[Federal Register Volume 75, Number 116 (Thursday, June 17, 2010)]
[Notices]
[Pages 34530-34533]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-14639]
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DEPARTMENT OF THE TREASURY
Analysis by the President's Working Group on Financial Markets on
the Long-Term Availability and Affordability of Insurance for Terrorism
Risk
AGENCY: Departmental Offices, Department of the Treasury.
ACTION: Notice; request for comments.
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SUMMARY: The Terrorism Risk Insurance Act of 2002 (Pub. L. 107-297, 116
Stat. 2322), as amended by the Terrorism Risk Insurance Program
Reauthorization Act of 2007 (Pub. L. 110-160, 121 Stat. 1839), requires
the President's Working Group on Financial Markets to perform an on-
going analysis regarding the long-term availability and affordability
of insurance for terrorism risk.
The President's Working Group on Financial Markets (established by
Executive Order 12631) is comprised of the Secretary of the Treasury,
the Chairman of the Board of Governors of the Federal Reserve System,
the Chairman of the Securities and Exchange Commission, and the
Chairman of the Commodity Futures Trading Commission (or their
designees). The Secretary of the Treasury, or his designee, is the
Chairman of the President's Working Group on Financial Markets. As
chair of the President's Working Group on Financial Markets, Treasury
is issuing this Notice for public comment to assist the President's
Working Group with its analysis.
DATES: Comments must be in writing and received by August 2, 2010.
ADDRESSES: Please submit comments electronically through the Federal
eRulemaking Portal: http://www.regulations.gov, or by mail (if hard
copy, preferably an original and two copies) to Treasury's Office of
Financial Institutions Policy, Attention: President's Working Group on
Financial Markets Public Comment Record, Room 1417 MT, Department of
the Treasury, 1500 Pennsylvania Avenue, NW., Washington, DC 20220.
Because postal mail may be subject to processing delay, it is
recommended that comments be submitted electronically. All comments
should be captioned with ``President's Working Group on Financial
Markets: Terrorism Risk Insurance Analysis.''
[[Page 34531]]
Please include your name, affiliation, address, e-mail address and
telephone number(s) in your comment. Where appropriate, comments should
include a short Executive Summary (no more than five single-spaced
pages).
In general, comments received will be posted on http://www.regulations.gov without change, including any business or personal
information provided. Comments received, including attachments and
other supporting materials, are part of the public record and subject
to public disclosure. Do not enclose any information in your comment or
supporting materials that you consider confidential or inappropriate
for public disclosure. In addition, all comments received will be
available for public inspection by appointment at the Reading Room of
the Treasury Library. To make appointments, please call the number
below.
FOR FURTHER INFORMATION CONTACT: C. Christopher Ledoux, Acting
Director, Office of Financial Institutions Policy, 202-622-2730 (not a
toll free number).
SUPPLEMENTARY INFORMATION: The Terrorism Risk Insurance Act of 2002
(Pub. L. 107-297, 116 Stat. 2322) (hereinafter referenced as ``TRIA'')
was enacted on November 26, 2002. TRIA's purposes are to address market
disruptions, to ensure the continued widespread availability and
affordability of commercial property and casualty insurance for
terrorism risk, and to allow for a transition period for the private
markets to stabilize and build capacity while preserving State
insurance regulation and consumer protections. Title I of TRIA
established a temporary Federal program of shared public and private
compensation for insured commercial property and casualty losses
resulting from an act of terrorism, as defined in the Act. TRIA
authorized Treasury to administer and implement the Terrorism Risk
Insurance Program (hereinafter referenced as the ``Program''),
including the issuance of regulations and procedures.
As originally enacted, the Program was to end on December 31, 2005;
however, on December 22, 2005, the Terrorism Risk Insurance Extension
Act of 2005 (Pub. L. 109-144, 119 Stat. 2660) was enacted, which
extended the Program through December 31, 2007. On December 26, 2007,
the Terrorism Risk Insurance Program Reauthorization Act of 2007 (Pub.
L. 110-160, 121 Stat. 1839) was enacted, which extended the Program
through December 31, 2014.
