March 5, 2004 

Dear Mr. S: 

This letter is written in response to your letter on behalf of NNN, an association of 

nonprofit organizations in California, in which you requested an interpretation 

concerning the application of the Terrorism Risk Insurance Act of 2002 (the “Act”) and 

Treasury’s regulations implementing the Act, to a non-insurer, self-insured risk pool’s 

purchase of a “master policy” providing terrorism-only commercial liability coverage 

issued by an insurer participating in the Terrorism Risk Insurance Program (Program).1

 

As a preliminary matter, we affirm that a self-insured risk pool is not an insurer 

under the Program and cannot itself participate in the Program by purchasing commercial 

terrorism-only coverage issued by an insurer through a “master policy” mechanism; only 

those entities that meet the definition of “insurer” can participate in the Program. 

However, an insurer that participates in the Program and issues such coverage to a selfinsured risk pool may be entitled to federal payment under the Program provided that all 

other conditions to payment under the Act and regulations have been met. 

Background

NNN is a group self-insured risk pool that provides commercial liability insurance 

to its members. NNN’s members are non-profit corporations located in California. 

NNN’s gross written premiums from its approximately 4,000 member-insureds are 

approximately $30.9 million annually.2

Although NNN operates like an insurance company, you are correct that NNN is 

not an “insurer” for purposes of the Program, as that term is defined in the Act and 

implementing regulations.3

 NNN is not an insurer because it: 

 

a) is neither licensed nor admitted to engage in the business of providing primary or 

excess insurance in any state;4

 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

 This data appeared on the NNN website (accessed July 30, 2003). 

3

 In order to meet the definition of insurer, an entity must meet the criteria found at section 

102(6)(A), (B), and (C) of the Act. See also 31 C.F.R. §50.5(f). 

4

 31 C.F.R. §50.5(f)(1)(i)(A). 
b) is not an eligible surplus lines carrier listed on the Quarterly Listing of Alien 

Insurers of the National Association of Insurance Commissioners;5

c) is not approved or accepted by any federal agency to offer property and casualty 

insurance;6

 and 

d) is not classified in California as a state residual market insurance entity or state 

workers’ compensation fund.7

 

We note, however, that a self-insurance arrangement like NNN might be eligible 

to participate in the Program as a “licensed or admitted” insurer if the arrangement is a 

risk pool that meets certain other “licensed or admitted” criteria set out in our regulations. 

NNN Does Not Meet Other “Licensed or Admitted” Criteria. 

Under the regulations, a pooling arrangement is considered “licensed or admitted” 

under 31 C.F.R. §50.5(f)(1)(i)(A), and thus can qualify as an insurer, if the entity: 

(1) has gone through a process of being licensed or admitted to engage in the 

business of providing primary or excess insurance that is administered by the 

State’s insurance regulator, which process generally applies to insurance 

companies or is similar in scope and content to the process applicable to insurance 

companies; 

(2) is generally subject to State insurance regulation, including financial reporting 

requirements, applicable to insurance companies within the State; and 

(3) is managed independently from other insurers participating in the Program.

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Treasury believes NNN fails to meet the first two criteria. NNN has not gone 

through any process of being licensed or admitted to engage in the business of providing 

primary or excess insurance that is administered by the California Insurance 

Commissioner, nor is it subject to California insurance regulation. NNN operates as a 

risk pool pursuant to Section 5005.1 of the California Corporations Code and is not 

subject to the rules, regulation, and supervision of the California Department of 

Insurance. NNN is regulated as a charitable non-profit by the Attorney General of 

California. 

 5

 31 C.F.R. §50.5(f)(1)(i)(B).

6

 31 C.F.R. §50.5(f)(1)(i)(C).

7

 31 C.F.R. §50.5(f)(1)(i)(D). 

8

 31 C.F.R. §50.5(f)

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NNN Is a Self-Insured Arrangement.

As explained above, NNN is a self-insured risk pool. The Secretary has not 

extended the provisions of the Act to self-insured risk pools pursuant to his authority 

under section 103(f) of the Act. Therefore, although we recognize that you have 

requested that the Secretary extend application of the Program to self-insured 

arrangements, NNN cannot participate in the Program at this time. 

