[Senate Report 113-199]
[From the U.S. Government Publishing Office]


                                                       Calendar No. 438
113th Congress                                                   Report
                                 SENATE
 2d Session                                                     113-199

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



 
      TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT OF 2014

                                _______
                                

                 June 26, 2014.--Ordered to be printed

                                _______
                                

 Mr. Johnson of South Dakota, from the Committee on Banking, Housing, 
               and Urban Affairs, submitted the following

                              R E P O R T

    The Committee on Banking, Housing, and Urban Affairs, to 
which was referred the bill (S. 2244) to extend the termination 
date of the Terrorism Insurance Program established under the 
Terrorism Risk Insurance Act of 2002, and for other purposes, 
having considered the same, reports favorably thereon, with 
amendments, and recommends that the bill, as amended, do pass.

                              INTRODUCTION

    On June 3, 2014, the Senate Committee on Banking, Housing, 
and Urban Affairs considered S. 2244, entitled ``Terrorism Risk 
Insurance Program Reauthorization Act of 2014,'' a bill to 
extend the termination date of the Terrorism Risk Insurance 
Program established under the Terrorism Risk Insurance Act of 
2002, and for other purposes. By a unanimous vote of 22-0, the 
Committee voted to report favorably the bill, as amended, to 
the Senate.

                               BACKGROUND

    Insurance coverage for losses from terrorist attacks prior 
to September 11, 2001, were typically included in general 
insurance policies without specific cost to commercial 
policyholders. However, large losses experienced by the private 
insurance and reinsurance markets resulting from the September 
11th attacks dramatically altered the market for terrorism risk 
insurance. An estimate of the insurance industry losses from 
the September 11th attacks was $31.5 billion at the time, or 
$41.8 billion in 2014 dollars.\1\ Following the attacks, many 
insurance companies began to exclude losses resulting from acts 
of terrorism from their general policies and not offer 
standalone terrorism risk insurance. By early 2002, 45 states, 
the District of Columbia, Puerto Rico, and Guam had approved 
terrorism damage exclusions from standard commercial 
policies.\2\ The withdrawal of terrorism risk insurance 
coverage following the September 11th attacks impacted the 
economy in various ways, most notably in real estate and 
commercial lending.\3\
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    \1\The estimate is based on eligible lines of insurance were the 
Terrorism Risk Insurance Act (TRIA) law at the time of the September 
11th attacks. See Tom LaTourrette and Noreen Clancy, RAND Corporation 
Policy Brief, The Impact on Federal Spending of Allowing the Terrorism 
Risk Insurance Act to Expire (Apr. 10, 2014), http://www.rand.org/pubs/
research_reports/RR611.html, p. 4.
    \2\Jeff Woodward, ``The ISO Terrorism Exclusions: Background and 
Analysis,'' IRMI Insights, February 2002, available at http://
www.irmi.com/expert/articles/2002/woodward02.aspx.
    \3\Richard Hillman, then Director of Financial Markets and 
Community Investment for the U.S. General Accounting Office (GAO, which 
is now the U.S. General Accountability Office), testified before 
Congress in February 2002, stating: ``Even in the absence of an actual 
terrorist event, however, there are growing indications that some 
sectors of the economy--notably real estate and commercial lending--are 
beginning to experience difficulties because some properties and 
businesses are unable to find sufficient terrorism coverage, at any 
price. If allowed to go unchecked, these difficulties are likely to 
increase as more insurance contracts come up for renewal over the next 
year. The resulting economic drag could slow economic recovery and 
growth.'' GAO, Terrorism Insurance: Rising Uninsured Exposure to 
Attacks Heightens Potential Economic Vulnerabilities (Feb. 27, 2002), 
http://www.gao.gov/products/GAO-02-472T, p. 2.
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    To respond to the market disruption and increasing concerns 
about the negative economic impact following the September 11th 
terrorist attacks, as well as to address the inability of the 
private insurance and reinsurance markets to provide coverage 
relating to terrorism risk in a meaningful way, Congress passed 
the Terrorism Risk Insurance Act of 2002 (TRIA).\4\ TRIA 
created the Terrorism Risk Insurance Program, which provided a 
government reinsurance backstop in the case of foreign 
terrorist attacks. Since originally passing TRIA in 2002, 
Congress has reauthorized and reformed TRIA twice (in 2005 and 
2007),\5\ with the last reauthorization extending the program 
for 7 years. Currently, the program is set to expire on 
December 31, 2014.
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    \4\P.L. 107-297.
    \5\P.L. 109-144 and P.L. 110-160.
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    The events and aftermath from the September 11th terrorist 
attacks underscored that terrorism risk is a relatively unique 
and challenging kind of risk to underwrite from an insurance 
perspective. Although it has been more than a decade since the 
attacks, terrorism risk continues to pose significant 
challenges for insurers to be able to model and price the risk. 
In a 2014 report, the President's Working Group on Financial 
Markets (PWG) found that, ``According to commenters, a 