Section 108(e) of TRIA, as amended by the Terrorism Risk Insurance
Extension Act of 2005, required the President's Working Group on
Financial Markets to perform an analysis and report to Congress
regarding the long-term availability and affordability of insurance for
terrorism risk, including group life coverage and coverage for
chemical, nuclear, biological, and radiological events.
In September 2006, the President's Working Group on Financial
Markets submitted a report to Congress on Terrorism Risk Insurance.
That report can be accessed at http://www.treas.gov/offices/domestic-finance/financial-institution/terrorism-insurance/pdf/report.pdf. The
report found that the availability and affordability of terrorism risk
insurance had improved since the terrorist attacks of September 11,
2001, including that pricing for terrorism risk insurance had fallen
and take-up (purchase) rates had risen. The improvement was due to
several factors including better risk measurement and management,
improved modeling of terrorism risk, increased reinsurance capacity,
and the financial condition of property and casualty insurers. Still,
the report also found that a significant number of policyholders were
not purchasing coverage at that time. The report found that group life
insurance (which is not included in the Program) remained generally
available, that prices had declined, and that there had been
improvements in the availability of catastrophic life reinsurance. The
report concluded that there appeared to be little potential for future
market development of terrorism risk insurance for losses associated
with chemical, nuclear, biological, and radiological attacks.
In addition to extending the Program through 2014, the Terrorism
Risk Insurance Program Reauthorization Act of 2007 amended Section 108
of TRIA to require an on-going analysis by the President's Working
Group on Financial Markets regarding the long-term availability and
affordability of insurance for terrorism risk generally. The
President's Working Group on Financial Markets is required to submit a
report to Congress in 2010 (and another report again, in 2013). The
President's Working Group on Financial Markets is to conduct its
analysis in consultation with the National Association of Insurance
Commissioners, representatives of the insurance industry,
representatives of the securities industry, and representatives of
policyholders. This Notice seeks comment from these and any other
interested parties as a means of satisfying the consultation
requirement in the most open and efficient manner.
I. General Solicitation for Comments About the Long-Term Availability
and Affordability of Terrorism Risk Insurance
Please comment generally; and please include data and other
information in support of such comments, where appropriate and
available, regarding the long-term availability and affordability of
insurance for terrorism risk. All relevant views and comments are
invited.
In addition, please consider providing comments in response to the
following specific questions:
II. Specific Questions
Key Factors
1. What are the key factors that determine the availability and
affordability of terrorism risk insurance coverage? How are these
factors being measured and projected today? What factors will determine
the availability and affordability of terrorism risk insurance long-
term? The President's Working Group on Financial Markets discussed
various factors in its 2006 report, referenced above; how have these
factors changed or developed since then?
2. What are the key factors that determine the amount of private-
market insurer and reinsurer capacity made available for terrorism risk
insurance coverage? How have these factors changed since 2006, when the
President's Working Group on Financial Markets issued its last report?
How will such factors evolve in the long-term and upon what factors
will available capacity most depend?
Economic Factors
3. How, in general, has the state of the financial markets and
economy, and the financial condition of commercial property and
casualty insurers, affected the availability and affordability of
terrorism risk insurance; and how does that compare with effects on the
availability and affordability of other lines or types of commercial
property and casualty insurance? Please comment on potential entry of
new capital into, as well as any exits from, the terrorism insurance
and reinsurance markets.
Underwriting
4. What changes and improvements have taken place in the ability of
insurers to measure and manage their accumulation of terrorism risk
exposures, and how (as well as to what extent) are primary insurers
using
[[Page 34532]]
available methods? Has improved risk accumulation management led to
more availability? Has there been any improvement in modeling of
frequency and terrorist behavior? What has been learned from the near-9
years of experience in managing and assessing terrorism risk since
September 11, 2001? Overall, how has modeling improved and/or continued
to develop since 2006, when the President's Working Group on Financial
Markets issued its last report? How is modeling expected to evolve
further in the long-term?