NNN Proposed Action

Despite not being an “insurer” under the Program, NNN would like to provide its 

members with terrorism insurance.9

 You have explained in your letter that NNN can not 

obtain affordable reinsurance and that the available reinsurance is “wholly inadequate.”10 

If NNN could avail itself of the federal backstop provided by the Act, it could offer more 

affordable terrorism coverage to its members. However, as explained above, NNN is not 

an “insurer” under the Program and it is not entitled to the federal backstop. Thus, NNN 

proposes to proceed by purchasing a “master policy” from a risk retention group within 

its same group of companies. 

NNN is part of the Nonprofits Insurance Alliance which is made up of four

distinct companies, including a risk retention group – the Nonprofits Insurance Alliance 

Risk Retention Group (RRG). RRG is a risk retention group that provides commercial 

liability insurance to non-profit organizations located outside the State of California. 

RRG is an existing Vermont-domiciled captive insurance company and is consequently 

an “insurer” under the Program.

11 

 

NNN plans on RRG issuing a stand-alone commercial liability insurance policy 

that would cover losses caused only by acts of terrorism certified by the Secretary 

pursuant to section 102(1)(A) of the Act. RRG’s commercial liability insurance, as

described, would be considered commercial property and casualty insurance, as defined 

in the regulations. Thus, as an insurer issuing commercial property and casualty 

insurance coverage for insured losses, RRG has the benefit of the Act’s backstop. 

RRG is registered with the Insurance Department of California to conduct the 

business of insurance in that State and could sell the insurance directly to NNN’s 

 9

 NNN may already do so. According to NNN’s 2002 Annual Report, “both RRG and NNN offer

terrorism coverage to members who wish to purchase it.” 

10 According to NNN’s 2002 Annual Report and its Consolidated Financial Statements, NNN 

obtains its reinsurance from another member of the National Insurance Alliance which is a captive 

reinsurer, which in turn retrocedes the NNN risk to Swiss Re. Id. 

11 31 C.F.R. §50.5(f)(1)(i)(A). Unlike captive insurers that have been formed after the enactment 

of the Act and that only provide TRIA-only coverage (a special purpose vehicle Treasury is concerned 

about if designed to avoid the Act’s deductible requirements), RRG was incorporated in 1999, began its 

operations in 2001, and offers various commercial coverages to non-profits. 

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members if they joined RRG as members. However, NNN is not proposing that RRG 

sell its commercial liability insurance product directly to NNN’s non-profit members, 

which you explained during a conference call would be permitted under California law. 

Instead, NNN proposes to have RRG, an insurer, issue the insurance to NNN in the form

of a “master policy.”12 Under the master policy, NNN would be the policyholder and 

NNN’s members would have the option to purchase the coverage and be issued a 

certificate of insurance under the master policy as additional named insureds. NNN 

would act as agent for RRG by placing the terrorism coverage and collecting premiums

on behalf of RRG . 

Conclusion

Under the facts and circumstances stated above, we conclude that the federal 

backstop provided by the Act is available to share in losses paid by RRG under the 

master policy planned to be issued to NNN and its members, as presented. This is 

because: 1) the insurance is issued by RRG, an “insurer”; and 2) the insurance policy 

provides “property and casualty insurance.” Also, NNN would be acting as agent for 

RRG, and RRG would receive all the coverage premiums collected by NNN from the 

additional insureds. Moreover, RRG (not NNN) would be responsible for any resulting 

claims that may arise under the master policy. 13 

If you have any specific questions, please telephone our office at 202-622-6770. 

* * * 

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, and such facts or assumptions 

are material to a conclusion presented in this response, then the requestor may not rely on 

that conclusion generally or as support for any proposed or subsequent activity. 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 

 12 A master policy is one that is issued to a group policyholder setting forth the provisions of the 

group insurance plan. The individuals insured under the policy are then issued certificates of insurance. 

Master policies are typically issued to an employer or trustee, establishing a group insurance plan for

designated members of an eligible group. 

13 Neither the Act nor our regulations dictate to whom primary or excess property and casualty

insurance is to be sold, which is regulated by State insurance regulation. The Act generally preserves State 

insurance regulation and this letter assumes that the master policy mechanism you have presented is 

permitted under applicable State law. 

Also, we would note that should the Treasury issue regulations pursuant to Section 103(f), given

the corporate structure of the Nonprofits Insurance Alliance, there could be as yet undetermined

implications for calculating the Alliance’s insurer deductible under the Program at least on a prospective 

basis. 

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regulations. As provided in Section 50.9 of the regulations, this response and your 

request for interpretation will be publicly available as soon as practicable. 

TERRORISM RISK INSURANCE PROGRAM

___________________________________ 

Jeffrey S. Bragg 

Executive Director 

 

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