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October 19, 2006 

Dear Mr. X: 

This letter is a response to your request on behalf of XYZ for an interpretation of 

the application of the Terrorism Risk Insurance Act of 20021

 (“TRIA” or the “Act”), as 

amended,2

 and Treasury’s regulations implementing the Act,3 to a captive insurance 

program (Captive) insuring the ABC. 

Captive is eligible for federal compensation for an insured loss if: it is an 

“insurer” under TRIA; its insured loss arises from “property and casualty insurance” 

coverage within the meaning of TRIA; the captive program for ABC is not a means of 

avoiding the purposes of the Act and Treasury’s implementing regulations; and all other 

conditions for payment are met. Based on your description, Captive appears to be an 

“insurer” under TRIA and is providing a type of coverage that meets the definition of 

“property and casualty insurance” under TRIA. 

In previous interpretative letters and public comments we urged caution in 

structuring a captive insurance program as a means of avoiding the purposes and 

requirements of the Act and Treasury’s regulations. For example, with regard to a 

captive issuing a stand-alone policy, we have said: 

The post-enactment formation or utilization of a captive insurer that will only 

provide stand-alone, single-risk TRIA-only coverage for losses from acts of 

terrorism raises questions regarding the integrity of the Program. We believe that 

an entity considering forming a captive insurer for stand-alone, single risk 

terrorism insurance should be strongly cautioned and advised against undertaking 

such proposed action if it is doing so in order to avoid the Act’s deductible 

requirements.4

 

After review of the facts you have provided concerning the structure and role of 

the captive insurance program you contemplate for ABC, it does not appear that the 

program is an attempt to avoid the deductible requirements of TRIA and Treasury 

regulations. 

While this letter is intended to provide some guidance, a definitive determination 

of Captive’s status and its eligibility for any Federal share of compensation under TRIA 

cannot occur until a claim for federal compensation is actually made. Section 50.50(d) of 

Treasury’s regulations sets out certain conditions for payment of the Federal share of 

 

1

 This response is being issued pursuant to 31 C.F.R. §50.9, which sets forth a procedure whereby persons 

actually or potentially affected by the Act or regulations may request an interpretation. 

2 The TRIA Program was recently extended through 2007 by Pub. L. 109-144, 119 Stat. 2660, 15 USCS § 

6701, note. 

3 See 31 CFR Part 50. 4 See TRIP Interpretative Letter of March 2, 2004 (Stand-Alone Terrorism Coverage & Captive Insurer). 
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compensation. Under Section 50.50(d)(4), Treasury shall pay the appropriate amount of 

the Federal share of compensation to an insurer upon a determination that: 

Neither the insurer's claim for Federal payment nor any underlying claim 

for an insured loss is fraudulent, collusive, made in bad faith, dishonest or 

otherwise designed to circumvent the purposes of the Act and regulations. 

Treasury’s determination as to whether the conditions for Federal payment have been 

met, including whether any captive program established by XYZ circumvents the 

purposes of the Act and Treasury’s regulations, will be made at time of the presentment 

of Captive’s claim for federal compensation for any insured losses it may incur, and not 

before. 

Based on the facts you have provided, we conclude that Captive is an insurer 

under the Program and may be eligible for any Federal share of compensation provided 

by the Act for insured losses if other applicable conditions required under the Program, 

such as claims and limits, are otherwise met. This response addresses the application of 

the Act and regulations to the specific situation set forth in your request, as you have 

represented the facts to Treasury. If there is a change in any of the facts or assumptions 

presented or other facts become known to Treasury, and such facts or assumptions are 

material to a conclusion presented in this response, then you may not rely on that 

conclusion generally or as support for any proposed or subsequent course of action. 

This response is provided by the Terrorism Risk Insurance Program as a means of 

stating its current interpretation of the Act and regulations. The Program may revise or 

revoke this interpretation upon its own initiative or upon the enactment of amendments to 

the Act or regulations. As provided in 31 CFR § 50.9, a redacted version of this response 

may be made publicly available as soon as practicable. 

___________________________________ 

Jeffrey S. Bragg 

Executive Director 

Terrorism Risk Insurance Program