Rwanda: In Brief

Summary: Rwanda, a small landlocked country in central Africa's Great Lakes region, has seen rapid development and security gains since about 800,000 people—mostly members of the ethnic Tutsi minority—were killed in the 1994 genocide. The ruling Rwandan Patriotic Front (RPF) ended the genocide by seizing power in mid-1994 and has been the dominant force in Rwandan politics ever since. The Rwandan government has won donor plaudits for its efforts to improve health, boost agricultural output, encourage foreign investment, and promote women's empowerment. Yet, analysts debate whether Rwanda's authoritarian political system—and periodic support for rebel groups in neighboring countries—could jeopardize the country's stability in the long-run, or undermine the case for donor support.

Summary: President Paul Kagame, in office since 2000, won reelection to another seven-year term in 2017 with nearly 99% of the vote, after the adoption of a new constitution that effectively exempted him from term limits through 2034. Kagame's overwhelming margin of victory may reflect popular support for his efforts to stabilize and transform Rwandan society, as well as a political system that involves constraints on opposition activity and close government scrutiny of citizen behavior. In response to external criticism, Kagame has generally denied specific allegations of abusing human rights while asserting that restrictions on civil and political rights are necessary to prevent the return of ethnic violence.

Summary: The United States and Rwanda have cultivated close ties since the mid-1990s, underpinned by U.S. development aid and support for Rwanda's robust participation in international peacekeeping. Congress has helped shape U.S. engagement through its appropriation of foreign aid and other legislative initiatives, along with oversight and direct Member outreach to Rwandan officials. Over the past decade, successive Administrations and Congress have continued to support U.S. partnership with Rwanda on development and peacekeeping, while criticizing the government's human rights record and periodic role in regional conflicts. Congress has notably enacted provisions in aid appropriations legislation restricting U.S. military aid to Rwanda if it is found to be supporting rebel groups in neighboring countries. The Obama Administration temporarily applied such restrictions, along with others pursuant to separate child soldiers legislation, citing Rwandan support for rebels in the Democratic Republic of Congo (DRC) and Burundi. There have been fewer reports of Rwandan support for rebel groups in recent years.

Summary: After meeting with President Kagame in early 2018, President Trump expressed appreciation for U.S.-Rwandan economic ties, Rwanda's contributions to peacekeeping, and Kagame's pursuit of African Union institutional reforms. In line with the Administration's proposals to decrease foreign aid worldwide, its FY2020 budget request would provide $117 million in bilateral aid to Rwanda, a 28% decrease from FY2018 levels. U.S. peacekeeping-related military assistance for Rwanda has drawn on regionally- and centrally-managed funds, and is not reflected in these totals. The Administration has also suspended Rwanda's eligibility for trade benefits under the African Growth and Opportunity Act (AGOA, reauthorized under P.L. 114-27), in response to alleged market barriers to U.S. exports of used clothing.

Rwanda has achieved a rare degree of political stability, public safety, and economic growth in a sub-region plagued by armed conflicts and humanitarian crises. Government programs to improve health, agricultural output, private investment, and gender equality have received international plaudits and donor support. Rw anda's development and security gains are particularly remarkable in the wake of the 1994 genocide, in which extremist members of the ethnic Hutu majority orchestrated a three-month killing spree targeting the minority Tutsi community, along with members of the tiny indigenous Twa ethnic group and Hutus who opposed the massacres. The ruling Rwandan Patriotic Front (RPF) seized power in mid-1994, stopping the genocide. Since then, President Paul Kagame has been widely viewed as the architect of Rwanda's development "miracle" and of its autocratic political model. He has repeatedly won reelection by wide margins, most recently in 2017 (see " Politics ").

The United States and Rwanda have cultivated close ties since the mid-1990s, underpinned by U.S. aid in support of Rwanda's ambitious socioeconomic development initiatives and participation in international peacekeeping. Over the past decade, U.S. officials and some Members of Congress have continued to promote U.S.-Rwanda partnership on shared objectives, while voicing concerns regarding Rwanda's authoritarian political system and its periodic support for rebel groups in neighboring countries. Congress has held multiple hearings examining these and related issues, and has enacted restrictions on aid to Rwanda if it is found to be supporting rebel groups (see " U.S. Relations and Aid " ).

