(C).
  ``(f) Captive Insurers and Other Self-Insurance Arrangements.--The 
Secretary may, in consultation with the NAIC or the appropriate State 
regulatory authority, apply the provisions of this title, as 
appropriate, to other classes or types of captive insurers and other 
self-insurance arrangements by municipalities and other entities (such 
as workers' compensation self-insurance programs and State workers' 
compensation reinsurance pools), but only if such application is 
determined before the occurrence of an act of terrorism in which such 
an entity incurs an insured loss and all of the provisions of this 
title are applied comparably to such entities.
  ``(g) Reinsurance to Cover Exposure.--
          ``(1) Obtaining coverage.--This title may not be construed to 
        limit or prevent insurers from obtaining reinsurance coverage 
        for insurer deductibles or insured losses retained by insurers 
        pursuant to this section, nor shall the obtaining of such 
        coverage affect the calculation of such deductibles or 
        retentions.
          ``(2) Limitation on financial assistance.--The amount of 
        financial assistance provided pursuant to this section, 
        including amounts from a CRF used pursuant to subsection 
        (e)(2)(C), shall not be reduced by reinsurance paid or payable 
        to an insurer from other sources, except that recoveries from 
        such other sources, taken together with financial assistance 
        for the Transition Period or a Program Year provided pursuant 
        to this section, may not exceed the aggregate amount of the 
        insurer's insured losses for such period. If such recoveries 
        and financial assistance for the Transition Period or a Program 
        Year exceed such aggregate amount of insured losses for that 
        period and there is no agreement between the insurer and any 
        reinsurer to the contrary, an amount in excess of such 
        aggregate insured losses shall be returned to the Secretary.
  ``(h) Personal Lines Study.--
          ``(1) In general.--The Comptroller General of the United 
        States, after consultation with the NAIC, representatives of 
        the insurance industry, and other experts in the insurance 
        field, including a cross-section of insurers, independent 
        insurance agents and brokers, and policyholders, shall conduct 
        a study concerning the exposure of personal lines (including 
        homeowners insurance) to terrorism risk, the coverage currently 
        available, and potential policy responses.
          ``(2) Report.--Not later than September 1, 2006, the 
        Comptroller General shall submit a report to the Congress on 
        the results of the study conducted under subparagraph (1), 
        together with specific policy recommendations.
  ``(i) Study of Risks Stemming From Nuclear, Biological, Chemical and 
Radioactive Events.--
          ``(1) In general.--The Comptroller General of the United 
        States, after consultation with the NAIC, representatives of 
        the insurance industry, including a cross-section of insurers, 
        independent insurance agents and brokers, and policyholders, 
        and other experts in the insurance field, shall conduct a study 
        concerning the risk of potential terrorist acts stemming from 
        the use of nuclear, biological, chemical, and radioactive 
        weapons.
          ``(2) Report.--Not later than September 1, 2006, the 
        Comptroller General shall submit a report to the Congress on 
        the results of the study conducted under paragraph (1), 
        together with specific policy recommendations.
  ``(j) Study of Need for Federal Natural Disaster Catastrophe 
Program.--
          ``(1) In general.--The Comptroller General of the United 
        States, after consultation with the NAIC, representatives of 
        the insurance industry, including a cross-section of insurers, 
        independent insurance agents and brokers, and policyholders, 
        and other experts in the insurance field, shall conduct a study 
        concerning the need for a Federal program that provides for a 
        system of shared public and private compensation for insured 
        losses resulting from natural disaster.
          ``(2) Issues.--The study under this section shall include an 
        analysis of whether, and in what manner, such a Federal program 
        should incorporate any or all of the following concepts: tax-
        free capital reserves; voluntary mutual reinsurance pools; a 
        distinction between sophisticated and non-sophisticated 
        commercial purchasers for the purposes of exemption from 
        regulation; or Federal support for the purchase of reinsurance 
        by State disaster insurance programs.
          ``(3) Report.--Not later than September 1, 2006, the 
        Comptroller General shall submit a report to the Congress on 
        the results of the study conducted under this subsection 
        together with specific policy recommendations.

``SEC. 104. GENERAL AUTHORITY AND ADMINISTRATION OF CLAIMS.

  ``(a) General Authority.--The Secretary shall have the powers and 
authorities necessary to carry out the program, including authority--
          ``(1) to investigate and audit all claims under the Program; 
        and
          ``(2) to prescribe regulations and procedures to effectively 
        administer and implement the Program, and to ensure that all 
        insurers and self-insured entities that participate in the 
        Program are treated comparably under the Program.
  ``(b) Interim Rules and Procedures.--The Secretary may issue interim 
final rules or procedures specifying the manner in which--
          ``(1) insurers may file and certify claims under the Program;
          ``(2) the Federal share of compensation for insured losses 
        will be paid under the Program, including payments based on 
        estimates of or actual insured losses;
          ``(3) the Secretary may, at any time, seek repayment from or 
        reimburse any insurer, based on estimates of insured losses 
        under the Program, to effectuate the insured loss sharing 
        provisions in section 103; and
          ``(4) the Secretary will determine any final netting of 
        payments under the Program, including payments owed to the 
        Federal Government from any insurer and any Federal share of 
        compensation for insured losses owed to any insurer, to 
        effectuate the insured loss sharing provisions in section 103.
  ``(c) Consultation.--The Secretary shall consult with the NAIC, as 
the Secretary determines appropriate, concerning the Program.
  ``(d) Contracts for Services.--The Secretary may employ persons or 
contract for services as may be necessary to implement the Program.
  ``(e) Civil Penalties.--
          ``(1) In general.--The Secretary may assess a civil monetary 
        penalty in an amount not exceeding the amount under paragraph 
        (2) against any insurer that the Secretary determines, on the 
        record after opportunity for a hearing----
                  ``(A) has failed to charge, collect, or remit 
                terrorism loss risk-spreading premiums under section 
                103(e) in accordance with the requirements of, or 
                regulations issued under, this title;
                  ``(B) has intentionally provided to the Secretary 
                erroneous information regarding premium or loss 
                amounts;
                  ``(C) submits to the Secretary fraudulent claims 
                under the Program for insured losses;
                  ``(D) has failed to provide the disclosures required 
                under subsection (f); or
                  ``(E) has otherwise failed to comply with the 
                provisions of, or the regulations issued under, this 
                title.
          ``(2) Amount.--The amount under this paragraph is the greater 
        of $1,000,000 and, in the case of any failure to pay, charge, 
        collect, or remit amounts in accordance with this title or the 
        regulations issued under this title, such amount in dispute.
          ``(3) Recovery of amount in dispute.--A penalty under this 
        subsection for any failure to pay, charge, collect, or remit 
        amounts in accordance with this title or the regulations under 
        this title shall be in addition to any such amounts recovered 
        by the Secretary.
  ``(f) Submission of Premium Information.--
          ``(1) In general.--The Secretary shall annually compile 
        information on the terrorism risk insurance premium rates of 
        insurers for the preceding year.
          ``(2) Access to information.--To the extent that such 
        information is not otherwise available to the Secretary, the 
        Secretary may require each insurer to submit to the NAIC 
        terrorism risk insurance premium rates, as necessary to carry 
        out paragraph (1), and the NAIC shall make such information 
        available to the Secretary.
          ``(3) Availability to congress.--The Secretary shall make 
        information compiled under this subsection available to the 
        Congress, upon request.
  ``(g) Funding.--
          ``(1) Federal payments.--There are hereby appropriated, out 
        of funds in the Treasury not otherwise appropriated, such sums 
        as may be necessary to pay the Federal share of compensation 
        for insured losses under the Program to the extent such Federal 
        share exceeds funds collected by the Secretary pursuant to 
        section 103(e)(2).
          ``(2) Administrative expenses.--There are hereby 
        appropriated, out of funds in the Treasury not otherwise 
        appropriated, such sums as may be necessary to pay reasonable 
        costs of administering the Program.

``SEC. 105. ESTABLISHMENT OF COMMISSION ON TERRORISM RISK INSURANCE.

  ``(a) In General.--There is hereby established the Commission on 
Terrorism Risk Insurance (in this section referred to as the 
`Commission').
  ``(b) Membership.--
          ``(1) The Commission shall consist of 11 members, as follows:
                  ``(A) The Secretary of the Treasury or his designee.
                  ``(B) One State insurance commissioner designated by 
                the members of the NAIC.
                  ``(C) Nine members appointed by the President, who 
                shall be--
                          ``(i) a representative of group life 
                        insurers;
                          ``(ii) a representative of property and 
                        casualty insurers with direct written premium 
                        of $1,000,000,000 or less;
                          ``(iii) a representative of property and 
                        casualty insurers with direct written premium 
                        of more than $1,000,000,000;
                          ``(iv) a representative of multiline 
                        insurers;
                          ``(v) a representative of independent 
                        insurance agents;
                          ``(vi) a representative of insurance brokers;
                          ``(vii) a policyholder representative;
                          ``(viii) a representative of the survivors of 
                        the victims of the attacks of September 11, 
                        2001; and
                          ``(ix) a representative of the reinsurance 
                        industry.
          ``(2) Secretary.--The Program Director of the Terrorism Risk 
        Insurance Act shall serve as Secretary of the Commission. The 
        Secretary of the Commission shall determine the manner in which 
        the Commission shall operate, including funding and staffing.
  ``(c) Duties.--
          ``(1) In general.--The Commission shall identify and make 
        recommendations regarding--
                  ``(A) possible actions to encourage, facilitate, and 
                sustain provision by the private insurance industry in 
                the United States of affordable coverage for losses due 
                to an act or acts of terrorism;
                  ``(B) possible actions or mechanisms to sustain or 
                supplement the ability of the insurance industry in the 
                United States to cover losses resulting from acts of 
                terrorism in the event that--
                          ``(i) such losses jeopardize the capital and 
                        surplus of the insurance industry in the United 
                        States as a whole; or
                          ``(ii) other consequences from such acts 
                        occur, as determined by the Commission, that 
                        may significantly affect the ability of the 
                        insurance industry in the United States to 
                        independently cover such losses; and
                  ``(C) significantly reducing the expected Federal 
                role over time in any continuing Federal terrorism risk 
                insurance program.
          ``(2) Evaluations.--In identifying and making the 
        recommendations required under paragraph (1), the Commission 
        shall specifically evaluate the utility and viability of TRIA 
        Capital Reserve Funds made available under section 103(e)(2), 
        any risk sharing mechanism created or made available under 
        section 103(e)(3), a Federally created or mandated reinsurance 
        facility, empowering such a facility to issue pre-event 
        financing bonds, post-event financing bonds, assessments, 
        single or multiple pooling arrangements, and other risk sharing 
        arrangements to accomplish, in whole or in part, the specified 
        objectives, taking into consideration the studies and reports 
        to the Congress pursuant to subsections (h) and (i) of section 
        103.
          ``(3) Report.--Not later than December 31, 2006, the 
        Commission shall submit a report to Congress evaluating and 
        making recommendations regarding whether there is a need for a 
        Federal terrorism risk insurance program and, if so, shall make 
        a specific, detailed recommendation for the replacement of the 
        Program, including specific, detailed recommendations for the 
        creation of a terrorism reinsurance facility or facilities or 
        single or multiple pooling arrangements, or both.
  ``(d) Effect on Existing Program.--For purposes of section 108(a), 
the Secretary shall make a determination not later than January 31, 
2007, of whether the Commission has satisfied its obligations under 
subsection (c)(3).

``SEC. 106. PRESERVATION PROVISIONS.

  ``(a) State Law.--Nothing in this title shall affect the jurisdiction 
or regulatory authority of the insurance commissioner (or any agency or 
office performing like functions) of any State over any insurer or 
other person--
          ``(1) except as specifically provided in this title; and
          ``(2) except that--
                  ``(A) the definition of the term `act of terrorism' 
                in section 102 shall be the exclusive definition of 
                that term for purposes of compensation for insured 
                losses under this title, and shall preempt any 
                provision of State law that is inconsistent with that 
                definition, to the extent that such provision of law 
                would otherwise apply to any type of insurance covered 
                by this title; and
                  ``(B) during the period beginning on the date of 
                enactment of this Act and for so long as the Program is 
                in effect, as provided in section 108, including 
                authority in subsection 108(b), books and records of 
                any insurer that are relevant to the Program shall be 
                provided, or caused to be provided, to the Secretary, 
                upon request by the Secretary, notwithstanding any 
                provision of the laws of any State prohibiting or 
                limiting such access; and
          ``(3) except that with respect to coverage required to be 
        made available under section 103(c)--
                  ``(A) no laws or regulations of a State imposing a 
                diligent search requirement for the placement of a 
                surplus lines policy shall apply in connection with the 
                purchase of such insurance by an exempt commercial 
                policyholder; and
                  ``(B) no laws or regulations of a State, except of 
                the home State, imposing a diligent search requirement 
                for the placement of a surplus lines policy shall apply 
                with respect to the placement of a multi-State surplus 
                lines commercial insurance policy, provided the 
                contract of insurance insures risks in the home State.
  ``(b) Streamlined Rate and Form Filing.--The Congress intends that, 
by December 31, 2007, all States, with respect to submission of a 
commercial property insurance policy or commercial casualty insurance 
policy that includes coverage for acts of terrorism--
          ``(1) implement and fully utilize the System for Electronic 
        Rate and Form Filing (in this section referred to as `SERFF'), 
        developed by the NAIC, without deviation to provide a single 
        point for electronic filing of property insurance and casualty 
        insurance forms for review;
          ``(2) update SERFF to provide a single coordinated checklist 
        for inputting the required information used by various States 
        for filing reviews and designating to which States the 
        information will be submitted;
          ``(3) allow the option of filing of self-certified commercial 
        property insurance and commercial casualty insurance forms 
        through a substantially nationwide coordinated electronic 
        filing system that--
                  ``(A) includes a review checklist with uniform 
                nomenclature clearly establishing what is required 
                under the laws of such State for a compliant filing of 
                such forms;
                  ``(B) uses a single input system and transmittal 
                document that allows the filer to submit such form for 
                review without required format deviations to any 
                combination of the States participating in the system;
                  ``(C) does not require prior approval for such self-
                certified form filing;
                  ``(D) keeps such filings confidential until they are 
                implemented, deemed implemented, or disapproved; and
                  ``(E) only allows disapproval of such filings in 
                writing based on specific standards that are published 
                in statute, rule, or regulation.
  ``(c) Streamlined Surplus Lines Placement.--The Congress intends 
that, by December 31, 2007, all States streamline their surplus lines 
diligent search rules with respect to the placement of surplus lines 
policies in any covered line of insurance that includes coverage for 
acts of terrorism by providing for--
          ``(1) automatic export for exempt commercial purchasers, 
        under which a surplus lines broker seeking to obtain, provide, 
        or place insurance in a State for an insured that qualifies as 
        an exempt commercial purchaser may procure surplus lines 
        insurance from or place surplus lines insurance with any 
        nonadmitted insurer without making a diligent search to 
        determine whether the full amount or type of insurance sought 
        by the exempt commercial purchaser can be obtained from 
        admitted insurers in such State.
          ``(2) home State regulation of diligent search requirements, 
        that provides that, except as provided in paragraph (1), only 
        the home State may impose a diligent search requirement for the 
        placement of a multi-State surplus lines commercial insurance 
        policy, provided the contract of insurance insures risks in the 
        Home State.
  ``(d) Existing Reinsurance Agreements.--Nothing in this title shall 
be construed to alter, amend, or expand the terms of coverage under any 
reinsurance agreement in effect on the date of enactment of this Act. 
The terms and conditions of such an agreement shall be determined by 
the language of that agreement.''; and
          (2) in section 108--
                  (A) by striking subsection (a) and inserting the 
                following new subsection:
  ``(a) Termination of Program.--
          ``(1) In general.--Except as provided in paragraph (2), the 
        Program shall terminate on December 31, 2008.
          ``(2) Failure of commission to submit report.--If the 
        Secretary determines pursuant to section 105(d) that the 
        Commission on Terrorism Risk Insurance established under 
        section 105 has not satisfied its obligations under section 
        105(c)(3), the Program shall terminate on December 31, 2007.''; 
        and
                  (B) in subsection (c)(1), by striking ``paragraph 
                (4), (5), (6), (7), or (8) of''.
  (b) Applicability.--The amendments made by subsection (a) shall apply 
beginning on January 1, 2006. The provisions of the Terrorism Risk 
Insurance Act of 2002, as in effect on the day before the date of the 
enactment of this Act, shall apply through the end of December 31, 
2005.

                          Purpose and Summary

    H.R. 4314, the Terrorism Risk Insurance Revision Act of 
2005 (TRIRA), extends the economic backstop provided for 
consumers and the insurance marketplace in the Terrorism Risk 
Insurance Act (TRIA) while increasing taxpayer protections and 
adjusting the program to better address evolving marketplace 
needs. It narrows the taxpayer exposure by requiring full 
mandatory payback of all Federal assistance provided, 
significantly increases the minimum event levels before Federal 
involvement is triggered, increases the insurer deductibles for 
all covered lines, greatly increases the private sector's co-
share of any lower level losses, and requires the development 
of a replacement for TRIA that would significantly reduce any 
Federal involvement or exposure.
    TRIRA excludes commercial auto insurance from coverage 
while including some group life products. Insurers are allowed 
to set aside a portion of the terrorism premiums charged as 
dedicated capital. This capital would be available to the 
Federal government to reduce its expenditures and also used by 
the insurers to reduce their own terrorist losses, in order to 
stabilize the long-term terrorism marketplace and facilitate 
risk pooling efforts. Treasury is directed to facilitate 
various private sector risk-sharing mechanisms. The ability of 
exempt commercial purchasers to access the surplus lines market 
is enhanced, and the States are directed to streamline both 
filing and review of commercial insurance and rules for 
accessing the surplus lines marketplace.

