[Federal Register Volume 75, Number 116 (Thursday, June 17, 2010)]
[Notices]
[Pages 34530-34533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14639]


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DEPARTMENT OF THE TREASURY


Analysis by the President's Working Group on Financial Markets on 
the Long-Term Availability and Affordability of Insurance for Terrorism 
Risk

AGENCY: Departmental Offices, Department of the Treasury.

ACTION: Notice; request for comments.

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SUMMARY: The Terrorism Risk Insurance Act of 2002 (Pub. L. 107-297, 116 
Stat. 2322), as amended by the Terrorism Risk Insurance Program 
Reauthorization Act of 2007 (Pub. L. 110-160, 121 Stat. 1839), requires 
the President's Working Group on Financial Markets to perform an on-
going analysis regarding the long-term availability and affordability 
of insurance for terrorism risk.
    The President's Working Group on Financial Markets (established by 
Executive Order 12631) is comprised of the Secretary of the Treasury, 
the Chairman of the Board of Governors of the Federal Reserve System, 
the Chairman of the Securities and Exchange Commission, and the 
Chairman of the Commodity Futures Trading Commission (or their 
designees). The Secretary of the Treasury, or his designee, is the 
Chairman of the President's Working Group on Financial Markets. As 
chair of the President's Working Group on Financial Markets, Treasury 
is issuing this Notice for public comment to assist the President's 
Working Group with its analysis.

DATES: Comments must be in writing and received by August 2, 2010.

ADDRESSES: Please submit comments electronically through the Federal 
eRulemaking Portal: http://www.regulations.gov, or by mail (if hard 
copy, preferably an original and two copies) to Treasury's Office of 
Financial Institutions Policy, Attention: President's Working Group on 
Financial Markets Public Comment Record, Room 1417 MT, Department of 
the Treasury, 1500 Pennsylvania Avenue, NW., Washington, DC 20220. 
Because postal mail may be subject to processing delay, it is 
recommended that comments be submitted electronically. All comments 
should be captioned with ``President's Working Group on Financial 
Markets: Terrorism Risk Insurance Analysis.''

[[Page 34531]]

Please include your name, affiliation, address, e-mail address and 
telephone number(s) in your comment. Where appropriate, comments should 
include a short Executive Summary (no more than five single-spaced 
pages).
    In general, comments received will be posted on http://www.regulations.gov without change, including any business or personal 
information provided. Comments received, including attachments and 
other supporting materials, are part of the public record and subject 
to public disclosure. Do not enclose any information in your comment or 
supporting materials that you consider confidential or inappropriate 
for public disclosure. In addition, all comments received will be 
available for public inspection by appointment at the Reading Room of 
the Treasury Library. To make appointments, please call the number 
below.

FOR FURTHER INFORMATION CONTACT: C. Christopher Ledoux, Acting 
Director, Office of Financial Institutions Policy, 202-622-2730 (not a 
toll free number).