significant challenge to pricing terrorism risk is the lack of 
credible empirical historical data on which to base loss 
projections and pricing. . . . Among others, the following 
impediments to more robust modeling of terrorism have been 
identified to the PWG: Lack of sufficient experience and 
historical information by which to validate a model 
(frequency); Unique nature of terrorism risk; Geographic 
concentration of terrorism risk (proximity of insured assets to 
perceived ``targets''); Diversity of potential weapons 
scenarios; Number of potential targets; and Insufficient 
exposure data.''\6\
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    \6\President's Working Group on Financial Markets, The Long-Term 
Availability and Affordability of Insurance for Terrorism Risk (April 
2014), http://www.treasury.gov/initiatives/fio/ reports-and-notices/
Documents/PWG_TerrorismRiskInsuranceReport_2014.pdf, pp. 15-16.
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    There is some data available about the terrorism risk 
insurance market since Congress passed TRIA. The President's 
Working Group on Financial Markets and others have issued 
reports showing various trends on pricing, premiums and 
capacity across a range of affected industries.\7\ There have 
also been recent studies on TRIA's impact on Federal spending, 
national security, and workers' compensation insurance 
markets.\8\ As far as take-up rates go, Marsh, Inc. has 
reported that only 27 percent of their commercial clients 
bought terrorism insurance in 2003. The take-up rate, however, 
climbed relatively quickly to 49 percent in 2004 and 58 percent 
in 2005. Since 2005, the take-up rate has leveled off around 60 
percent.\9\
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    \7\See, e.g., President's Working Group on Financial Markets, 
Terrorism Risk Insurance (2006), http://www.treasury.gov/resource-
center/fin-mkts/Documents/report.pdf, Market Conditions for Terrorism 
Risk Insurance (2010), http://www.treasury.gov/resource-center/fin-
mkts/Documents/PWG%20Report%20Final%20January%2013.pdf, and The Long-
Term Availability and Affordability of Insurance for Terrorism Risk 
(April 2014), http://www.treasury.gov/initiatives/fio/reports-and-
notices/Documents/PWG_TerrorismRiskInsuranceReport_2014.pdf; Marsh, 
Inc., 2010 Terrorism Risk Insurance Report (June 23, 2010), http://
www.insurancemarketreport.com/
LinkClick.aspx?fileticket=6HBpiRJJTgs%3D&tabid=7464, and 2013 Terrorism 
Risk Insurance Report (Apr. 30, 2013), http://
www.insureagainstterrorism.org/MMC%20TRIA%20Report%2004-2013.pdf.
    \8\See, e.g., Henry H. Willis and Omar Al-Shahery, RAND Corporation 
Policy Brief, National Security Perspectives on Terrorism Risk 
Insurance in the United States (Mar. 6, 2014), http://www.rand.org/
pubs/research_reports/RR573.html; Tom LaTourrette and Noreen Clancy, 
RAND Corporation Policy Brief, The Impact on Federal Spending of 
Allowing the Terrorism Risk Insurance Act to Expire (Apr. 10, 2014), 
http://www.rand.org/pubs/research_reports/RR611.html, which noted that, 
``In the absence of a terrorist attack, TRIA costs taxpayers little, 
and in the event of a terrorist attack comparable to any experienced 
before, it is expected to save taxpayers money.'' (p. 1); and Henry H. 
Willis and Omar Al-Shahery, RAND Corporation Policy Brief, The Impact 
on Workers' Compensation Insurance Markets of Allowing the Terrorism 
Risk Insurance Act to Expire (May 7, 2014), http://www.rand.org/pubs/
research_reports/RR643.html.
    \9\Marsh, Inc., 2013 Terrorism Risk Insurance Report (Apr. 30, 
2013), http://www.insureagainstterrorism.org/MMC%20TRIA%20Report%2004-
2013.pdf, p. 9; and President's Working Group on Financial Markets, The 
Long-Term Availability and Affordability of Insurance for Terrorism 
Risk (April 2014), http://www.treasury.gov/initiatives/fio/reports-and-
notices/Documents/PWG_TerrorismRiskInsuranceReport_2014.pdf, p. 30.
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    To date, the private insurance and reinsurance markets 
continue to exhibit an inability to offer coverage without a 
government backstop. The 2014 PWG report states, ``Challenges 
continue to exist regarding the ability of the private market 
to provide terrorism risk insurance without a federal backstop, 
particularly with respect to the ability of insurers to model 
the frequency and severity of losses that could arise from acts 
of terrorism. Also, reinsurers and the capital markets appear 
reluctant to provide further support to the terrorism risk 
insurance market. Private reinsurance does not appear to be a 
sufficient substitute for the market certainty provided by 
TRIA.''\10\
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    \10\President's Working Group on Financial Markets, The Long-Term 
Availability and Affordability of Insurance for Terrorism Risk (April 
2014), http://www.treasury.gov/initiatives/fio/reports-and-notices/
Documents/PWG_TerrorismRiskInsuranceReport_2014.pdf, p. 37.
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    In the Fiscal Year 2015 budget, the Obama Administration 
announced its support of a long-term extension of TRIA, saying 
``In order to preserve the long-term availability and 
affordability of property and casualty insurance for terrorism 
risk, the Budget proposes to extend the Terrorism Risk 
Insurance Program and to implement programmatic reforms to 
limit taxpayer exposure and achieve cost neutrality.''\11\
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    \11\U.S. Department of the Treasury, The Budget in Brief--FY 2015 
(Mar. 4, 2014), http://www.treasury.gov/about/budget-performance/
budget-in-brief/Documents/Treasury_FY_2015_ BIB.pdf, pp. 4-5.
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                       PURPOSE OF THE LEGISLATION