In late 2017, then Acting Assistant Secretary of State for Africa Donald Yamamoto testified to Congress that U.S.-Rwandan relations were "close but complex," acknowledging democracy shortfalls and human rights concerns. President Trump met with President Kagame at the World Economic Forum in Davos, Switzerland, in January 2018, and expressed appreciation for bilateral economic ties, Rwanda's contributions to peacekeeping operations, and Kagame's pursuit of African Union (AU) institutional reforms as then-chairman of the institution. In line with the Administration's broad proposals to decrease foreign aid worldwide, it has advocated cuts to funding for Rwanda, including health and development aid. In 2018, President Trump also suspended Rwanda's trade benefits under the African Growth and Opportunity Act (AGOA, reauthorized via P.L. 114-27 ) in response to Rwanda's allegedly protectionist policies, in the context of the Administration's skepticism toward nonreciprocal trade preference programs.

International perspectives on Rwanda tend to be polarized. Kagame's supporters assert that he is a visionary and that Rwanda represents an extraordinary post-conflict success story. To some, Rwandan voters' support for Kagame is easily explained: "he has kept them from killing each other ... [and] has also given them a sense of hope and pride." Others argue that restrictions on political and civil rights may ultimately undermine Rwanda's hard-won stability, and that limits on civil liberties may mask ethnic, political, and social tensions. Given evident constraints on free expression, some observers argue that "we simply don't know ... what Rwandans want from their political leaders." Some critics separately have questioned the reliability of Rwanda's development statistics—a key justification for donor aid. Critics also posit that the ruling party's reportedly extensive involvement in the economy may be stifling independent private sector growth. Kagame has dismissed external criticism as inaccurate, irrelevant, neocolonialist, and/or morally vacuous given the international community's failure to halt the genocide.

The RPF-led government has pursued rapid economic development and social transformation while effectively suppressing political dissent and public discussion of ethnic identity. President Kagame, leader of the RPF and a former military intelligence figure and rebel commander, is widely viewed as the country's preeminent decision-maker. He first ascended to the presidency in an internal party election in 2000, and has won reelection with over 90% of the popular vote in every subsequent contest (in 2003, 2010, and 2017). An RPF-led coalition holds the majority of seats in parliament; nearly all remaining seats are held by parties that refrain from directly criticizing the RPF or Kagame. The State Department has noted concerns with aspects of each election conducted under RPF rule, such as apparent procedural irregularities, a lack of transparency in vote tabulation, media restrictions, and legal challenges, threats, or criminal prosecutions targeting opposition candidates and parties.

Public criticism of the government is rare; human rights advocates assert that "years of state intimidation and interference" have weakened the capacity of local civil society or media outlets to act as a check on state power. Over the years, political opponents have been jailed, fled the country, or died under murky circumstances. Laws criminalizing genocide ideology and denial, along with state security charges, have been wielded against opposition figures, journalists, and other government critics. Some researchers have described pervasive official surveillance and involvement in citizens' daily lives, part of an apparent effort to ensure rapid implementation of development initiatives, mobilize support for the RPF, suppress criminal activity, and monitor potential opposition activity, ethnic tensions, or security threats.

Kagame has defended Rwanda's political system as rooted in popular support, asserting that "imposing a style of democracy without understanding the context, culture or norm of a country is ignorant." Rwandan officials generally reject allegations of abusing human rights, while asserting that restrictions on civil liberties are necessary to prevent ethnic violence in a fragile post-conflict setting. Some Rwandans, including journalists and civil society actors, agree.

Kagame would have been subject to a constitutional two-term limit on the presidency in 2017, but a new constitution approved in 2015 via referendum—with a reported 98% of the vote—exempted the sitting president, allowing him to run for a third term. He won with 99% of the vote. After Kagame's current term expires, the presidential term is to be shortened to five years per the new constitution; Kagame could then run for two more consecutive terms, thus potentially remaining in office until 2034. He has denied any intention to do so, stating that he is preparing Rwanda for an unspecified future leadership transition.

Tolerance of opposition voices seems to have increased slightly since Kagame's reelection in 2017, although a significant shift in the contours of Rwandan politics appears unlikely. Two prominent opposition figures were released from jail in 2018. Diane Rwigara, a vocal Kagame critic (and daughter of a well-known businessman and Tutsi genocide survivor) who was jailed on charges of forgery and inciting insurrection shortly after seeking to run for president in 2017, was acquitted following international advocacy on her behalf, including from some Members of Congress. Victoire Ingabire, who had sought to run against Kagame in 2010 and was serving a prison sentence for alleged genocide denial and seeking to form an armed group, received a presidential pardon. So did several other members of Ingabire's FDU-Inkingi party ("United Democratic Forces-Pillar"), which remains illegal. Several other FDU-Inkingi supporters remain in prison; others have been killed in unclear circumstances.