5. What role do mitigation and loss prevention play in underwriting
and pricing terrorism risk insurance? How has mitigation developed
since 2002, what improvements have been made since 2006, to what effect
has the availability of terrorism risk insurance had on mitigation and
vice versa; and, how will mitigation evolve in the long-term?
6. What is the state of information sharing between and among the
private and official sectors related to terrorism risk: (a) How much
reliance is placed on open and private source intelligence; (b) how has
it affected the availability and affordability of terrorism risk
insurance; and, (c) how will such information processes further develop
and affect the availability and affordability of terrorism risk
insurance in the long-term?
Coverage
7. What changes and improvements have taken place with regard to
the types of terrorism risk insurance coverage available in the market?
What changes and improvements have taken place since 2006? Have there
been improvements and changes in forms, are there special terms or
conditions? What is the state of standalone, ``TRIA-only'' coverage? Is
available coverage limited to, or broader than that required to be made
available under TRIA?
8. What are the differences in availability and affordability of
terrorism risk insurance coverage for foreign and domestic terrorist
acts?
9. Did the Terrorism Risk Insurance Program Reauthorization Act of
2007's amendment to the definition of ``act of terrorism'' lead to more
availability due to the requirement that such coverage be made
available, or was such coverage available prior to 2007; conversely,
did the amendment lead to less coverage due to the broadened scope of
``act of terrorism'' exclusions, or were exclusions revised to
distinguish between coverage of foreign and domestic terrorist acts?
10. What are the differences in availability and affordability of
terrorism risk insurance coverage for losses at U.S. locations, as
compared to such coverage for losses at non-U.S. locations? What are
the differences as compared between TRIA-covered locations and non-TRIA
locations?
Policyholder Demand
11. How has the demand for terrorism risk insurance changed since
2006, when the President's Working Group on Financial Markets issued
its last report? Please comment on take-up by policyholder sector,
location, line, and other relevant characteristics. How have any
changes in demand influenced the willingness of insurers to allocate
capital to terrorism risk insurance? Has there been any impact on the
amount of capital allocated to non-terrorism coverage or among lines of
insurance?
12. To what extent have businesses used captive insurance companies
to provide terrorism risk insurance, and what is the potential for the
use of captive insurers to insure against such risk long-term? How have
stand-alone terrorism captives developed, and how will these evolve
long-term, including after the expiration of the Program in 2014?
13. Have State approaches (such as those applicable to mandatory
coverage, permitted exclusions, and rate regulation) made coverage more
or less available and affordable? Have there been any changes in State
insurance regulation of terrorism risk insurance since the Terrorism
Risk Insurance Program Reauthorization Act of 2007 was enacted? To what
extent has the availability and affordability of terrorism risk
insurance been influenced by State insurance regulation, and what role
is State regulation expected to have long-term? Please comment on
State-approved terrorism related rate loads.
14. What are the differences in availability and affordability of
terrorism risk insurance between the licensed/admitted market and the
non-admitted/surplus lines market, and to what degree are those
differences attributable to the degree and manner in which each market
is regulated?
Price of Insurance
15. What improvements have taken place in the ability of insurers
to price terrorism risk insurance? How are rating organizations
assisting insurers in pricing, and how have rating factors developed?
16. What have been the trends in pricing of terrorism risk
insurance? Please comment on the extent to which such coverage is not
priced and charged-for. How has pricing changed since 2006, when the
President's Working Group on Financial Markets issued its last report?
To what do you attribute any changes?
17. How has the recent ``soft market'' impacted the availability of
and affordability of terrorism risk insurance? What would be the impact
on the availability and affordability of terrorism risk insurance
should the market ``harden'' in the near future?
18. How were primary insurers' pricing decisions affected by the
Terrorism Risk Insurance Program Reauthorization Act of 2007,
particularly as to the requirement to make available coverage for acts
of terrorism being no longer defined as limited to those committed on
behalf of any foreign person or foreign interest?
Reinsurance
19. What is the current availability and cost of reinsurance to
cover terrorism risk? Please distinguish by line or type of insurance
being reinsured and on what basis (treaty or facultative). How has the
terrorism reinsurance market changed since 2006, when the President's
Working Group on Financial Markets issued its last report? To what do
you attribute any changes?