    On April 10, 2014, Senators Schumer, Kirk, Reed, Heller, 
Murphy, Johanns, Warner and Blunt introduced the Terrorism Risk 
Insurance Program Reauthorization Act of 2014. The legislation, 
as amended by the Committee, will extend TRIA for 7 years until 
December 31, 2021. The legislation bolsters the existing 
taxpayer protections the program currently has by increasing 
the amount of co-payments insurance companies must pay to 20 
percent from the existing 15 percent. The legislation would 
also raise the mandatory recoupment threshold from the current 
$27.5 billion to $37.5 billion. The changes in co-payment and 
recoupment would be gradually phased in over 5 years.
    As amended by the Committee, the legislation would require 
a GAO study on the viability and effects of the Federal 
Government assessing and collecting upfront premiums on 
insurers that offer TRIA-backed coverage. The legislation, as 
amended, would also require a study and rulemaking on the 
certification process to improve transparency and market 
certainty in the aftermath of any event that could 
realistically be certified under the program.
    In considering the legislation in Committee\12\, Chairman 
Johnson said, ``This bipartisan legislation is the result of a 
tough but fair compromise that will extend the TRIA program for 
another 7 years. Congress first passed TRIA in response to the 
insurance industry no longer offering coverage for the 
commercial property market following the tragic September 11th 
terrorist attacks. Today the private insurance industry has 
returned to the marketplace and is now able to serve this vital 
market because of TRIA, not in spite of it. From its inception, 
this program was designed to protect taxpayers, and with the 
work of the members of this Committee, this bipartisan bill 
continues to bolster these protections.''
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    \12\Hearing transcript, Senate Committee on Banking, Housing and 
Urban Affairs, Executive Session to consider S. 2244, the Terrorism 
Risk Insurance Program Reauthorization Act of 2014 (June 3, 2014).
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    Ranking Member Crapo said, ``The TRIA program allows the 
insurance industry to absorb and cover the losses of all but 
the largest acts of terror, ones in which the Federal 
Government would likely be forced to step in if the program 
were not there. As a part of this reauthorization, I and others 
pushed to decrease the size of the backstop. In order to do 
that, we have examined each of the policy levers in the 
program. This bill would increase the insurance industry's 
aggregate retention level and the company coinsurance level.''
    In discussing what kinds of acts of terrorism would be 
covered by TRIA, Senator Schumer said, ``I have been struck 
over the last few months about the discussion of `conventional' 
terrorist attacks. It is sort of an oxymoron. Not using a 
nuclear weapon does not mean that it is not a terrorist attack. 
I can tell you, as somebody who lives in New York City, that 
was, I suppose, a conventional terrorist attack. But it still, 
if you--in the parlance, but there is nothing conventional 
about it, the uncertainty and fear we faced in the immediate 
aftermath of the day, the talk that there would be no building 
in southern Manhattan, the fact that businesses would flee, and 
it began to dawn on people throughout the world that a 
terrorist attack could cause such devastation that no free 
market mechanism could make up for it. A terrorist attack is 
not part of the conventional thinking of a free market, and 
that if we did not have some kind of backstop, the amount of 
building, the amount of construction, the amount of jobs would 
greatly decrease.''
    Acknowledging the evolving nature of terrorism since TRIA 
was first enacted into law by Congress, including new threats 
of cyber-attacks, the Committee maintains the Treasury 
Secretary's existing broad discretion and authority to certify 
any kind or mode of terrorist attack regardless of how the 
attack is carried out provided that the certification criteria 
is met. As Senator Reed stated during consideration of the 
legislation, ``In short, reauthorizing TRIA is not only a 
matter of economic security; it is also a matter of national 
security. And, indeed, while TRIA is silent on whether a 
nuclear-, chemical-, biological-, or radiologic-related 
terrorist attack or any kind of cyber-related attack are 
covered, I believe our intent with S. 2244 is that these 
attacks would continue to fall within the scope of TRIA's 
covered lines, as they do today, provided that the statutory 
prerequisites are met.''
    It is also the view of the Committee that the legislation, 
by striking Section 103(e)(7)(B) of the Terrorism Risk 
Insurance Act of 2002 (15 U.S.C. 6701 note), would remove a 
superfluous provision regarding the computation of the amount 
subject to mandatory recoupment, and should not be construed as 
conveying any kind of new authority to the Treasury Secretary 
to reimburse or pay claims on a negative calculation derived 
from Section 103(e)(7)(A) of the Terrorism Risk Insurance Act 
of 2002 (15 U.S.C. 6701 note). Any negative number calculated 
under Section 103(e)(7)(A) should be considered otherwise moot.
    The legislation is supported by a number of organizations, 
including the American Association of Port Authorities, 
American Bankers Association, American Bankers Insurance 
Association, American Bankers Securities Association, American 
Council of Engineering Companies, American Gaming Association, 
American Hotel and Lodging Association, American Land Title 
Association, American Public Gas Association, American Public 
Power Association, American Resort Development Association, 
American Society of Association Executives, Associated Builders 
and Contractors, Associated General Contractors of America, 
Association of American Railroads, Association of Art Museum 
Directors, Building Owners and Managers, Association 
International, Boston Properties, Campbell Soup Company, 
Coalition to Insure Against Terrorism, Cornerstone Real Estate 
Advisers, LLC, CRE Finance Council, CSX Corporation, Emerson, 
Financial Services Roundtable, Food Marketing Institute, 
Helicopter Association International, Hilton Worldwide, Host 
Hotels & Resorts, Inc., Institute of Real Estate Management, 
InterContinental Hotel Group, International Council of Shopping 
Centers, International Franchise Association, International 
Safety Equipment Association , International Speedway 
Corporation, Long Island Import Export Association, Marriott 
International, Mortgage Bankers Association, NAIOP, National 
Apartment Association, National Association of Chain Drug 
Stores, National Association of Home Builders, National 
Association of Manufacturers, National Association of REALTORS, 
National Association of Real Estate Investment Trusts, The 
National Association for Stock Car Auto Racing (NASCAR), 
National Association of Waterfront Employers, National 
Basketball Association, National Collegiate Athletic 
Association, National Council of Chain Restaurants, National 
Football League, National Hockey League, National Multifamily 
Housing Council, National Restaurant Association, National 
Retail Federation, National Roofing Contractors Association, 
National Rural Electric Cooperative Association, New England 
Council, Partnership for NYC, Public Sector Alliance, Public 
Utilities Risk Management Association, Office of the 
Commissioner of Baseball, The Real Estate Board of New York, 
The Real Estate Roundtable, Securities Industry and Financial 
Markets Association, Self-Insurance Institute of America, Inc., 
Starwood Hotels and Resorts, Tenaska, Taxicab, Limousine & 
Paratransit Association, UJA-Federation of New York, United 
Airlines, Union Pacific, University Risk Management and 
Insurance Association, U.S. Chamber of Commerce, and the U.S. 
Travel Association.