                  Background and Need for Legislation

    The terrorist attacks of September 11, 2001, resulted in a 
tragic number of deaths and injuries, along with the complete 
destruction of the World Trade Center complex. After sustaining 
more than $30 billion in insured losses from the attacks, many 
insurers began to exclude terrorism coverage from commercial 
insurance policies and reinsurers began to leave the 
marketplace.
    Congress passed the Terrorism Risk Insurance Act of 2002 
(TRIA) to address concerns that the lack of available terrorism 
insurance could have significant adverse effects on jobs and 
economic growth. The purpose of TRIA was twofold: to make 
terrorism insurance widely available and affordable for the 
duration of the Act, and to provide a transition period during 
which insurance market participants could diversify their 
exposure and develop resources and mechanisms that would enable 
them to offer terrorism insurance after the program expired. 
TRIA is set to expire on December 31, 2005.
    TRIA is a public-private partnership designed to allow the 
private market to develop mechanisms to provide commercial 
terrorism risk coverage while guaranteeing that any Federal 
assistance in the interim is partly repaid by the insurance 
industry and beneficiaries of the program. The bill established 
the Terrorism Risk Insurance Program in the Department of the 
Treasury, through which the Federal government would share the 
risk of loss from future terrorist attacks with the insurance 
industry for a temporary period of time.
    Under TRIA, the Federal government shares 90 percent of 
each insurer's covered terrorism losses over a per company 
deductible. The insurance marketplace as a whole is then 
required to pay back a portion of the Government share over 
time (the ``retention''). The insurer deductibles are gradually 
increased each year of the TRIA program (10 percent to 12.5 
percent to 15 percent), as are the retention levels ($10 
billion to $12.5 billion to $15 billion).
    In April 28, 2004, testimony before the Subcommittee on 
Capital Markets, Insurance, and Government Sponsored 
Enterprises on the implementation of the TRIA program, the 
Government Accountability Office (GAO) reported that TRIA 
improved the availability of terrorism insurance and prompted 
reinsurers to offer a limited amount of coverage for terrorist 
events. In particular, terrorism coverage has been made 
available for high-risk properties. Additionally, GAO 
determined that TRIA contributed to better credit ratings for 
some commercial mortgage-backed securities.
    The Department of the Treasury reported to Congress on the 
effectiveness of the TRIA program on June 30, 2005. 
Specifically, the report explained that insurers now provide 
terrorism coverage on a greater share of commercial property 
and casualty insurance policies than in 2002, the year before 
TRIA took effect. Policyholders are now more likely to purchase 
terrorism risk insurance than in 2002. In a letter accompanying 
the report, Treasury Secretary John W. Snow stated that 
financial strength has improved substantially since 2002 and 
both insurers and policyholders have had time to adjust to the 
post-September 11th view of terrorism risk. The Secretary 
concluded that continuation of the TRIA program in its current 
form is likely to hinder the further development of the 
insurance market by crowding out innovation and capacity. The 
Secretary additionally indicated that the Administration would 
not support an extension of the TRIA program in its current 
form, but could support a revised, temporary program, with 
raised trigger levels, deductibles and retention levels and a 
reduction in taxpayer exposure. The Secretary also expressed 
support for the elimination of certain covered lines from the 
program, as well as reasonable litigation reform.
    The Committee on Financial Services approved H.R. 4314, the 
Terrorism Risk Insurance Revision Act of 2005 (TRIRA), to 
extend the economic backstop provided for consumers and the 
insurance marketplace in TRIA while increasing taxpayer 
protections and adjusting the program to better address 
evolving marketplace needs.
    TRIRA narrows the taxpayer exposure by requiring full 
mandatory payback of all Federal assistance provided. This bill 
also significantly increases the minimum event levels before 
Federal involvement is triggered, from $5 million in the 
current program to $50 million for the first year of the 
extension, $100 million for the second year of the extension, 
and an additional $50 million for any additional year the 
program is in existence.
    The current TRIA insurer deductible is 15 percent for all 
covered lines. Under TRIRA, insurer deductibles for all covered 
lines are increased. The deductibles are as follows: workers' 
compensation, 16 percent, to increase by 2.0 percent points 
each year; commercial property, 20 percent, to increase by 2.5 
percent points each year; group life, 21.5 percent, to increase 
by 2.5 percent points each year; and casualty, 25 percent, to 
increase by 5 percent points each year. Insurers would also be 
directed to make coverage available for nuclear, biological, 
chemical, and radioactive (NBCR) risks for any covered line 
with a 7.5 percent deductible, to increase by .75 percent 
points each year.
    TRIRA revises the industry co-share requirements. 
Currently, TRIA co-shares are set at 10 percent. In the revised 
bill, industry co-shares are increased for smaller events and 
decreased for larger events. For the first $10 billion of 
losses, insurers will be responsible for a 20 percent co-share. 
From $10 to 20 billion of losses, insurers will be responsible 
for a 15 percent co-share. From $20 to 40 billion of losses, 
insurers will be responsible for a 10 percent co-share. For 
losses over $40 billion, insurers will be responsible for a 5 
percent co-share.
    TRIRA incorporates market reforms to streamline certain 
regulatory rules and practices. These reforms include exempting 
sophisticated commercial purchasers from state declination 
rules for surplus lines policies; and expressing the intent of 
Congress that States subjecting multi-state terrorism policies 
to review only in the policyholder's home state; and expressing 
the intent of Congress that States allowing sophisticated 
commercial purchasers easier access to the surplus lines 
marketplace for terrorism coverage.
    TRIRA eliminates commercial auto insurance from the program 
while including group life insurance, but excluding corporate-
owned and bank-owned life insurance (COLI/BOLI). To encourage 
the growth of the private marketplace, TRIRA allows insurers to 
set aside a portion of their terrorism premiums as dedicated 
terrorism capital reserves. This capital would be available to 
the Federal government to reduce its expenditures and could 
also be used by the insurers to reduce their own terrorist 
losses, in order to stabilize the long-term terrorism 
marketplace and facilitate risk-pooling efforts. Further, 
Treasury is directed to establish rules to encourage various 
private-sector risk sharing mechanisms.
    TRIRA removes the distinction between foreign and domestic 
terrorism. The program is extended for 2006 and 2007. The bill 
creates a public-private commission to draft specific proposals 
to establish a private long-term risk sharing or pooling 
mechanism that would significantly reduce the Federal 
government's involvement and exposure over time. Unless the 
Secretary determines that the Commission did not fulfill its 
obligations, TRIRA would be extended for 2008 as a transition 
to a new long-term program.

                                Hearings

    The Committee on Financial Services held a hearing on July 
13, 2005, on the Treasury Department's report to Congress on 
the Terrorism Risk Insurance Act. Testimony was received by the 
Honorable John W. Snow, Secretary, Department of the Treasury.
    The Subcommittee on Capital Markets, Insurance, and 
Government Sponsored Enterprises held a hearing on July 27, 
2005, entitled ``The Future of Terrorism Insurance.'' The 
following witnesses testified: Mr. Howard Mills, 
Superintendent, New York Insurance Department; Mr. Lawrence H. 
Mirel, Commissioner, Department of Insurance and Securities 
Regulation, District of Columbia; Mr. William G. Stiglitz, III, 
Hyland, Block, and Hyland and President-elect, Independent 
Insurance Agents and Brokers of America; Mr. John T. Sinnott, 
Vice Chairman, Marsh & McLennan Companies, Inc., on behalf of 
the Council of Insurance Agents and Brokers; Mr. James E. 
Maurin, Chairman, Stirling Properties, on behalf of the 
Coalition to Insure Against Terrorism; Mr. Robert Hunter, 
Director of Insurance, Consumer Federation of America; Mr. 
Ernst N. Csiszar, President and Chief Executive Officer, 
Property Casualty Insurers Association of America; Mr. Jason M. 
Schupp, Vice President and Senior Assistant General Counsel, 
Zurich Financial Services Group, on behalf of the American 
Insurance Association; Mr. Warren Heck, Chairman and Chief 
Executive Officer, Greater New York Mutual Insurance Company, 
on behalf of the National Association of Mutual Insurance 
Companies; Mr. Ed Harper, Senior Vice President, Assurant, Inc. 
and Chairman, Group Life Coalition; and Ms. Penny S. Pritzker, 
President and Chief Executive Officer, Pritzker Realty Group, 
L.P.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
November 16, 2005, and ordered H.R. 4314, The Terrorism Risk 
Insurance Revision Act of 2005, favorably reported to the House 
as amended by a record vote of 64 yeas and 3 nays.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion by Mr. Oxley to report the bill, as amended, to the 
House with a favorable recommendation was agreed to by a record 
vote of 64 yeas and 3 nays (Record vote no. FC-8). The names of 
Members voting for and against follow:

                                              RECORD VOTE NO. FC-8
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Oxley......................        X   ........  .........  Mr. Frank (MA)...        X   ........  .........
Mr. Leach......................        X   ........  .........  Mr. Kanjorski....        X   ........  .........
Mr. Baker......................        X   ........  .........  Ms. Waters.......        X   ........  .........
Ms. Pryce (OH).................        X   ........  .........  Mr. Sanders......        X   ........  .........
Mr. Bachus.....................        X   ........  .........  Mrs. Maloney.....  ........  ........  .........
Mr. Castle.....................        X   ........  .........  Mr. Gutierrez....        X   ........  .........
Mr. King (NY)..................  ........  ........  .........  Ms. Velazquez....        X   ........  .........
Mr. Royce......................  ........        X   .........  Mr. Watt.........        X   ........  .........
Mr. Lucas......................        X   ........  .........  Mr. Ackerman.....        X   ........  .........
Mr. Ney........................        X   ........  .........  Ms. Hooley.......        X   ........  .........
Mrs. Kelly.....................        X   ........  .........  Ms. Carson.......        X   ........  .........
Mr. Paul.......................  ........        X   .........  Mr. Sherman......        X   ........  .........
Mr. Gillmor....................        X   ........  .........  Mr. Meeks (NY)...        X   ........  .........
Mr. Ryun (KS)..................        X   ........  .........  Ms. Lee..........        X   ........  .........
Mr. La Tourette................        X   ........  .........  Mr. Moore (KS)...        X   ........  .........
Mr. Manzullo...................        X   ........  .........  Mr. Capuano......        X   ........  .........
Mr. Jones (NC).................        X   ........  .........  Mr. Ford.........        X   ........  .........
Mrs. Biggert...................        X   ........  .........  Mr. Hinojosa.....        X   ........  .........
Mr. Shays......................        X   ........  .........  Mr. Crowley......        X   ........  .........
Mr. Fossella...................        X   ........  .........  Mr. Clay.........        X   ........  .........
Mr. Gary G. Miller (CA)........        X   ........  .........  Mr. Israel.......        X   ........  .........
Mr. Tiberi.....................        X   ........  .........  Mrs. McCarthy....        X   ........  .........
Mr. Kennedy (MN)...............        X   ........  .........  Mr. Baca.........        X   ........  .........
Mr. Feeney.....................  ........        X   .........  Mr. Matheson.....        X   ........  .........
Mr. Hensarling.................        X   ........  .........  Mr. Lynch........        X   ........  .........
Mr. Garrett (NJ)...............        X   ........  .........  Mr. Miller (NC)..        X   ........  .........
Ms. Brown-Waite (FL)...........        X   ........  .........  Mr. Scott (GA)...        X   ........  .........
Mr. Barrett (SC)...............        X   ........  .........  Mr. Davis (AL)...        X   ........  .........
Ms. Harris.....................        X   ........  .........  Mr. Al Green (TX)        X   ........  .........
Mr. Renzi......................        X   ........  .........  Mr. Cleaver......        X   ........  .........
Mr. Gerlach....................        X   ........  .........  Ms. Bean.........        X   ........  .........
Mr. Pearce.....................  ........  ........  .........  Ms. Wasserman            X   ........  .........
                                                                 Schultz.
Mr. Neugebauer.................        X   ........  .........  Ms. Moore (WI)...        X   ........  .........
Mr. Price (GA).................        X   ........  .........  .................  ........  ........  .........
Mr. Fitzpatrick (PA)...........        X   ........  .........  .................  ........  ........  .........
Mr. Davis (KY).................        X   ........  .........  .................  ........  ........  .........
Mr. McHenry....................        X   ........  .........  .................  ........  ........  .........
----------------------------------------------------------------------------------------------------------------
* Mr. Sanders is an independent, but caucuses with the Democratic Caucus.

    The following other amendments were also considered by the 
Committee:
    An amendment by Mr. Oxley, No. 1, making various technical 
and substantive changes to the bill, was AGREED TO by a voice 
vote.
    An amendment by Mr. Frank, No. 2, regarding minimum 
requirements for exempt commercial purchasers, was AGREED TO by 
a voice vote.
    An amendment by Ms. Wasserman Schultz, No. 3, regarding 
life insurer requirements with respect to foreign travel, was 
AGREED TO by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held hearings and made 
findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 4314, The Terrorism Risk Insurance Revision Act of 
2005 (TRIRA), extends the economic backstop provided for 
consumers and the insurance marketplace in the Terrorism Risk 
Insurance Act (TRIA) while increasing taxpayer protections and 
adjusting the program to better address evolving marketplace.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act, when received.

                        Committee Cost Estimate

    The Committee will adopt as its own the cost estimate 
prepared by the Director of the Congressional Budget Office 
pursuant to section 402 of the Congressional Budget Act of 
1974, when received.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the cost estimate to be provided by 
the Congressional Budget Office pursuant to section 402 of the 
Congressional Budget Act of 1974 was not received in time to be 
filed with this report.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This section establishes the short title of the bill, the 
``Terrorism Risk Insurance Revision Act of 2005''.

TRIA Section 2. Extension of program and program changes

    This section amends the Terrorism Risk Insurance Act of 
2002 (``TRIA'') to extend and revise the program, replacing 
sections 101 through 106 and 108(a).

TRIA Section 101. Congressional findings and purpose

    This section amends the findings and purposes of TRIA to 
reflect the importance of ensuring a vibrant insurance 
marketplace for nuclear, biological, chemical, and radioactive 
(NBCR) loss exposures, and the need for a group life 
reinsurance backstop.

TRIA Section 102. Definitions

    This section establishes definitions for the terms: ``act 
of terrorism'', ``affiliate'', ``casualty insurance'', 
``covered line of insurance'', ``direct earned premium'', 
``exempt commercial purchaser'', ``exempt commercial purchaser 
certification'', ``group life insurance'', ``home state'', 
``insured loss'', ``insurer'', ``insurer deductible'', 
``NAIC'', ``ownership'', ``NBCR terrorism'', ``person'', 
``program'', ``program years'', ``property insurance'', 
``qualified risk manager'', ``Secretary'', ``State'', ``United 
States'', and ``workers'' compensation''.
    In particular, TRIRA revises the definition of an ``act of 
terrorism'' to eliminate the requirement that it be committed 
by individuals acting on behalf of foreign interests. The 
definition of ``affiliate'' is also revised. Group life 
insurance is added as a covered line while commercial auto 
insurance is deleted. New definitions are added for ``exempt 
commercial purchaser'', ``exempt commercial purchaser 
certification'', ``home state'', ``qualified risk manager'' 
relating to the new market reforms in TRIA section 106.
    The ``insurer deductible'' definition was amended to 
increase the per company deductible before federal assistance 
is received from 15% to a per line deductible of 16% for 
workers' compensation (increasing by 2% points per year), 21.5% 
for group life (increasing by 2.5% points per year), 20% 
percent for property (increasing by 2.5% points per year), and 
25% for casualty (increasing by 5% per points year). A sub-
deductible of 7.5% (increasing by .75% points per year) is 
created for acts of terrorism causing NBCR damage. A reset 
mechanism is provided for the insurer deductibles reducing them 
by .1% points for each $1 billion in insured losses in any 
calendar year.