SUPPLEMENTARY INFORMATION: The Terrorism Risk Insurance Act of 2002 
(Pub. L. 107-297, 116 Stat. 2322) (hereinafter referenced as ``TRIA'') 
was enacted on November 26, 2002. TRIA's purposes are to address market 
disruptions, to ensure the continued widespread availability and 
affordability of commercial property and casualty insurance for 
terrorism risk, and to allow for a transition period for the private 
markets to stabilize and build capacity while preserving State 
insurance regulation and consumer protections. Title I of TRIA 
established a temporary Federal program of shared public and private 
compensation for insured commercial property and casualty losses 
resulting from an act of terrorism, as defined in the Act. TRIA 
authorized Treasury to administer and implement the Terrorism Risk 
Insurance Program (hereinafter referenced as the ``Program''), 
including the issuance of regulations and procedures.
    As originally enacted, the Program was to end on December 31, 2005; 
however, on December 22, 2005, the Terrorism Risk Insurance Extension 
Act of 2005 (Pub. L. 109-144, 119 Stat. 2660) was enacted, which 
extended the Program through December 31, 2007. On December 26, 2007, 
the Terrorism Risk Insurance Program Reauthorization Act of 2007 (Pub. 
L. 110-160, 121 Stat. 1839) was enacted, which extended the Program 
through December 31, 2014.
    Section 108(e) of TRIA, as amended by the Terrorism Risk Insurance 
Extension Act of 2005, required the President's Working Group on 
Financial Markets to perform an analysis and report to Congress 
regarding the long-term availability and affordability of insurance for 
terrorism risk, including group life coverage and coverage for 
chemical, nuclear, biological, and radiological events.
    In September 2006, the President's Working Group on Financial 
Markets submitted a report to Congress on Terrorism Risk Insurance. 
That report can be accessed at http://www.treas.gov/offices/domestic-finance/financial-institution/terrorism-insurance/pdf/report.pdf. The 
report found that the availability and affordability of terrorism risk 
insurance had improved since the terrorist attacks of September 11, 
2001, including that pricing for terrorism risk insurance had fallen 
and take-up (purchase) rates had risen. The improvement was due to 
several factors including better risk measurement and management, 
improved modeling of terrorism risk, increased reinsurance capacity, 
and the financial condition of property and casualty insurers. Still, 
the report also found that a significant number of policyholders were 
not purchasing coverage at that time. The report found that group life 
insurance (which is not included in the Program) remained generally 
available, that prices had declined, and that there had been 
improvements in the availability of catastrophic life reinsurance. The 
report concluded that there appeared to be little potential for future 
market development of terrorism risk insurance for losses associated 
with chemical, nuclear, biological, and radiological attacks.
    In addition to extending the Program through 2014, the Terrorism 
Risk Insurance Program Reauthorization Act of 2007 amended Section 108 
of TRIA to require an on-going analysis by the President's Working 
Group on Financial Markets regarding the long-term availability and 
affordability of insurance for terrorism risk generally. The 
President's Working Group on Financial Markets is required to submit a 
report to Congress in 2010 (and another report again, in 2013). The 
President's Working Group on Financial Markets is to conduct its 
analysis in consultation with the National Association of Insurance 
Commissioners, representatives of the insurance industry, 
representatives of the securities industry, and representatives of 
policyholders. This Notice seeks comment from these and any other 
interested parties as a means of satisfying the consultation 
requirement in the most open and efficient manner.

I. General Solicitation for Comments About the Long-Term Availability 
and Affordability of Terrorism Risk Insurance

    Please comment generally; and please include data and other 
information in support of such comments, where appropriate and 
available, regarding the long-term availability and affordability of 
insurance for terrorism risk. All relevant views and comments are 
invited.
    In addition, please consider providing comments in response to the 
following specific questions:

II. Specific Questions

Key Factors

    1. What are the key factors that determine the availability and 
affordability of terrorism risk insurance coverage? How are these 
factors being measured and projected today? What factors will determine 
the availability and affordability of terrorism risk insurance long-
term? The President's Working Group on Financial Markets discussed 
various factors in its 2006 report, referenced above; how have these 
factors changed or developed since then?
    2. What are the key factors that determine the amount of private-
market insurer and reinsurer capacity made available for terrorism risk 
insurance coverage? How have these factors changed since 2006, when the 
President's Working Group on Financial Markets issued its last report? 
How will such factors evolve in the long-term and upon what factors 
will available capacity most depend?

Economic Factors

    3. How, in general, has the state of the financial markets and 
economy, and the financial condition of commercial property and 
casualty insurers, affected the availability and affordability of 
terrorism risk insurance; and how does that compare with effects on the 
availability and affordability of other lines or types of commercial 
property and casualty insurance? Please comment on potential entry of 
new capital into, as well as any exits from, the terrorism insurance 
and reinsurance markets.

Underwriting

    4. What changes and improvements have taken place in the ability of 
insurers to measure and manage their accumulation of terrorism risk 
exposures, and how (as well as to what extent) are primary insurers 
using

[[Page 34532]]

available methods? Has improved risk accumulation management led to 
more availability? Has there been any improvement in modeling of 
frequency and terrorist behavior? What has been learned from the near-9 
years of experience in managing and assessing terrorism risk since 
September 11, 2001? Overall, how has modeling improved and/or continued 
to develop since 2006, when the President's Working Group on Financial 
Markets issued its last report? How is modeling expected to evolve 
further in the long-term?
    5. What role do mitigation and loss prevention play in underwriting 
and pricing terrorism risk insurance? How has mitigation developed 
since 2002, what improvements have been made since 2006, to what effect 
has the availability of terrorism risk insurance had on mitigation and 
vice versa; and, how will mitigation evolve in the long-term?
    6. What is the state of information sharing between and among the 
private and official sectors related to terrorism risk: (a) How much 
reliance is placed on open and private source intelligence; (b) how has 
it affected the availability and affordability of terrorism risk 
insurance; and, (c) how will such information processes further develop 
and affect the availability and affordability of terrorism risk 
insurance in the long-term?