                                HEARINGS

    On September 25th, 2013, the Committee held a hearing 
entitled, ``Reauthorizing TRIA: The State of the Terrorism Risk 
Insurance Market.'' The hearing discussed the need for 
reauthorization of the Terrorism Risk Insurance Program. 
Witnesses were: Mr. Peter Beshar, Executive Vice President and 
General Counsel, Marsh & McLennan Companies; Mr. Erwann O. 
Michel-Kerjan, Professor and Managing Director, Center for Risk 
Management and Decision Processes, The Wharton School, 
University of Pennsylvania; and Mr. Robert Hartwig, Insurance 
Information Institute.
    At the hearing, Mr. Beshar spoke to the role TRIA has 
played in the terrorism risk insurance market after the 
September 11th attacks, saying, ``We consider TRIA to be a 
model of a public-private partnership. TRIA restored insurance 
capacity at a critical time after 9-11 and has been important 
in fostering a well-functioning terrorism insurance market 
since that time. . . . Thankfully, thus far, the federal 
government has not made any payments under TRIA. The only 
federal appropriations associated with the program have been 
for its administration.''\13\
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    \13\Peter J. Beshar, Executive Vice President and General Counsel, 
Marsh & McLennan Companies, testimony before the Senate Committee on 
Banking, Housing and Urban Affairs, Reauthorizing TRIA: The State of 
the Terrorism Risk Insurance Market (Sep. 25, 2013), http://
www.banking.senate.gov/public/
index.cfm?FuseAction=Files.View&FileStore_id=24ef097c-574c-4ebc-a705-
5e35173d1ee7, p. 2.
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    Dr. Hartwig made this observation, ``The unambiguous 
success of TRIA demonstrates that the Act has become an 
invaluable component of the country's national security 
infrastructure. The continued operation of the nation's 
financial institutions--including its insurers--during and 
throughout the aftermath of a major terrorist attack--is 
absolutely essential to ensure a smooth and expedited recovery 
from the massive economic and operational shocks of the sort 
that occurred after the 9/11 attacks and that are certain to 
accompany future such events, irrespective of where in the 
country they occur. Failure to institutionalize a permanent 
plan to protect the nation's financial infrastructure leaves 
the country unnecessarily vulnerable to economic instability 
and risk of recession.''\14\
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    \14\Robert Hartwig, Ph.D., President & Economist, Insurance 
Information Institution, testimony before the Senate Committee on 
Banking, Housing and Urban Affairs, Reauthorizing TRIA: The State of 
the Terrorism Risk Insurance Market (Sep. 25, 2013), http://
www.banking.senate.gov/public/
index.cfm?FuseAction=Files.View&FileStore_id=8213e203-2743-4c66-a58d-
6664c82c6857, pp. 4-5.
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    In his testimony, Dr. Hartwig also outlined eight distinct 
layers of taxpayer protections that the current structure of 
the TRIA program provides: (1) an act of terror meets a 
detailed set of certification criteria; (2) an act may not be 
certified if aggregate losses do not exceed $5 million; (3) no 
Federal funds may be paid if aggregate losses do not exceed 
$100 million; (4) individual insurers must pay a deductible 
that covers losses that are 20 percent of an insurer's direct 
earned premiums for commercial property and casualty insurance; 
(5) individual insurers must also make a co-payment of 15 
percent of the remaining losses above their 20 percent 
deductible; (6) industry in the aggregate covers up to $27.5 
billion of losses that must be recouped; (7) government is 
required to recoup 133 percent of the difference between 
Federal payments and retained losses paid by insurers through 
deductibles and co-payments up to $27.5 billion of losses, and 
has further discretion to recoup losses above $27.5 billion; 
and (8) the program is capped at total losses (Federal payments 
plus losses retained by insurers through deductibles and co-
payments) of $100 billion in a year. Dr. Hartwig testified that 
taxpayers are further protected by other program features, such 
as restrictions on the lines of insurance that are covered and 
the program's make available requirement.\15\
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    \15\Robert Hartwig, Ph.D., President & Economist, Insurance 
Information Institution, testimony before the Senate Committee on 
Banking, Housing and Urban Affairs, Reauthorizing TRIA: The State of 
the Terrorism Risk Insurance Market (Sep. 25, 2013), http://
www.banking.senate.gov/public/
index.cfm?FuseAction=Files.View&FileStore_id=8213e203-2743-4c66-a58d-
6664c82c6857, pp. 6-10.
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    On February 25th, 2014, the Committee held a hearing 
entitled, ``Reauthorizing TRIA: The State of the Terrorism Risk 
Insurance Market, Part II.'' The hearing discussed the need for 
reauthorization of the Terrorism Risk Insurance Program. 
Witnesses were: Mr. W. Edward Walter, President and CEO, Host 
Hotels & Resorts, on behalf of the Coalition to Insure Against 
Terrorism; Ms. Carolyn Snow, President, Risk and Insurance 
Management Society; Mr. Bill Henry, CEO, McQueary, Henry Bowles 
and Troy, on behalf of the Council of Insurance Agents & 
Brokers; Mr. Vincent T. Donnelly, President and CEO, PMA 
Insurance Group, on behalf of the Property Casualty Insurers 
Association of America; Mr. Warren W. Heck, CEO and Chairman of 
the Board, Greater New York Insurance Companies, on behalf of 
the National Association of Mutual Insurance Companies; and Mr. 
Douglas G. Elliot, President of Commercial Markets, The 
Hartford, on behalf of the American Insurance Association.
    At the hearing, witnesses discussed the need for a long-
term reauthorization of TRIA in response to a question from 
Chairman Johnson.\16\ Mr. Walter responded, ``Senator, I would 
think that a seven-year extension would probably be the minimum 
that we should consider, and it would be better if we were to 
consider a longer period of time. For those of us in the real 
estate industry, we are typically making investments where we 
are looking at 7 to 10 to 15 or longer time frames. When we 
invest in Europe and some other markets around the world, one 
of the issues we do not have to worry about is how this issue 
will be dealt with because they have permanent programs. In the 
U.S., we have not necessarily had the benefit, certainly so 
far, of a permanent program. But having something that would be 
longer-term, that would allow us to know that for the period of 
financing or for the period of ownership that we might have in 
that particular investment, that this issue would be covered by 
the TRIA program would be advantageous. And I think it would 
encourage incremental real estate investment.''
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    \16\Hearing transcript, Senate Committee on Banking, Housing and 
Urban Affairs, Reauthorizing TRIA: The State of the Terrorism Risk 
Insurance Market, Part II (Feb. 25, 2014).
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    Mr. Henry responded by saying, ``Senator, basically, the 
independent agents and the Council agents would love to see 
this become permanent. It is an extremely uninsurable program. 
It is not going to change over the next 5 or 10 years. We will 
still have the same problem at that time. So this is a 
permanent problem, and we would like to see a permanent 
solution.''
    The other witnesses--Ms. Snow, Mr. Donnelly, Mr. Heck, and 
Mr. Elliot--also agreed that a long-term extension was 
preferable from their organizations' perspectives.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title

Section 2. Extension of Terrorism Insurance Program

    This section amends section 108(a) of the Terrorism Risk 
Insurance Act of 2002 (15 U.S.C. 6701 note). This section would 
extend the Terrorism Risk Insurance Program until December 31, 
2021.

Section 3. Federal share

    This section amends section 103(e)(1)(A) of the Terrorism 
Risk Insurance Act of 2002 (15 U.S.C. 6701 note). This section 
would gradually phase-down the share of the insurer loses that 
the Federal government would be required to provide following a 
certified act of terrorism. The Federal share would begin 
decreasing by 1 percentage point each year on January 1, 2016 
until the Federal share has been lowered to 80 percent.

Section 4. Recoupment of Federal share of compensation under the 
        program

    This section amends section 103(e) of the Terrorism Risk 
Insurance Act of 2002 (15 U.S.C. 6701 note). This section would 
gradually increase the amount of Federal assistance that the 
Secretary of the Treasury must recoup from the private industry 
following a certified act of terrorism. The current mandatory 
recoupment amount of $27,500,000,000 will be increased by 
$2,000,000,000 each calendar year until that mandatory 
recoupment amount reaches $37,500,000,000.
    This section would also clarify that the Secretary of the 
Treasury must recoup any federal assistance provided under the 
Terrorism Risk Insurance Program up to the mandatory recoupment 
amount required under the Act, no matter the size of the 
certified act of terrorism, assuming that the mandatory 
recoupment amount calculated under the Act was a positive 
amount.