TRIA Section 103. Terrorism Insurance Program

    This section continues the Terrorism Insurance Program in 
the Department of the Treasury while making a number of 
improvements to the terrorism backstop. Insurers are required 
to offer coverage for losses resulting from NBCR terrorism, 
although the offer may have different terms, amounts, and 
coverage limitations than the underlying policies. Covered 
insurers offering life insurance are required to offer coverage 
that does not preclude lawful future foreign travel, and the 
additional coverage option must either be not excessive or 
based on a good faith actuarial estimate.
    The Federal share of insured loss compensation, for the 
portion of an insurer's insured losses that exceeds its 
applicable insurer deductible, is adjusted from 90% for all 
covered to 80% of the aggregate industry insured losses of less 
that $10 billion, 85% of the aggregate insured industry losses 
between $10 billion and $20 billion, 90% of the aggregate 
insured industry losses between $20 billion and $40 billion, 
and 95% of the aggregate insured industry losses above $40 
billion. The share shall be prorated by insurer based upon each 
insurer's percentage of aggregate industry insured losses for 
each Program Year. The minimum level of terrorist event 
required to trigger any potential Federal assistance is 
increased from $5 million to $50 million for Program Year 4, 
and an additional $50 million for each subsequent year.
    The bill creates TRIA Capital Reserve Funds (CRF), allowing 
insurers to hold a portion of the terrorism premiums it charges 
in a fiduciary capacity on behalf of the Secretary. An insurer 
may fund a CRF by making an advanced election to treat some or 
all of the premiums it has disclosed under the Program for 
terrorism insurance coverage as a fee charge imposed by the 
Secretary. The Secretary is directed to use the CRFs to reduce 
any Federal expenditure under the Program, with amounts used 
for such purposes replenished over time through policyholder 
surcharges after any direct Federal assistance is repaid. 
Before being subject to call by the Secretary, an insurer may 
use the CRF funds to satisfy its applicable insurer deductible, 
its portions of its losses over the deductible, its obligations 
to pay insured losses that are under the program trigger level, 
or any risk-sharing obligations it has made under this section. 
The bill does not determine the Federal tax treatment of the 
creation of a CFR by an insurer nor the Federal tax treatment 
of contributions to the CRF, amounts used to fund the CRF 
(including premiums, fees, and other similar amounts), earnings 
or amounts that fund the CRF, or distributions or other uses of 
amounts in the CRF.
    An Advisory Committee is created to encourage the 
development of risk-sharing mechanisms, including mutual 
reinsurance facilities and pooling agreements, to voluntarily 
reinsure terrorism losses between and among insurers. The cap 
on the annual liability of the Federal government and the 
private sector in the revised program remains at $100 billion. 
Full recoupment of the entire federal assistance paid by the 
Secretary under this Act is made mandatory, collected through a 
policy surcharge that is capped at 3% per year for covered 
lines of insurance.
    The Comptroller General of the United States shall conduct 
studies of the exposure of personal lines to terrorism risk, 
the risk of potential terrorist acts involving nuclear, 
biological, chemical, or radioactive weapons, and the need for 
a federal natural disaster catastrophe program, which shall be 
submitted to Congress by September 1, 2006. The natural 
catastrophe study shall include consideration of tax-free 
capital reserves, voluntary mutual reinsurance pools, a 
distinction between sophisticated and non-sophisticated 
commercial purchasers for the purposes of exemption from 
regulation, and the need for Federal support for the purchase 
of reinsurance by State disaster insurance programs.

TRIA Section 104. General authority and administration of claims

    This section maintains the powers and authority of the 
Secretary necessary to carry out the program, including the 
authority to audit all claims under the program and to 
proscribe regulations and procedures to effectively implement 
and administer the program.

TRIA Section 105. Establishment of Commission on Terrorism Risk 
        Insurance

    This section establishes a Commission on Terrorism Risk 
Insurance, whose membership shall consist of the Secretary, a 
State insurance regulator appointed by the National Association 
of Insurance Commissioners, and nine members appointed by the 
President including: a representative of group life insurers, a 
representative of property and casualty insurers with direct 
written premium of less than $1 billion, a representative of a 
property and casualty insurers with direct written premium of 
more that $1 billion, a representative of multi-line insurers, 
a representative of independent insurance agents, a 
representative of insurance brokers, a representative of 
commercial policyholders, a representative of reinsurers, and a 
representative of the survivors of the victims of the September 
11, 2001 terrorist attacks.
    The Commission shall make recommendations to encourage 
private industry to develop dedicated capital for underwriting 
terrorism risks, and to significantly reduce the potential 
Federal exposure and participation in terrorism insurance over 
time. The Commission willspecifically review and evaluate the 
utility and viability of the Capital Reserve Funds and any risk-sharing 
mechanism created or made available by the Committee established in 
section 103, a Federally created or mandated reinsurance facility or 
facilities, the use of pre-event and post-event financing bonds, 
assessments, single and multiple pooling arrangements, and other risk-
sharing arrangements that could facilitate more private sector coverage 
of terrorism risks. The Commission will take into account the studies 
and reports to Congress pursuant to Section 103 and shall report to 
Congress with specific recommendations no later than December 31, 2006. 
Unless the Secretary determines that the Commission has not fulfilled 
its obligations, the Program shall remain in effect until December 31, 
2008.

TRIA Section 106. Preservation provisions

    This section continues to preserve the jurisdiction and 
regulatory authority of the state insurance commissioners 
except as specifically provided. The definition of ``act of 
terrorism'' in Section 102 shall be the exclusive definition of 
that term for the purposes of compensation for insured losses 
under this title. The records and books of any insurer that are 
relevant to the Program may be requested by the Secretary, 
notwithstanding any provisions of State law that may limit such 
access. State diligent search requirements for placement of 
surplus lines policies for exempt commercial policyholders are 
preempted. For other commercial policyholders that are placing 
a multi-state surplus lines commercial insurance policy that 
includes risks in the policyholder's state of domicile, only 
that home state of the policyholder shall govern any diligent 
search requirements.
    To streamline rate-and-form filing for covered lines of 
commercial property and casualty insurance, this section 
expresses the intent of Congress that the States implement and 
fully utilize the System for Electronic Rate and Form Filing 
(``SERFF''). Congress expresses its intent that SERFF be 
updated to provide, without deviation, a single point for 
electronic filing of property and casualty insurance forms for 
review, and that SERFF provide a single coordinated checklist 
for imputing required information used by states for filing 
reviews. Congress further intends that the states update SERFF 
to allow the optional filing of self-certified commercial 
property and casualty insurance forms through a nationwide 
coordinated electronic system. Such a system should include a 
review check list with uniform nomenclature clearly 
establishing what is required by the State for compliance. It 
should use a single input system and uniform transmittal 
document that allows submission of self-certified for review 
without required format deviations to any combinations of 
states. The system shall not require prior approval for self-
certified form filings and shall keep filings confidential 
until they are implemented, deemed implemented, or disapproved. 
Disapprovals of filings must be in writing based on specific 
published standards. Congress further intends that the States 
regulation of surplus lines placement is streamlined to revise 
their diligent search rules to provide for automatic export for 
exempt commercial purchasers to allow their surplus lines 
brokers to procure coverage for them in the non-admitted market 
without making a diligent search in the home State. For other 
commercial purchasers, Congress intends that the applicable 
diligent search requirements will be governed solely by the 
home state of the policyholder.

TRIA Section 108(a). Termination of program

    Unless the Commission's reporting requirements under this 
title are satisfied, the Program will terminate on December 31, 
2007. The Secretary shall have continuing authority to pay or 
adjust compensation following the termination of the Act. The 
amendment made by this section shall apply on January 1, 2006.

                  Exchange of Committee Correspondence

                          House of Representatives,
                                Committee on the Judiciary,
                                  Washington, DC, December 6, 2005.
Hon. Michael Oxley,
Chairman, Committee on Financial Services,
U.S. House of Representatives, Washington, DC.
    Dear Chairman Oxley: In recognition of the desire to 
expedite consideration of H.R. 4314, the ``Terrorism Risk 
Insurance Revision Act of 2005,'' the Committee on the 
Judiciary hereby waives consideration of the bill. There are 
several provisions contained in H.R. 4314 that implicate the 
rule X jurisdiction of the Committee on the Judiciary. 
Specifically, the legislation contains litigation management 
and judicial review provisions, and extends provisions of the 
``Terrorism Risk Insurance Act of 2002.''
    The Committee takes this action with the understanding that 
by foregoing consideration of H.R. 4314, the Committee on the 
Judiciary does not waive any jurisdiction over subject matter 
contained in this or similar legislation. The Committee also 
reserves the right to seek appointment to any House-Senate 
conference on this legislation and requests your support if 
such a request is made. Finally, I would appreciate your 
including this letter in your Committee's report for H.R. 4314 
and in the Congressional Record during consideration of H.R. 
4314 on the House floor. Thank you for your attention to these 
matters.
            Sincerely,
                               F. James Sensenbrenner, Jr.,
                                                          Chairman.
                                ------                                

                     U.S. House of Representatives,
                           Committee on Financial Services,
                                  Washington, DC, December 6, 2005.
Hon. F. James Sensenbrenner, Jr.,
Chairman, Committee on the Judiciary,
U.S. House of Representatives, Washington, DC.
    Dear Chairman Sensenbrenner: Thank you for your letter of 
December 6, 2005, concerning H.R. 4314, the Terrorism Risk 
Insurance Revision Act of 2005. This bill was reported by the 
Committee on Financial Services on November 16, 2005, and it is 
our hope that the House will address this issue shortly on the 
floor.
    I want to confirm our mutual understanding concerning 
further consideration of this bill. I agree that H.R. 4314 as 
reported by this Committee implicated the jurisdiction of the 
Committee on the Judiciary under rule X. However, I appreciate 
your willingness to waive further consideration of the bill in 
order to expedite its consideration. Provisions within the 
jurisdiction of the Committee on the Judiciary will be excluded 
from the version of H.R. 4314 considered on the floor. I will 
support appropriate representation from the Judiciary Committee 
in the event of a House-Senate conference.
    I will include this exchange of correspondence in the 
Committee report on the bill. Thank you for your assistance.
            Yours truly,
                                         Miichael G. Oxley,
                                                          Chairman.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

TERRORISM RISK INSURANCE ACT OF 2002

           *       *       *       *       *       *       *


                  TITLE I--TERRORISM INSURANCE PROGRAM

[SEC. 101. CONGRESSIONAL FINDINGS AND PURPOSE.

  [(a) Findings.--The Congress finds that--
          [(1) the ability of businesses and individuals to 
        obtain property and casualty insurance at reasonable 
        and predictable prices, in order to spread the risk of 
        both routine and catastrophic loss, is critical to 
        economic growth, urban development, and the 
        construction and maintenance of public and private 
        housing, as well as to the promotion of United States 
        exports and foreign trade in an increasingly 
        interconnected world;
          [(2) property and casualty insurance firms are 
        important financial institutions, the products of which 
        allow mutualization of risk and the efficient use of 
        financial resources and enhance the ability of the 
        economy to maintain stability, while responding to a 
        variety of economic, political, environmental, and 
        other risks with a minimum of disruption;
          [(3) the ability of the insurance industry to cover 
        the unprecedented financial risks presented by 
        potential acts of terrorism in the United States can be 
        a major factor in the recovery from terrorist attacks, 
        while maintaining the stability of the economy;
          [(4) widespread financial market uncertainties have 
        arisen following the terrorist attacks of September 11, 
        2001, including the absence of information from which 
        financial institutions can make statistically valid 
        estimates of the probability and cost of future 
        terrorist events, and therefore the size, funding, and 
        allocation of the risk of loss caused by such acts of 
        terrorism;
          [(5) a decision by property and casualty insurers to 
        deal with such uncertainties, either by terminating 
        property and casualty coverage for losses arising from 
        terrorist events, or by radically escalating premium 
        coverage to compensate for risks of loss that are not 
        readily predictable, could seriously hamper ongoing and 
        planned construction, property acquisition, and other 
        business projects, generate a dramatic increase in 
        rents, and otherwise suppress economic activity; and
          [(6) the United States Government should provide 
        temporary financial compensation to insured parties, 
        contributing to the stabilization of the United States 
        economy in a time of national crisis, while the 
        financial services industry develops the systems, 
        mechanisms, products, and programs necessary to create 
        a viable financial services market for private 
        terrorism risk insurance.
  [(b) Purpose.--The purpose of this title is to establish a 
temporary Federal program that provides for a transparent 
system of shared public and private compensation for insured 
losses resulting from acts of terrorism, in order to--
          [(1) protect consumers by addressing market 
        disruptions and ensure the continued widespread 
        availability and affordability of property and casualty 
        insurance for terrorism risk; and
          [(2) allow for a transitional period for the private 
        markets to stabilize, resume pricing of such insurance, 
        and build capacity to absorb any future losses, while 
        preserving State insurance regulation and consumer 
        protections.

[SEC. 102. DEFINITIONS.

  In this title, the following definitions shall apply:
          [(1) Act of terrorism.--
                  [(A) Certification.--The term ``act of 
                terrorism'' means any act that is certified by 
                the Secretary, in concurrence with the 
                Secretary of State, and the Attorney General of 
                the United States--
                          [(i) to be an act of terrorism;
                          [(ii) to be a violent act or an act 
                        that is dangerous to--
                                  [(I) human life;
                                  [(II) property; or
                                  [(III) infrastructure;
                          [(iii) to have resulted in damage 
                        within the United States, or outside of 
                        the United States in the case of--
                                  [(I) an air carrier or vessel 
                                described in paragraph (5)(B); 
                                or
                                  [(II) the premises of a 
                                United States mission; and
                          [(iv) to have been committed by an 
                        individual or individuals acting on 
                        behalf of any foreign person or foreign 
                        interest, as part of an effort to 
                        coerce the civilian population of the 
                        United States or to influence the 
                        policy or affect the conduct of the 
                        United States Government by coercion.
                  [(B) Limitation.--No act shall be certified 
                by the Secretary as an act of terrorism if--
                          [(i) the act is committed as part of 
                        the course of a war declared by the 
                        Congress, except that this clause shall 
                        not apply with respect to any coverage 
                        for workers' compensation; or
                          [(ii) property and casualty insurance 
                        losses resulting from the act, in the 
                        aggregate, do not exceed $5,000,000.
                  [(C) Determinations final.--Any certification 
                of, or determination not to certify, an act as 
                an act of terrorism under this paragraph shall 
                be final, and shall not be subject to judicial 
                review.
                  [(D) Nondelegation.--The Secretary may not 
                delegate or designate to any other officer, 
                employee, or person, any determination under 
                this paragraph of whether, during the effective 
                period of the Program, an act of terrorism has 
                occurred.
          [(2) Affiliate.--The term ``affiliate'' means, with 
        respect to an insurer, any entity that controls, is 
        controlled by, or is under common control with the 
        insurer.
          [(3) Control.--An entity has ``control'' over another 
        entity, if--
                  [(A) the entity directly or indirectly or 
                acting through 1 or more other persons owns, 
                controls, or has power to vote 25 percent or 
                more of any class of voting securities of the 
                other entity;
                  [(B) the entity controls in any manner the 
                election of a majority of the directors or 
                trustees of the other entity; or
                  [(C) the Secretary determines, after notice 
                and opportunity for hearing, that the entity 
                directly or indirectly exercises a controlling 
                influence over the management or policies of 
                the other entity.
          [(4) Direct earned premium.--The term ``direct earned 
        premium'' means a direct earned premium for property 
        and casualty insurance issued by any insurer for 
        insurance against losses occurring at the locations 
        described in subparagraphs (A) and (B) of paragraph 
        (5).
          [(5) Insured loss.--The term ``insured loss'' means 
        any loss resulting from an act of terrorism (including 
        an act of war, in the case of workers' compensation) 
        that is covered by primary or excess property and 
        casualty insurance issued by an insurer if such loss--
                  [(A) occurs within the United States; or
                  [(B) occurs to an air carrier (as defined in 
                section 40102 of title 49, United States Code), 
                to a United States flag vessel (or a vessel 
                based principally in the United States, on 
                which United States income tax is paid and 
                whose insurance coverage is subject to 
                regulation in the United States), regardless of 
                where the loss occurs, or at the premises of 
                any United States mission.
          [(6) Insurer.--The term ``insurer'' means any entity, 
        including any affiliate thereof--
                  [(A) that is--
                          [(i) licensed or admitted to engage 
                        in the business of providing primary or 
                        excess insurance in any State;
                          [(ii) not licensed or admitted as 
                        described in clause (i), if it is an 
                        eligible surplus line carrier listed on 
                        the Quarterly Listing of Alien Insurers 
                        of the NAIC, or any successor thereto;
                          [(iii) approved for the purpose of 
                        offering property and casualty 
                        insurance by a Federal agency in 
                        connection with maritime, energy, or 
                        aviation activity;
                          [(iv) a State residual market 
                        insurance entity or State workers' 
                        compensation fund; or
                          [(v) any other entity described in 
                        section 103(f), to the extent provided 
                        in the rules of the Secretary issued 
                        under section 103(f);
                  [(B) that receives direct earned premiums for 
                any type of commercial property and casualty 
                insurance coverage, other than in the case of 
                entities described in sections 103(d) and 
                103(f); and
                  [(C) that meets any other criteria that the 
                Secretary may reasonably prescribe.
          [(7) Insurer deductible.--The term ``insurer 
        deductible'' means--
                  [(A) for the Transition Period, the value of 
                an insurer's direct earned premiums over the 
                calendar year immediately preceding the date of 
                enactment of this Act, multiplied by 1 percent;
                  [(B) for Program Year 1, the value of an 
                insurer's direct earned premiums over the 
                calendar year immediately preceding Program 
                Year 1, multiplied by 7 percent;
                  [(C) for Program Year 2, the value of an 
                insurer's direct earned premiums over the 
                calendar year immediately preceding Program 
                Year 2, multiplied by 10 percent;
                  [(D) for Program Year 3, the value of an 
                insurer's direct earned premiums over the 
                calendar year immediately preceding Program 
                Year 3, multiplied by 15 percent; and
                  [(E) notwithstanding subparagraphs (A) 
                through (D), for the Transition Period, Program 
                Year 1, Program Year 2, or Program Year 3, if 
                an insurer has not had a full year of 
                operations during the calendar year immediately 
                preceding such Period or Program Year, such 
                portion of the direct earned premiums of the 
                insurer as the Secretary determines 
                appropriate, subject to appropriate 
                methodologies established by the Secretary for 
                measuring such direct earned premiums.
          [(8) NAIC.--The term ``NAIC'' means the National 
        Association of Insurance Commissioners.
          [(9) Person.--The term ``person'' means any 
        individual, business or nonprofit entity (including 
        those organized in the form of a partnership, limited 
        liability company, corporation, or association), trust 
        or estate, or a State or political subdivision of a 
        State or other governmental unit.
          [(10) Program.--The term ``Program'' means the 
        Terrorism Insurance Program established by this title.
          [(11) Program years.--
                  [(A) Transition period.--The term 
                ``Transition Period'' means the period 
                beginning on the date of enactment of this Act 
                and ending on December 31, 2002.
                  [(B) Program year 1.--The term ``Program Year 
                1'' means the period beginning on January 1, 
                2003 and ending on December 31, 2003.
                  [(C) Program year 2.--The term ``Program Year 
                2'' means the period beginning on January 1, 
                2004 and ending on December 31, 2004.
                  [(D) Program year 3.--The term ``Program Year 
                3'' means the period beginning on January 1, 
                2005 and ending on December 31, 2005.
          [(12) Property and casualty insurance.--The term 
        ``property and casualty insurance''--
                  [(A) means commercial lines of property and 
                casualty insurance, including excess insurance, 
                workers' compensation insurance, and surety 
                insurance; and
                  [(B) does not include--
                          [(i) Federal crop insurance issued or 
                        reinsured under the Federal Crop 
                        Insurance Act (7 U.S.C. 1501 et seq.), 
                        or any other type of crop or livestock 
                        insurance that is privately issued or 
                        reinsured;
                          [(ii) private mortgage insurance (as 
                        that term is defined in section 2 of 
                        the Homeowners Protection Act of 1998 
                        (12 U.S.C. 4901)) or title insurance;
                          [(iii) financial guaranty insurance 
                        issued by monoline financial guaranty 
                        insurance corporations;
                          [(iv) insurance for medical 
                        malpractice;
                          [(v) health or life insurance, 
                        including group life insurance;
                          [(vi) flood insurance provided under 
                        the National Flood Insurance Act of 
                        1968 (42 U.S.C. 4001 et seq.); or
                          [(vii) reinsurance or retrocessional 
                        reinsurance.
          [(13) Secretary.--The term ``Secretary'' means the 
        Secretary of the Treasury.
          [(14) State.--The term ``State'' means any State of 
        the United States, the District of Columbia, the 
        Commonwealth of Puerto Rico, the Commonwealth of the 
        Northern Mariana Islands, American Samoa, Guam, each of 
        the United States Virgin Islands, and any territory or 
        possession of the United States.
          [(15) United states.--The term ``United States'' 
        means the several States, and includes the territorial 
        sea and the continental shelf of the United States, as 
        those terms are defined in the Violent Crime Control 
        and Law Enforcement Act of 1994 (18 U.S.C. 2280, 2281).
          [(16) Rule of construction for dates.--With respect 
        to any reference to a date in this title, such day 
        shall be construed--
                  [(A) to begin at 12:01 a.m. on that date; and
                  [(B) to end at midnight on that date.