Also in 2018, the Democratic Green party, a relatively independent opposition movement (and not affiliated with Rwigara or Ingabire), won two seats in parliament after competing for the first time in legislative elections. The Green party was not granted legal registration in time to run candidates in the 2013 legislative vote; its presidential candidate, Frank Habineza, won less than 1% in the 2017 presidential vote. The party's deputy leader was killed in unclear circumstances prior to the 2010 presidential election, soon after the party was founded in 2009.

The RPF's political leadership appears to have narrowed from a diverse set of actors in the 1990s to an apparently small circle around the president. Over the years, various top RPF officials and military officers have faced criminal charges, some on national security grounds, or have fled the country. In 2010, several prominent RFP defectors formed an exiled opposition movement, the Rwandan National Congress (RNC). Some members have been the target of armed attacks or apparent assassinations in foreign countries, including several in South Africa. President Kagame has denied state involvement, while assailing the individuals in question as traitors.

The State Department's 2018 human rights report on Rwanda cites forced disappearances, alleged extrajudicial killings, arbitrary detention, and torture by state security forces ("including asphyxiation, electric shocks, mock executions"), noting "impunity" involving civilian officials and some members of the security forces. The report also documents political prisoners, threats and violence against journalists, censorship, and "substantial interference" with freedoms of assembly and association, along with "restrictions on political participation." It further finds that "the government continued to monitor homes, movements, telephone calls, email, other private communications, and personal and institutional data," often using extrajudicial means and/or embedded informants.

Human Rights Watch has reported patterns of arbitrary detention and torture of Rwandans accused or suspected of supporting the RNC, Ingabire's political movement, or the Democratic Forces for the Liberation of Rwanda (FDLR), a militia founded in DRC by perpetrators of the genocide. The organization also has accused Rwandan security forces of killing petty criminals extra-judicially, allegations that Rwanda's National Commission for Human Rights (NCHR) has rejected. Rwanda has expelled international researchers working for Human Rights Watch; in 2018, a local employee was temporarily detained incommunicado.

In 2018, the government shuttered thousands of churches and dozens of mosques, citing safety violations or other regulatory concerns, and proposed stricter registration requirements for religious groups. One expert asserted that these moves targeted non-denominational places of worship (i.e., not affiliated with Roman Catholicism or established Protestant denominations) because they "are harder to control because they don't report to a central hierarchy."

Rwanda is a top peacekeeping troop contributor in Africa; U.N. officials and donors value its military professionalism and commitment to civilian protection. As chair of the AU in 2018, President Kagame also sought to bolster the financial sustainability of African-led stability operations. At the same time, Rwanda has a history of unilateral military intervention in DRC, and reportedly has periodically provided support to rebel groups in DRC and Burundi. Its reasons for doing so may reflect a mix of national security concerns (e.g., a desire to counter DRC-based armed groups led by individuals implicated in the 1994 genocide), ethnic solidarity with the Tutsi minority in Burundi and persecuted communities of Rwandan descent in DRC, and economic motivations linked to resource smuggling in DRC.

In 2012-2013, Rwanda faced acute international criticism and cuts to donor aid—including from the United States and European countries—for providing support to a DRC-based insurgent group known as the M23. The M23 originated as a rebellion among members of a previous Rwandan-backed armed group, and was the latest in a series of Rwandan-backed rebellions originating among communities of Rwandan descent in eastern DRC since in the late 1990s. In 2015 and 2016, reports suggested Rwandan involvement in the recruitment and training of Burundian refugees for a rebellion against the government of Burundi, again prompting donor criticism.

Credible reports of direct Rwandan involvement in regional conflicts have since diminished, although the country's relations with DRC remain volatile. Tensions with Burundi also have endured, with Rwanda accusing Burundian authorities of stoking ethnic tensions while Burundi has accused Rwanda of espionage and interference. Relations with sometimes-ally Uganda also have soured in recent years. Rwandan officials, including President Kagame, have openly accused Uganda of backing Rwandan armed dissidents (apparently referring to the RNC) as well as the FDLR, while Ugandan officials have accused Rwanda of espionage.

