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

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



 
                     TERRORISM RISK PROTECTION ACT

                                _______
                                

               November 19, 2001.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                             together with

                    ADDITIONAL AND DISSENTING VIEWS

                        [To accompany H.R. 3210]

      [Including cost estimate of the Congressional Budget Office]

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

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................    12
Background and Need for Legislation..............................    12
Hearings.........................................................    15
Committee Consideration..........................................    16
Committee Votes..................................................    16
Committee Oversight Findings.....................................    22
Performance Goals and Objectives.................................    22
New Budget Authority, Entitlement Authority, and Tax Expenditures    22
Committee Cost Estimate..........................................    22
Congressional Budget Office Estimate.............................    22
Federal Mandates Statement.......................................    29
Advisory Committee Statement.....................................    29
Constitutional Authority Statement...............................    30
Applicability to Legislative Branch..............................    30
Section-by-Section Analysis of the Legislation...................    30
Changes in Existing Law Made by the Bill, as Reported............    36
Additional and Dissenting Views..................................    40

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

SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

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

Sec. 1. Short title and table of contents.
Sec. 2. Congressional findings.
Sec. 3. Authority of Secretary of the Treasury.
Sec. 4. Submission of premium information to Secretary.
Sec. 5. Triggering determination and covered period.
Sec. 6. Federal cost-sharing for commercial insurers.
Sec. 7. Assessments.
Sec. 8. Terrorism loss repayment surcharge.
Sec. 9. Administration of assessments and surcharges.
Sec. 10. Application to self-insurance arrangements and offshore 
insurers and reinsurers.
Sec. 11. Reserve for terrorism coverage under commercial lines of 
business.
Sec. 12. State preemption.
Sec. 13. Consistent State guidelines for coverage for acts of 
terrorism.
Sec. 14. Consultation with State insurance regulators and NAIC.
Sec. 15. Sovereign immunity protections.
Sec. 16. Study of potential effects of terrorism on life insurance 
industry.
Sec. 17. Railroad insurance study.
Sec. 18. Study of reinsurance pool system for future acts of terrorism.
Sec. 19. Definitions.
Sec. 20. Extension of program.
Sec. 21. Regulations.

SEC. 2. CONGRESSIONAL FINDINGS.

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

SEC. 3. AUTHORITY OF SECRETARY OF THE TREASURY.

  The Secretary of the Treasury shall be responsible for carrying out a 
program for financial assistance for commercial property and casualty 
insurers, as provided in this Act.

SEC. 4. SUBMISSION OF PREMIUM INFORMATION TO SECRETARY.

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

SEC. 5. TRIGGERING DETERMINATION AND COVERED PERIOD.

  (a) In General.--For purposes of this Act, a ``triggering 
determination'' is a determination by the Secretary that the insured 
losses resulting from the occurrence of an act of terrorism during the 
covered period (as such term is defined in subsection (b)), or the 
aggregate insured losses resulting from multiple occurrences of acts of 
terrorism all occurring during the covered period, meet the 
requirements under either of the following paragraphs:
          (1) Industry-wide trigger.--Such industry-wide losses exceed 
        $1,000,000,000.
          (2) Individual insurer trigger.--Such industry-wide losses 
        exceed $100,000,000 and some portion of such losses for any 
        single commercial insurer exceed--
                  (A) 10 percent of the capital surplus of such 
                commercial insurer (as such term is defined by the 
                Secretary); and
                  (B) 10 percent of the net commercial property and 
                casualty premiums written by such commercial insurer;
        except that this paragraph shall not apply to any commercial 
        insurer that was not providing commercial property and casualty 
        insurance coverage prior to September 11, 2001.
  (b) Covered Period.--For purposes of this Act, the ``covered period'' 
is the period beginning on the date of the enactment of this Act and 
ending on January 1, 2003.
  (c) Determinations Regarding Occurrences.--For purposes of subsection 
(a), the Secretary shall have the sole authority, which may not be 
delegated or designated to any other officer, employee, or position, 
for determining whether--
          (1) an occurrence was caused by an act of terrorism;
          (2) insured losses from acts of terrorism were caused by one 
        or multiple occurrences; and
          (3) an act of terrorism occurred during the covered period.

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

  (a) In General.--Pursuant to a triggering determination, the 
Secretary shall provide financial assistance to commercial insurers in 
accordance with this section to cover insured losses resulting from 
acts of terrorism, which shall be repaid in accordance with subsection 
(e).
  (b) Amount.--
          (1) Industry-wide trigger.--Subject to subsection (c), with 
        respect to a triggering determination under section 5(a)(1), 
        financial assistance shall be made available under this section 
        to each commercial insurer in an amount equal to 90 percent of 
        the amount of the insured losses of the insurer as a result of 
        the triggering event involved.
          (2) Individual insurer trigger.--Subject to subsection (c), 
        with respect to a triggering determination under section 
        5(a)(2), financial assistance shall be made available under 
        this section, to each commercial insurer incurring insured 
        losses as a result of the triggering event involved that exceed 
        the amounts under subparagraphs (A) and (B) of such section, in 
        an amount equal to the difference between--
                  (A) 90 percent of the amount of the insured losses of 
                the insurer as a result of such triggering event; and
                  (B) the amount under subparagraph (B) of section 
                5(a)(2).
  (c) Aggregate Limitation.--The aggregate amount of financial 
assistance provided pursuant to this section may not exceed 
$100,000,000,000.
  (d) Limitations.--The Secretary may establish such limitations as may 
be necessary to ensure that payments under this section in connection 
with a triggering determination are made only to commercial insurers 
that are not in default of any obligation under section 7 to pay 
assessments or under section 8 to collect surcharges.
  (e) Repayment.--Financial assistance made available under this 
section shall be repaid through assessments under section 7 collected 
by the Secretary and surcharges remitted to the Secretary under section 
8. Any such amounts collected or remitted shall be deposited into the 
general fund of the Treasury.
  (f) Emergency Designation.--Congress designates the amount of new 
budget authority and outlays in all fiscal years resulting from this 
section as an emergency requirement pursuant to section 252(e) of the 
Balanced Budget and Emergency Deficit Control Act of 1985 (2 U.S.C. 
901(e)). Such amount shall be available only to the extent that a 
request, that includes designation of such amount as an emergency 
requirement as defined in such Act, is transmitted by the President to 
Congress.

SEC. 7. ASSESSMENTS.

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

SEC. 8. TERRORISM LOSS REPAYMENT SURCHARGE.

  (a) Determination of Imposition and Collection.--
          (1) In general.--If, pursuant to a triggering determination, 
        the Secretary determines that the aggregate amount of financial 
        assistance provided pursuant to section 6 exceeds 
        $20,000,000,000, the Secretary shall consider and weigh the 
        factors under paragraph (2) to determine the extent to which a 
        surcharge under this section should be established.
          (2) Factors.--The factors under this paragraph are--
                  (A) the ultimate costs to taxpayers if a surcharge 
                under this section is not established;
                  (B) the economic conditions in the commercial 
                marketplace;
                  (C) the affordability of commercial insurance for 
                small- and medium-sized business; and
                  (D) such other factors as the Secretary considers 
                appropriate.
          (3) Policyholder premium.--The amount established by the 
        Secretary as a surcharge under this section shall be 
        established and imposed as a policyholder premium surcharge on 
        commercial property and casualty insurance written after such 
        determination, for the purpose of repaying financial assistance 
        made available under section 6 in connection with such 
        triggering determination.
          (4) Collection.--The Secretary shall provide for commercial 
        insurers to collect surcharge amounts established under this 
        section and remit such amounts collected to the Secretary.
  (b) Amount and Duration.--Subject to subsection (c), the surcharge 
under this section shall be established in such amount, and shall apply 
to commercial property and casualty insurance written during such 
period, as the Secretary determines is necessary to recover the 
aggregate amount of financial assistance provided under section 6 to 
cover insured losses resulting from the triggering event that exceed 
$20,000,000,000.
  (c) Percentage Limitation.--The surcharge under this section 
applicable to commercial property and casualty insurance coverage may 
not exceed, on an annual basis, the amount equal to 3 percent of the 
premium charged for such coverage.
  (d) Other Terms.--The surcharge under this section shall--
          (1) be based on a percentage of the amount of commercial 
        property and casualty insurance coverage that a policy 
        provides; and
          (2) be imposed with respect to all commercial property and 
        casualty insurance coverage written during the period referred 
        to in subsection (b).
  (e) Exclusions.--For purposes of this section, commercial property 
and casualty insurance does not include any reinsurance provided to 
primary insurance companies.

SEC. 9. ADMINISTRATION OF ASSESSMENTS AND SURCHARGES.

  (a) Manner and Method.--
          (1) In general.--The Secretary shall provide for the manner 
        and method of carrying out assessments under section 7 and 
        surcharges under section 8, including the timing and procedures 
        of making assessments and surcharges, notifying commercial 
        insurers of assessments or surcharge requirements, collecting 
        payments from and surcharges through commercial insurers, and 
        refunding of any excess amounts paid or crediting such amounts 
        against future assessments.
          (2) Effect of assessments and surcharges on urban commercial 
        centers.--In determining the method and manner of imposing 
        assessments under section 7 and surcharges under section 8, 
        including the amount of such assessments and surcharges, the 
        Secretary shall take into consideration the economic impact of 
        any such assessments and surcharges 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.
  (b) Timing of Coverages and Assessments.--The Secretary may adjust 
the timing of coverages and assessments provided under this Act to 
provide for equivalent application of the provisions of this Act to 
commercial insurers and policies that are not based on a calendar year.
  (c) Adjustment.--The Secretary may adjust the assessments charged 
under section 7 or the percentage imposed under the surcharge under 
section 8 at any time, as the Secretary considers appropriate to 
protect the national interest, which may include avoiding unreasonable 
economic disruption or excessive market instability and avoiding undue 
burdens on small businesses.

SEC. 10. APPLICATION TO SELF-INSURANCE ARRANGEMENTS AND OFFSHORE 
                    INSURERS AND REINSURERS.

  (a) Self-Insurance Arrangements.--The Secretary may, in consultation 
with the NAIC, apply the provisions of this Act, as appropriate, to 
self-insurance arrangements by municipalities and other entities, but 
only if such application is determined before the occurrence of a 
triggering event and all of the provisions of this Act are applied 
uniformly to such entities.
  (b) Offshore Insurers and Reinsurers.--The Secretary shall ensure 
that the provisions of this Act are applied as appropriate to any 
offshore or non-admitted entities that provide commercial property and 
casualty insurance.

SEC. 11. RESERVE FOR TERRORISM COVERAGE UNDER COMMERCIAL LINES OF 
                    BUSINESS.

  (a) In General.--Section 832 of the Internal Revenue Code of 1986 
(relating to insurance company taxable income) is amended by adding at 
the end the following new subsection:
  ``(h) Terrorism Reserve for Commercial Lines of Business.--In the 
case of an insurance company subject to tax under section 831(a)--
          ``(1) Inclusion for decreases, and deduction for increases, 
        in balance of reserve.--
                  ``(A) Decrease treated as gross income.--If for any 
                taxable year--
                          ``(i) the opening balance for the terrorism 
                        commercial business reserve exceeds
                          ``(ii) the closing balance for such reserve,
                such excess shall be included in gross income under 
                subsection (b)(1)(F).
                  ``(B) Increase treated as deduction.--If for any 
                taxable year--
                          ``(i) the closing balance for the terrorism 
                        commercial business reserve exceeds
                          ``(ii) the opening balance for such reserve,
                such excess shall be taken into account as a deduction 
                under subsection (c)(14).
          ``(2) Terrorism commercial business reserve.--For purposes of 
        this section, the term `terrorism commercial business reserve' 
        means amounts held in a segregated account (or other separately 
        identifiable arrangement or joint pooled account) which are set 
        aside exclusively--
                  ``(A) to mature or liquidate, either by payment or 
                reinsurance, future unaccrued claims arising from 
                declared terrorism losses under commercial lines of 
                business, and
                  ``(B) if so directed by the insurance commissioner of 
                any State, to pay other claims as part of a plan of the 
                company to avoid insolvency.
          ``(3) Limitation on amount of reserve.--
                  ``(A) In general.--If the closing balance of any 
                terrorism commercial business reserve for any taxable 
                year exceeds such reserve's limit for such year--
                          ``(i) such excess shall be included in gross 
                        income under subsection (b)(1)(F) for the 
                        following taxable year, and
                          ``(ii) if such excess is distributed during 
                        such following taxable year, the opening 
                        balance of such reserve for such following 
                        taxable year shall be determined without regard 
                        to such excess.
                  ``(B) Reserve limit.--
                          ``(i) In general.--For purposes of 
                        subparagraph (A), a reserve's limit for any 
                        taxable year is such reserve's allocable share 
                        of the national limit for the calendar year in 
                        which such taxable year begins.
                          ``(ii) National limit.--The national limit is 
                        $40,000,000,000 ($13,340,000,000 for 2002).
                          ``(iii) Allocation of limit.--
                                  ``(I) In general.--A reserve's 
                                allocable share of the national limit 
                                for any calendar year is the amount 
                                which bears the same ratio to the 
                                national limit for such year as the 
                                company's net premium for insurance for 
                                commercial lines of business which does 
                                not exclude coverage for acts of 
                                terrorism bears to the aggregate 
                                written premium for insurance (without 
                                regard to terrorism coverage) for all 
                                companies for commercial lines of 
                                business.
                                  ``(II) Determination of net written 
                                premiums.--Except as otherwise provided 
                                in this section, all determinations 
                                under this subsection shall be made on 
                                the basis of the amounts required to be 
                                set forth on the annual statement 
                                approved by the National Association of 
                                Insurance Commissioners.
                                  ``(III) Aggregate written premiums 
                                and net premiums.--For purposes of this 
                                clause, the terms `aggregate written 
                                premium' and `net premium' have the 
                                meanings given such terms in section 19 
                                of the Terrorism Risk Protection Act.
                          ``(iv) Inflation adjustment of limit.--In the 
                        case of any calendar year after 2002, the 
                        $40,000,000,000 amount in clause (ii) shall be 
                        increased by an amount equal to the product 
                        of--
                                  ``(I) such dollar amount, and
                                  ``(II) the cost-of-living adjustment 
                                determined under subsection (f)(3) for 
                                such calendar year, determined by 
                                substituting `calendar year 2001' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                        If any amount after adjustment under the 
                        preceding sentence is not a multiple of 
                        $1,000,000, such amount shall be rounded to the 
                        nearest multiple of $1,000,000.
          ``(4) Declared terrorism losses.--For purposes of this 
        subsection--
                  ``(A) In general.--The term `declared terrorism 
                losses' means, with respect to a taxable year--
                          ``(i) the amount of net losses and loss 
                        adjustment expenses incurred in commercial 
                        lines of business that are attributable to 1 or 
                        more declared terrorism events, plus
                          ``(ii) any nonrecoverable assessments, 
                        surcharges, or other liabilities that are borne 
                        by the company and are attributable to such 
                        events.
                  ``(B) Declared terrorism event.--The term `declared 
                terrorism event' means any event declared by the 
                Secretary of the Treasury to be an act of terrorism 
                against the United States for purposes of this section.
          ``(5) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to carry out this subsection, 
        and shall prescribe such regulations after consultation with 
        the National Association of Insurance Commissioners.''
  (b) Conforming Amendments.--
          (1) Paragraph (1) of section 832(b) of such Code is amended 
        by striking ``and'' at the end of subparagraph (D), by striking 
        the period at the end of subparagraph (E) and inserting in lieu 
        thereof ``, and'', and by adding at the end the following new 
        subparagraph:
                  ``(F) each net decrease in reserves which is required 
                by paragraph (1) or (3) of subsection (h) to be taken 
                into account under this subparagraph.''
          (2) Subsection (c) of section 832 of such Code is amended by 
        striking ``and'' at the end of paragraph (12), by striking the 
        period at the end of paragraph (13) and inserting in lieu 
        thereof ``; and'', and by adding at the end the following new 
        paragraph:
          ``(14) each net increase in reserves which is required by 
        subsection (h)(1) to be taken into account under this 
        paragraph.''
  (c) Effective Date.--The amendments made by this subsection shall 
apply to taxable years beginning after December 31, 2001.