Section 5. Technical amendments

Section 6. Improving the certification process

    This section would require the Secretary of the Treasury to 
conduct a study on the process which the Secretary would use to 
decide whether to certify an act an act of terrorism under the 
Act including an examination and analysis of the establishment 
of a reason timeline for the Secretary to use in making such 
determination. After the conduction of the study, the Secretary 
would be required to issue regulations under existing 
authorities governing the certification process to address the 
finding of the study.

Section 7. GAO study on upfront premiums

    This section would require the Comptroller General of the 
United States to conduct a study on the viability and effects 
of the Federal Government assessing and collecting upfront 
premiums on insurers that participate in the Terrorism 
Insurance Program.

                          COST OF LEGISLATION

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

    Summary: S. 2244 would extend the Terrorism Risk Insurance 
Act (TRIA)\17\ for seven years--through calendar year 2021. The 
bill also would increase the share of insured losses paid by 
private insurers under the program and require the Government 
Accountability Office (GAO) to prepare a report for the 
Congress that assesses the effects of collecting premiums on 
insurers that participate in the program.
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    \17\The Terrorism Risk Insurance Act, P.L. 107-297, was enacted on 
November 2, 2002; the Act was extended on December 22, 2005 upon 
enactment of the Terrorism Risk Insurance Extension Act of 2005, P.L. 
109-144. On December 26, 2007, the Terrorism Risk Insurance Program 
Reauthorization Act of 2007, P.L. 110-160, extended the program again. 
In this estimate, CBO refers to the original Act as subsequently 
amended, as TRIA.
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    The program requires insurance firms that sell commercial 
property and casualty insurance to offer clients insurance 
coverage for damages caused by terrorist attacks by foreign or 
domestic interests. Under TRIA, the federal government would 
help insurers cover losses in the event of a terrorist attack 
under certain conditions, and would impose assessments on the 
insurance industry to recover all or a portion of the federal 
payments. The program is set to expire at the end of calendar 
year 2014; no federal payments have been made under the program 
since its inception in 2002.
    There is no reliable way to predict how much insured damage 
terrorists might cause, if any, in any specific year. Rather, 
CBO's estimate of the cost of financial assistance provided 
under the bill represents an expected value of payments from 
the program--a weighted average that reflects industry experts' 
opinions of the probability of various outcomes ranging from 
zero damages up to very large damages resulting from possible 
future terrorist attacks. The expected value can be thought of 
as the amount of an insurance premium that would be necessary 
to just offset the government's expected losses from providing 
this insurance, although firms do not pay any upfront premium 
for the federal assistance available under TRIA.
    On this basis, CBO estimates that enacting the bill would 
increase direct spending by $1.7 billion over the 2015-2019 
period and by $3.5 billion over the 2015-2024 period. An 
additional $460 million would be spent after 2024.
    CBO estimates that enacting the legislation also would 
increase revenues. S. 2244 would direct the Department of the 
Treasury to recoup some or all of the costs of providing 
financial assistance through taxes imposed on certain 
policyholders (referred to as surcharges in the legislation). 
CBO expects that federal spending for financial assistance to 
insurers would be largely offset (on a cash basis) by an 
increase in revenues. We expect that, following a covered loss, 
the Secretary of the Treasury would impose those surcharges in 
a way that meets the deadlines for collections specified in the 
bill. Thus, CBO estimates that enacting the recoupment 
provision in the bill would increase revenues by about $1.8 
billion over the 2015-2019 period and by about $4.0 billion 
over the 2015-2024 period, net of income and payroll tax 
offsets.\18\
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    \18\When excise taxes and other types of ``indirect'' taxes are 
imposed on goods and services, they tend to reduce income for workers 
or business owners in the taxed industry and others throughout the 
economy. Consequently, revenue derived from existing ``direct'' tax 
sources--such as individual and corporate income taxes and payroll 
taxes--will also be reduced. To approximate that effect, CBO and the 
staff of the Joint Committee on Taxation apply an offset when 
estimating the net revenue that legislation imposing some form of 
indirect tax is expected to generate. The amount of the offset ranges 
from 25.2 percent in 2015 to 26.2 percent in 2024.
---------------------------------------------------------------------------
    Considering both the direct spending and revenue impacts of 
the bill, CBO estimates that enacting the bill would reduce 
budget deficits by $460 million over the 2015-2024 period. 
Federal spending, however, would continue beyond 2024; CBO 
estimates that over the full term of federal financial 
assistance, revenues would fully offset direct spending, 
resulting in no net effect on the deficit.
    The bill would impose intergovernmental and private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
by extending and expanding some requirements on insurers and 
policyholders, including the payment of surcharges. State, 
local, or tribal governments could be required to pay a 
surcharge as purchasers of property and casualty insurance, but 
CBO estimates that the aggregate cost to public entities of 
complying with those mandates would probably fall below the 
annual threshold established in UMRA ($76 million for 
intergovernmental mandates in 2014, adjusted annually for 
inflation). CBO estimates that the aggregate cost to private 
insurers and policyholders to comply with those mandates would 
exceed the annual threshold established in UMRA ($152 million 
in 2014, adjusted annually for inflation) in each year 
policyholders pay a surcharge.
    Estimated cost to the Federal Government: The estimated 
budgetary effect of S. 2244 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             By fiscal year, in billions of dollars--
                                         ---------------------------------------------------------------------------------------------------------------
                                            2015     2016     2017     2018     2019     2020     2021     2022     2023     2024   2014-2019  2014-2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               CHANGES IN DIRECT SPENDING

Estimated Budget Authority..............      120      280      370      440      480      510      540      410      240      150     1,690      3,540
Estimated Outlays.......................      120      280      370      440      480      510      540      410      240      150     1,690      3,540

                                                                   CHANGES IN REVENUES

Estimated Revenues......................        0      200      400      500      670      400      380      440      450      560     1,770      4,000

                                NET INCREASE OR DECREASE (-) IN THE DEFICIT FROM CHANGES IN DIRECT SPENDING AND REVENUES

Impact on Deficit.......................      120       80      -30      -60     -190      110      160      -30     -210     -410       -80       -460
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: CBO estimates that implementing S. 2244 would not have a significant effect on discretionary costs over the 2015-2019 period.

    Basis of estimate: For this estimate, CBO assumes that S. 
2244 will be enacted before the end of calendar year 2014. We 
estimate that enacting the bill would increase direct spending 
by about $3.5 billion and increase revenues by $4.0 billion 
over the 2015-2024 period. While this estimate reflects CBO's 
best judgment on the basis of available information, the cost 
of this federal program is a function of inherently 
unpredictable future terrorist attacks. As such, actual costs 
are likely to vary significantly from the estimated amounts. 
Such costs could be either higher or lower than the expected-
value estimates provided for each year.