Ongoing insecurity and illicit resource extraction in eastern DRC remain flashpoints for regional tensions and spillover of conflicts. In late 2018, U.N. DRC sanctions monitors reported that the RNC was mobilizing armed combatants in DRC's South Kivu province, with apparent Burundian support. Some researchers posit that Rwanda-Uganda friction is rooted in competition over access to DRC minerals; U.N. DRC sanctions investigators reported in 2018 that "gold sourced in high-risk and conflict areas [of DRC] was exported illegally to Uganda and Rwanda."

Donor aid, political stability, low corruption, and pro-investor policies have enabled high economic growth rates (4-9% annually) over the past decade. Rwanda remains one of the world's poorest countries, although it ranks higher than many other sub-Saharan African countries on the 2018 U.N. Human Development Index (at 158 out of 189 countries assessed). About 75% of Rwandans are engaged in agriculture, many for subsistence; the country is nonetheless reliant on food imports, in part due to having the highest population density in continental Africa.

The government seeks to transform the economy into one that is services-oriented and middle-income, launching programs to expand internet access, improve education, and increase domestic energy production. Key growth sectors include tourism, coffee, tea, tin mining, construction, and an emerging financial services sector. The government also aims to turn Rwanda into a regional trade, logistics, and conference hub. It has invested in the construction of new business class hotels and a convention center in Kigali, a planned new airport, and an expansion of the national airline RwandAir—which is pursuing U.S. federal approval for direct flights between Kigali and the United States. Much investment has been concentrated in Kigali, which has received international plaudits for its clean and safe streets.

Rwanda was ranked 29 out of 190 on the World Bank's 2019 Doing Business report, the only low-income country and one of only two African countries (along with Mauritius) in the top 50. Rwanda's continual improvements in the annual rankings reflect its efforts to reduce bureaucratic red-tape, protect property rights, improve access to credit, expand the supply of reliable electricity, and ensure contract enforcement. The State Department has nonetheless documented various challenges for foreign investors, including "payment delays with government contracts," inconsistent adherence to incentives offered by the Rwanda Development Board, infringements on property rights, and "competition from state-owned and ruling party-aligned businesses."

Human development gains since the genocide have been dramatic in relative terms. According to the World Health Organization (WHO), from 1990 and 2016, life expectancy increased from 48 to 66 years; the child (under five) mortality rate fell from 152 to 42 deaths per 1,000 live births; and the maternal mortality rate decreased from 1,300 to 290 deaths per 100,000 live births. Through a donor-backed national community-based health insurance system, Rwanda provides near-universal health coverage for basic primary care, with the cost fully or partially subsidized based on income level. As of 2015, about 39% of Rwandans reportedly lived below the poverty line, compared to 56% in 2006 and 78% in 1994. Some researchers have questioned the reliability of Rwanda's poverty statistics, noting that they are based on household-level survey data and may be subject to interference; the World Bank has rejected some of this criticism, asserting that Rwanda's official statistical methodology "is technically sound."

In 1998, President Bill Clinton delivered a speech in Kigali in which he expressed remorse for not having intervened more forcefully to end mass killings in 1994, and pledged that the United States would do better in the future. Those remarks arguably set the tone for a relationship defined, in part, by a sense of guilt among U.S. policymakers about the genocide and admiration for the RPF's role in stopping it. U.S. support for the RPF-led government has continued across successive Administrations and across partisan lines, with the executive branch and Congress working together to provide substantial aid to support Rwanda's development efforts and peacekeeper deployments. Yet, over the past decade, executive branch officials and some Members of Congress increasingly have criticized Rwanda's involvement in regional conflicts and expressed concern with its domestic political and human rights conditions.

After meeting with President Kagame in Davos in January 2018, President Trump praised the United States' "great relationships" with Rwanda, including bilateral trade, and stated that "the job they've done is absolutely terrific." In September 2017 congressional testimony, then Acting Assistant Secretary of State for Africa Yamamoto praised Rwanda's "remarkable gains" in health and development and characterized the country as "a major contributor to regional peace and security," while asserting that "Rwanda's record in the areas of human rights and democracy, while improved in some areas, remains a concern." He called on the government "to take steps toward a democratic transition of power."