SEC. 12. STATE PREEMPTION.

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

SEC. 13. CONSISTENT STATE GUIDELINES FOR COVERAGE FOR ACTS OF 
                    TERRORISM.

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

SEC. 14. CONSULTATION WITH STATE INSURANCE REGULATORS AND NAIC.

  (a) In General.--The Secretary shall consult with the State insurance 
regulators and the NAIC in carrying out this Act.
  (b) Financial Assistance, Assessments, and Surcharges.--The Secretary 
may take such actions, including entering into such agreements and 
providing such technical and organizational assistance to insurers and 
State insurance regulators, as may be necessary to provide for the 
distribution of financial assistance under section 6 and the collection 
of assessments under section 7 and surcharges under section 8.
  (c) Investigating and Auditing Claims.--The Secretary may, in 
consultation with the State insurance regulators and the NAIC, 
investigate and audit claims of insured losses by commercial insurers.

SEC. 15. SOVEREIGN IMMUNITY PROTECTIONS.

  (a) Federal Cause of Action for Damages From Terrorist Acts Resulting 
in Triggering Determination.--
          (1) In general.--If a triggering determination occurs 
        requiring an assessment under section 7 or a surcharge under 
        section 8, there shall exist a Federal cause of action, which 
        shall be the exclusive remedy, for damages claimed pursuant to, 
        or in connection with, any acts of terrorism that caused the 
        insured losses resulting in such triggering determination.
          (2) Substantive law.--The substantive law for decision in any 
        such action shall be derived from the law, including choice of 
        law principles, of the State in which such act of terrorism 
        occurred, unless such law is inconsistent with or preempted by 
        Federal law.
          (3) Jurisdiction.--Pursuant to each triggering determination, 
        the Judicial Panel on Multidistrict Litigation shall designate 
        one or more district courts of the United States which shall 
        have original and exclusive jurisdiction over all actions 
        brought pursuant to this subsection that arise out of the 
        triggering event involved.
          (4) Offset for relief payments.--Any recovery by a plaintiff 
        in an action under this subsection shall be offset by the 
        amount, if any, received by the plaintiff from the United 
        States pursuant to any emergency or disaster relief program, or 
        from any other collateral source, for compensation of losses 
        related to the act of terrorism involved.
  (b) Damages in Actions Regarding Insurance Claims.--In an action 
brought under this section for damages or coverage claimed by or 
against an insured pursuant to, or in connection with, any commercial 
property and casualty insurance providing coverage for acts of 
terrorism that resulted in a triggering determination:
          (1) Prohibition of punitive damages.--No punitive damages 
        intended to punish or deter may be awarded.
          (2) Noneconomic damages.--
                  (A) In general.--Each defendant in such an action 
                shall be liable only for the amount of noneconomic 
                damages allocated to the defendant in direct proportion 
                to the percentage of responsibility of the defendant 
                for the harm to the claimant.
                  (B) Definition.--For purposes of subparagraph (A), 
                the term ``noneconomic damages'' means damages for 
                losses for physical and emotional pain, suffering, 
                inconvenience, physical impairment, mental anguish, 
                disfigurement, loss of enjoyment of life, loss of 
                society and companionship, loss of consortium, hedonic 
                damages, injury to reputation, and any other 
                nonpecuniary losses.
Nothing in this subsection may be construed to limit an action by an 
injured party for damages other than a claim for commercial property 
and casualty insurance resulting from an act of terrorism causing a 
triggering determination.
  (c) Right of Subrogation.--The United States shall have the right of 
subrogation with respect to any claim paid by the United States under 
this Act.
  (d) Protective Orders.--The United States or the Secretary may seek 
protective orders or assert privileges ordinarily available to the 
United States to protect against the disclosure of classified 
information, including the invocation of the military and State secrets 
privilege.
  (e) Exclusion.--Nothing in this section shall apply to, or in any way 
limit, the liability of any person who--
          (1) attempts to commit, knowingly participates in, knowingly 
        and intentionally aids and abets, or commits, any act of 
        terrorism or any criminal act related to or resulting from an 
        act of terrorism that caused the insured losses resulting in 
        the triggering determination; or
          (2) knowingly participates in a conspiracy to commit any act 
        of terrorism or any criminal act resulting from or related to 
        an act of terrorism that caused the insured losses resulting in 
        the triggering determination.
  (f) Satisfaction of Judgments From Seized Assets of Terrorists.--All 
assets of terrorists or terrorist organizations seized or frozen by the 
United States in accordance with law shall be liable for satisfaction 
of judgments rendered for acts of terrorism, in proportions determined 
by the courts.

SEC. 16. STUDY OF POTENTIAL EFFECTS OF TERRORISM ON LIFE INSURANCE 
                    INDUSTRY.

  (a) Establishment.--Not later than 30 days after the date of 
enactment of this Act, the President shall establish a commission (in 
this section referred to as the ``Commission'') to study and report on 
the potential effects of an act or acts of terrorism on the life 
insurance industry in the United States and the markets served by such 
industry.
  (b) Membership and Operations.--
          (1) Appointment.--The Commission shall consist of 7 members, 
        as follows:
                  (A) The Secretary of the Treasury or the designee of 
                the Secretary.
                  (B) The Chairman of the Board of Governors of the 
                Federal Reserve System or the designee of the Chairman.
                  (C) The Assistant to the President for Homeland 
                Security.
                  (D) 4 members appointed by the President, who shall 
                be--
                          (i) a representative of direct underwriters 
                        of life insurance within the United States;
                          (ii) a representative of reinsurers of life 
                        insurance within the United States;
                          (iii) an officer of the NAIC; and
                          (iv) a representative of insurance agents for 
                        life underwriters.
          (2) Operations.--The chairperson of the Commission shall 
        determine the manner in which the Commission shall operate, 
        including funding, staffing, and coordination with other 
        governmental entities.
  (c) Study.--The Commission shall conduct a study of the life 
insurance industry in the United States, which shall identify and make 
recommendations regarding--
          (1) possible actions to encourage, facilitate, and sustain 
        provision by the life insurance industry in the United States 
        of coverage for losses due to death or disability resulting 
        from an act or acts of terrorism, including in the face of 
        threats of such acts; and
          (2) possible actions or mechanisms to sustain or supplement 
        the ability of the life insurance industry in the United States 
        to cover losses due to death or disability resulting from an 
        act or acts of terrorism in the event that--
                  (A) such acts significantly affect mortality 
                experience of the population of the United States over 
                any period of time;
                  (B) such losses jeopardize the capital and surplus of 
                the life insurance industry in the United States as a 
                whole; or
                  (C) other consequences from such acts occur, as 
                determined by the Commission, that may significantly 
                affect the ability of the life insurance industry in 
                the United States to independently cover such losses.
  (d) Recommendations.--The Commission may make a recommendation 
pursuant to subsection (c) only upon the concurrence of a majority of 
the members of the Commission.
  (e) Report.--Not later than 120 days after the date of enactment of 
this Act, the Commission shall submit to the House of Representatives 
and the Senate a report describing the results of the study and any 
recommendations developed under subsection (c).
  (f) Termination.--The Commission shall terminate 60 days after 
submission of the report as provided for in subsection (e).

SEC. 17. RAILROAD INSURANCE STUDY.

  The Secretary of the Treasury shall conduct a study to determine how 
the Federal Government can address a possible crisis in the 
availability and affordability of railroad insurance by making such 
insurance for acts of terrorism available on commercially reasonable 
terms. Not later than 120 days after the date of the enactment of this 
Act the Secretary shall submit to the Congress a report regarding the 
results and conclusions of the study.

SEC. 18. STUDY OF REINSURANCE POOL SYSTEM FOR FUTURE ACTS OF TERRORISM.

  (a) Study.--The Secretary of the Treasury, the Board of Governors of 
the Federal Reserve System, and the Comptroller General of the United 
States shall jointly conduct a study on--
          (1) the advisability and effectiveness of establishing a 
        reinsurance pool system relating to future acts of terrorism to 
        replace the Program provided for under this Act; and
          (2) the potential effects of the amendments made by section 
        11 of this Act on the availability of terrorism insurance 
        coverage.
  (b) Consultation.--In conducting the study under subsection (a), the 
Secretary of the Treasury, the Board of Governors of the Federal 
Reserve System, and the Comptroller General shall consult with (1) 
academic experts, (2) the United Nations Secretariat for Trade and 
Development, (3) representatives from the property and casualty 
insurance industry, (4) representatives from the reinsurance industry, 
(5) the NAIC, and (6) such consumer organizations as the Secretary 
considers appropriate.
  (c) Report.--Not later than 6 months after the date of the enactment 
of this Act, the Secretary, the Board of Governors of the Federal 
Reserve System, and the Comptroller General shall jointly submit a 
report to the Congress on the results of the study under subsection 
(a).

SEC. 19. DEFINITIONS.

  For purposes of this Act, the following definitions shall apply:
          (1) Act of terrorism.--
                  (A) In general.--The term ``act of terrorism'' means 
                any act that the Secretary determines meets the 
                requirements under subparagraph (B), as such 
                requirements are further defined and specified by the 
                Secretary in consultation with the NAIC.
                  (B) Requirements.--An act meets the requirements of 
                this subparagraph if the act--
                          (i) is unlawful;
                          (ii) causes harm to a person, property, or 
                        entity, in the United States, or in the case of 
                        a domestic United States air carrier or a 
                        United States flag vessel, in or outside the 
                        United States;
                          (iii) is committed by a person or group of 
                        persons or associations who are recognized, 
                        either before or after such act, by the 
                        Department of State or the Secretary as a 
                        terrorist group or have conspired with such a 
                        group or the group's agents or surrogates;
                          (iv) has as its purpose to overthrow or 
                        destabilize the government of any country or to 
                        influence the policy or affect the conduct of 
                        the government of the United States by 
                        coercion; and
                          (v) is not considered an act of war.
          (2) Affiliate.--The term ``affiliate'' means, with respect to 
        an insurer, any company that controls, is controlled by, or is 
        under common control with the insurer.
          (3) Aggregate written premium.--The term ``aggregate written 
        premium'' means, with respect to a year, the aggregate premium 
        amount of all commercial property and casualty insurance 
        coverage written during such year for persons or properties in 
        the United States under all lines of commercial property and 
        casualty insurance.
          (4) Commercial insurer.--The term ``commercial insurer'' 
        means any corporation, association, society, order, firm, 
        company, mutual, partnership, individual, aggregation of 
        individuals, or any other legal entity that provides commercial 
        property and casualty insurance. Such term includes any 
        affiliates of a commercial insurer.
          (5) Commercial property and casualty insurance.--
                  (A) In general.--The term ``commercial property and 
                casualty insurance'' means insurance or reinsurance, or 
                retrocessional reinsurance, for persons or properties 
                in the United States against--
                          (i) loss of or damage to property;
                          (ii) loss of income or extra expense incurred 
                        because of loss of or damage to property;
                          (iii) third party liability claims caused by 
                        negligence or imposed by statute or contract, 
                        including workers compensation; or
                          (iv) loss resulting from debt or default of 
                        another.
                  (B) Exclusions.--Such term does not include--
                          (i) insurance for homeowners, tenants, 
                        private passenger nonfleet automobiles, mobile 
                        homes, or other insurance for personal, family, 
                        or household needs;
                          (ii) insurance for professional liability, 
                        including medical malpractice, errors and 
                        omissions, or directors' and officers' 
                        liability; or
                          (iii) health or life insurance.
          (6) Control.--A company has control over another company if--
                  (A) the company directly or indirectly or acting 
                through one or more other persons owns, controls, or 
                has power to vote 25 percent or more of any class of 
                voting securities of the other company;
                  (B) the company controls in any manner the election 
                of a majority of the directors or trustees of the other 
                company; or
                  (C) the Secretary determines, after notice and 
                opportunity for hearing, that the company directly or 
                indirectly exercises a controlling influence over the 
                management or policies of the other company.
          (7) Covered period.--The term ``covered period'' has the 
        meaning given such term in section 5(b).
          (8) Industry-wide losses.--The term ``industry-wide losses'' 
        means the aggregate insured losses sustained by all insurers, 
        from coverage written for persons or properties in the United 
        States under all lines of commercial property and casualty 
        insurance.
          (9) Insured loss.--The term ``insured loss'' means any loss 
        in the United States covered by commercial property and 
        casualty insurance.
          (10) NAIC.--The term ``NAIC'' means the National Association 
        of Insurance Commissioners.
          (11) Net premium.--The term ``net premium'' means, with 
        respect a commercial insurer and a year, the aggregate premium 
        amount collected by such commercial insurer for all commercial 
        property and casualty insurance coverage written during such 
        year for persons or properties in the United States under all 
        lines of commercial property and casualty insurance by such 
        commercial insurer, less any premium paid by such commercial 
        insurer to other commercial insurers to insure or reinsure 
        those risks.
          (12) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
          (13) State.--The term ``State'' means the States of the 
        United States, the District of Columbia, the Commonwealth of 
        Puerto Rico, the Commonwealth of the Northern Mariana Islands, 
        Guam, the Virgin Islands, American Samoa, and any other 
        territory or possession of the United States.
          (14) State insurance regulator.--The term ``State insurance 
        regulator'' means, with respect to a State, the principal 
        insurance regulatory authority of the State.
          (15) Triggering determination.--The term ``triggering 
        determination'' has the meaning given such term in section 
        5(a).
          (16) Triggering event.--The term ``triggering event'' means, 
        with respect to a triggering determination, the occurrence of 
        an act of terrorism, or the occurrence of such acts, that 
        caused the insured losses resulting in such triggering 
        determination.
          (17) United states.--The term ``United States'' means, 
        collectively, the States (as such term is defined in this 
        section).

SEC. 20. EXTENSION OF PROGRAM.

  (a) Authority.--If the Secretary determines that action under this 
section is necessary to ensure the adequate availability in the United 
States of commercial property and casualty insurance coverage for acts 
of terrorism, the Secretary may, subject to subsection (c), provide 
that the provisions of this Act shall continue to apply with respect to 
calendar year 2003. If the Secretary extends such applicability to 
2003, the Secretary may, in addition, extend such applicability to 
calendar year 2004.
  (b) Covered Period.--If the Secretary exercises the authority under 
subsection (a), notwithstanding section 5(b) and 19(7), each of the 
calendar years to which the Secretary extends the applicability of this 
Act shall be considered to be a covered period for purposes of this 
Act.
  (c) Report.--The Secretary may exercise the authority under 
subsection (a) to extend the applicability of this Act to 2003 or 2004 
only if the Secretary submits a report to the Congress providing notice 
of and setting forth the reasons for such extension for such specific 
year.