[SEC. 103. TERRORISM INSURANCE PROGRAM.

  [(a) Establishment of Program.--
          [(1) In general.--There is established in the 
        Department of the Treasury the Terrorism Insurance 
        Program.
          [(2) Authority of the secretary.--Notwithstanding any 
        other provision of State or Federal law, the Secretary 
        shall administer the Program, and shall pay the Federal 
        share of compensation for insured losses in accordance 
        with subsection (e).
          [(3) Mandatory participation.--Each entity that meets 
        the definition of an insurer under this title shall 
        participate in the Program.
  [(b) Conditions for Federal Payments.--No payment may be made 
by the Secretary under this section with respect to an insured 
loss that is covered by an insurer, unless--
          [(1) the person that suffers the insured loss, or a 
        person acting on behalf of that person, files a claim 
        with the insurer;
          [(2) the insurer provides clear and conspicuous 
        disclosure to the policyholder of the premium charged 
        for insured losses covered by the Program and the 
        Federal share of compensation for insured losses under 
        the Program--
                  [(A) in the case of any policy that is issued 
                before the date of enactment of this Act, not 
                later than 90 days after that date of 
                enactment;
                  [(B) in the case of any policy that is issued 
                within 90 days of the date of enactment of this 
                Act, at the time of offer, purchase, and 
                renewal of the policy; and
                  [(C) in the case of any policy that is issued 
                more than 90 days after the date of enactment 
                of this Act, on a separate line item in the 
                policy, at the time of offer, purchase, and 
                renewal of the policy;
          [(3) the insurer processes the claim for the insured 
        loss in accordance with appropriate business practices, 
        and any reasonable procedures that the Secretary may 
        prescribe; and
          [(4) the insurer submits to the Secretary, in 
        accordance with such reasonable procedures as the 
        Secretary may establish--
                  [(A) a claim for payment of the Federal share 
                of compensation for insured losses under the 
                Program;
                  [(B) written certification--
                          [(i) of the underlying claim; and
                          [(ii) of all payments made for 
                        insured losses; and
                  [(C) certification of its compliance with the 
                provisions of this subsection.
  [(c) Mandatory Availability.--
          [(1) Initial program periods.--During the period 
        beginning on the first day of the Transition Period and 
        ending on the last day of Program Year 2, each entity 
        that meets the definition of an insurer under section 
        102--
                  [(A) shall make available, in all of its 
                property and casualty insurance policies, 
                coverage for insured losses; and
                  [(B) shall make available property and 
                casualty insurance coverage for insured losses 
                that does not differ materially from the terms, 
                amounts, and other coverage limitations 
                applicable to losses arising from events other 
                than acts of terrorism.
          [(2) Program year 3.--Not later than September 1, 
        2004, the Secretary shall, based on the factors 
        referred to in section 108(d)(1), determine whether the 
        provisions of subparagraphs (A) and (B) of paragraph 
        (1) should be extended through Program Year 3.
  [(d) State Residual Market Insurance Entities.--
          [(1) In general.--The Secretary shall issue 
        regulations, as soon as practicable after the date of 
        enactment of this Act, that apply the provisions of 
        this title to State residual market insurance entities 
        and State workers' compensation funds.
          [(2) Treatment of certain entities.--For purposes of 
        the regulations issued pursuant to paragraph (1)--
                  [(A) a State residual market insurance entity 
                that does not share its profits and losses with 
                private sector insurers shall be treated as a 
                separate insurer; and
                  [(B) a State residual market insurance entity 
                that shares its profits and losses with private 
                sector insurers shall not be treated as a 
                separate insurer, and shall report to each 
                private sector insurance participant its share 
                of the insured losses of the entity, which 
                shall be included in each private sector 
                insurer's insured losses.
          [(3) Treatment of participation in certain 
        entities.--Any insurer that participates in sharing 
        profits and losses of a State residual market insurance 
        entity shall include in its calculations of premiums 
        any premiums distributed to the insurer by the State 
        residual market insurance entity.
  [(e) Insured Loss Shared Compensation.--
          [(1) Federal share.--
                  [(A) In general.--The Federal share of 
                compensation under the Program to be paid by 
                the Secretary for insured losses of an insurer 
                during the Transition Period and each Program 
                Year shall be equal to 90 percent of that 
                portion of the amount of such insured losses 
                that exceeds the applicable insurer deductible 
                required to be paid during such Transition 
                Period or such Program Year.
                  [(B) Prohibition on duplicative 
                compensation.--The Federal share of 
                compensation for insured losses under the 
                Program shall be reduced by the amount of 
                compensation provided by the Federal Government 
                to any person under any other Federal program 
                for those insured losses.
          [(2) Cap on annual liability.--
                  [(A) In general.--Notwithstanding paragraph 
                (1) or any other provision of Federal or State 
                law, if the aggregate insured losses exceed 
                $100,000,000,000, during the period beginning 
                on the first day of the Transition Period and 
                ending on the last day of Program Year 1, or 
                during Program Year 2 or Program Year 3 (until 
                such time as the Congress may act otherwise 
                with respect to such losses)--
                          [(i) the Secretary shall not make any 
                        payment under this title for any 
                        portion of the amount of such losses 
                        that exceeds $100,000,000,000; and
                          [(ii) no insurer that has met its 
                        insurer deductible shall be liable for 
                        the payment of any portion of that 
                        amount that exceeds $100,000,000,000.
                  [(B) Insurer share.--For purposes of 
                subparagraph (A), the Secretary shall determine 
                the pro rata share of insured losses to be paid 
                by each insurer that incurs insured losses 
                under the Program.
          [(3) Notice to congress.--The Secretary shall notify 
        the Congress if estimated or actual aggregate insured 
        losses exceed $100,000,000,000 during the period 
        beginning on the first day of the Transition Period and 
        ending on the last day of Program Year 1, or during 
        Program Year 2 or Program Year 3, and the Congress 
        shall determine the procedures for and the source of 
        any payments for such excess insured losses.
          [(4) Final netting.--The Secretary shall have sole 
        discretion to determine the time at which claims 
        relating to any insured loss or act of terrorism shall 
        become final.
          [(5) Determinations final.--Any determination of the 
        Secretary under this subsection shall be final, unless 
        expressly provided, and shall not be subject to 
        judicial review.
          [(6) Insurance marketplace aggregate retention 
        amount.--For purposes of paragraph (7), the insurance 
        marketplace aggregate retention amount shall be--
                  [(A) for the period beginning on the first 
                day of the Transition Period and ending on the 
                last day of Program Year 1, the lesser of--
                          [(i) $10,000,000,000; and
                          [(ii) the aggregate amount, for all 
                        insurers, of insured losses during such 
                        period;
                  [(B) for Program Year 2, the lesser of--
                          [(i) $12,500,000,000; and
                          [(ii) the aggregate amount, for all 
                        insurers, of insured losses during such 
                        Program Year; and
                  [(C) for Program Year 3, the lesser of--
                          [(i) $15,000,000,000; and
                          [(ii) the aggregate amount, for all 
                        insurers, of insured losses during such 
                        Program Year.
          [(7) Recoupment of federal share.--
                  [(A) Mandatory recoupment amount.--For 
                purposes of this paragraph, the mandatory 
                recoupment amount for each of the periods 
                referred to in subparagraphs (A), (B), and (C) 
                of paragraph (6) shall be the difference 
                between--
                          [(i) the insurance marketplace 
                        aggregate retention amount under 
                        paragraph (6) for such period; and
                          [(ii) the aggregate amount, for all 
                        insurers, of insured losses during such 
                        period that are not compensated by the 
                        Federal Government because such 
                        losses--
                                  [(I) are within the insurer 
                                deductible for the insurer 
                                subject to the losses; or
                                  [(II) are within the portion 
                                of losses of the insurer that 
                                exceed the insurer deductible, 
                                but are not compensated 
                                pursuant to paragraph (1).
                  [(B) No mandatory recoupment if uncompensated 
                losses exceed insurance marketplace 
                retention.--Notwithstanding subparagraph (A), 
                if the aggregate amount of uncompensated 
                insured losses referred to in clause (ii) of 
                such subparagraph for any period referred to in 
                subparagraph (A), (B), or (C) of paragraph (6) 
                is greater than the insurance marketplace 
                aggregate retention amount under paragraph (6) 
                for such period, the mandatory recoupment 
                amount shall be $0.
                  [(C) Mandatory establishment of surcharges to 
                recoup mandatory recoupment amount.--The 
                Secretary shall collect, for repayment of the 
                Federal financial assistance provided in 
                connection with all acts of terrorism (or acts 
                of war, in the case of workers compensation) 
                occurring during any of the periods referred to 
                in subparagraph (A), (B), or (C) of paragraph 
                (6), terrorism loss risk-spreading premiums in 
                an amount equal to any mandatory recoupment 
                amount for such period.
                  [(D) Discretionary recoupment of remainder of 
                financial assistance.--To the extent that the 
                amount of Federal financial assistance provided 
                exceeds any mandatory recoupment amount, the 
                Secretary may recoup, through terrorism loss 
                risk-spreading premiums, such additional 
                amounts that the Secretary believes can be 
                recouped, based on--
                          [(i) the ultimate costs to taxpayers 
                        of no additional recoupment;
                          [(ii) the economic conditions in the 
                        commercial marketplace, including the 
                        capitalization, profitability, and 
                        investment returns of the insurance 
                        industry and the current cycle of the 
                        insurance markets;
                          [(iii) the affordability of 
                        commercial insurance for small- and 
                        medium-sized businesses; and
                          [(iv) such other factors as the 
                        Secretary considers appropriate.
          [(8) Policy surcharge for terrorism loss risk-
        spreading premiums.--
                  [(A) Policyholder premium.--Any amount 
                established by the Secretary as a terrorism 
                loss risk-spreading premium shall--
                          [(i) be imposed as a policyholder 
                        premium surcharge on property and 
                        casualty insurance policies in force 
                        after the date of such establishment;
                          [(ii) begin with such period of 
                        coverage during the year as the 
                        Secretary determines appropriate; and
                          [(iii) be based on a percentage of 
                        the premium amount charged for property 
                        and casualty insurance coverage under 
                        the policy.
                  [(B) Collection.--The Secretary shall provide 
                for insurers to collect terrorism loss risk-
                spreading premiums and remit such amounts 
                collected to the Secretary.
                  [(C) Percentage limitation.--A terrorism loss 
                risk-spreading premium (including any 
                additional amount included in such premium on a 
                discretionary basis pursuant to paragraph 
                (7)(D)) may not exceed, on an annual basis, the 
                amount equal to 3 percent of the premium 
                charged for property and casualty insurance 
                coverage under the policy.
                  [(D) Adjustment for urban and smaller 
                commercial and rural areas and different lines 
                of insurance.--
                          [(i) Adjustments.--In determining the 
                        method and manner of imposing terrorism 
                        loss risk-spreading premiums, including 
                        the amount of such premiums, the 
                        Secretary shall take into 
                        consideration--
                                  [(I) the economic impact on 
                                commercial centers of urban 
                                areas, including the effect on 
                                commercial rents and commercial 
                                insurance premiums, 
                                particularly rents and premiums 
                                charged to small businesses, 
                                and the availability of lease 
                                space and commercial insurance 
                                within urban areas;
                                  [(II) the risk factors 
                                related to rural areas and 
                                smaller commercial centers, 
                                including the potential 
                                exposure to loss and the likely 
                                magnitude of such loss, as well 
                                as any resulting cross-
                                subsidization that might 
                                result; and
                                  [(III) the various exposures 
                                to terrorism risk for different 
                                lines of insurance.
                          [(ii) Recoupment of adjustments.--Any 
                        mandatory recoupment amounts not 
                        collected by the Secretary because of 
                        adjustments under this subparagraph 
                        shall be recouped through additional 
                        terrorism loss risk-spreading premiums.
                  [(E) Timing of premiums.--The Secretary may 
                adjust the timing of terrorism loss risk-
                spreading premiums to provide for equivalent 
                application of the provisions of this title to 
                policies that are not based on a calendar year, 
                or to apply such provisions on a daily, 
                monthly, or quarterly basis, as appropriate.
  [(f) Captive Insurers and Other Self-Insurance 
Arrangements.--The Secretary may, in consultation with the NAIC 
or the appropriate State regulatory authority, apply the 
provisions of this title, as appropriate, to other classes or 
types of captive insurers and other self-insurance arrangements 
by municipalities and other entities (such as workers' 
compensation self-insurance programs and State workers' 
compensation reinsurance pools), but only if such application 
is determined before the occurrence of an act of terrorism in 
which such an entity incurs an insured loss and all of the 
provisions of this title are applied comparably to such 
entities.
  [(g) Reinsurance to Cover Exposure.--
          [(1) Obtaining coverage.--This title may not be 
        construed to limit or prevent insurers from obtaining 
        reinsurance coverage for insurer deductibles or insured 
        losses retained by insurers pursuant to this section, 
        nor shall the obtaining of such coverage affect the 
        calculation of such deductibles or retentions.
          [(2) Limitation on financial assistance.--The amount 
        of financial assistance provided pursuant to this 
        section shall not be reduced by reinsurance paid or 
        payable to an insurer from other sources, except that 
        recoveries from such other sources, taken together with 
        financial assistance for the Transition Period or a 
        Program Year provided pursuant to this section, may not 
        exceed the aggregate amount of the insurer's insured 
        losses for such period. If such recoveries and 
        financial assistance for the Transition Period or a 
        Program Year exceed such aggregate amount of insured 
        losses for that period and there is no agreement 
        between the insurer and any reinsurer to the contrary, 
        an amount in excess of such aggregate insured losses 
        shall be returned to the Secretary.
  [(h) Group Life Insurance Study.--
          [(1) Study.--The Secretary shall study, on an 
        expedited basis, whether adequate and affordable 
        catastrophe reinsurance for acts of terrorism is 
        available to life insurers in the United States that 
        issue group life insurance, and the extent to which the 
        threat of terrorism is reducing the availability of 
        group life insurance coverage for consumers in the 
        United States.
          [(2) Conditional coverage.--To the extent that the 
        Secretary determines that such coverage is not or will 
        not be reasonably available to both such insurers and 
        consumers, the Secretary shall, in consultation with 
        the NAIC--
                  [(A) apply the provisions of this title, as 
                appropriate, to providers of group life 
                insurance; and
                  [(B) provide such restrictions, limitations, 
                or conditions with respect to any financial 
                assistance provided that the Secretary deems 
                appropriate, based on the study under paragraph 
                (1).
  [(i) Study and Report.--
          [(1) Study.--The Secretary, after consultation with 
        the NAIC, representatives of the insurance industry, 
        and other experts in the insurance field, shall conduct 
        a study of the potential effects of acts of terrorism 
        on the availability of life insurance and other lines 
        of insurance coverage, including personal lines.
          [(2) Report.--Not later than 9 months after the date 
        of enactment of this Act, the Secretary shall submit a 
        report to the Congress on the results of the study 
        conducted under paragraph (1).