Regarding Rwanda's 2017 presidential election, the State Department stated that "we are disturbed by irregularities observed during voting and reiterate long-standing concerns over the integrity of the vote-tabulation process." In response to Member questions at the September 2017 hearing, Ambassador Yamamoto affirmed that "we are unable to assess this election as free and fair." At his Senate confirmation hearing in late 2017, the U.S. Ambassador-designate to Rwanda described his four top policy goals as the following: continuing the United States' "development partnership" with Rwanda, promoting U.S. business and economic ties, supporting Rwanda's continued peacekeeping role, and advancing "democratic ideals."

President Trump suspended duty-free treatment of Rwandan apparel exports to the United States under AGOA in 2018, as noted above, citing Rwandan protectionist policies. The suspension came after the Administration initiated an out-of-cycle review of Rwanda's eligibility in 2017. In addition to concerns about trade barriers, Ambassador Yamamoto testified in 2017 that U.S. officials had also "raised concerns ... regarding harassment of political opposition leaders and [non-governmental organizations] as well as restrictions on media freedom with the context of AGOA eligibility." The impact may be largely symbolic: in 2017, U.S. imports from Rwanda totaled $44 million, of which $5 million were under AGOA. U.S. exports to Rwanda totaled $64 million that year.

U.S. bilateral aid to Rwanda aims to promote economic growth, food security, health, and military professionalism. The State Department has drawn on additional regionally- and centrally-managed funds to provide military aid to build Rwanda's peacekeeping capabilities, including under the African Peacekeeping Rapid Response Partnership (APRRP) initiative, launched under President Obama in 2014. (The Trump Administration has not requested new appropriations in support of APRRP, but has continued to implement funds allocated in prior years.) APRRP was conceived to complement the State Department's Global Peace Operations Initiative (GPOI), in which Rwanda also participates. The United States also provides humanitarian assistance for international organizations caring for Congolese and Burundian refugees in Rwanda.

Legislative Restrictions on Security Assistance

Successive Congresses have enacted foreign aid appropriations measures restricting certain types of U.S. military aid to Rwanda if it is found to be supporting rebel movements in neighboring countries. Citing such provisions, as well as the Child Soldiers Prevention Act of 2008 (CSPA, Title IV of P.L. 110-457 ), the Obama Administration suspended certain types of military aid—namely, Foreign Military Financing (FMF) and International Military Education and Training (IMET)—citing Rwandan support for rebels in DRC and, later, Burundi. Military aid in support of Rwanda's peacekeeping capabilities was exempted from such restrictions via a combination of legislative provisions (e.g., §1208[f] of P.L. 113-4 , the Violence Against Women Reauthorization Act of 2013, which excepts peacekeeping aid from child soldiers-related restrictions) and executive branch waivers. The executive-legislative branch interplay under the Obama and Trump Administrations (to date) is detailed below.

FY2012-FY2013: The Obama Administration invoked a provision of the FY2012 appropriations act ( P.L. 112-74 , §7043(a) of Division I), extended into FY2013 via continuing resolutions, to suspend FMF for Rwanda, citing its support for the M23 rebellion in DRC. The provision stated that FMF could be made available for Rwanda or Uganda "unless" the Secretary of State had "credible information" that either government was supporting armed groups in DRC.

FY2014: The Obama Administration continued to suspend FMF, consistent with a provision in that year's appropriations act ( P.L. 113-76 , §7042(l) of Division K) restricting such funds unless Rwanda was "taking steps to cease" support to certain armed groups in DRC. It also designated Rwanda under CSPA in connection with the M23's reported use of child soldiers, and applied that act's prohibition on various other forms of military aid, including IMET.

FY2015: The appropriations act prohibited FMF for Rwanda unless the Secretary of State certified to Congress that the government was "implementing a policy to cease" support to armed groups in DRC ( P.L. 113-235 , §7042[l] of Division J). The Obama Administration had not requested FMF for Rwanda in its budget proposal, and none was provided. The State Department again designated Rwanda under CSPA, but President Obama waived the act's aid prohibitions, citing the end of the M23 insurgency—thus allowing IMET, for example, to resume.

FY2016: The State Department did not designate Rwanda under CSPA, and that year's appropriations act ( P.L. 114-113 ) did not restrict security assistance for Rwanda. The Obama Administration did not request or provide FMF funds for Rwanda, in any case. IMET continued.