SEC. 21. REGULATIONS.

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

                          Purpose and Summary

    H.R. 3210, The Terrorism Risk Protection Act of 2001, will 
create a temporary industry risk spreading program to ensure 
the continued availability of commercial property and casualty 
insurance and reinsurance for terrorism-related risks to limit 
immediate market disruptions, encourage economic stabilization, 
and facilitate a transition to a viable market for private 
terrorism risk insurance.
    Modeled in part on existing State insurance programs for 
solvency guarantee funds and catastrophic disaster pools, when 
the Secretary of the Treasury determines that losses from one 
or more acts of terrorism result in insurance claims industry 
wide of over $1 billion and up to $20 billion during the 
coverage period of the Act, the Treasury will pay 90 percent of 
the claims (with 10 percent of losses retained by the insurers) 
on the first dollar of the coverage. The Secretary of the 
Treasury must thereafter assess all commercial property and 
casualty insurers to recoup the costs of the Treasury payments. 
If losses in the coverage period are less than $1 billion 
industry wide, the bill provides company specific trigger 
levels for cost sharing with a per company deductible to 
protect smaller insurance companies. If losses exceed $20 
billion industry-wide, the Treasury will pay 90 percent of all 
claims up to financial assistance of $100 billion over the 
covered period. The legislation gives the Secretary the power 
to recoup these payments through surcharges on commercial 
property and casualty policy premiums upon a weighing of 
economic conditions and other factors. These provisions expire 
at the end of 2002, although the Secretary may extend the 
program through 2004.
    Further, the legislation establishes a Federal cause of 
action which is the exclusive remedy for actions brought under 
this legislation. Additionally, actions may only be brought in 
certain courts and additional protections are provided to limit 
the obligations of the United States only to actual damages in 
the case of a terrorist incident that results in a triggering 
determination.
    The legislation also amends portions of the tax law which 
discourage the insurance market from developing the necessary 
reserves to handle possible future losses due to acts of 
terrorism. Finally, the bill includes 3 studies on the effects 
of terrorism on various sectors of the insurance industry.

                  Background and Need for Legislation

    The terrorist attacks of September 11, 2001, resulted in a 
tragic number of deaths and injuries, destruction and damage to 
buildings, and the interruption of business operations. In 
addition to the incalculable loss of human resources, the 
attacks inflicted possibly the largest losses ever incurred by 
insurers and reinsurers from a single set of events, with 
estimates of losses currently ranging from $25-60 billion.
    For the most part, these losses are being borne by the 
commercial property and casualty insurance industry. Commercial 
property and casualty insurance covers a wide range of risk 
exposure for businesses, including without limitation: damage 
to property, third party liability, workers compensation, and 
business interruption. The policies written for commercial 
property and casualty insurance only pay claims for ``covered 
perils,'' meaning there are only certain causes of loss for 
which the insurer will reimburse the business owner. 
Traditionally, acts of war have been excluded as covered 
perils, while acts of terrorism have been included as part of 
the comprehensive commercial property and casualty insurance 
coverage.
    More broadly speaking, property and casualty insurance is a 
mechanism by which economies respond efficiently to risks in 
the environment. Insurance allows businesses to reduce large, 
relatively incalculable risks (in terms of dollars and timing) 
to a set of smaller, known premium payments. Insurers examine 
the risks of individual businesses and use actuarial methods to 
assess these risks in light of like risks of other businesses 
and the historical frequency and severity of loss to determine 
premiums.
    In order to meet regulatory capital requirements and 
further spread risk so that they can continue to write 
coverage, primaryinsurance companies buy reinsurance, i.e. 
insurance for insurance companies. In 2000, the entire property and 
casualty insurance industry ceded over 26 percent of its written 
premium to reinsurers.
    The events of September 11, 2001 have caused great 
uncertainty for insurance underwriters. The commercial property 
and casualty insurance companies have little to no experience 
in underwriting for the type or severity of terrorist attacks 
experienced. In particular, the ongoing uncertainty in the 
current United States war against terrorism significantly 
impairs the ability of underwriters to forecast either the 
likely frequency or magnitude of future attacks.
    Commercial property and casualty insurance is usually 
written on a one or two year basis, with approximately 70 
percent of reinsurance contracts up for renewal on January 1, 
2002. Unable to forecast and account for losses due to 
terrorist attacks, commercial property and casualty insurers 
and reinsurers have indicated to brokers and insureds that they 
plan either to exclude terrorism coverage entirely or offer 
only very limited coverage at very high costs. They simply 
cannot insure against infinite risk with finite capital.
    The potential unavailability of terrorism risk coverage for 
businesses comes at precisely the time of greatest demand for 
the insurance. While some businesses might choose to go without 
terrorism risk insurance in this environment, many businesses, 
large and small, do not have this choice. Insurance coverage is 
almost universally a requirement of any commercial lending 
contract. Lenders will simply not provide financing for new or 
existing construction without certainty that the properties and 
businesses that they are funding have adequate insurance to 
protect the lenders' investment. Thus, the lack of available 
insurance for terrorism risk has adverse consequences that 
would spread throughout the entire economy and stifle its 
growth.
    There is a high probability that the economy as a whole 
would suffer tremendously without meaningful and affordable 
terrorism coverage. Accordingly, the Committee believes that 
Congress must create the temporary program established by this 
legislation to provide a bridge between today and the time when 
the private market has developed the mechanisms to provide 
terrorism risk coverage and reinsurance at reasonable cost and 
sufficient levels. The insurance industry in the past has 
demonstrated a remarkable resiliency in adapting to changing 
circumstances and, given time, will diversify and spread risks 
in such a way that they will be able to underwrite affordable 
terrorist risk insurance at a profit. Until that time comes, 
however, the Federal government can assist the industry by 
providing liquidity and creating a short term industry risk 
spreading program.
    While there is a clear need to act to create this bridge, 
it is essential that it is done while providing the utmost 
protection for taxpayers. While the insurance industry might be 
facing an underwriting conundrum, it is healthy and well 
capitalized. Accordingly, there is no need for any government 
assistance prior to a significant loss of industry capital or 
individual company capital due to a terrorist attack. 
Additionally, this legislation does not create an unnecessary 
preoccurrence Federal bureaucracy to administer a program prior 
to a triggering determination by the Secretary. To prevent a 
moral hazard, the commercial property and casualty insurance 
industry must share in the losses paid by any program offering 
temporary assistance. Funds paid by the Federal government 
under any program must be repaid by the insurance industry over 
time as economic circumstances permit, and the beneficiaries of 
the insurance product, i.e. the commercial insurers and 
insureds, not the taxpayer, should bear the ultimate financial 
costs.
    The Committee also responded to requests by the State 
insurance commissioners to improve the current tax policy 
governing long term reserving for terrorism risk, to help the 
industry improve its capacity to provide terrorism coverage in 
the future. Specifically, the National Association of Insurance 
Commissioners (NAIC) stated in its governing principles for 
Federal terrorism insurance legislation that ``tax law changes 
should be encouraged to avoid penalties on and encourage the 
accumulation of reserves for the portion of terrorism losses 
insurable in the private marketplace.'' Furthermore, at a 
hearing before the Subcommittee on Capital Markets, Insurance 
and Government Sponsored Enterprises on October 24, 2001, Scott 
Harrington, Professor of Insurance and Finance, Moore School of 
Business, University of South Carolina, testified that allowing 
insurers and reinsurers to accumulate some amount of capital 
reserves on a tax-deferred basis would expand private sector 
capacity to insure potentially large losses from terrorism. Tax 
deferred reserving and a temporary system of ex post 
assessments to help private insurers spread the risk of loss 
from terrorist attacks comprised Professor Harrington's two-
pronged approach to mitigate the inherent problems of funding 
potentially large losses from terrorism.
    The fact that most reinsurance capacity is offshore is due 
in no small part to the fact that the United States Tax Code 
prevents insurers from reserving funds for more than one year 
without paying taxes on those funds as income unless they are 
used to pay claims. Manyforeign jurisdictions permit insurance 
companies to set aside long term reserves without tax penalties for 
discrete catastrophic purposes. Removing this prohibition in the tax 
code to allow insurers to reserve funds solely for terrorism risk (and 
to avoid insolvency) with stringent restrictions and caps would allow 
the United States insurance industry to build up and pool with other 
insurers private reserves to respond to large terrorism losses without 
any Federal involvement or taxpayer liability. Because insurance 
companies have not previously reserved for terrorism risks to any 
significant degree and because what reinsurance capacity exists is 
primarily overseas, the establishment of tax-free terrorist risk 
reserves would discourage capital flight resulting from tax avoidance 
and make it more difficult for underwriting capacity to exit the United 
States market in times of distress. Further, because reserve funds may 
only be used for terrorism losses, there is a built-in disincentive for 
private insurers to ``game'' these reserves funds. This long term 
solution should be coupled with any short term program to foster 
private sector solutions to terrorism coverage and obviate the need for 
the Federal government to return to this issue in the future.

                                Hearings

    The House Committee on Financial Services held a hearing on 
September 26, 2001, entitled, ``America's Insurance Industry: 
Keeping the Promise.'' The Committee received testimony from: 
Gregory V. Serio, Superintendent, New York Insurance 
Department; Kathleen Sebelius, Commissioner, Kansas Department 
of Insurance, President, National Association of Insurance 
Commissioners, on behalf of the National Association of 
Insurance Commissioners; Sy Sternberg, Chairman, President and 
CEO, New York Life Insurance Company; Robert H. Benmosche, 
Chairman and CEO, MetLife, Inc.; Dean R. O'Hare, Chairman and 
CEO, The Chubb Corporation; Matthew C. Mosher, Group Vice 
President, Property-Casualty Rating, A.M. Best Company; Ronald 
Ferguson, Chairman and CEO, General Reinsurance Corporation
    The Subcommittee on Capital Markets, Insurance and 
Government Sponsored Enterprises held a hearing October 24, 
2001, entitled, ``Protecting Policyholders from Terrorism: 
Private Sector Solutions.'' The Subcommittee received testimony 
from: Paul H. O'Neill, Secretary, Department of the Treasury; 
Mr. Glenn Hubbard, Chairman, Council of Economic Advisors; 
David B. Mathis, Chairman and CEO, Kemper Insurance Companies; 
Richard J. Hillman, Director, Financial Markets and Community 
Investment, U.S. General Accounting Office; Marjorie S. 
Nordlinger, Senior Attorney, Office of the General Counsel, 
Nuclear Regulatory Commission; Constantinos Iordanou, Senior 
Executive Vice President of Group Operations and Business 
Development, Zurich Financial Services Group; Scott Harrington, 
Professor of Insurance and Finance, Moore School of Business, 
University of South Carolina; J. David Cummins, Harry J. Loman 
Professor of Insurance & Risk Management at The Wharton School, 
University of Pennsylvania; David Keating, Senior Counselor, 
National Taxpayers Union; John T. Sinnott, CEO, Marsh, Inc.; 
Roy A. Williams, Director of Aviation, Louis Armstrong New 
Orleans International Airport.
    The Subcommittee on Capital Markets, Insurance and 
Government Sponsored Enterprises held a Roundtable Discussion 
on Terrorism Risk Insurance on October 31, 2001. Participating 
in the Roundtable were: Sheila C. Bair, Assistant Secretary, 
Financial Institutions, Department of the Treasury; Bill 
Pollard, Executive Vice President & General Manager, North 
Carolina Farm Bureau Mutual Insurance Company, on behalf of the 
National Association of Mutual Insurance Companies and the 
National Association of Independent Insurers; Tom Gallagher, 
Treasurer, Insurance Commissioner and State Fire Marshal, State 
of Florida, Member of the National Association of Insurance 
Commissioners; Edmund F. Kelly, President & CEO, Liberty Mutual 
Group; John T. Sinnott, Chairman & CEO, Marsh, Inc.; Franklin 
W. Nutter, President, Reinsurance Association of America; Terry 
Broderick, President & CEO, Royal SunAlliance USA, Inc.; Travis 
Plunkett, Consumer Federation of America; Larry Cluff, 
Government Accounting Office; Tom Miller, Cato Institute; David 
Keating, Senior Counselor & Board of Directors Member, National 
Taxpayers Union; Steve Wechsler, President and CEO, National 
Association of Real Estate Investment Trusts.

                        Committee Consideration

    The Committee met in open session on November 7, 2001, and 
ordered H.R. 3210 reported to the House with a favorable 
recommendation, with an amendment, by a voice vote.

                            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 to the House with a 
favorable recommendation was agreed to by a voice vote.
    Record votes were taken on the following amendments. The 
names of Members voting for and against follow:

    An amendment to the amendment in the nature of a substitute 
by Mr. Cox, no. 1a, clarifies the application of the liability 
protections to an insured party, was agreed to by a record vote 
of 26 yeas and 21 nays (Record vote no. 18).
        YEAS                          NAYS
Mr. Oxley                           Mr. LaFalce
Mr. Leach                           Mr. Kanjorski
Mrs. Roukema                        Mr. Sanders
Mr. Bereuter                        Mrs. Maloney of New York
Mr. Baker                           Ms. Velazquez
Mr. Bachus                          Mr. Watt of North Carolina
Mr. Castle                          Mr. Ackerman
Mr. Royce                           Mr. Bentsen
Mr. Ney                             Mr. Maloney of Connecticut
Mrs. Kelly                          Ms. Hooley of Oregon
Mr. Cox                             Mr. Sherman
Mr. Weldon of Florida               Mr. Sandlin
Mr. Ryun of Kansas                  Ms. Lee
Mr. LaTourette                      Mr. Inslee
Mr. Manzullo                        Mr. Moore
Mr. Jones of North Carolina         Mr. Gonzalez
Mrs. Biggert                        Mr. Capuano
Mr. Green of Wisconsin              Mr. Shows
Mr. Toomey                          Mr. Crowley
Mr. Shadegg                         Mr. Israel
Mr. Gary G. Miller of California    Mr. Ross
Mr. Cantor
Ms. Hart
Mrs. Capito
Mr. Tiberi
Mr. Lucas of Kentucky

