Analysis by the President's Working Group on Financial Markets on the Long-Term Availability and Affordability of Insurance for Terrorism Risk, 11460-11461 [E6-3150]

Agencies

• DEPARTMENT OF THE TREASURY
• Department of Treasury

[Federal Register Volume 71, Number 44 (Tuesday, March 7, 2006)]
[Notices]
[Pages 11460-11461]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-3150]


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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: Department of the Treasury, Departmental Offices.

ACTION: Notice; request for comments.

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SUMMARY: The Terrorism Risk Insurance Extension Act of 2005 requires 
the President's Working Group on Financial Markets to perform an 
analysis 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.
    As chair of the President's Working Group, Treasury is issuing this 
notice seeking public comment to assist the President's Working Group 
in its analysis.

DATES: Comments must be in writing and received by April 21, 2006.

ADDRESSES: Please submit comments (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 3160 Annex, Department of the Treasury, 1500 
Pennsylvania Avenue, NW., Washington, DC 20220. Because postal mail may 
be subject to processing delay, we recommend that comments be submitted 
by electronic mail to: PWGComments@do.treas.gov. All comments should be 
captioned with ``President's Working Group on Financial Markets: 
Terrorism Risk Insurance Analysis.'' 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). All comments received 
will be available for public inspection by appointment only at the 
Reading Room of the Treasury Library. To make appointments, please call 
one of the numbers below.

FOR FURTHER INFORMATION CONTACT: C. Christopher Ledoux, Senior Policy 
Analyst, Office of Financial Institutions Policy, 202-622-6813; or 
Mario Ugoletti, Director, Office of Financial Institutions Policy, 202-
622-2730 (not toll free numbers).

SUPPLEMENTARY INFORMATION: On November 26, 2002, the President signed 
into law the Terrorism Risk Insurance Act of 2002 (Pub. L. 107-297, 116 
Stat. 2322) (hereinafter referenced as ``TRIA''). TRIA's purposes are 
to address market disruptions, 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 (Program), including the issuance of regulations and 
procedures. As originally enacted, the Program was to end on December 
31, 2005.
    Congress subsequently approved and on December 22, 2005, the 
President signed into law the Terrorism Risk Insurance Extension Act of 
2005 (Pub. L. 109-144, 119 Stat. 2660) (the Extension Act). The 
Extension Act continued the Program for two years until December 31, 
2007, revised several structural aspects of the Program, and required 
an analysis of the availability and affordability of terrorism risk 
insurance. Specifically, the Extension Act amended section 108 of TRIA 
to require the President's Working Group on Financial Markets,\1\ in 
consultation with the National Association of Insurance Commissioners, 
representatives of the insurance industry, representatives of the 
securities industry, and representatives of policy holders, to perform 
an analysis 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. 
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. TRIA, as amended by the Extension Act, requires 
the President's Working Group on Financial Markets to submit a report 
to Congress on its findings no later than September 30, 2006.
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    \1\ The President's Working Group on Financial Markets 
(established by Executive Order 12631) is comprised of the Secretary 
of the Treasury (who serves as its Chairman), the Chairman of the 
Federal Reserve Board, the Chairman of the Securities and Exchange 
Commission, and the Chairman of the Commodity Futures Trading 
Commission.
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    Treasury, on behalf of the President's Working Group, is soliciting 
comments, including empirical 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, 
including terrorism risk insurance coverage for group life and for 
chemical, nuclear, biological, and radiological events. We request that 
submitters distinguish between risk from foreign and domestic terrorism 
in their comments. In addition, we seek and solicit comment in response 
to the following specific questions:

I. Long-Term Availability and Affordability of Terrorism Risk Insurance

    1.1 In the long-term, what are the key factors that will determine 
the availability and affordability of terrorism risk insurance 
coverage? How can these factors be measured and projected?
    1.2 What improvements have taken place in the ability of insurers 
to measure and manage their accumulation of terrorism risk exposures? 
How will this evolve in the long-term?
    1.3 What improvements have taken place in the ability of insurers 
to price terrorism risk insurance, including in the development and use 
of modeling? How will this evolve in the long-term?
    1.4 How, if at all, were primary insurers' pricing decisions 
affected by the anticipated expiration of TRIA at the end of 2005, 
particularly for insurance policies extending into 2006 that cover 
terrorism risk? What role did the pricing and availability of 
reinsurance play in those decisions?
    1.5 What role do mitigation efforts related to terrorism risk play 
in an insurer's underwriting and pricing decisions? How will this 
evolve in the long-term?
    1.6 What is the current availability of reinsurance to cover 
terrorism risk? Please distinguish by line or type of insurance being 
reinsured and on what basis (treaty or facultative). How will this 
evolve in the long-term?
    1.7 At what policyholder retention levels are insurance programs 
being structured to cover terrorism risk; and, with regard to insurers, 
how are