Terrorism Risk Insurance Act Under Current Law

    The Terrorism Risk Insurance Act provides financial 
assistance to commercial property and casualty insurers for 
losses above certain thresholds (illustrated in figure 1) 
caused by terrorist attacks by individuals acting on behalf of 
foreign or domestic interests. For such assistance to be 
provided, the Secretary of the Treasury must certify that a 
terrorist attack has occurred in the United States or other 
specified locations. TRIA is set to expire on December 31, 
2014.
    TRIA does not require commercial property and casualty 
insurance policies to cover losses from terrorist attacks 
involving nuclear, biological, chemical, or radioactive (NBCR) 
materials. If, however, an insurer and a policyholder choose to 
include losses from terrorist attacks involving NBCR materials 
in such a policy, TRIA would cover a portion of the losses 
resulting from such attacks.
    For the Secretary of the Treasury to certify a terrorist 
attack, insured damages resulting from the attack must exceed 
$5 million. Financial assistance becomes available to insurers 
suffering losses from a certified attack once the insurers 
suffering losses have aggregate insured losses from an attack 
that exceed $100 million. Once that threshold is met, insurance 
companies that suffer losses are responsible for paying claims 
up to a deductible amount that equals 20 percent of the 
premiums they collected for certain lines of insurance in the 
calendar year preceding a certified attack. The total amount of 
deductibles paid by insurers would depend on the amount of 
losses from an attack and the particular insurers involved.



    After meeting their individual deductibles for damage 
claims, insurers that suffered losses and the federal 
government would each pay a portion of the losses above the 
deductible (in 2014, the federal government would pay 85 
percent of insured losses and individual insurers would pay 15 
percent) up to total losses of as much as $100 billion. The law 
does not specify how any claims above the $100 billion cap 
would be paid.
    The Secretary of the Treasury is authorized to recover 
payments made by the federal government through taxes in the 
form of surcharges paid by all purchasers of commercial 
property and casualty insurance. The Secretary is required to 
recoup any federal payments made to cover losses, but only if 
those recoveries plus other amounts paid by directly affected 
insurers do not exceed $27.5 billion--known as the retention 
amount. If insured losses from a terrorist attack are large 
enough that insurers pay more than the industry retention 
amount, the Secretary would not be required to recoup any 
federal payments. The program provides the Secretary of the 
Treasury with authority, however, to recover federal payments 
in that instance after considering the ultimate cost to 
taxpayers, economic conditions, and the affordability of 
commercial insurance.

Modifications to TRIA Under S. 2244

    S. 2244 would extend TRIA for seven years, through December 
31, 2021. The bill also would make incremental changes in 
program parameters that would increase the share of insured 
losses paid by private insurers in the event of an attack.
    As under current law, an insurer suffering losses as a 
result of a certified attack would pay claims up to a specified 
deductible. The bill would retain the same deductible limits, 
20 percent of certain premiums collected in the calendar year 
preceding an attack, as in current law.
    S. 2244 also would continue the payment-sharing process 
that exists under current law. Insurers and the federal 
government would each pay a portion of the losses over the 
deductibles up to the $100 billion limit for the program. 
However, the bill would decrease the federal government's 
portion by one percentage point per year over a five-year 
period that starts on January 1, 2016. Currently, the federal 
portion is equal to 85 percent of covered losses above the 
deductible; under the bill, that rate would be reduced to 80 
percent of covered losses by 2020, and remain there until the 
program expires at the end of 2021.
    Finally, the bill would increase the industry retention 
amount--the limit used to calculate the amount of federal 
spending that would be recovered from policyholders--from $29.5 
billion to $37.5 billion over a five-year period starting in 
the first year after enactment.