    An amendment to the amendment in the nature of a substitute 
by Mr. LaFalce, no. 1b, striking the liability provisions, was 
not agreed to by a record vote of 24 yeas and 32 nays, 1 member 
voting present (Record vote no. 19).
        YEAS                          NAYS
Mr. LaFalce                         Mr. Oxley
Mr. Kanjorski                       Mr. Leach
Ms. Waters                          Mrs. Roukema
Mr. Sanders                         Mr. Bereuter
Mrs. Maloney of New York            Mr. Baker
Ms. Velazquez                       Mr. Bachus
Mr. Watt of North Carolina          Mr. Castle
Mr. Ackerman                        Mr. Royce
Mr. Bentsen                         Mr. Lucas of Oklahoma
Mr. Maloney of Connecticut          Mr. Barr of Georgia
Ms. Hooley of Oregon                Mrs. Kelly
Ms. Carson of Indiana               Mr. Gillmor
Mr. Sherman                         Mr. Cox
Mr. Sandlin                         Mr. Weldon of Florida
Ms. Lee                             Mr. Ryun of Kansas
Mr. Mascara                         Mr. Riley
Mr. Inslee                          Mr. LaTourette
Ms. Schakowsky                      Mr. Manzullo
Mr. Moore                           Mr. Jones of North Carolina
Mr. Gonzalez                        Mrs. Biggert
Mr. Capuano                         Mr. Green of Wisconsin
Mr. Shows                           Mr. Toomey
Mr. Israel                          Mr. Shays
Mr. Ross                            Mr. Shadegg
        present                     Mr. Cantor
Mr. King                            Mr. Grucci
                                    Ms. Hart
                                    Mrs. Capito
                                    Mr. Ferguson
                                    Mr. Rogers of Michigan
                                    Mr. Tiberi
                                    Mr. Lucas of Kentucky

    An amendment to the amendment in the nature of a substitute 
by Ms. Lee, no. 1h, conditioning the assistance in the bill on 
the agreement of the recipient to provide certain information 
to the Administrator, was not agreed to by a record vote of 24 
yeas and 35 nays (Record vote no. 20).
        YEAS                          NAYS
Mr. LaFalce                         Mr. Oxley
Ms. Waters                          Mrs. Roukema
Mr. Sanders                         Mr. Bereuter
Mrs. Maloney of New York            Mr. Baker
Ms. Velazquez                       Mr. Bachus
Mr. Watt of North Carolina          Mr. Castle
Mr. Ackerman                        Mr. King
Mr. Bentsen                         Mr. Royce
Mr. Maloney of Connecticut          Mr. Lucas of Oklahoma
Ms. Hooley of Oregon                Mr. Ney
Ms. Carson of Indiana               Mr. Barr of Georgia
Mr. Sherman                         Mrs. Kelly
Mr. Sandlin                         Mr. Gillmor
Ms. Lee                             Mr. Cox
Mr. Mascara                         Mr. Weldon of Florida
Mr. Inslee                          Mr. Ryun of Kansas
Ms. Schakowsky                      Mr. Riley
Mr. Moore                           Mr. LaTourette
Mr. Gonzalez                        Mr. Manzullo
Mr. Capuano                         Mr. Jones of North Carolina
Mr. Shows                           Mrs. Biggert
Mr. Crowley                         Mr. Green of Wisconsin
Mr. Clay                            Mr. Toomey
Mr. Ross                            Mr. Shays
                                    Mr. Shadegg
                                    Mr. Gary G. Miller of California
                                    Mr. Cantor
                                    Mr. Grucci
                                    Ms. Hart
                                    Mrs. Capito
                                    Mr. Ferguson
                                    Mr. Rogers of Michigan
                                    Mr. Tiberi
                                    Mr. Kanjorski
                                    Mr. Lucas of Kentucky

    An amendment to the amendment in the nature of a substitute 
by Mr. LaTourette, no. 1i, allocating the amount of punitive 
damages to be in proportion to the percentage of the harm to 
the claimant for which the defendant was responsible, was not 
agreed to by a record vote of 28 yeas and 29 nays (Record vote 
no. 21).
        YEAS                          NAYS
Mr. King                            Mr. Oxley
Mr. LaTourette                      Mr. Leach
Mr. Grucci                          Mrs. Roukema
Mr. LaFalce                         Mr. Bereuter
Mr. Kanjorski                       Mr. Baker
Ms. Waters                          Mr. Bachus
Mr. Sanders                         Mr. Royce
Mrs. Maloney of New York            Mr. Lucas of Oklahoma
Ms. Velazquez                       Mr. Barr of Georgia
Mr. Watt of North Carolina          Mrs. Kelly
Mr. Ackerman                        Mr. Gillmor
Mr. Bentsen                         Mr. Cox
Mr. Maloney of Connecticut          Mr. Weldon of Florida
Ms. Hooley of Oregon                Mr. Ryun of Kansas
Ms. Carson of Indiana               Mr. Riley
Mr. Sherman                         Mr. Manzullo
Mr. Sandlin                         Mr. Jones of North Carolina
Ms. Lee                             Mrs. Biggert
Mr. Mascara                         Mr. Green of Wisconsin
Mr. Inslee                          Mr. Toomey
Mr. Moore                           Mr. Shays
Mr. Gonzalez                        Mr. Shadegg
Mr. Capuano                         Mr. Gary G. Miller of
Mr. Lucas of Kentucky                 California
Mr. Shows                           Mr. Cantor
Mr. Crowley                         Ms. Hart
Mr. Clay                            Mrs. Capito
Mr. Israel                          Mr. Ferguson
                                    Mr. Rogers of Michigan
                                    Mr. Tiberi

    An amendment to the amendment in the nature of a substitute 
by Mr. Watt, no. 1j, striking recovery from other collateral 
sources from offsetting relief payments under the Act and 
allowing punitive damages to be awarded, was not agreed to by a 
record vote of 24 yeas and 32 nays (Record vote no. 22).
        YEAS                          NAYS
Mr. LaFalce                         Mr. Oxley
Mr. Kanjorski                       Mr. Leach
Ms. Waters                          Mrs. Roukema
Mr. Sanders                         Mr. Bereuter
Mrs. Maloney of New York            Mr. Baker
Ms. Velazquez                       Mr. Bachus
Mr. Watt of North Carolina          Mr. Castle
Mr. Ackerman                        Mr. King
Mr. Bentsen                         Mr. Royce
Mr. Maloney of Connecticut          Mr. Lucas of Oklahoma
Ms. Hooley of Oregon                Mr. Barr of Georgia
Ms. Carson of Indiana               Mrs. Kelly
Mr. Sherman                         Mr. Cox
Mr. Sandlin                         Mr. Weldon of Florida
Ms. Lee                             Mr. Ryun of Kansas
Mr. Mascara                         Mr. Riley
Mr. Inslee                          Mr. LaTourette
Mr. Moore                           Mr. Manzullo
Mr. Gonzalez                        Mr. Jones of North Carolina
Mr. Capuano                         Mrs. Biggert
Mr. Shows                           Mr. Green of Wisconsin
Mr. Crowley                         Mr. Toomey
Mr. Clay                            Mr. Shays
Mr. Israel                          Mr. Shadegg
                                    Mr. Gary G. Miller of California
                                    Mr. Cantor
                                    Ms. Hart
                                    Mrs. Capito
                                    Mr. Ferguson
                                    Mr. Rogers of Michigan
                                    Mr. Tiberi
                                    Mr. Lucas of Kentucky
    A motion to reconsider the vote on amendment no. 1d by Mr. 
Barr was not agreed to by a record vote of 27 yeas and 32 nays 
(Record vote no. 23)
        YEAS                          NAYS
Mr. Leach                           Mr. Oxley
Mrs. Roukema                        Mr. Bachus
Mr. Bereuter                        Mr. Castle
Mr. Baker                           Mr. King
Mr. Royce                           Mr. LaTourette
Mr. Lucas of Oklahoma               Mr. LaFalce
Mr. Ney                             Mr. Kanjorski
Mr. Barr of Georgia                 Ms. Waters
Mrs. Kelly                          Mr. Sanders
Mr. Gillmor                         Mrs. Maloney of New York
Mr. Cox                             Ms. Velazquez
Mr. Weldon of Florida               Mr. Watt of North Carolina
Mr. Ryun of Kansas                  Mr. Ackerman
Mr. Riley                           Mr. Bentsen
Mr. Manzullo                        Mr. Maloney of Connecticut
Mr. Jones of North Carolina         Ms. Hooley of Oregon
Mrs. Biggert                        Ms. Carson of Indiana
Mr. Green of Wisconsin              Mr. Sherman
Mr. Toomey                          Mr. Sandlin
Mr. Shays                           Mr. Meeks of New York
Mr. Shadegg                         Ms. Lee
Mr. Cantor                          Mr. Mascara
Ms. Hart                            Mr. Inslee
Mrs. Capito                         Mr. Moore
Mr. Ferguson                        Mr. Gonzalez
Mr. Rogers of Michigan              Mr. Capuano
Mr. Tiberi                          Mr. Lucas of Kentucky
                                    Mr. Shows
                                    Mr. Crowley
                                    Mr. Clay
                                    Mr. Israel
                                    Mr. Ross

    The following amendments were also considered by the 
Committee:

    An amendment in the nature of a substitute by Mr. Oxley, 
no. 1, making various technical changes, was agreed to by a 
voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mrs. Roukema, no. 1c, limiting the liability for damages 
arising out of the crashes on September 11, 2001, was 
withdrawn.
    An amendment to the amendment in the nature of a substitute 
by Mr. Bachus, no. 1e, directing the Secretary of the Treasury 
to conduct a study on a possible crisis in the availability and 
affordability of railroad insurance, was agreed to by a voice 
vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Ackerman, no. 1f, extending the definition of a 
terrorist act to include acts against domestic air carriers and 
U.S. flagged vessels overseas, was agreed to by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Weldon of Florida, no. 1g, directing the General 
Accounting Office to conduct a study of natural disasters on 
insurer solvency, was withdrawn.
    An amendment to the amendment in the nature of a substitute 
by Mr. Watt, no. 1k, permitting the satisfaction of judgments 
from seized assets of terrorists and terrorist organizations, 
was agreed to by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Manzullo, no. 1m, excluding terrorists from liability 
protections, was agreed to by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Bentsen, no. 1l, enabling the Administrator to extend 
the authorities of the Act on a yearly basis for 3 years after 
reporting to Congress on the reasons and need for the 
extension, was agreed to by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Inslee, no. 1n, establishing a 2 percent interest rate 
for all assessments paid by commercial insurers to the 
appropriate administrator, was withdrawn.
    An amendment to the amendment in the nature of a substitute 
by Mr. Crowley, no. 1o, expanding the scope of the legislation 
to include personal lines of property and casualty insurance, 
was withdrawn by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Capuano, no. 1p, extending authority to the 
Administrator to direct the use of the terrorism business 
reserve to pay claims as part of a plan of a company to avoid 
insolvency, an amendment to the amendment in the nature of a 
substitute by Mr. Capuano, no. 1q, striking recovery from other 
collateral sources from offsetting relief payments under the 
Act, and an amendment to the amendment in the nature of a 
substitute by Mr. Capuano, no. 1r, directing the Administrator 
to take into consideration the effect of assessments and 
surcharges on urban commercial centers, were offered en bloc 
and were withdrawn. Amendment no. 1r was later offered again, 
and agreed to by a voice vote.
    An amendment to the amendment in the nature of a substitute 
by Mr. Baker, Mr. LaFalce, and Mr. Kanjorski no. 1s, empowering 
the Secretary of the Treasury to carry out the authorities of 
the Act and establishing the structure for terrorism less 
repayment surcharges, 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 a hearing 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:
    The Secretary of the Treasury will establish a temporary 
risk spreading program to ensure the continued availability of 
commercial property and casualty insurance and reinsurance for 
terrorism-related risks. The Secretary will make every effort 
to ensure that insurers use the tools provided by this 
legislation to reserve properly for these risks and eliminate 
the need for this or similar programs in the future.

   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 finds that this 
legislation would result in new budget authority, entitlement 
authority, or tax expenditures or revenues consistent with the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts 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.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, November 16, 2001.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3210, the 
Terrorism Risk Protection Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
and Megan Carroll (for federal costs), Susan Sieg Tompkins (for 
the state and local impact), and Jean Talarico (for the 
private-sector impact).
            Sincerely,
                                          Dan L. Crippen, Director.
    Enclosure.

H.R. 3210--Terrorism Risk Protection Act

    Summary: H.R. 3210 would require the Secretary of the 
Treasury to provide up to $100 billion in financial assistance 
to commercial property and casualty insurers for losses from 
terrorist acts committed after enactment of the bill and prior 
to January 1, 2003. (The Secretary would have the authority to 
extend the program for two more years.) The Secretary would 
provide such assistance only after insured losses exceed $1 
billion for the entire industry (or lesser amounts if 
individual insurance companies are particularly affected as 
specified by the bill). After either threshold is met, the 
Secretary would pay insurance companies 90 percent of 
subsequent covered losses. Under the bill, if insured losses 
from a terrorist act required the Secretary to provide 
financial assistance, the Secretary could recoup that cost 
through charges assessed on the insurance industry and 
purchasers of commercial property and casualty insurance. In 
addition, the bill would amend the Internal Revenue Code as it 
applies to insurance companies.
    CBO cannot predict how much insured damage terrorists would 
cause in any specific year. Instead our estimate of the cost of 
financial assistance provided under H.R. 3210 represents an 
expected value of payments from the program--a weighed average 
that reflects the probabilities of various outcomes, from zero 
damages up to very large damages due to possible future 
terrorist attacks. The expected value can be thought of as the 
amount of an insurance premium that would be necessary to just 
offset the risk of providing this insurance; indeed, our 
estimate of the expected cost for H.R. 3210 is based on 
premiums collected for terrorism insurance in the United 
Kingdom and insurance practices in the United States.
    On this basis, CBO estimates that enacting section 6 of 
H.R. 3210 would increase direct spending by about $7.3 billion 
over the 2002-2006 period and by $8.5 billion over the next 10 
years. Under the bill, the Secretary could recoup the costs of 
providing financial assistance through assessments and 
surcharges; hence, over many years, CBO expects that an 
increase in spending for financial assistance would be nearly 
offset (on a cash basis) by a corresponding increase in 
governmental receipts (revenues). We assume, however, that the 
Secretary would not impose any assessments or surcharges until 
one year after federal assistance is provided and that those 
amounts would be collected over several years. Thus, CBO 
estimates that sections 7 and 8 of H.R. 3210 would increase 
governmental receipts by about $1.4 billion over the 2002-2006 
period and by $5.3 billion over the next 10 years.
    In addition, the Joint Committee on Taxation (JCT) 
estimates that enacting section 10 of H.R. 3210 would reduce 
revenues by $10.9 billion over the 2002-2006 period and by 
$12.4 billion over the 2002-2011 period. In total, we estimate 
the net reduction in revenues under H.R. 3210 would be $9.5 
billion over the 2002-2006 period and $7.1 billion over the 
2002-2011 period. Because H.R. 3210 would affect direct 
spending and receipts, pay-as-you-go procedures would apply.
    H.R. 3210 contains several intergovernmental and private-
sector mandates, as defined in the Unfunded Mandates Reform Act 
(UMRA), on insurers and policyholders of commercial property 
and casualty insurance. CBO estimates that the aggregate net 
costs of complying with those mandates would not exceed the 
annual thresholds established by UMRA ($56 million for 
intergovernmental mandates and $113 million for private-sector 
mandates in 2001, adjusted annually for inflation).
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 3210 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

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

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

                                               CHANGES IN REVENUES

Assessments and surcharge................................          0        100        200        500        600
Tax provisions\1\........................................     -1,600     -4,100     -3,100     -1,300       -800
                                                          ------------------------------------------------------
      Total changes in revenues..........................     -1,600     -4,000     -2,900       -800       -200
----------------------------------------------------------------------------------------------------------------
\1\ Estimate provided by JCT.