FY2017: The Obama Administration (in mid-2016) designated Rwanda under CSPA in connection with its reported support for Burundian rebel groups' recruitment of child soldiers. President Obama waived CSPA restrictions on IMET and several other types of security aid, however, and no FMF funding was requested for Rwanda or provided. The appropriations act restricted certain types of IMET programs for any country in Africa's Great Lakes region unless the Secretary of State certified that it was "not facilitating or otherwise participating in destabilizing activities in a neighboring country" ( P.L. 115-31 , §7042(a) of Division J). The State Department provided some IMET funds for Rwanda, but once the act passed into law, did not support activities that would have been prohibited in such a scenario.

FY2018 -FY2019 to date : Appropriations measures have continued to restrict certain types of IMET programs for any country in the Great Lakes region until the Secretary of State determines and reports that it is "not facilitating or otherwise participating in destabilizing activities in a neighboring country, including aiding and abetting armed groups" (most recently, P.L. 116-6 §7042(a) of Division F). The Trump Administration has not designated Rwanda under CSPA. It also has not requested or provided FMF for Rwanda.

Congress has shaped U.S. policy and assistance to Rwanda through its authorization and appropriation of U.S. assistance, and through oversight and Member engagement. In 2012-2013, and again in 2015-2016, the application of legislative restrictions on U.S. security assistance—along with other donor criticism and aid suspensions—appeared to contribute to a decrease in Rwandan support for the M23 in DRC and may conceivably have dissuaded Rwanda from intervening more heavily in Burundi. Members may seek to derive lessons from this sequence of events as they consider pending appropriations bills and/or any future legislative proposals regarding U.S. aid to Rwanda. With regard to Rwanda's domestic conditions, questions remain around how the United States can best support the country's continued stability and growth, including whether continued U.S. support for Rwanda's development efforts can or should be premised on evidence of greater respect for political pluralism or individual liberties.


Terrorism Risk Insurance: Overview and Issue Analysis for the 116th Congress

Summary: Prior to the September 11, 2001, terrorist attacks, coverage for losses from such attacks was normally included in general insurance policies without additional cost to the policyholders. Following the attacks, such coverage became expensive, if offered at all. Moreover, some observers feared that the absence of insurance against terrorism loss would have a wider economic impact, because insurance is required to consummate a variety of transactions (e.g., real estate). For example, if real estate deals were not completed due to lack of insurance, this could have ripple effects—such as job loss—on related industries like the construction industry. Terrorism insurance was largely unavailable for most of 2002, and some have argued that this adversely affected parts of the economy, while others suggest the evidence is inconclusive.

Summary: Congress responded to the disruption in the insurance market by passing the Terrorism Risk Insurance Act of 2002 (TRIA; P.L. 107-297), which created a temporary three-year Terrorism Insurance Program. Under TRIA, the government would share the losses on commercial property and casualty insurance should a foreign terrorist attack occur, with potential recoupment of this loss sharing after the fact. In addition, TRIA requires insurers to make terrorism coverage available to commercial policyholders, but does not require policyholders to purchase the coverage. The program expiration date was extended in 2005 (P.L. 109-144), 2007 (P.L. 110-160), and 2015 (P.L. 114-1). Over the course of such reauthorizations, the prospective government share of losses has been reduced and the recoupment amount increased, although the 2007 reauthorization also expanded the program to cover losses from acts of domestic terrorism. The TRIA program is currently slated to expire at the end of 2020.

Summary: In general terms, if a terrorist attack occurs under TRIA, the insurance industry covers the entire amount for relatively small losses. For a medium-sized loss, the government assists insurers initially but is then required to recoup the payments it made to insurers through a broad levy on insurance policies afterwards—the federal role is to spread the losses over time and over the entire insurance industry and insurance policyholders. As the size of losses grows larger, the federal government covers more of the losses without this mandatory recoupment. Ultimately, for the largest losses, the government is not required to recoup the payments it has made, although discretionary recoupment remains possible. The precise dollar values where losses cross these small, medium, and large thresholds are uncertain and will depend on how the losses are distributed among insurers.

Summary: The specifics of the current program are as follows: (1) a terrorist act must cause $5 million in insured losses to be certified for TRIA coverage; (2) the aggregate insured losses from certified acts of terrorism must be $180 million in a year for the government coverage to begin (this amount increases to $200 million in 2020); and (3) an individual insurer must meet a deductible of 20% of its annual premiums for the government coverage to begin. Once these thresholds are met, the government covers 81% of insured losses due to terrorism (this amount decreases to 80% in 2020). If the insured losses are less than $37.5 billion, the Secretary of the Treasury is required to recoup 140% of government outlays through surcharges on TRIA-eligible property and casualty insurance policies. As insured losses rise above $37.5 billion, the Secretary is required to recoup a progressively reduced amount of the outlays. At some high insured loss level, which will depend on the exact distribution of losses, the Secretary would no longer be required to recoup outlays.