[SEC. 104. GENERAL AUTHORITY AND ADMINISTRATION OF CLAIMS.

  [(a) General Authority.--The Secretary shall have the powers 
and authorities necessary to carry out the Program, including 
authority--
          [(1) to investigate and audit all claims under the 
        Program; and
          [(2) to prescribe regulations and procedures to 
        effectively administer and implement the Program, and 
        to ensure that all insurers and self-insured entities 
        that participate in the Program are treated comparably 
        under the Program.
  [(b) Interim Rules and Procedures.--The Secretary may issue 
interim final rules or procedures specifying the manner in 
which--
          [(1) insurers may file and certify claims under the 
        Program;
          [(2) the Federal share of compensation for insured 
        losses will be paid under the Program, including 
        payments based on estimates of or actual insured 
        losses;
          [(3) the Secretary may, at any time, seek repayment 
        from or reimburse any insurer, based on estimates of 
        insured losses under the Program, to effectuate the 
        insured loss sharing provisions in section 103; and
          [(4) the Secretary will determine any final netting 
        of payments under the Program, including payments owed 
        to the Federal Government from any insurer and any 
        Federal share of compensation for insured losses owed 
        to any insurer, to effectuate the insured loss sharing 
        provisions in section 103.
  [(c) Consultation.--The Secretary shall consult with the 
NAIC, as the Secretary determines appropriate, concerning the 
Program.
  [(d) Contracts for Services.--The Secretary may employ 
persons or contract for services as may be necessary to 
implement the Program.
  [(e) Civil Penalties.--
          [(1) In general.--The Secretary may assess a civil 
        monetary penalty in an amount not exceeding the amount 
        under paragraph (2) against any insurer that the 
        Secretary determines, on the record after opportunity 
        for a hearing--
                  [(A) has failed to charge, collect, or remit 
                terrorism loss risk-spreading premiums under 
                section 103(e) in accordance with the 
                requirements of, or regulations issued under, 
                this title;
                  [(B) has intentionally provided to the 
                Secretary erroneous information regarding 
                premium or loss amounts;
                  [(C) submits to the Secretary fraudulent 
                claims under the Program for insured losses;
                  [(D) has failed to provide the disclosures 
                required under subsection (f); or
                  [(E) has otherwise failed to comply with the 
                provisions of, or the regulations issued under, 
                this title.
          [(2) Amount.--The amount under this paragraph is the 
        greater of $1,000,000 and, in the case of any failure 
        to pay, charge, collect, or remit amounts in accordance 
        with this title or the regulations issued under this 
        title, such amount in dispute.
          [(3) Recovery of amount in dispute.--A penalty under 
        this subsection for any failure to pay, charge, 
        collect, or remit amounts in accordance with this title 
        or the regulations under this title shall be in 
        addition to any such amounts recovered by the 
        Secretary.
  [(f) Submission of Premium Information.--
          [(1) In general.--The Secretary shall annually 
        compile information on the terrorism risk insurance 
        premium rates of insurers for the preceding year.
          [(2) Access to information.--To the extent that such 
        information is not otherwise available to the 
        Secretary, the Secretary may require each insurer to 
        submit to the NAIC terrorism risk insurance premium 
        rates, as necessary to carry out paragraph (1), and the 
        NAIC shall make such information available to the 
        Secretary.
          [(3) Availability to congress.--The Secretary shall 
        make information compiled under this subsection 
        available to the Congress, upon request.
  [(g) Funding.--
          [(1) Federal payments.--There are hereby 
        appropriated, out of funds in the Treasury not 
        otherwise appropriated, such sums as may be necessary 
        to pay the Federal share of compensation for insured 
        losses under the Program.
          [(2) Administrative expenses.--There are hereby 
        appropriated, out of funds in the Treasury not 
        otherwise appropriated, such sums as may be necessary 
        to pay reasonable costs of administering the Program.

[SEC. 105. PREEMPTION AND NULLIFICATION OF PRE-EXISTING TERRORISM 
                    EXCLUSIONS.

  [(a) General Nullification.--Any terrorism exclusion in a 
contract for property and casualty insurance that is in force 
on the date of enactment of this Act shall be void to the 
extent that it excludes losses that would otherwise be insured 
losses.
  [(b) General Preemption.--Any State approval of any terrorism 
exclusion from a contract for property and casualty insurance 
that is in force on the date of enactment of this Act, shall be 
void to the extent that it excludes losses that would otherwise 
be insured losses.
  [(c) Reinstatement of Terrorism Exclusions.--Notwithstanding 
subsections (a) and (b) or any provision of State law, an 
insurer may reinstate a preexisting provision in a contract for 
property and casualty insurance that is in force on the date of 
enactment of this Act and that excludes coverage for an act of 
terrorism only--
          [(1) if the insurer has received a written statement 
        from the insured that affirmatively authorizes such 
        reinstatement; or
          [(2) if--
                  [(A) the insured fails to pay any increased 
                premium charged by the insurer for providing 
                such terrorism coverage; and
                  [(B) the insurer provided notice, at least 30 
                days before any such reinstatement, of--
                          [(i) the increased premium for such 
                        terrorism coverage; and
                          [(ii) the rights of the insured with 
                        respect to such coverage, including any 
                        date upon which the exclusion would be 
                        reinstated if no payment is received.

[SEC. 106. PRESERVATION PROVISIONS.

  [(a) State Law.--Nothing in this title shall affect the 
jurisdiction or regulatory authority of the insurance 
commissioner (or any agency or office performing like 
functions) of any State over any insurer or other person--
          [(1) except as specifically provided in this title; 
        and
          [(2) except that--
                  [(A) the definition of the term ``act of 
                terrorism'' in section 102 shall be the 
                exclusive definition of that term for purposes 
                of compensation for insured losses under this 
                title, and shall preempt any provision of State 
                law that is inconsistent with that definition, 
                to the extent that such provision of law would 
                otherwise apply to any type of insurance 
                covered by this title;
                  [(B) during the period beginning on the date 
                of enactment of this Act and ending on December 
                31, 2003, rates and forms for terrorism risk 
                insurance covered by this title and filed with 
                any State shall not be subject to prior 
                approval or a waiting period under any law of a 
                State that would otherwise be applicable, 
                except that nothing in this title affects the 
                ability of any State to invalidate a rate as 
                excessive, inadequate, or unfairly 
                discriminatory, and, with respect to forms, 
                where a State has prior approval authority, it 
                shall apply to allow subsequent review of such 
                forms; and
                  [(C) during the period beginning on the date 
                of enactment of this Act and for so long as the 
                Program is in effect, as provided in section 
                108, including authority in subsection 108(b), 
                books and records of any insurer that are 
                relevant to the Program shall be provided, or 
                caused to be provided, to the Secretary, upon 
                request by the Secretary, notwithstanding any 
                provision of the laws of any State prohibiting 
                or limiting such access.
  [(b) Existing Reinsurance Agreements.--Nothing in this title 
shall be construed to alter, amend, or expand the terms of 
coverage under any reinsurance agreement in effect on the date 
of enactment of this Act. The terms and conditions of such an 
agreement shall be determined by the language of that 
agreement.]

SEC. 101. CONGRESSIONAL FINDINGS AND PURPOSE.

  (a) Findings.--The Congress finds that--
          (1) the ability of businesses and individuals to 
        obtain property, casualty, group life, and NBCR 
        insurance at reasonable and predictable prices, in 
        order to spread the risk of both routine and 
        catastrophic loss, is critical to economic growth, 
        urban development, and the construction and maintenance 
        of public and private housing, as well as to the 
        promotion of United States exports and foreign trade in 
        an increasingly interconnected world;
          (2) property, casualty, and life insurance firms are 
        important financial institutions, the products of which 
        allow mutualization of risk and the efficient use of 
        financial resources and enhance the ability of the 
        economy to maintain stability, while responding to a 
        variety of economic, political, environmental, and 
        other risks with a minimum of disruption;
          (3) the ability of the insurance industry to cover 
        the unprecedented financial risks presented by 
        potential acts of terrorism in the United States can be 
        a major factor in the recovery from terrorist attacks, 
        while maintaining the stability of the economy;
          (4) widespread financial market uncertainties have 
        arisen following the terrorist attacks of September 11, 
        2001, including the absence of information from which 
        financial institutions can make statistically valid 
        estimates of the probability and cost of future 
        terrorist events, and therefore the size, funding, and 
        allocation of the risk of loss caused by such acts of 
        terrorism;
          (5) a decision by property, casualty, group life, and 
        NBCR insurers to deal with such uncertainties, either 
        by terminating property, casualty, group life and NBCR 
        coverage for losses arising from terrorist events, or 
        by radically escalating premium coverage to compensate 
        for risks of loss that are not readily predictable, 
        could seriously hamper ongoing and planned 
        construction, property acquisition, and other business 
        projects, generate a dramatic increase in rents, and 
        otherwise suppress economic activity; and
          (6) the United States Government should provide 
        temporary financial compensation to insured parties, 
        contributing to the stabilization of the United States 
        economy in a time of national crisis, while the 
        financial services industry develops the systems, 
        mechanisms, products, and programs necessary to create 
        a viable financial services market for private 
        terrorism risk insurance.
  (b) Purpose.--The purpose of this title is to establish a 
temporary Federal program that provides for a transparent 
system of shared public and private compensation for insured 
losses resulting from acts of terrorism, in order to--
          (1) protect consumers by addressing market 
        disruptions and ensure the continued widespread 
        availability and affordability of property, casualty, 
        group life, and NBCR insurance for terrorism risk; and
          (2) allow for a transitional period for the private 
        markets to stabilize, resume pricing of such insurance, 
        and build capacity to absorb any future losses, while 
        preserving State insurance regulation and consumer 
        protections.

SEC. 102. DEFINITIONS.