            Basis of estimate
    For this estimate, CBO assumes that H.R. 3210 will be 
enacted by the end of 2001 and its provisions will remain in 
effect until December 31, 2004. We estimate that H.R. 3210 
would increase direct spending by $8.5 billion and would reduce 
governmental receipts by $7.1 billion over 2002-2011 period.
            Direct spending
    H.R. 3210 would require the secretary of the treasury to 
provide up to $100 billion in financial assistance to 
commercial property and casualty insurers for losses above 
certain thresholds due to future terrorist acts. Under the 
bill, the Secretary would provide such assistance as a result 
of terrorist acts that occur before January 1, 2003, but the 
Secretary could extend the program to cover events through 
calendar year 2004. (If the program is extended beyond 2002, we 
interpret the $100 billion as being an annual limit.) For this 
estimate, CBO assumes that the Secretary would extend the 
program through 2004.
    By offering financial assistance to commercial property and 
casualty insurers for acts of terrorism, H.R. 3210 would expose 
the federal government to potentially huge liabilities. For any 
year, CBO has no basis for estimating the likelihood of 
terrorist attacks or the amount of insured damage they may 
cause. Instead, our estimate of the cost of these provisions 
reflects how much the government might be expected to pay to 
insurers on average.
    In the following sections, we describe our method for 
estimating the expected-value cost of providing financial 
assistance under H.R. 3210, explain how we convert that 
expected-value cost to annual estimates of cash outlays, and 
discuss some of the reasons why the cost to the federal 
government is so uncertain.
    Terrorism Insurance in the United Kingdom.--Because very 
limited information is available about how the insurance 
industry would set premiums for terrorism insurance in the 
United States, we examined the government-backed insurance pool 
that spreads the risk of terrorist acts among insurers in the 
United Kingdom (this program is called Pool Re).
    CBO could not estimate the cost of H.R. 3210 to the federal 
government by examining the U.S. insurance industry's 
perception of the likelihood of terrorist acts. Representatives 
of the insurance industry have testified that estimating the 
risk of terrorist acts is nearly impossible because sufficient 
historical data do not exist. We explored the possibility of 
using premiums paid in the U.S. for terrorism insurance prior 
to September 11, 2001, to estimate the minimum premium required 
to compensate the government for its risk; however, such 
information is not available. This led us to examine the United 
Kingdom's experience with terrorism insurance.
    In 1993, the British government created Pool Re to provide 
terrorism reinsurance (insurance for insurance companies) to 
the commercial property insurance market in the United Kingdom. 
Participating insurers must offer terrorism coverage at risk-
based rates established by Pool Re and then remit any premiums 
collected from their customers to the pool. After a small 
deductible, Pool Re pays 100 percent of the costs of a 
terrorist act. If claims from terrorist acts exhaust the pool's 
resources, the British government is liable for the shortfall.
    Calculating the Expected Value of Claims.--Over the 1993-
2000 period, annual premiums collected by Pool Re have ranged 
from about $530 million in the early years of the program to 
about $75 million in 2000. On average, annual premiums have 
been roughly $325 million. The pool has reduced its premium 
rates in recent years as the number of terrorist attacks in the 
United Kingdom (and the perceived threat of future attacks) 
dropped. For this estimate, CBO assumes that the average 
premiums over the eight-year period accurately reflect the 
terrorist risk to covered losses in the United Kingdom. In some 
years, there may be many costly attacks; in others, there may 
be none.
    To compare premiums collected by Pool Re to those that 
would be required to compensate the federal government for its 
risk under H.R. 3210, we made adjustments to account for 
differences between Pool Re and the proposed U.S. program. CBO 
expects that, if premiums were charged to cover the potential 
costs of H.R. 3210, they would have to be significantly larger 
than those collected by Pool Re. Pool Re covers losses only for 
property damage and business interruption, while the program 
proposed under the bill also would cover casualty and related 
risks. Based on information from the insurance industry about 
the relative proportion of property and casualty insurance, we 
estimate that including these lines would roughly double the 
premiums required under Pool Re. In addition, CBO increased the 
average premium amount for Pool Re by a factor of 7 to account 
for differences in the sizes of the two countries' economies 
and insurance markets. We did not make any adjustments for 
differences in the risk of terrorist acts that each country 
faces because we cannot quantify such differences.
    After making the adjustments described above, CBO estimates 
that the expected-value cost of a federal program that is 
analogous to Pool Re would be about $4.5 billion a year. 
However, two key differences between Pool Re and the program 
outlined in H.R. 3210 require additional adjustments. First, 
H.R. 3210 would require the industry to absorb losses of $1 
billion before the Secretary would provide any assistance. By 
comparison, deductibles required by Pool Re are negligible. 
Second, H.R. 3210 would cap federal assistance at $100 billion 
a year; coverage under Pool Re has no cap.
    To make these further adjustments, we assumed that the 
probability of terrorist attacks is skewed toward events that 
would cost less than $4.5 billion a year. After taking into 
account the $1 billion industry-wide deductible and the $100 
billion cap on federal assistance, CBO estimates that the 
Secretary would need to charge about $3 billion annually for 
coverage over the 2002-2004 period to fully compensate the 
government for the risk it would assume under H.R. 3210. 
Assuming the program operates for three years, the expected 
cost to the government would total $9 billion. Those outlays, 
however, would be spread out over many years, as explained 
below.
    Timing of Federal Spending.--To estimate federal spending 
for this program on a cash basis, CBO used information from 
insurance experts on historical rates at which property and 
casualty claims are paid. Based on such information, CBO 
estimates that the expected value of federal spending under 
H.R. 3210 would total $8.5 billion over the 2002-2011 period, 
and about $500 million after 2011. In general, following a 
catastrophic loss, it takes many years to complete insurance 
payments because of disputes over the value of covered losses 
by property and business owners. For this estimate, we assumed 
that financial assistance to property and casualty insurers 
would be paid over several years, with most of the spending 
occurring within the first five years.
    Costs Are Uncertain.--While this estimate reflects CBO's 
best judgment on the basis of available information, costs are 
a function of inherently unpredictable future terrorist 
attacks. As such, actual costs could cover an extremely broad 
range. Moreover, these is a greater risk that our estimated 
costs are too low rather than too high.
    Our expected losses under this program could be too low 
because we assumed losses would have to exceed $1 billion 
before the Secretary would provide assistance. Under the bill, 
however, the Secretary also could provide assistance if 
aggregate losses exceed $100 million and at least one company 
is particularly adversely affected. In addition, there are a 
number of differences between Pool Re and the program that 
would be established under this legislation that are unknown--
for example, the difference between U.S. and British tort law--
but these differences would push the likely cost of the bill 
higher.
            Revenues
    CBO estimates that under H.R. 3210 the Secretary of the 
Treasury would collect $5.3 billion over the 2002-2011 period 
through assessments on the insurance industry and surcharges on 
policy holders. In addition, the JCT estimates that the bill's 
changes to the Internal Revenue Code would reduce revenues by 
$12.4 billion over the next 10 years.
    Assessments.--If a terrorist act requires the Secretary to 
provide financial assistance, the Secretary would recoup that 
cost through charges paid by the insurance industry and 
purchasers of commercial property and casualty insurance. The 
first $20 billion of financial assistance could be recovered by 
assessing each insurer based on its portion of aggregate 
property and casualty insurance premiums for the preceding 
calendar year. Each company's assessment would be limited to 3 
percent of net premiums (the company's premiums less any amount 
paid to reinsurers to assume a portion of the risk). The 
Secretary could delay when a company would be required to pay 
the assessment if such a delay were necessary to prevent the 
insurer from becoming insolvent. Because we assume the 
probability of terrorist attacks would be skewed toward events 
that would cost less than $4.5 billion, we anticipate that 
assessments would account for most of the amounts the Secretary 
would collect. On an expected-value basis, CBO estimates that 
assessments to recover the cost of federal assistance would 
generate revenues totaling $4.5 billion over the next 10 years.
    Surcharges.--The Secretary would recover any assistance 
provided between $20 billion and $100 billion by imposing a 
surcharge on all premiums for commercial property and casualty 
insurance. Surcharges would apply to insurance sold following a 
terrorist attack that necessitated federal assistance and could 
not exceed 3 percent of the annual premium for such coverage. 
H.R. 3210 would require the Secretary to impose surcharges for 
as long as is necessary to recover the aggregate financial 
assistance. Thus, the government could collect surcharges for 
many years depending on the level of financial assistance. We 
estimate that surcharges would total $800 million over the next 
10 years.
    Timing.--CBO expects that the Secretary probably would not 
recoup the entire cost of financial assistance during the 2002-
2011 period. Based on information from the insurance industry 
on aggregate premiums collected in recent years, CBO estimates 
that the Secretary could recoup no more than about $10 billion 
a year. The bill would allow the Secretary to reduce annual 
charges to avoid unreasonable economic disruption, excessive 
market instability, or undue burdens on small businesses. 
Therefore, if annual losses are very high, we expect that the 
Secretary would limit annual collections by spreading them over 
many years. CBO assumes it would take the Secretary at least 10 
years to recoup the costs of any financial assistance provided 
under H.R. 3210. Thus, we estimate that many of the collections 
from assessments and surcharges would occur after 2011.
    Risk of Insolvency.--In addition, although the bill would 
allow the Secretary to delay when an insurance company pays its 
assessment, the bill would not provide the Secretary with the 
authority to increase the assessment on the remaining insurance 
companies if a company is unable to pay. Thus, the federal 
government also would bear the risk that an insurance company 
would become insolvent during the assessment period. 
Historically, the credit risk of insurance companies has been 
very low, but the government would be exposed to suchrisk only 
following a very costly attack. Because we expect the probability of 
such a costly attack is very low, we included a small adjustment for 
the risk of insolvency in our estimate.
    Credit Reform Does Not Apply.--The provisions of the 
Federal Credit Reform Act do not apply to H.R. 3210. Under the 
act, a direct loan is defined as a disbursement of funds to a 
nonfederal borrower under a contract that requires the 
repayment. A disbursement cannot be considered a direct loan, 
however, if the duty to repay the government arises from an 
exercise of sovereign power, tort liability, or some other 
noncontract obligation. H.R. 3210 would require insurance 
companies and potential policyholders to compensate the 
government for its costs, but it would do so through an 
exercise of sovereign power, not through loan repayment 
contracts. Therefore, CBO believes that the financial 
assistance and subsequent collections would not constitute a 
loan program.
    Other Tax Provisions.--H.R. 3210 would amend the Internal 
Revenue Code to permit non-life insurance companies to 
establish reserves for terrorism coverage. The JCT estimates 
these provisions would reduce revenues by $12.4 billion over 
the next 10 years.
    Pay-as-you-go considerations: The Balanced Budget and 
Emergency Deficit Control Act sets up pay-as-you-go procedures 
for legislation affecting direct spending or receipts. The net 
changes in outlays and governmental receipts that are subject 
to pay-as-you-go procedures are shown in the following table. 
Only the effects in the current year and the following four 
years are counted for pay-as-you-go purposes.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          By fiscal year, in millions of dollars--
                                                                   -------------------------------------------------------------------------------------
                                                                       2002       2003       2004      2005     2006    2007   2008   2009   2010   2011
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays................................................        800      1,700      2,200    1,700      900    500    300    200    100    100
Changes in receipts...............................................     -1,600     -4,000     -2,900     -800     -200    400    500    500    500    500
--------------------------------------------------------------------------------------------------------------------------------------------------------

            Intergovernmental and private-sector impact
    H.R. 3210 contains several intergovernmental and private-
sector mandates as defined by UMRA. CBO estimates that the net 
costs to comply with all of the mandates in the bill would not 
exceed the thresholds established by UMRA ($56 million for 
intergovernmental mandates and $113 for private-sector mandates 
in 2001, adjusted annually for inflation).
            Assessments and surcharges
    The bill would require the Secretary, through the use of 
the federal government's sovereign power, to recoup the costs 
of financial assistance provided to certain insurers through 
assessments paid by the insurance industry and surcharges paid 
by purchasers of commercial property and casualty insurance. 
This requirement to pay the federal government for financial 
assistance received would be both an intergovernmental and 
private-sector mandate under UMRA because both private entities 
and state and local governments would be affected.
    Specifically, section 7 would require commercial property 
and casualty insurers as well as self-insured risk pools to pay 
back the first $20 billion in federal assistance provided under 
the bill through an assessment. Taken individually, some 
insurers might benefit from the financial assistance while 
others would face only the cost of the assessment. But for the 
insurance industry as a whole, the cost of the assessment would 
be no greater than the financial assistance received, so the 
net cost of this mandate would be zero.
    In addition, section 8 would require purchasers of 
commercial property and casualty insurance to repay, in the 
form of a surcharge, any federal assistance provided to certain 
insurers between $20 billion and $100 billion. Some purchasers 
of commercial property and casualty insurance would not receive 
a direct benefit under the bill or protection from higher 
premiums in its absence. Therefore, the surcharge would be a 
mandate that imposes costs on both private-sector purchasers 
and state and local governments (in their capacity as 
purchasers of insurance). CBO estimates that the expected value 
of the surcharges on policyholders would total less than $90 
million annually over the next five years.
            Preemptions
    Section 12 would preempt certain state insurance laws by 
providing that any insurer that complies with the provisions of 
the bill would be deemed to comply with any state law that 
regulates insurance for acts of terrorism. This section also 
would expressly preempt any state laws that limit the amount an 
insurer could add to premiums to recover any assessments, and 
laws that require certain actions by insurers in order for 
rates or policies to be effective.
    Section 13 of the bill would require states to adopt 
uniform guidelines for maintaining certain reserves and 
disclosing premium costs. Should states fail to adopt these 
guidelines, the Secretary of the Treasury could adopt them on a 
national basis, superseding any related state laws. Neither the 
preemptions in section 12 nor the requirements of section 13, 
which are intergovernmental mandates as defined by UMRA, would 
impose significant costs on state, local, or tribal 
governments.
            Other impacts
    Section 11 would amend the Internal Revenue Code to 
authorize and account for the financial activities of a 
commercial reserve for terrorism losses. This provision would 
provide a significant benefit to certain commercial insurers by 
lowering the amount of income used to compute taxes owed to the 
federal government.
    Estimate prepared by: Federal costs: Mark Hadley, Megan 
Carroll, and Ken Johnson; Impact on State, local, and tribal 
governments: Susan Sieg Tompkins; impact on the private sector: 
Jean Talarico.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.

                       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 and table of contents

    This section sets forth the short title of the bill, the 
``Terrorism Risk Protection Act,'' and provides a table of 
contents.

Section 2. Congressional findings

    This section provides Congressional findings about the 
damage from the September 11, 2001 terrorist attack, the 
resulting market disruption and potential unavailability of 
future terrorism insurance coverage, and the need for a 
temporary industry risk sharing program to facilitate 
transition back to a viable private insurance and reinsurance 
market.

Section 3. Authority of Secretary of the Treasury

    This section provides that the Secretary of the Treasury 
will be responsible for carrying out the temporary risk-sharing 
program for the commercial property and casualty insurance 
industry.

Section 4. Submission of premium information to Secretary

    This section recognizes that insurance premium information 
is already provided to State insurance commissioners and the 
NAIC, but allows the Secretary, to the extent that such 
information is not otherwise available, to require insurers to 
submit their aggregate U.S. commercial property and casualty 
insurance premium data to the NAIC or the Secretary.