20. At what policyholder retention levels are insurance programs
being structured by policyholders to cover terrorism risk (e.g.,
deductibles, self-insurance, captives); and, with regard to insurers,
how are reinsurance programs being structured and at what attachment
points? Please comment on the availability and affordability of
reinsurance for terrorism risk.
21. Are reinsurers allocating more capital to terrorism risk
insurance, and has capacity changed since 2006, when the President's
Working Group on Financial Markets issued its last report? Are insurers
willing to pay the cost of terrorism risk reinsurance, and is that a
factor affecting the allocation of capital to the risk; how much
additional capital could be attracted long-term?
22. How have provisions of the Terrorism Risk Insurance Program
Reauthorization Act of 2007 affected the terrorism risk reinsurance
market? More specifically, how has maintaining and not increasing the
insurer deductible percentage applied against direct earned premiums
(from Program lines), as well as not decreasing the Federal share of
losses above the insurer deductible, affected the provision and
development of private reinsurance?
23. To what extent have alternate risk transfer methods (e.g.,
catastrophe bonds or other capital market instruments) been
successfully or unsuccessfully used for terrorism risk insurance, and
what is the potential for
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the long-term development of these approaches?
Losses Associated With Chemical, Nuclear, Biological, and Radiological
(CNBR) Acts
24. What is the current availability and affordability of coverage
for CNBR events? For what perils is coverage available, subject to what
limits, and under what policy terms and conditions? Is there a
difference in the availability and affordability of coverage for CNBR
events caused by acts of terrorism? To what extent have various States
allowed insurers to exclude coverage for CNBR events (Please comment on
requirements for workers' compensation and fire-following coverage.)?
How have exclusions developed?
25. Is it the case that some insurers appear unwilling to provide
coverage for CNBR events caused by acts of terrorism, despite TRIA
limits on an insurer's maximum loss exposure? If so, why?
26. In the long-term, what are the key factors that will determine
the availability and affordability of terrorism risk insurance coverage
for CNBR events? The President's Working Group on Financial Markets
previously reported that there appeared to be little potential for
market development. Has anything changed since 2006?
Deductible and Co-Share Levels
27. Under the Program, an insurer's annual deductible is a
percentage of certain direct earned premiums (as defined by TRIA and
regulation). TRIA, as originally enacted, graduated the percentage
applied for each year. The Terrorism Risk Insurance Program
Reauthorization Act of 2007 established a set percentage of 20 percent
for each Program year beginning in 2007. Please comment for each year
since 2006 as to whether direct earned premiums in TRIA lines and
insurer deductibles have increased or decreased? If so, in what
amounts? Please provide data as available.
28. How might any increases to the insurer deductible level or
decreases to the Federal share above such deductible levels, prior to
the Program's expiration in 2014, affect the availability and
affordability of terrorism risk insurance? Please comment on the
degree, amount or increment of any recommended increase.
Expiration of the Program
29. Describe efforts undertaken by the insurance industry and/or
policyholders since 2006, when the President's Working Group on
Financial Markets issued its last report, to ensure the availability
and affordability of terrorism risk insurance after 2014 when the
Program expires, and long-term?
30. Please comment on any anticipated State approaches to ensure
the continued availability and affordability of terrorism risk
insurance after the Program expires in 2014 (such as those approaches
taken by the States after September 11, 2001 and before TRIA was
enacted on November 26, 2002).
31. Please comment on any other developments in markets that might
affect the continued availability and affordability of terrorism risk
insurance.
32. In the absence of the Program, in what forms, at what levels,
under what terms and conditions, and at what price might terrorism risk
insurance be available; and, at what duration (i.e., long-term)? Please
distinguish from State-mandated coverage, such as workers' compensation
and fire insurance.
Michael S. Barr,
Assistant Secretary of the Treasury.
[FR Doc. 2010-14639 Filed 6-16-10; 8:45 am]
BILLING CODE 4810-25-P