Coverage

    7. What changes and improvements have taken place with regard to 
the types of terrorism risk insurance coverage available in the market? 
What changes and improvements have taken place since 2006? Have there 
been improvements and changes in forms, are there special terms or 
conditions? What is the state of standalone, ``TRIA-only'' coverage? Is 
available coverage limited to, or broader than that required to be made 
available under TRIA?
    8. What are the differences in availability and affordability of 
terrorism risk insurance coverage for foreign and domestic terrorist 
acts?
    9. Did the Terrorism Risk Insurance Program Reauthorization Act of 
2007's amendment to the definition of ``act of terrorism'' lead to more 
availability due to the requirement that such coverage be made 
available, or was such coverage available prior to 2007; conversely, 
did the amendment lead to less coverage due to the broadened scope of 
``act of terrorism'' exclusions, or were exclusions revised to 
distinguish between coverage of foreign and domestic terrorist acts?
    10. What are the differences in availability and affordability of 
terrorism risk insurance coverage for losses at U.S. locations, as 
compared to such coverage for losses at non-U.S. locations? What are 
the differences as compared between TRIA-covered locations and non-TRIA 
locations?

Policyholder Demand

    11. How has the demand for terrorism risk insurance changed since 
2006, when the President's Working Group on Financial Markets issued 
its last report? Please comment on take-up by policyholder sector, 
location, line, and other relevant characteristics. How have any 
changes in demand influenced the willingness of insurers to allocate 
capital to terrorism risk insurance? Has there been any impact on the 
amount of capital allocated to non-terrorism coverage or among lines of 
insurance?
    12. To what extent have businesses used captive insurance companies 
to provide terrorism risk insurance, and what is the potential for the 
use of captive insurers to insure against such risk long-term? How have 
stand-alone terrorism captives developed, and how will these evolve 
long-term, including after the expiration of the Program in 2014?
    13. Have State approaches (such as those applicable to mandatory 
coverage, permitted exclusions, and rate regulation) made coverage more 
or less available and affordable? Have there been any changes in State 
insurance regulation of terrorism risk insurance since the Terrorism 
Risk Insurance Program Reauthorization Act of 2007 was enacted? To what 
extent has the availability and affordability of terrorism risk 
insurance been influenced by State insurance regulation, and what role 
is State regulation expected to have long-term? Please comment on 
State-approved terrorism related rate loads.
    14. What are the differences in availability and affordability of 
terrorism risk insurance between the licensed/admitted market and the 
non-admitted/surplus lines market, and to what degree are those 
differences attributable to the degree and manner in which each market 
is regulated?

Price of Insurance

    15. What improvements have taken place in the ability of insurers 
to price terrorism risk insurance? How are rating organizations 
assisting insurers in pricing, and how have rating factors developed?
    16. What have been the trends in pricing of terrorism risk 
insurance? Please comment on the extent to which such coverage is not 
priced and charged-for. How has pricing changed since 2006, when the 
President's Working Group on Financial Markets issued its last report? 
To what do you attribute any changes?
    17. How has the recent ``soft market'' impacted the availability of 
and affordability of terrorism risk insurance? What would be the impact 
on the availability and affordability of terrorism risk insurance 
should the market ``harden'' in the near future?
    18. How were primary insurers' pricing decisions affected by the 
Terrorism Risk Insurance Program Reauthorization Act of 2007, 
particularly as to the requirement to make available coverage for acts 
of terrorism being no longer defined as limited to those committed on 
behalf of any foreign person or foreign interest?