Direct Spending

    By extending financial assistance to certain commercial 
insurers for losses from future acts of terrorism against 
insured private property, enacting S. 2244 would expose the 
federal government to potentially large liabilities for seven 
more years (2015 through 2021). For any particular year, the 
amount of insured damage caused by terrorists could range from 
zero to many billions of dollars. CBO's estimate of the cost of 
this program reflects how much, on average, the government 
could be expected to pay to insurers and recover from the 
industry over the 2015-2024 period.
    The following sections describe our method for estimating 
the expected value of financial assistance under the bill and 
explain how we convert that cost to estimates of annual federal 
expenditures.
    Estimating the Expected Cost of Federal Assistance. For 
this estimate, CBO discussed the process of estimating insured 
losses with industry actuaries and reviewed models used by 
firms to set premiums for the terrorism component of property 
and casualty insurance that they offer. State insurance 
regulators generally require such premiums to be grounded in a 
widely accepted model of expected losses from covered events. 
After the terrorist attacks on September 11, 2001, the 
insurance industry began efforts to set premiums for insurance 
coverage for terrorist events using such models.
    Although estimating losses associated with terrorist events 
is difficult because of the lack of meaningful historical data, 
the insurance industry has experience setting premiums for 
other catastrophic events--namely, natural disasters. Setting 
premiums for hurricanes and earthquakes, for example, involves 
determining areas that could sustain damage, the value of the 
losses that could result from various types of events with 
different levels of severity, and the frequency of such events.
    Similarly, estimating premiums for losses resulting from 
terrorist attacks involves judgments regarding potential 
targets and the frequency of potential attacks. Because there 
is a very limited history of terrorist attacks in the United 
States, many of the parameters needed by the insurance industry 
to set premiums are based on expert opinion regarding terrorist 
activities and capabilities as well as information about 
attempted attacks that were not successful.
    Estimating Potential Insured Losses. Based on discussions 
with insurers and information provided by the insurance 
industry, CBO estimates that the expected or average annual 
loss subject to TRIA coverage under the bill would be about 
$2.1 billion (in 2014 dollars). This estimate incorporates 
industry expectations of the probabilities of terrorist 
attacks, encompassing the possibility of attacks that result in 
enormous loss of life and property damage, as well as a 
significant likelihood that no such attacks would occur in any 
given year. This estimate also reflects our expectation that 
some portion of losses from terrorism would not be covered by 
TRIA because some policyholders choose not to purchase 
insurance coverage for terrorism risks.
    CBO's estimate incorporates an expectation that, in most 
years, losses from terrorist attacks covered by TRIA would cost 
significantly less than $2.1 billion. We expect that there is a 
significant chance that no terrorist attacks covered by TRIA 
would occur in a given year. Since enactment of TRIA, no 
covered events have occurred, though several attempts were 
prevented by law enforcement and other security measures. 
Although the risk of a terrorist attack with many lives lost 
and substantial property damage still remains, based on 
industry models, CBO assumes for this estimate that attacks 
causing losses similar in scale to those sustained on September 
11, 2011, in New York City are likely to occur very rarely, if 
at all.\19\
---------------------------------------------------------------------------
    \19\Based on information from the Insurance Information Institute, 
we estimate that industry losses on September 11, 2001, totaled about 
$44 billion (in 2014 dollars), including about $35 billion in losses 
that would have qualified for coverage under TRIA had the law been in 
effect on that date.
---------------------------------------------------------------------------
    Our estimate of average annual losses includes about $650 
million in losses resulting from terrorist attacks involving 
NBCR materials. Under current law, insurers are not required to 
offer this coverage, although if an insurer and a policyholder 
voluntarily agree to include this coverage in a property and 
casualty policy, TRIA would cover some of those losses. While 
the bill would not require property and casualty policies to 
include coverage for losses resulting from attacks using NBCR 
materials, information provided by the industry indicates that 
a small amount of coverage is currently in place for such 
losses. Thus, under the bill, the government's exposure to 
losses resulting from terrorist attacks involving NBCR 
materials would likewise be small compared with losses 
resulting from attacks using conventional materials. The only 
exception is in the workers' compensation insurance line, where 
no exclusions for specific causes are allowed.
    Determining the Federal Share of Insured Losses. Federal 
payments under TRIA would be lower than the total expected 
losses from terrorist attacks because TRIA places limits on 
eligibility for federal assistance and requires that insurers 
that suffer losses as the result of a certified attack pay a 
share of covered losses. CBO took account of those requirements 
to estimate federal spending for any given amount of insured 
losses from future terrorist attacks.
     Upper and lower limits for federal assistance. 
Because federal payments under TRIA would be capped at $100 
billion per event, we excluded costs for potential losses above 
that level. Similarly, S. 2244 would maintain the minimum 
losses that would trigger federal payments under current law at 
$100 million; therefore, we excluded potential losses below 
that minimum level as well.
     Insurers' deductibles. Before the federal 
government would make any payments under TRIA, an insurer 
incurring losses would first pay claims up to a deductible 
amount. S. 2244 would maintain the current-law deductible of 20 
percent of premiums on certain property and casualty lines 
collected by affected insurers in the calendar year preceding 
an attack.
    The total amount of the deductibles could range from a few 
million dollars to several billion dollars, depending on how 
many insurers provide coverage for losses resulting from a 
particular terrorist attack. In addition, the value of each 
individual insurer's deductible would vary greatly across the 
industry. For this estimate, CBO considered a range of 
possibilities regarding the share of federal assistance, using 
industry data to estimate insurers' deductibles under the bill. 
The range encompasses the possibility that an attack would 
affect only a few insurers with relatively small deductibles or 
several insurers with relatively large deductibles. CBO expects 
that insured losses below a few hundred million dollars would 
most likely be covered by insurers' deductibles, and therefore, 
would not result in a significant increase in federal spending.
     Shared payments if losses exceed insurers' 
deductibles. Once affected insurers have paid claims up to 
their deductibles, the federal government would share a portion 
of the losses above the deductibles. Under S. 2244, the federal 
government's share of claims above the deductible would fall 
from the current-law level of 85 percent of total losses to 80 
percent, up to the $100 billion limit covered by the program, 
by 2020.
    After taking into account minimum and maximum limits, 
deductibles, and the insurers' share of payments above the 
deductibles, CBO estimates that enacting the bill would 
increase direct spending by $4.0 billion over the full life of 
the program. That amount translates into an average of roughly 
$570 million for each of the seven years for which the program 
would be extended. Actual spending would be spread out over 
many years, and those costs would be recovered through 
surcharges imposed on policyholders (which are discussed in the 
section on revenues below).
    Taken another way, if the Secretary of the Treasury were 
authorized to collect premiums for the program, CBO estimates 
that the Secretary would need to charge, on average, about $570 
million per year (for seven years) to offset the government's 
projected losses under the bill. The bill, however, would not 
authorize any charges prior to a certified attack. The bill 
also does not contain an explicit requirement for the Secretary 
to recoup interest that would accrue on amounts outstanding.
    Timing of Federal Spending. To estimate federal spending 
for this program on a cash basis, CBO used information from 
insurance experts on historical rates of payment for property 
and casualty claims following catastrophic events. Based on 
such information, CBO estimates that outlays under the bill 
would total about $3.5 billion over the 2015-2024 period; about 
$460 million would be spent after 2024. In general, following a 
catastrophic loss, it takes many years to complete insurance 
payments because of disputes over the value of covered losses 
by property and business owners. Under this bill, we expect 
that financial assistance to insurers would be paid over 
several years, with most of the spending occurring within the 
first five years following a certified event.

Revenues

    Enacting S. 2244 would affect federal revenues by 
authorizing the Secretary of the Treasury to impose taxes in 
the form of surcharges on all holders of property and casualty 
insurance policies in order to recover the amount of federal 
payments made under the program, with certain limitations. CBO 
estimates that this provision would increase revenues by $4.0 
billion over the 2015-2024 period.
    Surcharges. If a terrorist attack were to require the 
government to provide financial assistance, the bill would 
require the Secretary of the Treasury to recoup some or all of 
that cost through taxes paid by purchasers of commercial 
property and casualty insurance. Specifically, the Secretary 
would be required to recoup federal payments to the extent that 
the total amount paid by insurers (for deductibles and the 
industry's share of payments over the deductibles) is less than 
the lower of total insured losses or the industry retention 
amount.
    If insured losses from a terrorist attack are large enough 
that insurers pay more than the industry retention amount, then 
the Secretary would not be required to recoup any federal 
payments--although the Secretary could choose to do so. In that 
case, the amount the Secretary would collect would be based on 
economic conditions, the affordability of commercial insurance, 
and the cost to taxpayers of no additional recoupment. CBO 
expects that the Secretary would not seek to recover financial 
assistance provided above the industry retention amount and 
would not collect interest on outstanding amounts.
    The recoupment of financial assistance would be 
accomplished by assessing a surcharge on premiums for property 
and casualty insurance policies and would apply to policies in 
force following a terrorist attack that necessitated federal 
assistance. The amount to be recovered would be 135.5 percent 
of the difference between the industry retention amount, which 
grows from $29.5 billion to $37.5 billion over the term of the 
program, and the Secretary's estimate of the total amount paid 
by insurers for deductibles and their share of payments over 
the deductibles. CBO estimates that surcharges resulting from a 
seven-year extension of TRIA would total, in an expected-value 
sense, $5.4 billion over the 2015-2024 period.
    Timing and Tax Offset. The bill would require the Secretary 
to recover all or a portion of amounts due for events occurring 
before December 31, 2017, by the end of fiscal year 2019. For 
losses from events occurring between January 1, 2018, and the 
end of the program, the Secretary would be required to recoup 
all amounts due by the end of fiscal year 2024.
    Those gross revenue collections would be partially offset 
by a loss of revenues from income and payroll taxes. Consistent 
with standard procedures for estimating the revenue impact of 
indirect business taxes, CBO reduced the gross revenue impact 
of the insurance surcharges to reflect offsetting effects on 
income and payroll tax receipts. On balance, CBO estimates that 
enacting the bill would increase revenues by a total of $4.0 
billion over the 2015-2024 period, net of income and payroll 
tax offsets.

