On April 23, 2013, the Federal Insurance Office (FIO), on the behalf of the President’s Working Group on Financial Markets (PWGFM), published a request for comments in the Federal Register on the long-term availability and affordability of insurance for terrorism risk. The comment period is open through September 16, 2013.

The Terrorism Risk Insurance Act (TRIA) is scheduled to expire December 31, 2014. Currently, there are three bills that would extend TRIA.

The TRIA Reauthorization Act of 2007 requires the PWGFM to issue a report in 2013 on the long-term availability and affordability of insurance for terrorism risk. The PWGFM previously issued reports on terrorism risk insurance in 2006 and 2010. PWGFM members include the Secretary of Treasury as well as the chairpersons of the Board of Governors of the Federal Reserve System, the Securities and Exchange Commission, and the Commodities Futures Trading Commission. The FIO is charged with drafting the 2013 terrorism risk insurance report. 

The FIO has asked for comments on many issues including the effects of the termination of TRIA, take-up rates, suggested changes for any future programs, availability of reinsurance and consideration of additional risks. Specifically, FIO would like commenters to:

  1. Explain in detail any and all possible ramifications from the termination of the Terrorism Risk Insurance Program (Program) on December 31, 2014, including any available evidence to support the predicted result, regarding:

    (a) The availability and affordability of insurance for terrorism risk in the U.S. generally;

    (b) The availability and affordability of insurance for terrorism risk in the U.S. specifically by: line of business, geographic location, including the rating tiers defined by the Insurance Services Office, Inc. and other relevant characteristics; and

    (c) Additional specific effects on commerce in the U.S.
  2. Explain in detail any revisions or modifications to the Program, if it were to continue beyond December 31, 2014, that would promote the availability and affordability of terrorism insurance, including any accompanying challenges that might arise from any proposed revisions or modifications to the Program. All views regarding the appropriate role of the federal government in supporting the availability and affordability of insurance for terrorism risk are welcome.
  3. Explain the insurance industry’s ability to model, quantify, and underwrite terrorism risk, and the resulting impact of such analysis on the availability and affordability of terrorism insurance, including an examination of the price (by line of business, location of risk and other relevant characteristics) and coverage options for terrorism insurance.
  4. Explain, with supporting information where available, any additional insurance market considerations that could impact the long-term availability and affordability of terrorism insurance (e.g. implications for coverage of insurance for nuclear, biological, chemical and radiological acts of terrorism; cyber acts of terrorism; and terrorism in workers' compensation policies).
  5. Explain in general the demand or “take-up” of terrorism insurance and provide specific data and information, where available, regarding the take-up rate by line of business, location of the risk and other relevant characteristics.
  6. Explain in detail the long-term availability and affordability of private reinsurance for terrorism risk. Analyze, with supporting information, the impact of the Program, and any changes to the Program, on the private reinsurance market for terrorism risk, including any accompanying challenges that might arise from revisions or modifications to the Program.
  7. Describe any other developments, considerations or market issues that might affect the long-term availability and affordability of terrorism risk insurance.

Richard Cordray Confirmed to Lead the CFPB

The U.S. Senate on July 16, 2013, voted to confirm Richard Cordray as Director of the Consumer Financial Protection Bureau (CFPB). Cordray was originally appointed to be director through a recess appointed in January 2012.

Letter from Rep. Neugebauer Regarding International Regulatory Developments

Rep. Randy Neugebauer, Chair of a Congressional Subcommittee on Housing and Insurance, sent a letter to FIO Director Michael McRaith on July 15, 2013, requesting monthly updates as of August 1, 2013 regarding the FIO’s activities. The letter requested the following information:

  1. An estimated timeline of the key dates when significant decisions will be made with respect to G-SIIs and ComFrame, such as IAIS and FSB committee or working group meetings or reports;
  2. A description of the U.S. federal policy positions on key prudential issues under debate at the IAIS including, but not limited to, the methodology for designating G-SIIs and any policy measures to be applied to them, the new requirements in ComFrame, and potential group capital assessments or group capital standards;
  3. A description of how the FIO has worked collaboratively with state insurance regulators and other U.S. insurance supervisors to finalize and approve U.S. federal policy positions;
  4. To the extent that the policy positions do not support U.S. state insurance regulatory standards, what cost-benefit analysis has been performed, and to what extent do the policy positions have the support of the U.S. state insurance regulators; and
  5. How the FIO plans to coordinate agreement on a united U.S. policy position going forward before the critical decision points identified above between the insurance regulators and interested federal entities, including the voting insurance member of Financial Stability Oversight Council (FSOC) and the United States Trade Representatives (USTR).

Neugebauer states in his letter that McRaith’s testimony on June 14, 2013, to the House Subcommittee on Insurance and Housing “highlighted the importance of [the] ongoing discussions” at the IAIS. Neugebauer explains that the requested information will help the subcommittee “better understand our U.S. position and coordination efforts.”

Insurer Named SIFI by FSOC

FSOC, on July 9, 2013, named an insurance group as a Systemically Important Financial Institution (SIFI). A copy of the basis for the final determination is available here.

FIO Focus issue 13 provides an overview of FSOC’s three-stage process for determining if nonbanks, including insurance companies, are SIFIs. The proposed determination of several nonbanks by FSOC was discussed in FIO Focus issue 33.