Reinsurance

    19. What is the current availability and cost of reinsurance to 
cover terrorism risk? Please distinguish by line or type of insurance 
being reinsured and on what basis (treaty or facultative). How has the 
terrorism reinsurance market changed since 2006, when the President's 
Working Group on Financial Markets issued its last report? To what do 
you attribute any changes?
    20. At what policyholder retention levels are insurance programs 
being structured by policyholders to cover terrorism risk (e.g., 
deductibles, self-insurance, captives); and, with regard to insurers, 
how are reinsurance programs being structured and at what attachment 
points? Please comment on the availability and affordability of 
reinsurance for terrorism risk.
    21. Are reinsurers allocating more capital to terrorism risk 
insurance, and has capacity changed since 2006, when the President's 
Working Group on Financial Markets issued its last report? Are insurers 
willing to pay the cost of terrorism risk reinsurance, and is that a 
factor affecting the allocation of capital to the risk; how much 
additional capital could be attracted long-term?
    22. How have provisions of the Terrorism Risk Insurance Program 
Reauthorization Act of 2007 affected the terrorism risk reinsurance 
market? More specifically, how has maintaining and not increasing the 
insurer deductible percentage applied against direct earned premiums 
(from Program lines), as well as not decreasing the Federal share of 
losses above the insurer deductible, affected the provision and 
development of private reinsurance?
    23. To what extent have alternate risk transfer methods (e.g., 
catastrophe bonds or other capital market instruments) been 
successfully or unsuccessfully used for terrorism risk insurance, and 
what is the potential for

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the long-term development of these approaches?

Losses Associated With Chemical, Nuclear, Biological, and Radiological 
(CNBR) Acts

    24. What is the current availability and affordability of coverage 
for CNBR events? For what perils is coverage available, subject to what 
limits, and under what policy terms and conditions? Is there a 
difference in the availability and affordability of coverage for CNBR 
events caused by acts of terrorism? To what extent have various States 
allowed insurers to exclude coverage for CNBR events (Please comment on 
requirements for workers' compensation and fire-following coverage.)? 
How have exclusions developed?
    25. Is it the case that some insurers appear unwilling to provide 
coverage for CNBR events caused by acts of terrorism, despite TRIA 
limits on an insurer's maximum loss exposure? If so, why?
    26. In the long-term, what are the key factors that will determine 
the availability and affordability of terrorism risk insurance coverage 
for CNBR events? The President's Working Group on Financial Markets 
previously reported that there appeared to be little potential for 
market development. Has anything changed since 2006?

Deductible and Co-Share Levels

    27. Under the Program, an insurer's annual deductible is a 
percentage of certain direct earned premiums (as defined by TRIA and 
regulation). TRIA, as originally enacted, graduated the percentage 
applied for each year. The Terrorism Risk Insurance Program 
Reauthorization Act of 2007 established a set percentage of 20 percent 
for each Program year beginning in 2007. Please comment for each year 
since 2006 as to whether direct earned premiums in TRIA lines and 
insurer deductibles have increased or decreased? If so, in what 
amounts? Please provide data as available.
    28. How might any increases to the insurer deductible level or 
decreases to the Federal share above such deductible levels, prior to 
the Program's expiration in 2014, affect the availability and 
affordability of terrorism risk insurance? Please comment on the 
degree, amount or increment of any recommended increase.

Expiration of the Program

    29. Describe efforts undertaken by the insurance industry and/or 
policyholders since 2006, when the President's Working Group on 
Financial Markets issued its last report, to ensure the availability 
and affordability of terrorism risk insurance after 2014 when the 
Program expires, and long-term?
    30. Please comment on any anticipated State approaches to ensure 
the continued availability and affordability of terrorism risk 
insurance after the Program expires in 2014 (such as those approaches 
taken by the States after September 11, 2001 and before TRIA was 
enacted on November 26, 2002).
    31. Please comment on any other developments in markets that might 
affect the continued availability and affordability of terrorism risk 
insurance.
    32. In the absence of the Program, in what forms, at what levels, 
under what terms and conditions, and at what price might terrorism risk 
insurance be available; and, at what duration (i.e., long-term)? Please 
distinguish from State-mandated coverage, such as workers' compensation 
and fire insurance.

Michael S. Barr,
Assistant Secretary of the Treasury.
[FR Doc. 2010-14639 Filed 6-16-10; 8:45 am]
BILLING CODE 4810-25-P