Section 5. Triggering determination and covered period

    This section directs the Secretary to determine whether 
insured losses from acts of terrorism over a 12 month period 
exceed the triggering thresholds. The section provides for an 
industry-wide trigger and an individual insurer trigger. The 
Secretary will make a triggering determination for the entire 
commercial property and casualty insurance industry if 
industry-wide losses exceed $1 billion. The Secretary will make 
a company specific triggering determination if industry-wide 
losses exceed $100 million and the portion of those losses for 
any one commercial insurer exceed both 10 percent of the 
company's capital surplus and net premiums. The lower $100 
million threshold does not apply to any commercial insurer that 
was not providing commercial property and casualty coverage 
prior to September 11, 2001.
    Subsection (b) provides that the period covered by this 
trigger is from the date of enactment to the end of 2002, 
although section 20 allows the Secretary the option of 
extending the application of this bill by up to 2 years.
    Subsection (c) gives the Secretary sole authority to 
determine whether a loss was caused by an act of terrorism, 
whether the losses were caused by one or multiple occurrences, 
and whether the terrorist attack occurred during the period of 
time covered by this legislation. The ability of the Secretary 
to make such determinations under this subsection is not 
limited to commercial property and casualty insurance, but 
rather is intended to apply for all lines of insurance.

Section 6. Federal cost-sharing for commercial insurers

    Once the Secretary makes an industry-wide triggering 
determination in section 5, then financial cost sharing is 
provided to cover 90 percent of any insured terrorist losses 
(without respect to any trigger amounts). If the industry-wide 
triggering determination is not reached, but the Secretary 
makes a company specific triggering determination, then 
financial cost-sharing is provided to that insurer in an amount 
equal to the difference of 90 percent of the amount of 
theinsured losses of the insurer as a result of such triggering event 
and 10 percent of the net commercial property and casualty premiums 
written by such commercial insurer. Federal assistance is capped at 
$100 billion. Any Federal assistance provided will be repaid through 
the assessments and surcharges provided for in section 7 and 8, and may 
be designated by the President as emergency budget authority and 
outlays. Federal assistance received by an insurer should not be 
treated as a loan for balance sheet purposes. Furthermore, Federal 
assistance will be available for all commercial property and casualty 
insurance companies with policies in force during the coverage period 
of this legislation as long as the insurer was providing terrorism risk 
coverage (or not excluding terrorism risk coverage) on or before 
September 11, 2001.

Section 7. Assessments

    This section is modeled after the State insurance guarantee 
funds that exist in almost every State to address the 
possibility of insurer insolvencies, as well as numerous State 
catastrophic insurance funds. After the Secretary makes a 
triggering determination in section 5, every commercial insurer 
is subject to an assessment of up to 3 percent of its 
commercial premiums for that year. The assessments go back into 
the general fund of the Treasury to repay any Federal cost-
sharing assistance provided under section 6. If the amount 
assessed is insufficient to cover that Federal assistance, then 
the Secretary will make a new assessment in each following year 
until the amount is recouped. The aggregate amount assessed 
will be equal to the lesser of $20 billion (which would take 
approximately 4 years to recoup in its entirety based on 
premium data from calendar year 2000) or the amount of 
financial assistance paid under section 6. Each year's 
assessments are to be based on an insurer's commercial 
insurance premiums for that year, thus applying to new entrants 
as well based on their market share. The Secretary may delay 
the assessment of an insurer to avoid an insolvency and may 
adjust or delay assessments generally as provided in Section 9.

Section 8. Terrorism loss repayment surcharge

    This section applies only to terrorist losses that exceed 
$20 billion, and is modeled after several State catastrophic 
insurance programs. To recoup Federal assistance provided in 
section 6 for amounts above the Federal share of the $20 
billion, the Secretary has the authority to impose a commercial 
policyholder surcharge to the extent that economic and market 
conditions permit. The factors to be weighed in determining the 
extent of the surcharge are the ultimate costs to taxpayers if 
a surcharge is not established, the economic conditions in the 
commercial marketplace, the affordability of commercial 
insurance for small and medium-sized business, and such other 
factors the Secretary considers appropriate. The terrorism 
repayment surcharge will be on all commercial insurance 
premiums based on a percentage of any coverage amounts but in 
any given year may not exceed the amount equal to 3 percent of 
the premium charged for such coverage. For purposes of this 
section, commercial property and casualty insurance does not 
include any reinsurance provided to primary insurance 
companies, so as to avoid a double surcharge.

Section 9. Administration of assessments and surcharges

    This section provides the Secretary with significant 
flexibility in establishing the manner and method of carrying 
out any assessments or surcharges, in particular as necessary 
to protect the national interest, avoid unreasonable economic 
disruption and market instability, and avoid undue burdens on 
small businesses. The Secretary must also take into 
consideration the economic impact of any of these assessments 
and surcharges on commercial centers of urban areas. The 
Secretary may also make special adjustments to provide for 
commercial insurers and policies that are not based on a 
calendar year.

Section 10. Application to self-insurance arrangements and offshore 
        insurers and reinsurers

    In consultation with the NAIC, the Secretary may apply the 
provisions of this bill to self-insurance arrangements by 
municipalities and other entities, but only if that 
determination is made before the occurrence of a triggering 
event and all of the provisions of this legislation are applied 
uniformly to such entities. The Committee expects that many 
types of self-insuring entities may desire or need risk-sharing 
coverage for terrorism attacks, while for others participation 
may be inappropriate. The Secretary is given authority to 
determine which of these entities should be participating, so 
long as application of the benefits and costs are applied 
equally. The Secretary must also ensure that the provisions of 
this bill are applied as appropriate to any offshore or non-
admitted entities that provide commercial property and casualty 
insurance. Both provisions of this section are intended in part 
to prevent evasion of assessments.

Section 11. Reserve for terrorism coverage under commercial lines of 
        business

    This section amends section 832 of the Internal Revenue 
Code of 1986 by eliminating the adverse tax consequences of 
long term insurance reserving, but only to the extent that such 
reserves are set aside in a segregated account and used only 
for the purposes of paying a terrorist-caused loss (including 
assessments) or as directed by a State insurance commissioner 
as part of a plan to avoid insolvency. The rationale for 
creating company-specific reserve funds is to encourage self-
sufficiency in the marketplace by allowing insurers with 
commercial terrorism exposure to set aside and potentially pool 
with other insurers their own capital (on a tax-deferred basis) 
to pay any future claims from terrorism losses. The terrorism 
reserves are required to be held in segregated accounts from 
insurers' other reserves, although they may be pooled together 
in the same account as other insurers' terrorism reserves. Each 
company's reserves are limited by the ratio of an insurer's 
commercial insurance premiums that provide terrorism coverage 
to the entire commercial insurance market (regardless or 
terrorism coverage), as a percentage of $40 billion, the 
national aggregate cap for the life of the fund. Thus, if no 
commercial insurer were to exclude coverage for terrorism, and 
a company underwrites 1 percent of the commercial insurance 
market, the company could over the long-term set aside up to 
$400 million in a segregated terrorism-losses-only account 
without incurring any tax consequences on such reserves. Only 
one-third of this amount may be reserved in 2002. Any reduction 
in an insurer's terrorism reserves for terrorist losses or 
insolvency is included in a company's gross income. 
Furthermore, if an insurer's terrorism reserves exceed its 
eligible amount because of interest income or a reduction in 
market share, the excess amount must be included in income for 
tax purposes. The $40 billion industry-wide cap is indexed for 
inflation.

Section 12. State preemption

    This section preempts certain State laws to ensure uniform 
compliance with the bill. Subsection (a) preempts State laws 
that would conflict with the provision of coverage for acts of 
terror under the definitions of this legislation. Subsection 
(b) establishes a narrow preemption to allow insurers to adjust 
premiums only as necessary to recover the amounts of any 
assessments under section 7. Subsection (c) preempts State pre-
filing approval requirements for commercial property and 
casualty insurance policies covering acts of terrorism due to 
the insufficient time between enactment of this legislation and 
January 1, 2002, but expressly preserves the ability of the 
States to undertake any subsequent review or action on those 
policies.

Section 13. Consistent State guidelines for coverage for acts of 
        terrorism

    This section establishes the sense of Congress that the 
NAIC and the Secretary should consult with each other and 
develop appropriate definitions for acts of terrorism and 
standards for determining the number of terrorist events or 
occurrences. Each State and the Secretary should then adopt 
such definitions and standards. A further sense of the Congress 
is provided that the NAIC should develop appropriate guidelines 
governing insurers' terrorism reserves, including any pooling 
of those reserves. The Secretary is directed to promulgate 
those guidelines on a nationwide basis if the States have not 
adopted guidelines in a uniform manner. A sense of the Congress 
is also provided that the States should establish regulations 
requiring separate disclosure to consumers of the costs of any 
terrorism-related coverage. If the States have not adequately 
adopted such disclosures within a reasonable period of time, 
the Secretary is directed to consult with the NAIC and adopt 
national guidelines requiring such disclosure.

Section 14. Consultation with State insurance regulators and the NAIC

    The Secretary is directed to consult with the State 
insurance regulators and the NAIC in carrying out this bill, 
and may enter into agreements with the States and the NAIC to 
provide for the distribution of financial assistance, or the 
collection of any assessments or surcharges. The Secretary, 
may, in consultation with the State insurance regulators and 
the NAIC, investigate and audit claims of insured losses by 
commercial insurers.

Section 15. Sovereign immunity protections

    This section ensures that the United States will not be 
liable for extraordinary damages in the case of a terrorist 
incident. Subsection (a) creates a Federal cause of action for 
lawsuits arising in connection with a terrorist event that 
results in a triggering determination by the Secretary. This 
cause of action will be the exclusive remedy for damages 
claimed in connection with any such terrorist incident. 
Paragraph (2) provides that the substantive law in any such 
case shall be the law of the State in which the incident 
occurs, unless that law is inconsistent with or preempted by 
Federal law. Paragraph (3) of this subsection requires the 
Judicial Panel on Multidistrict Litigation todesignate one or 
more district courts of the United States to hear those actions, and 
gives those courts original and exclusive jurisdiction over the 
actions. Paragraph (4) invokes the ``collateral source'' rule and 
provides that any recovery by a plaintiff in an action created by this 
subsection will be offset by any payments received by the plaintiff, 
whether such payments come under emergency or disaster relief programs, 
or from any other source.
    Subsection (b) involves actions arising pursuant to the 
cause of action created by subsection (a) which involve claims 
by or against an insured party which is insured under a 
commercial property or casualty policy that provides coverage 
for acts of terrorism of a kind that caused the triggering 
determination. In such a cause of action, paragraph (1) states 
that no punitive damages may be awarded. This paragraph 
protects the Federal taxpayers and insurers from subsidizing 
punitive damage awards relating to acts of terrorism. Most 
States already either prohibit or impose at least some limits 
on the insurability of punitive damages. This paragraph limits 
the application of punitive damages where the costs of an award 
would be subject to the bill's risk-spreading mechanism.
    Paragraph (2) similarly protects the Federal taxpayer from 
awards of noneconomic damages that are not in amounts equal to 
an insured's direct proportional percentage of responsibility 
for harm to the claimant. This paragraph essentially prevents 
an award and pass through of joint-and-several liability for 
noneconomic ``pain and suffering'' damages, particularly to 
avoid having responsibility for damages caused primarily by 
actions of terrorists passed through to the Federal risk-
sharing program.
    Subsection (b) also contains a provision stating that the 
subsection does not limit actions by injured parties for 
damages other than a claim for commercial property and casualty 
insurance.
    Subsection (c) gives the United States the right of 
subrogation with respect to any claim paid by the United States 
under the bill. Subsection (d) ensures that the United States, 
or the Secretary, may seek protective orders or assert 
privileges which are ordinarily available to the United States 
to protect against the disclosure of classified information, 
including military and State secrets privileges.
    Subsection (e) excludes certain persons from liability 
protection under section 15. Paragraph (1) states that section 
15 does not limit the liability of persons who attempt to 
commit, knowingly participate in, knowingly and intentionally 
aid and abet, or commit any terrorist act or any criminal act 
related to or resulting from a terrorist act that causes the 
insured losses resulting in a triggering determination. 
Paragraph (2) states that section 15 does not exclude from 
liability any person who knowingly participates in any 
terrorist act or any criminal act related to or resulting from 
a terrorist act that causes the insured losses resulting in a 
triggering determination.
    Subsection (f) provides that all assets of terrorists or 
terrorist organizations seized or frozen by the United States 
shall be liable for satisfaction of judgments rendered for acts 
of terrorism, in proportions determined by the court.

Section 16. Study of potential effects of terrorism on life insurance 
        industry

    This section directs the President to establish a 
commission to study and report within 120 days after the 
enactment of the bill on the potential effects of acts of 
terrorism on the life insurance industry in the U.S. and 
markets served by such industry. The membership of this 
commission shall include: the Secretary of the Treasury; the 
Chairman of the Federal Reserve System; the Assistant to the 
President for Homeland Security; and four members appointed by 
the President from the insurance community.

Section 17. Railroad insurance study

    This section directs the Secretary of the Treasury to 
conduct a study to determine the availability of commercially 
reasonable railroad insurance for acts of terrorism. The 
Secretary must submit a report to Congress within 120 days 
after enactment of this legislation.

Section 18. Study of reinsurance pool system for future acts of 
        terrorism

    This section directs the Secretary of the Treasury, the 
Federal Reserve Board of Governors, and the Comptroller General 
to jointly conduct a study on (1) the advisability and 
effectiveness of establishing a terrorism reinsurance pool 
system in lieu of the program created by this bill, and (2) the 
effects of creating terrorism reserve funds on the availability 
of terrorism insurance coverage. The study must utilize a 
variety of informational sources and be jointly submitted to 
Congress not later than 6 months after enactment.

Section 19. Definitions

    This section establishes various definitions. The term 
``Act of terrorism'' is defined as an act that is unlawful, 
causes harm to persons or property in the United States or to 
any U.S. air carrier of U.S. flagged vessel outside the United 
States committed by persons who are recognized (prior or 
subsequently) by the Department of State or the Secretary as a 
terrorist group, or who conspire with the surrogates of a 
recognized terrorist group, and has the purpose of 
destabilizing any country or to influence the United States by 
coercion. As defined, an act of terrorism is not an act of war. 
The Secretary is directed to consult with the NAIC to further 
refine this definition. This section further provides that the 
bill only applies to commercial property and causality 
insurance.

Section 20. Extension of program

    This section grants the Secretary authority to extend the 
coverage period of the bill through the 2004 calendar year, if 
the extension is necessary to ensure the adequate availability 
in the United States of commercial property and casualty 
insurance coverage for acts of terror. Extensions are to be 
made on a year-by-year basis and the Secretary is required to 
report to Congress on the reasons for any extensions beyond the 
2002 calendar year.

Section 21. Regulations

    This section grants the Secretary authority to issue 
regulations as necessary to implement this legislation.

         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):

            SECTION 832 OF THE INTERNAL REVENUE CODE OF 1986


SEC. 832. INSURANCE COMPANY TAXABLE INCOME.