[[Page 11461]]

reinsurance programs likewise being structured? Please comment on the 
availability and affordability at each level.
    1.8 In the long-term, what are the key factors that will determine 
the amount of private-market insurer and reinsurer capacity available 
for terrorism risk insurance coverage? How will this evolve in the 
long-term? Please comment on potential entry of new capital into 
insurance markets.
    1.9 To what extent have alternate risk transfer methods (e.g., 
catastrophe bonds or other capital market instruments) been used for 
terrorism risk insurance, and what is the potential for the long-term 
development of these products?
    1.10 To what extent have captive insurance companies been used for 
terrorism risk insurance, and what is the potential for the use of 
captive insurers to insure against such risk long-term?
    1.11 Have state approaches made coverage more or less available and 
affordable, such as through permitted exclusions and rate regulation? 
To what extent will the long-term availability and affordability of 
terrorism risk insurance be influenced by state insurance regulation? 
Please comment on state approaches to ensure the continued availability 
and affordability of terrorism risk insurance in the absence of the 
TRIA Program being in-place (include state approaches after September 
11, 2001 and before TRIA became law on November 24, 2002, as well as 
state approaches in preparation for the expiration of the TRIA 
Program).
    1.12 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, if so, to what degree are those 
changes attributable to the degree and manner in which each market is 
regulated?
    1.13 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-US locations?

II. Long-Term Availability and Affordability of Group Life Insurance 
Coverage

    2.1 What impact, if any, does terrorism risk have on the 
availability and affordability of group life insurance coverage to the 
policy holder (e.g., employer) and certificate holders (e.g., 
employees)? How will this evolve in the long-term?
    2.2 To what extent is an insurer's decision to issue group life 
coverage influenced by aggregation or accumulation risk in certain 
locations? What steps have group life insurance providers taken or do 
they plan to take to offset any aggregation or accumulation risk?
    2.3 Has terrorism risk made group life coverage less affordable to 
the policy or certificate holder? Have group life insurance rates 
increased or decreased as compared to rates before and since September 
11, 2001?
    2.4 Please explain how group life insurance coverage may be bundled 
with other coverages and benefits provided through an employee-benefits 
program, and how group life coverage is priced, either separately or 
collectively, through such programs. Please describe any effects 
competition has on such pricing.
    2.5 Are group life providers voluntarily providing coverage for 
loss of life arising out of or resulting from acts of terrorism, or is 
coverage mandated by any state or federal laws? Are group life 
providers prohibited by law from excluding terrorism risk from group 
life insurance policies?
    2.6 Has terrorism risk affected segments of the group life market 
differently, such as in the case of small/medium sized employers, and 
if so, why?
    2.7 In the long-term, what are the key factors that will determine 
the availability and affordability of terrorism risk insurance coverage 
for group life insurance?

III. Long-Term Availability and Affordability of Insurance Coverage for 
Chemical, Nuclear, Biological, and Radiological (CNBR) \2\ Events 
Caused by Terrorism

    3.1 What is the current availability and affordability of coverage 
for CNBR events, and 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?
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    \2\ Though CNBR is commonly used to refer collectively to 
chemical, nuclear, biological, and radiological losses, comments can 
be narrow in addressing any of the coverages. If the comment makes 
such a distinction, please make clear which coverage is being 
addressed.
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    3.2 What was the general availability of coverage for CNBR events 
prior to the terrorist attack of September 11, 2001? To what extent, 
subject to what limits, and for what perils was coverage available? Did 
it cover acts of terrorism?
    3.3 If coverage for CNBR events caused by acts of terrorism is 
available, please describe generally to what extent (i.e., limits, 
locations, exclusions, etc.) for what kinds of insurance and from what 
types of insurers (i.e., large/small, admitted/surplus lines, etc.). 
How will this evolve in the long-term?
    3.4 To what extent is terrorism risk coverage available and 
affordable for nuclear facilities and for chemical plants, 
manufacturers, and industrial chemical users?
    3.5 To what extent, both prior to and since September 11, 2001, 
have various states allowed insurers to exclude coverage for CNBR 
events? Please comment on requirements for workers' compensation and 
fire-following coverage.
    3.6 It appears that some insurers are unwilling to provide coverage 
for CNBR events caused by acts of terrorism even with the federal loss 
sharing provided by the TRIA Program. Why would this be the case given 
that TRIA limits an insurer's maximum loss exposure?
    3.7 In the long-term, what are the key factors that will determine 
the availability and affordability of terrorism risk insurance coverage 
for CNBR events?

    Dated: February 27, 2006.
Emil W. Henry, Jr.,
Assistant Secretary of the Treasury.
[FR Doc. E6-3150 Filed 3-6-06; 8:45 am]
BILLING CODE 4811-37-P