  In this title, the following definitions shall apply:
          (1) Act of terrorism.--
                  (A) Certification.--The term ``act of 
                terrorism'' means any act that is certified by 
                the Secretary, in concurrence with the 
                Secretary of State, and the Attorney General of 
                the United States--
                          (i) to be an act of terrorism;
                          (ii) to be a violent act or an act 
                        that is dangerous to--
                                  (I) human life;
                                  (II) property; or
                                  (III) infrastructure;
                          (iii) to have resulted in damage 
                        within the United States, or outside of 
                        the United States in the case of--
                                  (I) an air carrier or vessel 
                                described in paragraph (5)(B); 
                                or
                                  (II) the premises of a United 
                                States mission; and
                          (iv) to have been committed by an 
                        individual or individuals as part of an 
                        effort to coerce the civilian 
                        population of the United States or to 
                        influence the policy or affect the 
                        conduct of the United States Government 
                        by coercion.
                  (B) Limitation.--No act shall be certified by 
                the Secretary as an act of terrorism if the act 
                is committed as part of the course of a war 
                declared by the Congress, except that this 
                clause shall not apply with respect to any 
                coverage for workers' compensation or group 
                life insurance.
                  (C) Determinations final.--Any certification 
                of, or determination not to certify, an act as 
                an act of terrorism under this paragraph shall 
                be final, and shall not be subject to judicial 
                review.
                  (D) Nondelegation.--The Secretary may not 
                delegate or designate to any other officer, 
                employee, or person, any determination under 
                this paragraph of whether, during the effective 
                period of the Program, an act of terrorism has 
                occurred.
          (2) Affiliate.--The term ``affiliate'' means, with 
        respect to an insurer, any insurer that owns, is owned 
        by, or is under common ownership with another insurer.
          (3) Casualty insurance.--The term ``casualty 
        insurance'' means--
                  (A) insurance, including excess insurance and 
                surety insurance, against legal liability for 
                losses caused by the death, injury, or 
                disability of any person or for damage to 
                property, with provision for medical, hospital 
                and surgical benefits to the injured persons; 
                and
                  (B) for the purposes of this Act, does not 
                include any type of commercial automobile or 
                workers' compensation insurance.
          (4) Covered line of insurance.--The term ``covered 
        line of insurance'' means--
                  (A) commercial property insurance, commercial 
                casualty insurance, workers' compensation 
                insurance and group life insurance; and
                  (B) does not include--
                          (i) Federal crop insurance issued or 
                        reinsured under the Federal Crop 
                        Insurance Act (7 U.S.C. 1501 et seq.), 
                        or any other type of crop or livestock 
                        insurance that is privately issued or 
                        reinsured;
                          (ii) private mortgage insurance (as 
                        that term is defined in section 2 of 
                        the Homeowners Protection Act of 1998 
                        (12 U.S.C. 4901)) or title insurance;
                          (iii) financial guaranty insurance 
                        issued by monoline financial guaranty 
                        insurance corporations;
                          (iv) insurance for medical 
                        malpractice;
                          (v) health or life insurance, except 
                        group life insurance;
                          (vi) flood insurance provided under 
                        the National Flood Insurance Act of 
                        1968 (42 U.S.C. 4001 et seq.);
                          (vii) reinsurance or retrocessional 
                        reinsurance; or
                          (viii) commercial automobile 
                        insurance.
          (5) Direct earned premium.--The term ``direct earned 
        premium'' means a direct earned premium for commercial 
        property, commercial casualty, workers' compensation, 
        or group life insurance issued by any insurer for 
        insurance against losses occurring at the locations 
        described in subparagraphs (A) and (B) of paragraph 
        (10).
          (6) Exempt commercial purchaser.--The term ``exempt 
        commercial purchaser'' means any person purchasing 
        commercial insurance that meets the following 
        requirements:
                  (A) The person employs or retains a qualified 
                risk manager to negotiate insurance coverage.
                  (B) The person meets at least two of the 
                following criteria:
                          (i) The person possesses a net worth 
                        in excess of $20,000,000.
                          (ii) The person generates annual 
                        revenues in excess of $50,000,000.
                          (iii) The person employs more than 
                        500 full time or full time equivalent 
                        employees per individual insured or is 
                        a member of affiliated group employing 
                        more than 1,000 employees in the 
                        aggregate.
                          (iv) The person pays annual aggregate 
                        nationwide insurance premiums in excess 
                        of $100,000 for covered lines of 
                        insurance.
                          (v) The person is a not-for-profit 
                        organization or public entity 
                        generating annual budgeted expenditures 
                        of at least $30,000,000.
                          (vi) The person is a municipality 
                        with a population in excess of 50,000 
                        persons.
          (7) Exempt commercial purchaser certification.--The 
        term ``exempt commercial purchaser certification'' 
        means a written certification that the insurer offering 
        a policy to an exempt commercial purchaser has 
        obtained, at least within the previous 12 months, a 
        certification signed by the qualified risk manager, the 
        chief executive officer, or the chief financial officer 
        of the exempt commercial purchaser, certifying with 
        respect to the insurance to which the requirements of 
        section 103(c)(1) apply to that insurer that--
                  (A) the purchaser has an employee that meets 
                the definition of a qualified risk manager 
                under this section;
                  (B) the purchaser meets the definition of an 
                exempt commercial purchaser in accordance with 
                this section;
                  (C) the purchaser is aware that the policy 
                being considered for purchase contains forms 
                and rates that are not subject to State 
                regulatory review or approval;
                  (D) the purchaser has or has retained the 
                necessary expertise to negotiate its own policy 
                language and rates; and
                  (E) the purchaser agrees to the use of 
                exempted rates and forms by its insurer or 
                insurers.
          (8) Group life insurance.--The term ``group life 
        insurance'' means an insurance contract that provides 
        term life insurance coverage, accidental death 
        coverage, or a combination thereof, for a number of 
        individuals under a single contract, on the basis of a 
        group selection of risks, but does not include 
        ``Corporate Owned Life Insurance'' or ``Business Owned 
        Life Insurance,'' each as defined under the Internal 
        Revenue Code of 1986, or any similar product.
          (9) Home state.--The term ``home State'' means as 
        follows:
                  (A) In the case of a policy written for 
                commercial risks that are primarily located in 
                a State, such term means such State.
                  (B) If subparagraph (A) does not apply, such 
                term means the State where the commercial 
                policyholder has its principal place of 
                business (such as where the policyholder's 
                headquarters are located, as determined by the 
                predominant physical location in the United 
                States of the officers and senior management of 
                the policyholder).
          (10) Insured loss.--The term ``insured loss'' means 
        any loss resulting from an act of terrorism (including 
        an act of war, in the case of workers' compensation and 
        group life insurance) that is covered by primary or 
        excess property, casualty, workers' compensation, or 
        group life insurance issued by an insurer if such 
        loss--
                  (A) occurs within the United States; or
                  (B) occurs to an air carrier (as defined in 
                section 40102 of title 49, United States Code), 
                to a United States flag vessel (or a vessel 
                based principally in the United States, on 
                which United States income tax is paid and 
                whose insurance coverage is subject to 
                regulation in the United States), regardless of 
                where the loss occurs, or at the premises of 
                any United States mission.
          (11) Insurer.--The term ``insurer'' means any entity, 
        including any affiliate thereof--
                  (A) that is--
                          (i) licensed or admitted to engage in 
                        the business of providing primary or 
                        excess insurance in any State;
                          (ii) not licensed or admitted as 
                        described in clause (i), if it is an 
                        eligible surplus line carrier listed on 
                        the Quarterly Listing of Alien Insurers 
                        of the NAIC, or any successor thereto;
                          (iii) approved for the purpose of 
                        offering a covered line of insurance by 
                        a Federal agency in connection with 
                        maritime, energy, or aviation activity;
                          (iv) a State residual market 
                        insurance entity or State workers' 
                        compensation fund; or
                          (v) any other entity described in 
                        section 103(f), to the extent provided 
                        in the rules of the Secretary issued 
                        under section 103(f);
                  (B) that receives direct earned premiums for 
                any type of covered line of insurance coverage, 
                other than in the case of entities described in 
                subsections (d) and (f) of section 103; and
                  (C) that meets any other criteria that the 
                Secretary may reasonably prescribe.
          (12) Insurer deductible.--The term ``insurer 
        deductible'' means--
                  (A) for the Transition Period, the value of 
                an insurer's direct earned premiums over the 
                calendar year immediately preceding the date of 
                enactment of this Act, multiplied by 1 percent;
                  (B) for Program Year 1, the value of an 
                insurer's direct earned premiums over the 
                calendar year immediately preceding Program 
                Year 1, multiplied by 7 percent;
                  (C) for Program Year 2, the value of an 
                insurer's direct earned premiums over the 
                calendar year immediately preceding Program 
                Year 2, multiplied by 10 percent;
                  (D) for Program Year 3, the value of an 
                insurer's direct earned premiums over the 
                calendar year immediately preceding Program 
                Year 3, multiplied by 15 percent;
                  (E) for Program Year 4--
                          (i) except as provided in clause 
                        (ii), the value of an insurer's direct 
                        earned premium for a covered line of 
                        insurance over the calendar year 
                        immediately preceding Program Year 4, 
                        multiplied by--
                                  (I) for workers' compensation 
                                insurance, 16 percent;
                                  (II) for group life 
                                insurance, 21.5 percent;
                                  (III) for property insurance, 
                                20 percent; and
                                  (IV) for casualty insurance, 
                                25 percent; and
                          (ii) with respect to NBCR terrorism 
                        coverage, the value of an insurer's 
                        direct earned premium for a covered 
                        line of insurance over the calendar 
                        year immediately preceding Program Year 
                        4, multiplied by the following 
                        percentages which shall be treated as 
                        sub-deductibles that apply in lieu of 
                        the deductibles set forth in clause (i) 
                        for NBCR terrorism losses--
                                  (I) for workers' compensation 
                                insurance, 7.5 percent;
                                  (II) for group life 
                                insurance, 7.5 percent;
                                  (III) for property insurance, 
                                7.5 percent; and
                                  (IV) for casualty insurance, 
                                7.5 percent; and
                          (iii) if, for any covered line of 
                        insurance, an insurer incurs insured 
                        losses caused by NBCR terrorism, such 
                        NBCR insured losses shall be applied 
                        against both the deductible set forth 
                        in clause (i) and the NBCR terrorism 
                        deductible set forth in clause (ii) for 
                        that covered line of insurance;
                  (F) for any Additional Program Years--
                          (i) except as provided in clause 
                        (ii), the value of an insurer's direct 
                        earned premium for a covered line of 
                        insurance over the calendar year 
                        immediately preceding that year, 
                        multiplied by the insurer deductible 
                        for each covered line of insurance for 
                        the preceding calendar year plus an 
                        additional percentage, as follows--
                                  (I) for workers' compensation 
                                insurance, 2.0 percent;
                                  (II) for group life 
                                insurance, 2.5 percent;
                                  (III) for property insurance, 
                                2.5 percent; and
                                  (IV) for casualty insurance, 
                                5.0 percent; and
                          (ii) with respect to NBCR terrorism 
                        coverage, the value of an insurer's 
                        direct earned premium for a covered 
                        line of insurance over the calendar 
                        year immediately preceding that year, 
                        multiplied by the NBCR terrorism 
                        deductible for the preceding year for 
                        that covered line of insurance plus the 
                        following additional percentages, all 
                        of which shall be treated as 
                        subdeductibles that apply in lieu of 
                        the deductibles listed in clause (i) 
                        for NBCR terrorism insured losses--
                                  (I) for workers' compensation 
                                insurance, 0.75 percent;
                                  (II) for group life 
                                insurance, 0.75 percent;
                                  (III) for property insurance, 
                                0.75 percent; and
                                  (IV) for casualty insurance, 
                                0.75 percent; and
                          (iii) if, for any covered line of 
                        insurance, an insurer incurs insured 
                        losses caused by NBCR terrorism, such 
                        NBCR insured losses shall be applied 
                        against both the deductible set forth 
                        in clause (i) and the NBCR terrorism 
                        deductible set forth in clause (ii) for 
                        that covered line of insurance;
                  (G) notwithstanding subparagraphs (A) through 
                (F), for the Transition Period and any other 
                Program Year or other calendar year, if an 
                insurer has not had a full year of operations 
                during the calendar year immediately preceding 
                such Period or year, such portion of the direct 
                earned premiums of the insurer as the Secretary 
                determines appropriate, subject to appropriate 
                methodologies established by the Secretary for 
                measuring such direct earned premiums; and
                  (H) if, in any calendar year, aggregate 
                industry insured losses exceed $1,000,000,000, 
                the insurer deductibles for the next calendar 
                year shall be reduced by 0.1 percent for each 
                $1,000,000,000 in insured losses that have 
                occurred during the preceding calendar year, 
                except that no insurer deductible shall be 
                reduced below 5 percent.
          (13) NAIC.--The term ``NAIC'' means the National 
        Association of Insurance Commissioners.
          (14) Ownership.--An insurer ``owns'' another insurer 
        if the insurer, directly or indirectly or acting 
        through one or more other persons, owns 25 percent or 
        more of any class of voting securities of the other 
        insurer.
          (15) NBCR terrorism.--The term ``NBCR terrorism'' 
        means an act of terrorism involving nuclear, 
        biological, chemical, or radioactive reactions, 
        releases, or contaminations, to the extent any insured 
        losses are caused by any such reactions, releases, or 
        contaminations.
          (16) Person.--The term ``person'' means any 
        individual, business or nonprofit entity (including 
        those organized in the form of a partnership, limited 
        liability company, corporation, or association), trust 
        or estate, or a State or political subdivision of a 
        State or other governmental unit.
          (17) Program.--The term ``Program'' means the 
        Terrorism Insurance Program established by this title.
          (18) Program years.--
                  (A) Transition period.--The term ``Transition 
                Period'' means the period beginning on the date 
                of enactment of this Act and ending on December 
                31, 2002.
                  (B) Program year 1.--The term ``Program Year 
                1'' means the period beginning on January 1, 
                2003 and ending on December 31, 2003.
                  (C) Program year 2.--The term ``Program Year 
                2'' means the period beginning on January 1, 
                2004 and ending on December 31, 2004.
                  (D) Program year 3.--The term ``Program Year 
                3'' means the period beginning on January 1, 
                2005 and ending on December 31, 2005.
                  (E) Program year 4.--The term ``Program Year 
                4'' means the period beginning on January 1, 
                2006 and ending on December 31, 2006.
                  (F) Additional program years.--The term 
                ``Additional Program Year'' means any 
                additional one-year period after Program Year 4 
                during which the Program is in effect, which 
                period shall begin on January 1 and end on 
                December 31 of the same calendar year.
          (19) Property insurance.--The term ``property 
        insurance'' means--
                  (A) except as provided in subparagraph (B), 
                insurance on real or personal property of every 
                kind, including excess insurance, against loss 
                or damage from any and all hazard or cause and 
                against loss consequential upon such loss or 
                damage, including business interruption 
                insurance, other than non-contractual legal 
                liability for such loss or damage; and
                  (B) does not include any type of commercial 
                automobile or workers' compensation insurance.
          (20) Qualified risk manager.--The term ``qualified 
        risk manager'' means any person who meets all of the 
        following criteria:
                  (A) The person is an employee of, or third 
                party consultant retained by, the commercial 
                policyholder.
                  (B) The person provides skilled services in 
                loss prevention, loss reduction, or risk and 
                insurance coverage analysis, and purchase of 
                insurance.
                  (C) The person possesses at least 1 of the 
                following credentials:
                          (i) A bachelor's or higher degree in 
                        risk management issued by an accredited 
                        college or university.
                          (ii) A designation as a Chartered 
                        Property and Casualty Underwriter (in 
                        this subparagraph referred to as 
                        ``CPCU'') issued by the American 
                        Institute for CPCU/Insurance Institute 
                        of America.
                          (iii) A designation as an Associate 
                        in Risk Management (ARM) issued by 
                        American Institute for CPCU/Insurance 
                        Institute of America.
                          (iv) A designation as a Certified 
                        Risk Manager (CRM) issued by the 
                        National Alliance for Insurance 
                        Education & Research.
                          (v) A designation as a RIMS Fellow 
                        (RS) issued by the Global Risk 
                        Management Institute.
                          (vi) At least 5 years of experience 
                        in 1 or more of the following areas of 
                        commercial property insurance or 
                        commercial casualty insurance:
                                  (I) Risk financing.
                                  (II) Claims administration.
                                  (III) Loss prevention.
                                  (IV) Risk and insurance 
                                coverage analysis.
          (21) Secretary.--The term ``Secretary'' means the 
        Secretary of the Treasury.
          (22) State.--The term ``State'' means any State of 
        the United States, the District of Columbia, the 
        Commonwealth of Puerto Rico, the Commonwealth of the 
        Northern Mariana Islands, American Samoa, Guam, each of 
        the United States Virgin Islands, and any territory or 
        possession of the United States.
          (23) United states.--The term ``United States'' means 
        the several States, and includes the territorial sea 
        and the continental shelf of the United States, as 
        those terms are defined in the Violent Crime Control 
        and Law Enforcement Act of 1994 (18 U.S.C. 2280, 2281).
          (24) Workers' compensation.--The term ``workers' 
        compensation'' means insurance against loss from 
        liability imposed by law upon employers to compensate 
        employees and their dependents for injury sustained by 
        the employees arising out of and in the course of the 
        employment, irrespective of negligence or of the fault 
        of either party.
          (25) Rule of construction for dates.--With respect to 
        any reference to a date in this title, such day shall 
        be construed--
                  (A) to begin at 12:01 a.m. on that date; and
                  (B) to end at midnight on that date.

SEC. 103. TERRORISM INSURANCE PROGRAM.