  (a) * * *
  (b) Definitions.--In the case of an insurance company subject 
to the tax imposed by section 831--
          (1) Gross income.--The term ``gross income'' means 
        the sum of--
                  (A) * * *

           *       *       *       *       *       *       *

                  (D) in the case of a mutual fire or flood 
                insurance company whose principal business is 
                the issuance of policies--
                          (i) * * *

           *       *       *       *       *       *       *

                an amount equal to 2 percent of the premiums 
                earned on insurance contracts during the 
                taxable year with respect to such policies 
                after deduction of premium deposits returned or 
                credited during the same taxable year, [and]
                  (E) in the case of a company which writes 
                mortgage guaranty insurance, the amount 
                required by subsection (e)(5) to be subtracted 
                from the mortgage guaranty account[.], and
                  (F) each net decrease in reserves which is 
                required by paragraph (1) or (3) of subsection 
                (h) to be taken into account under this 
                subparagraph.

           *       *       *       *       *       *       *

  (c) Deductions Allowed.--In computing the taxable income of 
an insurance company subject to the tax imposed by section 831, 
there shall be allowed as deductions:
          (1) * * *

           *       *       *       *       *       *       *

          (12) the special deductions allowed by part VIII of 
        subchapter B (sec. 241 and following, relating to 
        dividends received); [and]
          (13) in the case of a company which writes mortgage 
        guaranty insurance, the deduction allowed by subsection 
        (e)[.]; and
          (14) each net increase in reserves which is required 
        by subsection (h)(1) to be taken into account under 
        this paragraph.

           *       *       *       *       *       *       *

  (h) Terrorism Reserve for Commercial Lines of Business.--In 
the case of an insurance company subject to tax under section 
831(a)--
          (1) Inclusion for decreases, and deduction for 
        increases, in balance of reserve.--
                  (A) Decrease treated as gross income.--If for 
                any taxable year--
                          (i) the opening balance for the 
                        terrorism commercial business reserve 
                        exceeds
                          (ii) the closing balance for such 
                        reserve,
                such excess shall be included in gross income 
                under subsection (b)(1)(F).
                  (B) Increase treated as deduction.--If for 
                any taxable year--
                          (i) the closing balance for the 
                        terrorism commercial business reserve 
                        exceeds
                          (ii) the opening balance for such 
                        reserve,
                such excess shall be taken into account as a 
                deduction under subsection (c)(14).
          (2) Terrorism commercial business reserve.--For 
        purposes of this section, the term ``terrorism 
        commercial business reserve'' means amounts held in a 
        segregated account (or other separately identifiable 
        arrangement or joint pooled account) which are set 
        aside exclusively--
                  (A) to mature or liquidate, either by payment 
                or reinsurance, future unaccrued claims arising 
                from declared terrorism losses under commercial 
                lines of business, and
                  (B) if so directed by the insurance 
                commissioner of any State, to pay other claims 
                as part of a plan of the company to avoid 
                insolvency.
          (3) Limitation on amount of reserve.--
                  (A) In general.--If the closing balance of 
                any terrorism commercial business reserve for 
                any taxable year exceeds such reserve's limit 
                for such year--
                          (i) such excess shall be included in 
                        gross income under subsection (b)(1)(F) 
                        for the following taxable year, and
                          (ii) if such excess is distributed 
                        during such following taxable year, the 
                        opening balance of such reserve for 
                        such following taxable year shall be 
                        determined without regard to such 
                        excess.
                  (B) Reserve limit.--
                          (i) In general.--For purposes of 
                        subparagraph (A), a reserve's limit for 
                        any taxable year is such reserve's 
                        allocable share of the national limit 
                        for the calendar year in which such 
                        taxable year begins.
                          (ii) National limit.--The national 
                        limit is $40,000,000,000 
                        ($13,340,000,000 for 2002).
                          (iii) Allocation of limit.--
                                  (I) In general.--A reserve's 
                                allocable share of the national 
                                limit for any calendar year is 
                                the amount which bears the same 
                                ratio to the national limit for 
                                such year as the company's net 
                                premium for insurance for 
                                commercial lines of business which 
                                does not exclude coverage for acts of 
                                terrorism bears to the aggregate 
                                written premium for insurance 
                                (without regard to terrorism coverage) 
                                for all companies for commercial 
                                lines of business.
                                  (II) Determination of net 
                                written premiums.--Except as 
                                otherwise provided in this 
                                section, all determinations 
                                under this subsection shall be 
                                made on the basis of the 
                                amounts required to be set 
                                forth on the annual statement 
                                approved by the National 
                                Association of Insurance 
                                Commissioners.
                                  (III) Aggregate written 
                                premiums and net premiums.--For 
                                purposes of this clause, the 
                                terms ``aggregate written 
                                premium'' and ``net premium'' 
                                have the meanings given such 
                                terms in section 19 of the 
                                Terrorism Risk Protection Act.
                          (iv) Inflation adjustment of limit.--
                        In the case of any calendar year after 
                        2002, the $40,000,000,000 amount in 
                        clause (ii) shall be increased by an 
                        amount equal to the product of--
                                  (I) such dollar amount, and
                                  (II) the cost-of-living 
                                adjustment determined under 
                                subsection (f)(3) for such 
                                calendar year, determined by 
                                substituting ``calendar year 
                                2001'' for ``calendar year 
                                1992'' in subparagraph (B) 
                                thereof.
                        If any amount after adjustment under 
                        the preceding sentence is not a 
                        multiple of $1,000,000, such amount 
                        shall be rounded to the nearest 
                        multiple of $1,000,000.
          (4) Declared terrorism losses.--For purposes of this 
        subsection--
                  (A) In general.--The term ``declared 
                terrorism losses'' means, with respect to a 
                taxable year--
                          (i) the amount of net losses and loss 
                        adjustment expenses incurred in 
                        commercial lines of business that are 
                        attributable to 1 or more declared 
                        terrorism events, plus
                          (ii) any nonrecoverable assessments, 
                        surcharges, or other liabilities that 
                        are borne by the company and are 
                        attributable to such events.
                  (B) Declared terrorism event.--The term 
                ``declared terrorism event'' means any event 
                declared by the Secretary of the Treasury to be 
                an act of terrorism against the United States 
                for purposes of this section.
          (5) Regulations.--The Secretary shall prescribe such 
        regulations as may be appropriate to carry out this 
        subsection, and shall prescribe such regulations after 
        consultation with the National Association of Insurance 
        Commissioners.

                            ADDITIONAL VIEWS

    As a result of the September 11th attacks, we are faced 
with numerous economic dislocations that could have devastating 
consequences for our economy. In particular, the withdrawal of 
terrorism coverage by reinsurers may force primary insurers to 
increase premiums for policyholders radically or to withdraw 
coverage entirely. Without such insurance, banks and investors 
will also likely become reluctant to lend or invest in many 
types of businesses and specific areas of the country, 
exacerbating an already slowing economy. The shortage of 
terrorism reinsurance is therefore not an insurance industry 
problem, but rather an economic problem with potentially 
devastating consequences for our Nation.
    Given the implications for our economy, the bill we are 
considering is of enormous significance. We also believe that 
Congress must act to address this problem before we finish our 
business for the year. While we would strongly prefer the 
development of a comprehensive, long-term solution that will 
ensure that terrorism insurance is available and affordable for 
all consumers, we recognize that time constraints prevent us 
from crafting such an approach. Consequently, action before 
adjournment means that we must devise a short-term fix that 
will keep terrorism insurance coverage against any future 
attacks available and affordable, until either private 
reinsurance markets stabilize or we can determine the necessity 
and appropriateness of a longer-term policy response.
    While the Committee made some improvements to the bill 
during our deliberations, we continue to have serious 
reservations about the approach taken in H.R. 3210. The bill in 
some respects contains components more closely resembling a 
loan program than an insurance program. Of the several 
countries that have extensive experience with terrorism 
insurance programs, none has chosen the type of model reflected 
in the underlying bill. There is uncertainty as to how 
accounting firms and rating agencies would assess the 
liabilities of companies under such a model. We also believe 
that at the present time there is a very strong case for 
developing a private-public partnership to share and spread the 
risks of terrorist attacks broadly as the private markets 
discern how to price and manage this new menace to our economy.
    In our view, an appropriate risk-sharing plan must require 
the insurance industry to pay the first dollar associated with 
any additional terrorist attacks, before any federal program 
comes into play. After all, most home, automobile, and health 
insurance policies require individuals to exceed a specified 
deductible level before an insurance company will cover any of 
the costs. These deductibles reduce moral hazard by ensuring 
that policyholders have an incentive to protect themselves. The 
insurance industry must also continue to bear a tangible share 
of the risk of any future terrorist event through cost-sharing 
arrangements with the federal government. We believe that this 
retention of risk by insurers remains essential to the 
development of sound underwriting standards and the re-
emergence of a private market for terrorism risks. In the days 
ahead, we will continue to work diligently to incorporate these 
sensible insurance principles into any product that we will 
enact.
    The insurance industry has indicated that it is willing and 
able to assume an obligation to cover as much as $10 billion of 
losses from future terrorism events before the federal 
government steps in as a backstop. As reported out of 
Committee, however, H.R. 3210 does not impose such an 
obligation on the industry. The insurance industry is well-
capitalized and profitable, and it must assume a fair and 
substantial burden. While the Oxley-Baker bill purports to 
ensure that the government is paid back for what it expends, 
the terms and timing of repayment are totally indefinite. In 
the original bill, a substantial portion of that burden was 
passed on to consumers, calling the availability and 
affordability of insurance into question, particularly for 
small and medium-sized businesses.
    We are committed to working with Chairman Oxley and Mr. 
Baker to include such a mechanism in the bill that goes to the 
floor. As part of that mechanism, we would seek to include 
safeguards to ensure that losses due to an act of terrorist do 
not fall disproportionately on individual companies.
    We are further pleased that the legislation approved by the 
Committee includes several improvements over the introduced 
bill as the result of acceptance of Democratic amendments:
     The bill now designates the Secretary of the 
Treasury as Administrator of the program and clearly authorizes 
auditing powers. We believe these changes will help ensure that 
the program is subject to an appropriate level of meaningful 
regulatory oversight and accountability.
     The authority to impose a surcharge on commercial 
policyholders has now been made discretionary, and the amount 
of surcharge that can be imposed has been capped, which should 
help ensure that terrorism coverage remains broadly available 
and affordable. The Secretary will now be required to take into 
consideration the condition of the economy, the availability of 
insurance, and the impact on smallbusinesses before imposing 
such surcharges. Providing the Secretary with this discretion will help 
to mitigate the potential effects of imposing such charges on consumers 
of insurance at a time when the economy may already be experiencing 
enormous pressures.
     The bill also calls for a study by the Secretary 
and others within six months of enactment regarding the 
advisability of structuring a terrorism reinsurance pool to 
ensure the availability of terrorism insurance in the long 
term. The bill contains a provision giving the insurance 
industry greater authority to accumulate tax-free reserves to 
help cover losses related to further terrorism attacks. We 
opposed the inclusion of the tax provisions. The study which 
has now been included must also assess whether this new 
authority to accumulate tax-free reserves is being abused and 
whether it is in fact essential to the development of a pooling 
mechanism. Such a study will help Congress to take a more 
serious look at such proposals when we return next year.
    Given the need for swift and resolute action on this 
problem, however, we remain dismayed about the extraneous 
measures contained in the bill. From our perspective, we should 
develop a narrowly crafted bill designed to address only the 
problem at hand. The approach must be straightforward, 
streamlined, and workable. We therefore should analyze every 
element in our proposed bill to ensure that it is either needed 
to keep terrorism insurance available, to provide appropriate 
oversight, or to help us gather information to develop a long-
term response to this problem.
    The Democratic substitute we proposed took this approach. 
This substitute would have provided for an appropriate private/
public risk sharing, required the insurance industry to be 
responsible for a significant level of losses associated with 
any future terrorist attack before any taxpayer funds were 
committed, and provided appropriate protections to ensure that 
an individual insurer would not be disproportionately affected. 
While ensuring that an undue level of costs were not passed on 
to consumers, the substitute omitted the tax provisions of H.R. 
3210, as well as those provisions concerning victims' recovery 
rights. Although certain important features of the substitute 
have been included in the provisions of the bill, more should 
be done.
    In particular, while H.R. 3210 purports to recover money 
from industry, the tax provision can be seen as providing the 
industry with a long-term subsidy that could well exceed what 
it pays. While we are pleased by the addition of provisions to 
protect against the fraudulent use of such reserves to manage 
earnings, we believe that the sections of the bill that 
establish tax-free reserves for terrorism risks should 
beremoved from the bill. It may prove necessary to include such 
provisions in a long-term solution to reestablish stability in the 
terrorism risk reinsurance marketplace, but we should not hastily write 
into law such advantages without first seriously considering their 
costs and benefits. The study on a terrorism pool included in the bill 
is the appropriate mechanism for determining whether maintaining such a 
reserve mechanism is advisable as part of a longer term solution, and 
we are pleased that it will examine whether the tax-free reserves 
provided by this bill should be retained or eliminated.
    It is important to note that the insurance industry has not 
asked for this tax benefit and it is not asking to be, and does 
not need to be, bailed out. We must be certain that in our 
creation of a government backstop we do not inadvertently 
``bail them out'' through unnecessary tax relief. Moreover, the 
establishment of sizable tax-free reserves could have the 
effect of hindering the re-emergence of the private reinsurance 
market. We therefore should think carefully before taking this 
step.
    We also have very serious concerns with section 15 of the 
bill, the misnamed ``Sovereign Immunity'' section. Section 
15(a) would force every legal action involving a terrorism-
related claim (including those which are not seeking insurance 
coverage) into federal court, and mandate collateral source 
offset in all such cases. Section 15(b) would eliminate 
punitive damages and joint and several liability for non-
economic damages in insurance coverage cases for property and 
casualty insurance. We are concerned that, rather than 
protecting the insurance market, these changes will harm the 
legitimate legal rights of the victims of terrorism.
    Section 15(a) is problematic for several reasons. First, 
federalizing all terrorism related cases \1\ does not appear to 
be justified. What this provision does is take hundreds and 
thousands of potential tort actions that would ordinarily go 
into state court and funnel them into already overburdened 
federal courts having little or no expertise in the state law 
subject matter of the tort claim. We have seen no evidence that 
the current system of federalism, which has served our nation 
well for over two hundred years, is not able to deal with 
future terrorism related cases. Certainly, there have been 
precedents for federalizing very limited forms of legal 
actions. That has generally been limited, however, to 
situations where the federal government is also assuming direct 
liability for the legal action. This was the case in the 
recently enacted Air Transportation Safety and System 
Stabilization Act, which federalized legal actions arising from 
the September 11 terrorist attack against airlines, but did so 
in the context of creating a federal fund to pay for the 
victims' damages. In the present legislation, the federal 
government will not be assuming any direct liability for victim 
claims, so there is no clear quid pro quo that would justify 
the federal intrusion into traditional state law prerogatives.
---------------------------------------------------------------------------
    \1\ The proposed change is written so broadly that it would limit 
victims' rights in every terrorism-related civil action, whether state 
or Federal, even if the insurer is not a party to the action. This is 
because almost all losses are subject to insurance, even if the 
coverage is negligible or the cost to the insurer minimal.
---------------------------------------------------------------------------
    Second, we are concerned the critical term ``act of 
terrorism'' is undefined within the text of the legislation and 
thus grants far too much bureaucratic latitude to the 
administrator to designate an event an ``act of terrorism.'' 
For example, under the bill the administrator could go too far 
in making such designations, such that losses incurred due to a 
hoax or practical joke could be considered acts of terrorism.
    Third, we have concerns regarding the collateral offset 
provision which overrides state law to require that a victim's 
recovery for any terrorism-related loss be offset by any funds 
received pursuant to an emergency or disaster relief program, 
or other collateral source. Under this provision losses caused 
by negligence or wrongdoing would be shifted from negligent 
defendants to private insurers or others who made the 
``collateral source'' payment. In our view, mandating offsets 
for collateral source benefits is just plain bad public policy. 
Such offsets (1) allow a negligent defendant to profit from the 
victims prudent investment in insurance; (2) undermine the 
deterrent effect of our civil justice system by allowing 
defendants to escape full liability for their negligence; and 
(3) provide a disincentive for persons to obtain and maintain 
adequate insurance or other protections. Moreover, the 
provision overreaches because any funding given to the victim, 
even funds from a voluntary organization, would have to be used 
to offset relief payments made by culpable defendants. We see 
no reason why victim relief funds received from the Red Cross 
or other humanitarian group should be used to offset damage 
payments and reduce a wrongdoer's culpability. Such a system 
could only discourage the efforts of disaster relief and other 
non-profit organizations at times when they are desperately 
needed.
    At the outset we note that section 15(b) was improved at 
the markup through the Bentsen amendment to specify that the 
damage limitations would apply only to ``a claim for commercial 
property and casualty insurance resulting from an act of 
terrorism causing atriggering determination.'' \2\ This means 
that the damage limits of section 15(b) would not apply to non-
insurance claims. Nonetheless, it is still difficult to justify the 
damage limitations set forth in this section.
---------------------------------------------------------------------------
    \2\ The Bentsen amendment superseded the Cox amendment also added 
at the markup. The Cox amendment appeared to say that the bill affords 
its protections not only to insurers but also to businesses insured by 
them.
---------------------------------------------------------------------------
    As amended by the Bentsen amendment, the subsection would 
prohibit a business from buying insurance to protect itself 
from liability for punitive damages and joint and several 
liability for non-economic damages in actions against insurers. 
Under the American system of insurance regulation and the 
American legal regime governing tort actions, the authority to 
restrict the types of losses that may be insured have been left 
to the states. In fact, only about half of the states prohibit 
a person from purchasing insurance to cover claims from 
punitive damages. States also permit a business to purchase 
insurance to protect itself from joint and several liability 
for non-economic damages. Section 15(b) would overturn several 
states' laws that permit businesses to protect themselves from 
these types of claims.
    The premise of the bill is that the taxpayers will be 
repaid any financial assistance by the insurers and the 
purchases of commercial policies. As a result, there is no 
justification for overturning state law under the guise of 
protecting the Federal taxpayers. We are concerned that these 
limitations on insurance policies will deprive businesses of 
protection that they can purchase today. Ultimately, this will 
unfairly penalize victims that are harmed by defendants without 
sufficient assets to pay punitive or non-economic damages.
    Given our concerns, it is difficult to understand the 
justification for section 15 of the legislation, other than 
perhaps creating a new precedent for broad ``tort reform.'' 
Unfortunately, in pursuing that objective the majority has 
created a confused and awkward new legal regime, which is very 
likely to cause more harm than good. We hope that these 
provisions are deleted on the floor or in conference with the 
Senate.
    In sum, we believe that we must temporarily intervene in 
the reinsurance marketplace to safeguard against a cascading 
economic crisis, and we must quickly act on this legislation. 
Although we are pleased that the Committee made a number of 
substantial and perfecting modifications to the bill during its 
deliberations, we can and should make additional improvements 
to H.R. 3210 as it continues its path through the legislative 
process. Time is of the essence, and we will continue to work 
with all interested parties on these matters in the upcoming 
days.