Summary: Since TRIA's passage, the private industry's willingness and ability to cover terrorism risk have increased. According to data collected by the Treasury, in 2017, approximately 78% of insureds purchased the optional terrorism coverage, paying $3.65 billion in premiums. Over the life of the program, premiums earned by unrelated insurers have totaled $38 billion. This relative market calm has been under the umbrella of TRIA coverage and in a period in which no terrorist attacks have occurred that resulted in government payments under TRIA. It is unclear how the insurance market would react to the expiration of the federal program, although at least some instability might be expected were this to occur. With the upcoming 2020 expiration of the program, the 116th Congress may consider legislation to extend TRIA; to date, no such legislation has been introduced.

Prior to the September 2001 terrorist attacks on the United States, insurers generally did not exclude or separately charge for coverage of terrorism risk. The events of September 11, 2001, changed this as insurers realized the extent of possible terrorism losses. Estimates of insured losses from the 9/11 attacks are more than $45 billion in current dollars, the largest insured losses from a nonnatural disaster on record. These losses were concentrated in business interruption insurance (34% of the losses), property insurance (30%), and liability insurance (23%).

Although primary insurance companies—those that actually sell and service the insurance policies bought by consumers—suffered losses from the terrorist attacks, the heaviest insured losses were absorbed by foreign and domestic reinsurers, the insurers of insurance companies. Because of the lack of public data on, or modeling of, the scope and nature of the terrorism risk, reinsurers felt unable to accurately price for such risks and largely withdrew from the market for terrorism risk insurance in the months following September 11, 2001. Once reinsurers stopped offering coverage for terrorism risk, primary insurers, suffering equally from a lack of public data and models, also withdrew, or tried to withdraw, from the market. In most states, state regulators must approve policy form changes. Most state regulators agreed to insurer requests to exclude terrorism risks from commercial policies, just as these policies had long excluded war risks. Terrorism risk insurance was soon unavailable or extremely expensive, and many businesses were no longer able to purchase insurance that would protect them in future terrorist attacks. In some cases, such insurance is required to consummate various transactions, particularly in the real estate, transportation, construction, energy, and utility sectors. Although the evidence is largely anecdotal, some were concerned that the lack of coverage posed a threat of serious harm—such as job loss—to these industries, in turn threatening the broader economy.

In November 2002, Congress responded to the fears of economic damage due to the absence of commercially available coverage for terrorism with passage of the Terrorism Risk Insurance Act (TRIA). TRIA created a three-year Terrorism Insurance Program to provide a government reinsurance backstop in the case of terrorist attacks. The TRIA program was amended and extended in 2005, 2007, and 2015. Following the 2015 amendments, the TRIA program is set to expire at the end of 2020. (A side-by-side of the original law and the three reauthorization acts is in Table 1 .)

The executive branch has been skeptical about the TRIA program in the past. Bills to expand TRIA were resisted by then-President George W. Bush's Administration, and previous presidential budgets under then-President Obama called for changes in the program that would have had the effect of scaling back the TRIA coverage. The current Administration has not called for specific changes to TRIA, but has indicated that it is "evaluating reforms…to further decrease taxpayer exposure."

The insurance industry largely continues to support TRIA, as do commercial insurance consumers in the real estate and other industries that have formed a "Coalition to Insure Against Terrorism" (CIAT). However, not all insurance consumers have consistently supported the renewal of TRIA. For example, the Consumer Federation of America has questioned the need for the program in the past.

Although the United States has suffered attacks deemed "terrorism" since the passage of TRIA, no acts of terrorism have been certified and no payments have occurred under TRIA. For example, although the April 2013 bombing in Boston was termed an "act of terror," by the President, the insured losses in TRIA-eligible insurance from that bombing did not cross the $5 million statutory threshold to be certified under TRIA. (See precise criteria under the TRIA program below.)