  (a) Establishment of Program.--
          (1) In general.--There is established in the 
        Department of the Treasury the Terrorism Insurance 
        Program.
          (2) Authority of the secretary.--Notwithstanding any 
        other provision of State or Federal law, the Secretary 
        shall administer the Program, and shall pay the Federal 
        share of compensation for insured losses in accordance 
        with subsection (e).
          (3) Mandatory participation.--Each entity that meets 
        the definition of an insurer under this title shall 
        participate in the Program.
  (b) Conditions for Federal Payments.--No payment may be made 
by the Secretary under this section with respect to an insured 
loss that is covered by an insurer, unless--
          (1) the person that suffers the insured loss, or a 
        person acting on behalf of that person, files a claim 
        with the insurer;
          (2) the insurer provides clear and conspicuous 
        disclosure to the policyholder of the premium charged 
        for insured losses covered by the program and the 
        Federal share of compensation for insured losses under 
        the Program--
                  (A) in the case of any policy that is issued 
                before the date of enactment of this Act, not 
                later than 90 days after that date of 
                enactment;
                  (B) in the case of any policy that is issued 
                within 90 days of the date of enactment of this 
                Act, at the time of offer, purchase, and 
                renewal of the policy; and
                  (C) in the case of any policy that is issued 
                more than 90 days after the date of enactment 
                of this Act, on a separate line item in the 
                policy, at the time of offer, purchase, and 
                renewal of the policy;
          (3) the insurer processes the claim for the insured 
        loss in accordance with appropriate business practices, 
        and any reasonable procedures that the Secretary may 
        prescribe; and
          (4) the insurer submits to the Secretary, in 
        accordance with such reasonable procedures as the 
        Secretary may establish--
                  (A) a claim for payment of the Federal share 
                of compensation for insured losses under the 
                Program;
                  (B) written certification--
                          (i) of the underlying claim; and
                          (ii) of all payments made for insured 
                        losses; and
                  (C) certification of its compliance with the 
                provisions of this subsection.
  (c) Mandatory Availability.--Each entity that meets the 
definition of an insurer under section 102--
          (1) shall make available, in all of its covered lines 
        of insurance policies, coverage for insured losses that 
        does not differ materially from the terms, amounts, and 
        other coverage limitations applicable to losses arising 
        from events other than acts of terrorism;
          (2) shall make available, in any of its covered lines 
        of insurance policies that exclude coverage for losses 
        resulting from NBCR terrorism, coverage for losses 
        resulting from NBCR terrorism that may differ 
        materially from the terms, amounts, and other coverage 
        limitations applicable to losses arising from events 
        other than NBCR terrorism; and
          (3) shall make available, in any life insurance 
        policy, coverage that does not preclude future lawful 
        foreign travel by the person insured, and shall not 
        charge a premium for such coverage that is excessive 
        and not based on a good faith actuarial analysis.
  (d) State Residual Market Insurance Entities.--
          (1) In general.--The Secretary shall issue 
        regulations, as soon as practicable after the date of 
        enactment of this Act, that apply the provisions of 
        this title to State residual market insurance entities, 
        State workers' compensation funds, and State workers' 
        compensation reinsurance pools.
          (2) Treatment of certain entities.--For purposes of 
        the regulations issued pursuant to paragraph (1)--
                  (A) a State residual market insurance entity 
                that does not share its profits and losses with 
                private sector insurers shall be treated as a 
                separate insurer; and
                  (B) a State residual market insurance entity 
                that shares its profits and losses with private 
                sector insurers shall not be treated as a 
                separate insurer, and shall report to each 
                private sector insurance participant its share 
                of the insured losses of the entity, which 
                shall be included in each private sector 
                insurer's insured losses.
          (3) Treatment of participation in certain entities.--
        Any insurer that participates in sharing profits and 
        losses of a State residual market insurance entity 
        shall include in its calculations of premiums any 
        premiums distributed to the insurer by the State 
        residual market insurance entity.
  (e) Insured Loss Shared Compensation.--
          (1) Federal share.--
                  (A) In general.--Subject to subparagraphs (B) 
                and (C), the Federal share of compensation 
                under the Program to be paid by the Secretary 
                for insured losses of an insurer during each 
                Program Year shall be equal to that portion of 
                the amount of such insured losses for each 
                covered line of insurance that exceeds the 
                applicable insurer deductible required to be 
                paid during such Program Year, multiplied by a 
                percentage based on aggregate industry insured 
                losses for a Program Year, which shall be as 
                follows:
                          (i) 80 percent of the aggregate 
                        industry insured losses of less than 
                        $10,000,000,000;
                          (ii) 85 percent of the aggregate 
                        industry insured losses between 
                        $10,000,000,000 and $20,000,000,000;
                          (iii) 90 percent of the aggregate 
                        industry insured losses between 
                        $20,000,000,000 and $40,000,000,000; 
                        and
                          (iv) 95 percent of the aggregate 
                        industry insured losses above industry 
                        losses above $40,000,000,000;
                and shall be prorated by insurer based on each 
                insurer's percentage of the aggregate industry 
                insured losses for that Program Year.
                  (B) Program trigger.--No compensation shall 
                be paid by the Secretary under subsection (a) 
                unless the aggregate industry insured losses 
                exceed--
                          (i) $50,000,000, with respect to 
                        insured losses occurring in Program 
                        Year 4;
                          (ii) $100,000,000, with respect to 
                        insured losses occurring in the 
                        Additional Program Year beginning on 
                        January 1, 2007;
                          (iii) with respect to each Additional 
                        Program Year thereafter that coverage 
                        is provided under the Program, the 
                        amount that is equal to the sum of (I) 
                        the dollar amount applicable under this 
                        subparagraph for the Program Year 
                        preceding such Additional Program Year, 
                        and (II) $50,000,000;
                except that the applicable Program Trigger 
                amount shall be reduced by $10,000,000 for each 
                $1,000,000,000 in insured losses occurring in 
                any preceding year, provided that the Program 
                Trigger shall not be reduced below $50,000,000 
                for any year.
                  (C) Prohibition on duplicative 
                compensation.--The Federal share of 
                compensation for insured losses under the 
                Program shall be reduced by the amount of 
                compensation provided by the Federal Government 
                to any person under any other Federal program 
                for those insured losses.
          (2) TRIA capital reserve funds.--
                  (A) Establishment.--Any insurer may establish 
                a TRIA Capital Reserve Fund (in this section 
                referred to as a ``CRF'') in which it may hold 
                funds in a fiduciary capacity on behalf of the 
                Secretary.
                  (B) Funding.--An insurer may fund a CRF by 
                making an election, in advance, to treat some 
                or all of the premiums it has disclosed 
                pursuant to section 103(b)(2) as TRIA program 
                fee charges imposed by the Secretary. Any such 
                premiums for which such an election has been 
                made must be maintained in segregated accounts 
                in a fiduciary capacity on behalf of the 
                Secretary. Such funds may be invested in any 
                otherwise legally permissible manner but all 
                interest, dividends, and capital accumulations 
                also shall be retained in such segregated 
                accounts on behalf of the Secretary.
                  (C) Use.--Funds from a CRF shall be collected 
                and used by the Secretary to offset, in whole 
                or in part, the Federal share of compensation 
                provided to all insurers under the Program as 
                provided for in paragraph (1), except that an 
                insurer may first use the funds in a CRF of 
                that insurer to satisfy any one or more of the 
                following:
                          (i) The applicable insurer 
                        deductibles for the insurer.
                          (ii) The portion of the insurer's 
                        losses that exceed the insurer 
                        deductible but are not compensated by 
                        the Federal share pursuant to paragraph 
                        (1).
                          (iii) The insurer's obligations to 
                        pay for insured losses if the program 
                        trigger established in paragraph (1)(B) 
                        is not satisfied.
                          (iv) Any risk sharing obligations the 
                        insurer may have under any agreements 
                        made pursuant to or in accordance with 
                        paragraph (3).
                  (D) Termination.--
                          (i) Termination of program.--Upon 
                        termination of the Program under 
                        section 108(a), and subject to the 
                        Secretary's continuing authority under 
                        section 108(b) to adjust claims in 
                        satisfaction of the Federal share of 
                        compensation under the Program as 
                        provided in paragraph (1) of this 
                        subsection, 10 percent of each 
                        insurer's CRF funds shall be remitted 
                        to the Secretary and the remainder 
                        shall be remitted to the insurer. The 
                        Secretary shall determine the manner in 
                        which the remittance of such income to 
                        the insurer shall be made.
                          (ii) Elimination of federal share of 
                        compensation.--If the Program remains 
                        in effect but the Federal share of 
                        compensation for insured losses under 
                        the Program is eliminated from the 
                        Program, the CRF funds shall be 
                        retained and used for the purposes set 
                        forth in subparagraph (C) of this 
                        paragraph. At such time as an insurer's 
                        liability for insured losses under the 
                        Program terminates, as a consequence of 
                        the insurer's termination of its 
                        business or otherwise, the insurer 
                        shall remit any remaining CRF funds to 
                        the Secretary.
          (3) Risk-sharing mechanisms.--
                  (A) Finding; rule of construction.--Congress 
                finds that it is desirable to encourage the 
                growth of nongovernmental, private market 
                reinsurance capacity for protection against 
                losses arising from acts of terrorism. 
                Therefore, nothing in this title shall prohibit 
                insurers from developing risk-sharing 
                mechanisms (including mutual reinsurance 
                facilities and agreements) to voluntarily 
                reinsure terrorism losses between and among 
                themselves that are not subject to 
                reimbursement under this section 103.
                  (B) Establishment of advisory committee.--The 
                Secretary shall appoint an Advisory Committee 
                to--
                          (i) encourage the creation and 
                        development of such mechanisms;
                          (ii) assist the Secretary and be 
                        available to administer such 
                        mechanisms; and
                          (iii) develop articles of 
                        incorporation, bylaws, and a plan of 
                        operation for any long-term reinsurance 
                        facility authorized or created in the 
                        future.
                  (C) Membership.--The Advisory Committee shall 
                be composed of nine members who are directors, 
                officers, or other employees of insurers that 
                are participating or that desire to participate 
                in such mechanisms, and who are representative 
                of the affected sectors of the insurance 
                industry. In making these appointments, the 
                Secretary shall solicit major trade 
                associations of the insurance industry to 
                nominate lists of qualified individuals 
                representative of the commercial property 
                insurance, commercial casualty insurance, group 
                life insurance, and reinsurance industries.
          (4) Cap on annual liability.--
                  (A) In general.--Notwithstanding paragraph 
                (1) or any other provision of Federal or State 
                law, if the aggregate insured losses exceed 
                $100,000,000,000 during any Program Year (until 
                such time as the Congress may act otherwise 
                with respect to such losses)--
                          (i) the Secretary shall not make any 
                        payment under this title for any 
                        portion of the amount of such losses 
                        that exceeds $100,000,000,000; and
                          (ii) no insurer that has met its 
                        insurer deductible shall be liable for 
                        the payment of any portion of that 
                        amount that exceeds $100,000,000,000.
                  (B) Insurer share.--For purposes of 
                subparagraph (A), the Secretary shall determine 
                the pro rata share of insured losses to be paid 
                by each insurer that incurs insured losses 
                under the Program.
          (5) Notice to congress.--The Secretary shall notify 
        the Congress if estimated or actual aggregate insured 
        losses exceed $100,000,000,000 during during any 
        Program Year and the Congress shall determine the 
        procedures for and the source of any payments for such 
        excess insured losses.
          (6) Final netting.--The Secretary shall have sole 
        discretion to determine the time at which claims 
        relating to any insured loss or act of terrorism shall 
        become final.
          (7) Determinations final.--Any determination of the 
        Secretary under this subsection shall be final, unless 
        expressly provided, and shall not be subject to 
        judicial review.
          (8) Full recoupment of federal share.--The Secretary 
        shall collect, for repayment of the Federal financial 
        assistance provided in connection with all acts of 
        terrorism (or acts of war, in the case of workers' 
        compensation and group life insurance), terrorism loss 
        risk-spreading premiums in an amount equal to the total 
        amount paid by the Secretary in accordance with this 
        section.
          (9) Policy surcharge for terrorism loss risk-
        spreading premiums.--
                  (A) Policyholder premium.--Any amount 
                established by the Secretary as a terrorism 
                loss risk-spreading premium shall--
                          (i) be imposed as a policyholder 
                        premium surcharge on all covered lines 
                        of insurance policies in force after 
                        the date of such establishment;
                          (ii) begin with such period of 
                        coverage during the year as the 
                        Secretary determines appropriate; and
                          (iii) be based on a percentage of the 
                        premium amount charged for covered 
                        lines of insurance coverage under the 
                        policy.
                  (B) Collection.--The Secretary shall provide 
                for insurers to collect terrorism loss risk-
                spreading premiums and remit such amounts 
                collected to the Secretary.
                  (C) Percentage limitation.--A terrorism loss 
                risk-spreading premium may not exceed, on an 
                annual basis, the amount equal to 3 percent of 
                the premium charged for covered lines of 
                insurance coverage under the policy.
                  (D) Adjustment for urban and smaller 
                commercial and rural areas and different lines 
                of insurance.--
                          (i) Adjustments.--In determining the 
                        method and manner of imposing terrorism 
                        loss risk-spreading premiums, including 
                        the amount of such premiums, the 
                        Secretary shall take into 
                        consideration--
                                  (I) the economic impact on 
                                commercial centers of urban 
                                areas, including the effect on 
                                commercial rents and commercial 
                                insurance premiums, 
                                particularly rents and premiums 
                                charged to small businesses, 
                                and the availability of lease 
                                space and commercial insurance 
                                within urban areas;
                                  (II) the risk factors related 
                                to rural areas and smaller 
                                commercial centers, including 
                                the potential exposure to loss 
                                and the likely magnitude of 
                                such loss, as well as any 
                                resulting cross-subsidization 
                                that might result; and
                                  (III) the various exposures 
                                to terrorism risk for different 
                                lines of insurance.
                          (ii) Recoupment of adjustments.--Any 
                        recoupment amounts not collected by the 
                        Secretary because of adjustments under 
                        this subparagraph shall be recouped 
                        through additional terrorism loss risk-
                        spreading premiums.
                  (E) Timing of premiums.--The Secretary may 
                adjust the timing of terrorism loss risk-
                spreading premiums to provide for equivalent 
                application of the provisions of this title to 
                policies that are not based on a calendar year, 
                or to apply such provisions on a daily, 
                monthly, or quarterly basis, as appropriate.
                  (F) Replenishment of tria capital reserve 
                funds.--After any funds expended directly from 
                the United States Treasury are fully repaid, 
                the balance of the amounts collected under this 
                paragraph shall be used to fully replenish all 
                insurer CRFs used by the Secretary in 
                accordance with the provisions of paragraph 
                (2)(C) that were not used by the insurer to 
                satisfy its obligations in accordance with 
                clauses (i) through (iv) of paragraph (2)(C).
  (f) Captive Insurers and Other Self-Insurance Arrangements.--
The Secretary may, in consultation with the NAIC or the 
appropriate State regulatory authority, apply the provisions of 
this title, as appropriate, to other classes or types of 
captive insurers and other self-insurance arrangements by 
municipalities and other entities (such as workers' 
compensation self-insurance programs and State workers' 
compensation reinsurance pools), but only if such application 
is determined before the occurrence of an act of terrorism in 
which such an entity incurs an insured loss and all of the 
provisions of this title are applied comparably to such 
entities.
  (g) Reinsurance to Cover Exposure.--
          (1) Obtaining coverage.--This title may not be 
        construed to limit or prevent insurers from obtaining 
        reinsurance coverage for insurer deductibles or insured 
        losses retained by insurers pursuant to this section, 
        nor shall the obtaining of such coverage affect the 
        calculation of such deductibles or retentions.
          (2) Limitation on financial assistance.--The amount 
        of financial assistance provided pursuant to this 
        section, including amounts from a CRF used pursuant to 
        subsection (e)(2)(C), shall not be reduced by 
        reinsurance paid or payable to an insurer from other 
        sources, except that recoveries from such other 
        sources, taken together with financial assistance for 
        the Transition Period or a Program Year provided 
        pursuant to this section, may not exceed the aggregate 
        amount of the insurer's insured losses for such period. 
        If such recoveries and financial assistance for the 
        Transition Period or a Program Year exceed such 
        aggregate amount of insured losses for that period and 
        there is no agreement between the insurer and any 
        reinsurer to the contrary, an amount in excess of such 
        aggregate insured losses shall be returned to the 
        Secretary.
  (h) Personal Lines Study.--
          (1) In general.--The Comptroller General of the 
        United States, after consultation with the NAIC, 
        representatives of the insurance industry, and other 
        experts in the insurance field, including a cross-
        section of insurers, independent insurance agents and 
        brokers, and policyholders, shall conduct a study 
        concerning the exposure of personal lines (including 
        homeowners insurance) to terrorism risk, the coverage 
        currently available, and potential policy responses.
          (2) Report.--Not later than September 1, 2006, the 
        Comptroller General shall submit a report to the 
        Congress on the results of the study conducted under 
        subparagraph (1), together with specific policy 
        recommendations.
  (i) Study of Risks Stemming From Nuclear, Biological, 
Chemical and Radioactive Events.--
          (1) In general.--The Comptroller General of the 
        United States, after consultation with the NAIC, 
        representatives of the insurance industry, including a 
        cross-section of insurers, independent insurance agents 
        and brokers, and policyholders, and other experts in 
        the insurance field, shall conduct a study concerning 
        the risk of potential terrorist acts stemming from the 
        use of nuclear, biological, chemical, and radioactive 
        weapons.
          (2) Report.--Not later than September 1, 2006, the 
        Comptroller General shall submit a report to the 
        Congress on the results of the study conducted under 
        paragraph (1), together with specific policy 
        recommendations.
  (j) Study of Need for Federal Natural Disaster Catastrophe 
Program.--
          (1) In general.--The Comptroller General of the 
        United States, after consultation with the NAIC, 
        representatives of the insurance industry, including a 
        cross-section of insurers, independent insurance agents 
        and brokers, and policyholders, and other experts in 
        the insurance field, shall conduct a study concerning 
        the need for a Federal program that provides for a 
        system of shared public and private compensation for 
        insured losses resulting from natural disaster.
          (2) Issues.--The study under this section shall 
        include an analysis of whether, and in what manner, 
        such a Federal program should incorporate any or all of 
        the following concepts: tax-free capital reserves; 
        voluntary mutual reinsurance pools; a distinction 
        between sophisticated and non-sophisticated commercial 
        purchasers for the purposes of exemption from 
        regulation; or Federal support for the purchase of 
        reinsurance by State disaster insurance programs.
          (3) Report.--Not later than September 1, 2006, the 
        Comptroller General shall submit a report to the 
        Congress on the results of the study conducted under 
        this subsection together with specific policy 
        recommendations.

SEC. 104. GENERAL AUTHORITY AND ADMINISTRATION OF CLAIMS.

  (a) General Authority.--The Secretary shall have the powers 
and authorities necessary to carry out the program, including 
authority--
          (1) to investigate and audit all claims under the 
        Program; and
          (2) to prescribe regulations and procedures to 
        effectively administer and implement the Program, and 
        to ensure that all insurers and self-insured entities 
        that participate in the Program are treated comparably 
        under the Program.
  (b) Interim Rules and Procedures.--The Secretary may issue 
interim final rules or procedures specifying the manner in 
which--
          (1) insurers may file and certify claims under the 
        Program;
          (2) the Federal share of compensation for insured 
        losses will be paid under the Program, including 
        payments based on estimates of or actual insured 
        losses;
          (3) the Secretary may, at any time, seek repayment 
        from or reimburse any insurer, based on estimates of 
        insured losses under the Program, to effectuate the 
        insured loss sharing provisions in section 103; and
          (4) the Secretary will determine any final netting of 
        payments under the Program, including payments owed to 
        the Federal Government from any insurer and any Federal 
        share of compensation for insured losses owed to any 
        insurer, to effectuate the insured loss sharing 
        provisions in section 103.
  (c) Consultation.--The Secretary shall consult with the NAIC, 
as the Secretary determines appropriate, concerning the 
Program.
  (d) Contracts for Services.--The Secretary may employ persons 
or contract for services as may be necessary to implement the 
Program.
  (e) Civil Penalties.--
          (1) In general.--The Secretary may assess a civil 
        monetary penalty in an amount not exceeding the amount 
        under paragraph (2) against any insurer that the 
        Secretary determines, on the record after opportunity 
        for a hearing----
                  (A) has failed to charge, collect, or remit 
                terrorism loss risk-spreading premiums under 
                section 103(e) in accordance with the 
                requirements of, or regulations issued under, 
                this title;
                  (B) has intentionally provided to the 
                Secretary erroneous information regarding 
                premium or loss amounts;
                  (C) submits to the Secretary fraudulent 
                claims under the Program for insured losses;
                  (D) has failed to provide the disclosures 
                required under subsection (f); or
                  (E) has otherwise failed to comply with the 
                provisions of, or the regulations issued under, 
                this title.
          (2) Amount.--The amount under this paragraph is the 
        greater of $1,000,000 and, in the case of any failure 
        to pay, charge, collect, or remit amounts in accordance 
        with this title or the regulations issued under this 
        title, such amount in dispute.
          (3) Recovery of amount in dispute.--A penalty under 
        this subsection for any failure to pay, charge, 
        collect, or remit amounts in accordance with this title 
        or the regulations under this title shall be in 
        addition to any such amounts recovered by the 
        Secretary.
  (f) Submission of Premium Information.--
          (1) In general.--The Secretary shall annually compile 
        information on the terrorism risk insurance premium 
        rates of insurers for the preceding year.
          (2) Access to information.--To the extent that such 
        information is not otherwise available to the 
        Secretary, the Secretary may require each insurer to 
        submit to the NAIC terrorism risk insurance premium 
        rates, as necessary to carry out paragraph (1), and the 
        NAIC shall make such information available to the 
        Secretary.
          (3) Availability to congress.--The Secretary shall 
        make information compiled under this subsection 
        available to the Congress, upon request.
  (g) Funding.--
          (1) Federal payments.--There are hereby appropriated, 
        out of funds in the Treasury not otherwise 
        appropriated, such sums as may be necessary to pay the 
        Federal share of compensation for insured losses under 
        the Program to the extent such Federal share exceeds 
        funds collected by the Secretary pursuant to section 
        103(e)(2).
          (2) Administrative expenses.--There are hereby 
        appropriated, out of funds in the Treasury not 
        otherwise appropriated, such sums as may be necessary 
        to pay reasonable costs of administering the Program.

SEC. 105. ESTABLISHMENT OF COMMISSION ON TERRORISM RISK INSURANCE.