                                   John J. LaFalce.
                                   Paul E. Kanjorski.
                                   Carolyn B. Maloney.
                                   Luis V. Gutierrez.
                                   Brad Sherman.
                                   Barbara Lee.
                                   Janice D. Schakowsky.
                                   Stephanie Tubbs Jones.
                                   Michael E. Capuano.
                                   Harold E. Ford, Jr.
                                   Joseph Crowley.
                                   Steve Israel.

        ADDITIONAL VIEWS OF MESSRS. CROWLEY, WATT, AND GUTIERREZ

    We are pleased that the Committee has recognized the 
importance of expedited action on the issue of terrorism 
insurance coverage. Additionally, while we have some concerns 
about the Oxley-Baker proposal that passed through the 
Committee, it did represent a solid, bipartisan start to 
crafting a workable piece of legislation to address this 
insurance crisis in America.
    One of the key faults, though, with the Oxley-Baker 
proposal is the lack of language stipulating inclusion of 
personal property and casualty lines, as opposed to just 
commercial P&C; lines, in this back-stop legislation.
    The goal of the underlying legislation is to ensure that 
commercial insurance carriers do not attach a terrorism 
exclusion in their policies, price insurance for terrorism out 
of reach, or depart the market all together. This represents a 
serious and legitimate concern. Unfortunately, these same 
problems will exist with respect to personal P&C; lines without 
any Federal action.
    To this end, an amendment was offered and withdrawn at 
mark-up on this issue. While the understanding at the time was 
that the Chairman was unprepared to accept any such language, 
he was open to the idea.
    It is imperative that personal lines be included in this 
legislation.
    The basic purpose of this legislation is to serve as a 
Federal back-stop for the property and casualty insurance 
industry; thereby keeping coverage accessible and premiums 
affordable.
    Excluding personal lines will lead to increased costs for 
policy holders and a potential lack of accessibility for 
coverage, particularly for those Americans living in high-risk 
areas.
    As our nation braces itself for possible future attacks on 
our soil, we could be exposed to millions of dollars in 
personal P&C; claims if another urban area is attacked and 
results in great damage to the neighborhoods surrounding that 
targeted area.
    Congress cannot advance legislation where large commercial 
enterprises can afford insurance and their residential 
neighbors are left exposed.
    Additionally, as the reinsurance industry often does not 
differentiate between personal or commercial lines, without a 
Federal back stop for personal P&C;, insurance risks for 
personal P&C; coverage will significantly increase, inviting 
possible exclusions from terrorism for personal lines, greatly 
increased premiums to homeowners or a complete fleeing from the 
market--the same justified fears we have about the commercial 
lines.
    While insurance itself is a concept based on risk, the 
insurance industry is based on risk avoidance, hence the 
reasoning behind actuarial models and reinsurance.
    Without enveloping personal P&C; into any back-stop 
legislation, there is little chance that the insurance industry 
will continue to provide personal lines of coverage at an 
affordable price, as carriers will not know the risks 
associated with this coverage and would lack any Federal back-
stop protections.
    To support this argument, the Independent Insurance Agents 
Association of New York specifically requested that both 
commercial and personal lines be covered under any terrorism 
insurance package, stating that without such, Americans could 
see large increases in personal line premiums.
    Furthermore, without the inclusion of personal lines, 
personal P&C; carriers would not be subject to the uniform 
definition of terrorism outlined in H.R. 3210. Again, this 
would threaten personal policy holders.
    While the point is made by some that inclusion of personal 
lines in this legislation would drive up personal premiums, a 
key fact to take note of is that personal, as well as 
commercial, P&C; premiums will increase next year.
    The issue then becomes one where without the presence of a 
Federal back-stop, personal P&C; premiums, particularly in high-
risk areas, will not only increase but skyrocket.
    Now is the time for Congress to work together for sound 
legislation to ensure that terrorism insurance can and will be 
both accessible and affordable to US commercial and personal 
property and casualty holders.

                                   Joseph Crowley.
                                   Melvin L. Watt.
                                   Luis V. Gutierrez.

    ADDITIONAL VIEWS OF MS. LEE, AND MESSRS. ISRAEL, SANDERS, FORD, 
                           CAPUANO, AND FRANK

    During committee consideration of H.R. 3210, Representative 
Lee offered an amendment, cosponsored by Representatives 
Gutierrez, Frank, and Meeks, to require that any insurance 
company wishing to benefit from the provisions in the bill 
would have to first provide information on the policies they 
provide on the basis of race, ethnicity, gender, and location 
to ensure that minorities and individuals in low-income 
communities are not discriminated against. While we are 
disappointed that this amendment failed, on a mostly party-line 
vote, we continue to believe that data disclosure by the 
insurance industry is essential.
    It is only logical that if we are to provide the insurance 
industry with billions of taxpayer dollars that we should 
require them to provide this important data which the 
Administration, Congress, and American public can use to 
determine if any insurance company is engaging in the 
discriminatory practice of redlining.
    The federal government currently has no access to this data 
from the insurance industry. The data provisions in the 1977 
Home Mortgage Disclosure Act (HMDA) that require banks and 
other depository institutions to submit annual reports do not 
apply to insurance. This HMDA data is an extremely valuable 
tool in rooting out discriminatory practices by banks. 
Currently, only 8 states (CA, IL, MD, MA, MN, MO, TX, and WI) 
require this kind of beneficial data.
    A number of civil rights, business, consumer, and labor 
groups support data disclosure in as a condition of any 
reinsurance legislation. Those groups are:
    ACORN
    Center for Community Change
    Center for Public Dialog
    Coalition for Indian Housing and Development
    Consumers Union
    The Enterprise Foundation
    Filipino American Political Association
    Greenlining Institute
    International Union, UAW
    Leadership Conference on Civil Rights
    McAuley Institute
    National Black Business Council
    National Community Reinvestment Coalition
    National Council of Asian American Business Associations
    National Council of La Raza
    National Fair Housing Alliance
    National Housing Trust
    National League of Cities
    National Low Income Housing Coalition
    National Neighborhood Coalition
    National Puerto Rican Coalition
    National Training and Information Center
    Woodstock Institute
    Opponents of the Lee amendment to H.R. 3210 in committee 
stated that we could not require data collection from the 
insurance industry because there was no federal role for 
insurance. We would argue that H.R. 3210 in and of itself 
creates a federal role in insurance and thus data disclosure is 
appropriate and needed.
    We hope that the Members of the Financial Services 
Committee will consider adding the data disclosure provisions 
in the Lee amendment in the final version of H.R. 3210.
    Signed,

                                   Barbara Lee.
                                   Steve Israel.
                                   Bernard Sanders.
                                   Harold E. Ford, Jr.
                                   Michael E. Capuano.
                                   Barney Frank.

                    ADDITIONAL VIEWS OF MR. BENTSEN

    I support H.R. 3210, the Terrorism Risk Protection Act, 
because I believe that it balances the need to address the 
impending crisis in the reinsurance market and its effect on 
the economy while protecting the interests of the taxpayers. 
The bill is not perfect legislation but it is the best that can 
be accomplished in the short period of time available to 
address the problem of pricing risk of terrorism without 
catastrophic economic consequences. The bill combines aspects 
of all proposals put forward including those of the 
Administration and the reinsurance industry. Rather than 
providing first dollar coverage by the taxpayers of insurance 
company losses, the bill implements a deductible provision 
which will not distort the market more so than necessary. The 
bill additionally provides for taxpayers to recoup any losses 
paid from the industry. These measures combine both the 
immediate need for a federal backstop to insure that policies 
are written this year along with recoupment not dissimilar from 
the pooled premium model advanced by some in the industry. 
While arguments concerning the low level of the deductible and 
tax-exempt status of reserves are legitimate, they continue to 
be outweighed by lack of viable alternatives to ensure equity 
among insurers regardless of size and protection of the 
taxpayers' interests.
    Additionally, legitimate concerns are raised with respect 
to the liability sections in the bill. Here again, balance is 
necessary for the benefit of the taxpayers. Given the unique 
nature of both the insured incident, terrorism, and the 
underwriting of that risk by the taxpayers, some restrictions 
may well be in order. In addition, it is assumed that this 
legislation and the federal involvement will be temporary and 
so should any limitation with respect to liability. Adoption of 
the amendment I offered preserving the rights of injured 
parties except with respect to claims against property and 
casualty insurance policies covered under this act is necessary 
in ensuring that balance. Limiting the exposure of the 
taxpayers in return for underwriting the risk of terrorism 
should not be assumed as limiting the exposure of property 
owners or other defendants for negligent actions. The Bentsen 
amendment clearly underscores the Committee's intent that 
liability for negligent actions are not shielded. Nor should 
any liability limitations contained in a final bill be 
considered precedent setting or less extraordinary than the 
underlying bill itself.
    The Committee also adopted my amendment which would limit 
any extension within the three-year period of the legislation 
to no more than one year at a time. Given the uncertainty of 
the reinsurance market in the aftermath of September 11, 2001 
and the lack of time for Congress to fully study the 
implications and structures of federal involvement, any measure 
ultimately adopted must be short term.
    The failure of Congress to act to ensure stability in the 
reinsurance market for property and casualty insurance would be 
devastating to many sectors of our economy. The inability to 
price risk for terrorism insurance in the aftermath of 
September 11 could very well lead to a wholesale withdrawal 
from the marketplace or dramatic increase in costs with 
negative consequences to the economy at exactly the wrong time. 
Any characterization of this legislation as a ``bail out'' is 
inaccurate. In fact, the Committee-adopted bill makes strong 
provision toward ensuring against taxpayer bailout and loss. 
The bill, while not perfect, strikes the appropriate balance 
erring to benefit of the taxpayers.

                                                       Ken Bentsen.

                            DISSENTING VIEWS

    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 for 
90% of the costs of a terrorist incident when the total cost of 
those incidents exceeds a certain threshold. While insurance 
companies are technically responsible for paying back monies 
received from the Treasury, the administrator of this program 
may defer the repayment in order to ``avoid the likely 
insolvency of the commercial insurer.'' This language may cause 
administrators to indefinitely defer paying back loans, thus 
causing taxpayers to permanently bear this loss. This scenario 
is especially likely when one considers that ``avoid . . . 
likely insolvency'' is a highly subjective standard, and that 
any administrator who attempts to enforce a strict repayment 
schedule will likely 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. Those who my be persuaded to 
vote for this bill on the grounds that is it only a 
``temporary'' program should ask themselves what will happen in 
two 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 fail to reauthorize this 
``temporary'' insurance program or provide some other form of 
taxpayer help to the insurance industry? My colleagues should 
remember that the federal budget is full of expenditures for 
long-lasting programs that were originally intended to be 
``temporary.''
    H.R. 3210 further compounds the danger to the taxpayer 
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 that 
type of private activity. In fact, H.R. 3210 exacerbates the 
potential moral hazard problem by not making insurance 
companies pay a deductible before they can receive taxpayer 
funds! This bill gives no indication of even recognizing 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 is inadvertently increasing 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, a tax credit approach avoids the moral 
hazard problems associated with federally-funded insurance. 
H.R. 3210 does take a good first step in this direction by 
repealing the tax penalty which prevents insurance companies 
from properly reserving funds for human-created catastrophes, 
however, Congress should do more to provide tax deductions and 
credits for terrorism insurance.
    In conclusion, H.R. 3210 may reduce the risk to insurance 
companies from future losses, but it increases the costs 
incurred by American taxpayer. 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.

                                                          Ron Paul.