Changes in Spending Subject to Appropriation

    S. 2244 would direct the Government Accountability Office 
to prepare a report assessing the viability of collecting 
upfront premiums from insurers that participate in the TRIA 
program. The study would examine, among other things, how the 
government would determine the price of such premiums, how the 
premiums would be collected and managed, and how the assessment 
of premiums would affect take-up rates for terrorism risk 
coverage. CBO estimates that implementing the new reporting 
requirement would not have a significant effect on 
discretionary costs.
    Pay-As-You-Go considerations: The Statutory Pay-As-You-Go 
Act of 2010 establishes budget-reporting and enforcement 
procedures for legislation affecting direct spending or 
revenues. The net changes in outlays and revenues that are 
subject to those pay-as-you-go procedures are shown in the 
following table.

  CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR S. 2244, AS ORDERED REPORTED BY THE SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS ON JUNE 3, 2014
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         By fiscal year, in millions of dollars--
                                ------------------------------------------------------------------------------------------------------------------------
                                   2014     2015     2016     2017     2018     2019     2020     2021     2022     2023     2024   2014-2019  2014-2024
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       NET INCREASE OR DECREASE (-) IN THE DEFICIT

Statutory Pay-As-You-Go Impact.        0      120       80      -30      -60     -190      110      160      -30     -210     -410       -80       -460
Memorandum:
    Changes in Outlays.........        0      120      280      370      440      480      510      540      410      240      150     1,690      3,540
    Changes in Revenues........        0        0      200      400      500      670      400      380      440      450      560     1,770      4,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Intergovernmental and private-sector impact: The bill would 
extend and expand intergovernmental and private-sector mandates 
contained in the Terrorism Risk Insurance Act. Those mandates 
would:
      Require property and casualty insurers to offer 
terrorism insurance;
      Require, under certain circumstances, property 
and casualty insurers to collect surcharges from policyholders 
in amounts large enough to pay assessments to the federal 
government; and
      Preempt state laws regulating insurance.
    State, local, or tribal governments could be required to 
pay surcharges as purchasers of property and casualty 
insurance, but CBO estimates that the aggregate costs to public 
entities of complying with those mandates would probably fall 
below the annual threshold established in UMRA for 
intergovernmental mandates ($76 million in 2014, adjusted 
annually for inflation). CBO estimates that the aggregate cost 
to private insurers and policyholders to comply with the 
mandates would exceed the annual threshold established in UMRA 
($152 million in 2014, adjusted annually for inflation).

Requirement to Offer Insurance

    Current law requires that, through calendar year 2014, 
insurance companies offer terrorism insurance as a part of 
their property and casualty policies. Those companies may set 
their own premium rates, and policyholders can choose whether 
to purchase such insurance. The bill would extend the 
requirement to offer terrorism insurance through calendar year 
2021. According to industry representatives, the cost for 
public and private insurers to continue making terrorism 
insurance available under property and casualty insurance 
policies would be minimal.

Repayment of Assistance

    Insurers that offer terrorism insurance would receive 
financial assistance to cover losses under some conditions in 
the event of a certified terrorist attack. The bill would 
extend and expand the requirement that the federal government 
recoup the costs of such financial assistance through 
assessments on the insurers and surcharges on purchasers of 
property and casualty insurance. The requirement to repay the 
federal government would be both an intergovernmental and a 
private-sector mandate under UMRA since state and local 
governments and private entities are both providers and 
purchasers of insurance.
    The cost to insurers to comply with the mandate to 
administer the surcharges on policyholders and remit the 
amounts collected to the federal government would be small.
    CBO estimates that total surcharges collected by insurers 
would be about $2.4 billion over the 2015-2019 period. That 
amount is equal to federal benefits paid over those years plus 
35.5 percent of those benefits (see Revenues section for 
further discussion). Based on information about the purchase of 
various types of insurance by public entities, CBO assumes that 
state, local, and tribal governments comprise a small portion 
of the total market for property and casualty insurance. To the 
extent that state, local, and tribal governments would be 
required to pay a surcharge as policy holders, CBO estimates 
that the aggregate costs to public entities of complying with 
the mandate would total tens of millions of dollars annually, 
but probably would not exceed the annual threshold for 
intergovernmental mandates in any given year. CBO estimates 
that the aggregate amount of surcharges paid by private 
entities would amount to hundreds of millions of dollars 
annually and would exceed the annual threshold for private-
sector mandates.

Preemption of State Law

    The bill also would preempt some state laws that regulate 
insurance. Based on information from state insurance 
regulators, CBO estimates that the cost to states of extending 
those preemptions would be minimal.
    Estimate prepared by: Federal Costs: Susan Willie, David 
Torregrosa, and Perry Beider; Impact on state, local, and 
tribal governments: Melissa Merrell; Impact on the private 
sector: Amy Petz and Tristan Hanon.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                      REGULATORY IMPACT STATEMENT

    In accordance with paragraph 11(b), rule XXVI, of the 
Standing Rules of the Senate, the Committee makes the following 
statement concerning the regulatory impact of the bill.
    This legislation will not have a substantial regulatory 
impact because it makes changes to the administration of the 
Terrorism Risk Insurance Program, but does not place regulatory 
requirements on businesses or individuals directly. Changes to 
the Terrorism Risk Insurance Program may affect the businesses 
or individuals who choose to participate in the Terrorism Risk 
Insurance Program.

                 CHANGES IN EXISTING LAW (CORDON RULE)

    On June 3, 2014, the Committee unanimously approved a 
motion by Senator Johnson to waive the Cordon rule. Thus, in 
the opinion of the Committee, it is necessary to dispense with 
section 12 of rule XXVI of the Standing Rules of the Senate in 
order to expedite the business of the Senate.

                                  