  (a) In General.--There is hereby established the Commission 
on Terrorism Risk Insurance (in this section referred to as the 
``Commission'').
  (b) Membership.--
          (1) The Commission shall consist of 11 members, as 
        follows:
                  (A) The Secretary of the Treasury or his 
                designee.
                  (B) One State insurance commissioner 
                designated by the members of the NAIC.
                  (C) Nine members appointed by the President, 
                who shall be--
                          (i) a representative of group life 
                        insurers;
                          (ii) a representative of property and 
                        casualty insurers with direct written 
                        premium of $1,000,000,000 or less;
                          (iii) a representative of property 
                        and casualty insurers with direct 
                        written premium of more than 
                        $1,000,000,000;
                          (iv) a representative of multiline 
                        insurers;
                          (v) a representative of independent 
                        insurance agents;
                          (vi) a representative of insurance 
                        brokers;
                          (vii) a policyholder representative;
                          (viii) a representative of the 
                        survivors of the victims of the attacks 
                        of September 11, 2001; and
                          (ix) a representative of the 
                        reinsurance industry.
          (2) Secretary.--The Program Director of the Terrorism 
        Risk Insurance Act shall serve as Secretary of the 
        Commission. The Secretary of the Commission shall 
        determine the manner in which the Commission shall 
        operate, including funding and staffing.
  (c) Duties.--
          (1) In general.--The Commission shall identify and 
        make recommendations regarding--
                  (A) possible actions to encourage, 
                facilitate, and sustain provision by the 
                private insurance industry in the United States 
                of affordable coverage for losses due to an act 
                or acts of terrorism;
                  (B) possible actions or mechanisms to sustain 
                or supplement the ability of the insurance 
                industry in the United States to cover losses 
                resulting from acts of terrorism in the event 
                that--
                          (i) such losses jeopardize the 
                        capital and surplus of the insurance 
                        industry in the United States as a 
                        whole; or
                          (ii) other consequences from such 
                        acts occur, as determined by the 
                        Commission, that may significantly 
                        affect the ability of the insurance 
                        industry in the United States to 
                        independently cover such losses; and
                  (C) significantly reducing the expected 
                Federal role over time in any continuing 
                Federal terrorism risk insurance program.
          (2) Evaluations.--In identifying and making the 
        recommendations required under paragraph (1), the 
        Commission shall specifically evaluate the utility and 
        viability of TRIA Capital Reserve Funds made available 
        under section 103(e)(2), any risk sharing mechanism 
        created or made available under section 103(e)(3), a 
        Federally created or mandated reinsurance facility, 
        empowering such a facility to issue pre-event financing 
        bonds, post-event financing bonds, assessments, single 
        or multiple pooling arrangements, and other risk 
        sharing arrangements to accomplish, in whole or in 
        part, the specified objectives, taking into 
        consideration the studies and reports to the Congress 
        pursuant to subsections (h) and (i) of section 103.
          (3) Report.--Not later than December 31, 2006, the 
        Commission shall submit a report to Congress evaluating 
        and making recommendations regarding whether there is a 
        need for a Federal terrorism risk insurance program 
        and, if so, shall make a specific, detailed 
        recommendation for the replacement of the Program, 
        including specific, detailed recommendations for the 
        creation of a terrorism reinsurance facility or 
        facilities or single or multiple pooling arrangements, 
        or both.
  (d) Effect on Existing Program.--For purposes of section 
108(a), the Secretary shall make a determination not later than 
January 31, 2007, of whether the Commission has satisfied its 
obligations under subsection (c)(3).

SEC. 106. PRESERVATION PROVISIONS.

  (a) State Law.--Nothing in this title shall affect the 
jurisdiction or regulatory authority of the insurance 
commissioner (or any agency or office performing like 
functions) of any State over any insurer or other person--
          (1) except as specifically provided in this title; 
        and
          (2) except that--
                  (A) the definition of the term ``act of 
                terrorism'' in section 102 shall be the 
                exclusive definition of that term for purposes 
                of compensation for insured losses under this 
                title, and shall preempt any provision of State 
                law that is inconsistent with that definition, 
                to the extent that such provision of law would 
                otherwise apply to any type of insurance 
                covered by this title; and
                  (B) during the period beginning on the date 
                of enactment of this Act and for so long as the 
                Program is in effect, as provided in section 
                108, including authority in subsection 108(b), 
                books and records of any insurer that are 
                relevant to the Program shall be provided, or 
                caused to be provided, to the Secretary, upon 
                request by the Secretary, notwithstanding any 
                provision of the laws of any State prohibiting 
                or limiting such access; and
          (3) except that with respect to coverage required to 
        be made available under section 103(c)--
                  (A) no laws or regulations of a State 
                imposing a diligent search requirement for the 
                placement of a surplus lines policy shall apply 
                in connection with the purchase of such 
                insurance by an exempt commercial policyholder; 
                and
                  (B) no laws or regulations of a State, except 
                of the home State, imposing a diligent search 
                requirement for the placement of a surplus 
                lines policy shall apply with respect to the 
                placement of a multi-State surplus lines 
                commercial insurance policy, provided the 
                contract of insurance insures risks in the home 
                State.
  (b) Streamlined Rate and Form Filing.--The Congress intends 
that, by December 31, 2007, all States, with respect to 
submission of a commercial property insurance policy or 
commercial casualty insurance policy that includes coverage for 
acts of terrorism--
          (1) implement and fully utilize the System for 
        Electronic Rate and Form Filing (in this section 
        referred to as ``SERFF''), developed by the NAIC, 
        without deviation to provide a single point for 
        electronic filing of property insurance and casualty 
        insurance forms for review;
          (2) update SERFF to provide a single coordinated 
        checklist for inputting the required information used 
        by various States for filing reviews and designating to 
        which States the information will be submitted;
          (3) allow the option of filing of self-certified 
        commercial property insurance and commercial casualty 
        insurance forms through a substantially nationwide 
        coordinated electronic filing system that--
                  (A) includes a review checklist with uniform 
                nomenclature clearly establishing what is 
                required under the laws of such State for a 
                compliant filing of such forms;
                  (B) uses a single input system and 
                transmittal document that allows the filer to 
                submit such form for review without required 
                format deviations to any combination of the 
                States participating in the system;
                  (C) does not require prior approval for such 
                self-certified form filing;
                  (D) keeps such filings confidential until 
                they are implemented, deemed implemented, or 
                disapproved; and
                  (E) only allows disapproval of such filings 
                in writing based on specific standards that are 
                published in statute, rule, or regulation.
  (c) Streamlined Surplus Lines Placement.--The Congress 
intends that, by December 31, 2007, all States streamline their 
surplus lines diligent search rules with respect to the 
placement of surplus lines policies in any covered line of 
insurance that includes coverage for acts of terrorism by 
providing for--
          (1) automatic export for exempt commercial 
        purchasers, under which a surplus lines broker seeking 
        to obtain, provide, or place insurance in a State for 
        an insured that qualifies as an exempt commercial 
        purchaser may procure surplus lines insurance from or 
        place surplus lines insurance with any nonadmitted 
        insurer without making a diligent search to determine 
        whether the full amount or type of insurance sought by 
        the exempt commercial purchaser can be obtained from 
        admitted insurers in such State.
          (2) home State regulation of diligent search 
        requirements, that provides that, except as provided in 
        paragraph (1), only the home State may impose a 
        diligent search requirement for the placement of a 
        multi-State surplus lines commercial insurance policy, 
        provided the contract of insurance insures risks in the 
        Home State.
  (d) Existing Reinsurance Agreements.--Nothing in this title 
shall be construed to alter, amend, or expand the terms of 
coverage under any reinsurance agreement in effect on the date 
of enactment of this Act. The terms and conditions of such an 
agreement shall be determined by the language of that 
agreement.

           *       *       *       *       *       *       *


SEC. 108. TERMINATION OF PROGRAM.

  [(a) Termination of Program.--The Program shall terminate on 
December 31, 2005.]
  (a) Termination of Program.--
          (1) In general.--Except as provided in paragraph (2), 
        the Program shall terminate on December 31, 2008.
          (2) Failure of commission to submit report.--If the 
        Secretary determines pursuant to section 105(d) that 
        the Commission on Terrorism Risk Insurance established 
        under section 105 has not satisfied its obligations 
        under section 105(c)(3), the Program shall terminate on 
        December 31, 2007.

           *       *       *       *       *       *       *

  (c) Repeal; Savings Clause.--This title is repealed on the 
final termination date of the Program under subsection (a), 
except that such repeal shall not be construed--
          (1) to prevent the Secretary from taking, or causing 
        to be taken, such actions under subsection (b) of this 
        section, [paragraph (4), (5), (6), (7), or (8) of] 
        section 103(e), or subsection (a)(1), (c), (d), or (e) 
        of section 104, as in effect on the day before the date 
        of such repeal, or applicable regulations promulgated 
        thereunder, during any period in which the authority of 
        the Secretary under subsection (b) of this section is 
        in effect; or

           *       *       *       *       *       *       *


                            ADDITIONAL VIEWS

    We believe that since the United States as a whole is the 
target of terrorists, it is appropriate that the cost of 
protecting against the economic effects of terrorism be shared 
by the United States, not just be borne by individual victims 
of these attacks. While we support H.R. 4314, we would have 
resolved several issues somewhat differently had we been the 
drafters of the legislation.
    We believe the deductible levels in the bill are too high, 
especially for workers' compensation. A flat deductible of 15 
percent of premiums for workers' compensation is more 
appropriate than the bill's deductible of 16 percent in 2006 
followed by 2 percentage point increases per year. We recognize 
that the manager's amendment partially took our concerns into 
account by decreasing the deductible from the introduced bill's 
amount of 17.5 percent with 2.5 percentage point annual 
increases. However, workers' compensation is mandatory 
coverage, and residual market entities and State funds and 
insurers that provide coverage to businesses that cannot 
otherwise get coverage have no way of limiting their exposure. 
As such, lower deductibles are appropriate.
    We are also concerned that the size of the triggering event 
is too high. The bill raises the triggering amount from the 
current $5 million to $50 million in 2006, $100 million in 2007 
and to $150 million in 2008. While these amounts are a 
significant improvement from the Administration's proposal to 
raise the trigger to $500 million, the triggers are still too 
high. As in the case of the deductible amounts, we recognize 
that the manager's amendment is an improvement over the 
introduced bill, but only in reducing the size of the 
triggering event in 2008 from $200 million in the introduced 
bill to $150 million. We believe that lower levels are 
necessary to protect our economy, particularly in smaller or 
rural communities. We also fear that the higher trigger levels 
will have a disproportionate effect on smaller local and 
regional insurers who have less capacity to bear the entire 
loss of a terrorist event below the trigger amount. At the very 
least, year-to-year increases for 2007 and 2008 should not 
exceed $25 million per year.

                                   Barney Frank.
                                   Joseph Crowley.
                                   Melissa Bean.
                                   Luis V. Gutierrez.
                                   Steve Israel.
                                   Paul E. Kanjorski.
                                   Michael E. Capuano.
                                   Carolyn B. Maloney.

                      DISSENTING VIEWS OF RON PAUL

    Four years ago, when the Committee on Financial Services 
considered the bill creating the terrorism insurance program, I 
urged my colleagues to reject it. One of the reasons I opposed 
the bill was my concern that, contrary to the claims of the 
bill's supporters, terrorism insurance would not be allowed to 
sunset after three years. As I said then:

          The drafters of H.R. 3210 claim that this creates a 
        ``temporary'' government program. However, Mr. Speaker, 
        what happens in three years if industry lobbyists come 
        to Capitol Hill to explain that there is still a need 
        for this program because of the continuing threat of 
        terrorist attacks. Does anyone seriously believe that 
        Congress will refuse to reauthorize this ``temporary'' 
        insurance program or provide some other form of 
        taxpayer help to the insurance industry? I would like 
        to remind my colleagues that the federal budget is full 
        of expenditures for long-lasting programs that were 
        originally intended to be ``temporary.''

    I am disappointed to see that the Committee on Financial 
Services prove that I was correct. I am also skeptical that, 
having renewed the program once, Congress will ever allow it to 
expire, regardless of the recommendations the commission 
establishes.
    As the committee considers extending this program, I renew 
my opposition to it for substantially the same reasons I stated 
three years ago. However, I do have a suggestion on how to 
improve the program. Since one claimed problem with allowing 
the private market to provide terrorism insurance is the 
difficulty of quantifying the risk of an attack, the taxpayers' 
liability under the terrorism reinsurance program should be 
reduced for an attack occurring when the country is under 
orange or red alert. After all, because the point of the alert 
system is to let Americans know when there is an increased 
likelihood of an attack it is reasonable to expect insurance 
companies to demand that their clients take extra precautionary 
measures during periods of high alert. Reducing taxpayer 
subsidies will provide an incentive to ensure private parties 
take every possible precaution to minimize the potential damage 
from possible terrorist attacks.
    While this bill does contain some provisions making it more 
favorable to taxpayers than the original program, my 
fundamental objections to the program remain the same as four 
years ago. Therefore, I am attaching my statement regarding 
H.R. 3210, which created the terrorist insurance program in the 
107th Congress:
    Mr. Speaker, no one doubts that the government has a role 
to play in compensating American citizens who are victimized by 
terrorist attacks. However, Congress should not lose sight of 
fundamental economic and constitutional principles when 
considering how best to provide the victims of terrorist 
attacks just compensation. I am afraid that H.R. 3210, the 
Terrorism Risk Protection Act, violates several of those 
principles and therefore passage of this bill is not in the 
best interests of the American people.
    Under H.R. 3210, taxpayers are responsible for paying 90% 
of the costs of a terrorist incident when the total cost of 
that incident exceeds a certain threshold. While insurance 
companies technically are responsible under the bill for paying 
back monies received from the Treasury, the administrator of 
this program may defer repayment of the majority of the subsidy 
in order to ``avoid the likely insolvency of the commercial 
insurer,'' or avoid ``unreasonable economic disruption and 
market instability.'' This language may cause administrators to 
defer indefinitely the repayment of the loans, thus causing 
taxpayers to permanently bear the loss. This scenario is 
especially likely when one considers that ``avoid . . . likely 
insolvency, unreasonable economic disruption, and market 
instability'' are highly subjective standards, and that any 
administrator who attempts to enforce a strict repayment 
schedule likely will come under heavy political pressure to be 
more ``flexible'' in collecting debts owed to the taxpayers.
    The drafters of H.R. 3210 claim that this creates a 
``temporary'' government program. However, Mr. Speaker, what 
happens in three years if industry lobbyists come to Capitol 
Hill to explain that there is still a need for this program 
because of the continuing threat of terrorist attacks. Does 
anyone seriously believe that Congress will refuse to 
reauthorize this ``temporary'' insurance program or provide 
some other form of taxpayer help to the insurance industry? I 
would like to remind my colleagues that the federal budget is 
full of expenditures for long-lasting programs that were 
originally intended to be ``temporary.''
    H.R. 3210 compounds the danger to taxpayers because of what 
economists call the ``moral hazard'' problem. A moral hazard is 
created when individuals have the costs incurred from a risky 
action subsidized by a third party. In such a case individuals 
may engage in unnecessary risks or fail to take steps to 
minimize their risks. After all, if a third party will bear the 
costs of negative consequences of risky behavior, why should 
individuals invest their resources in avoiding or minimizing 
risk?
    While no one can plan for terrorist attacks, individuals 
and businesses can take steps to enhance security. For example, 
I think we would all agree that industrial plants in the United 
States enjoy reasonably good security. They are protected not 
by the local police, but by owners putting up barbed wire 
fences, hiring guards with guns, and requiring identification 
cards to enter. One reason private firms put these security 
measures in place is because insurance companies provide them 
with incentives, in the form of lower premiums, to adopt 
security measures. H.R. 3210 contains no incentives for this 
private activity. The bill does not even recognize the 
important role insurance plays in providing incentives to 
minimize risks. By removing an incentive for private parties to 
avoid or at least mitigate the damage from a future terrorist 
attack, the government inadvertently increases the damage that 
will be inflicted by future attacks!
    Instead of forcing taxpayers to subsidize the costs of 
terrorism insurance, Congress should consider creating a tax 
credit or deduction for premiums paid for terrorism insurance, 
as well as a deduction for claims and other costs borne by the 
insurance industry connected with offering terrorism insurance. 
A tax credit approach reduces government's control over the 
insurance market. Furthermore, since a tax credit approach 
encourages people to devote more of their own resources to 
terrorism insurance, the moral hazard problems associated with 
federally funded insurance is avoided.
    The version of H.R. 3210 passed by the Financial Services 
Committee took a good first step in this direction by repealing 
the tax penalty which prevents insurance companies from 
properly reserving funds for human-created catastrophes. I am 
disappointed that this sensible provision was removed from the 
final bill. Instead, H.R. 3210 instructs the Treasury 
Department to study the benefits of allowing insurers to 
establish tax-free reserves to cover losses from terrorist 
events. The perceived need to study the wisdom of cutting taxes 
while expanding the federal government without hesitation 
demonstrates much that is wrong with Washington.
    In conclusion, Mr. Speaker, H.R. 3210 may reduce the risk 
to insurance companies from future losses, but it increases the 
costs incurred by American taxpayers. More significantly, by 
ignoring the moral hazard problem, this bill may have the 
unintended consequence of increasing the losses suffered in any 
future terrorist attacks. Therefore, passage of this bill is 
not in the long-term interests of the American people.

                                  
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