Goals and Specifics of the Current TRIA Program

The original TRIA legislation's stated goals were to (1) create a temporary federal program of shared public and private compensation for insured terrorism losses to allow the private market to stabilize; (2) protect consumers by ensuring the availability and affordability of insurance for terrorism risks; and (3) preserve state regulation of insurance. Although Congress has amended specific aspects of the original act, the operation of the program generally usually follows the original statute. The changes to the program have largely reduced the government coverage for terrorism losses, except that the 2007 amendments expanded coverage to domestic terrorism losses, rather than limiting the program to foreign terrorism.

To meet the first goal, the TRIA program creates a mechanism through which the federal government could share insured commercial property and casualty losses with the private insurance market. The role of federal loss sharing depends on the size of the insured loss. For a relatively small loss, there is no federal sharing. For a medium-sized loss, the federal role is to spread the loss over time and over the entire insurance industry. The federal government provides assistance up front but then recoups the payments it made through a broad levy on insurance policies afterwards. For a large loss, the federal government is to pay most of the losses, although recoupment is possible (but not mandatory) in these circumstances as well. The precise dollar values where losses cross these small, medium, and large thresholds are uncertain and will depend on how the losses are distributed among insurers. For example, for loss sharing to occur, an attack must meet a certain aggregate dollar value and each insurer must pay out a certain amount in claims—known as its deductible. For some large insurers, this individual deductible might be higher than the aggregate threshold set in statute, meaning that loss sharing might not actually occur until a higher level than the figure set in statute.

The criteria under the TRIA program in 2019 are as follows:

1. An individual act of terrorism must be certified by the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and Attorney General; losses must exceed $5 million in the United States or to U.S. air carriers or sea vessels for an act of terrorism to be certified. 2. The federal government shares in an insurer's losses due to a certified act of terrorism only if "the aggregate industry insured losses resulting from such certified act of terrorism" exceed $180 million (increasing to $200 million in 2020). 3. The federal program covers only commercial property and casualty insurance, and it excludes by statute several specific lines of insurance. 4. Each insurer is responsible for paying a deductible before receiving federal coverage. An insurer's deductible is proportionate to its size, equaling 20% of an insurer's annual direct earned premiums for the commercial property and casualty lines of insurance specified in TRIA. 5. Once the $180 million aggregate loss threshold and 20% deductible are met, the federal government would cover 81% of each insurer's losses above its deductible until the amount of losses totals $100 billion. 6. After $100 billion in aggregate losses, there is no federal government coverage and no requirement that insurers provide coverage. 7. In the years following the federal sharing of insurer losses, but prior to September 30, 2024, the Secretary of the Treasury is required to establish surcharges on TRIA-eligible property and casualty insurance policies to recoup 140% of some or all of the outlays to insurers under the program. If losses are high, the Secretary has the authority to assess surcharges, but is not required to do so. (See " Recoupment Provisions " below for more detail.)

The initial loss sharing under TRIA can be seen in Figure 1 , adapted from a Congressional Budget Office (CBO) report. The exact amount of the 20% deductible at which TRIA coverage would begin depends on how the losses are distributed among insurance companies. In the aggregate, 20% of the direct-earned premiums for all of the property and casualty lines specified in TRIA totaled approximately $42 billion in 2017, according to the latest data collected by the Treasury Department. TRIA coverage is likely, however, to begin well under this amount as the losses from an attack are unlikely to be equally distributed among insurance companies.

The precise amount TRIA requires the Treasury to recoup after the initial loss sharing is determined by the interplay between a number of different factors in the law and insurance marketplace. The general result of the recoupment provisions is that, for attacks that result in under $37.5 billion in insured losses, the Treasury Secretary is required to recoup 140% of the government outlays through surcharges on property and casualty insurance policies. For events with insured losses over $37.5 billion, the Secretary has discretionary authority to recoup all the government outlays and may be required to partially recoup the government outlays depending on the size of the attacks and the amount of uncompensated losses paid by the insurance industry. (See the Appendix for more information on exact recoupment calculations.)

If the requirement for recoupment is triggered, TRIA requires the government to recoup all payments prior to the end of FY2024. Because the last reauthorization of TRIA occurred in January 2015, such recoupment would be completed within a 10-year timeframe following the previous reauthorization. For an attack causing significant insured loses, however, this requirement could result in high surcharges being applied for a relatively short time. The recoupment surcharges are to be imposed as a percentage of premiums paid on all TRIA-eligible property and casualty insurance policies, but the Secretary has the authority to adjust the amount of the premiums taking into consideration differences between rural and urban areas and the terrorism exposures of different lines of insurance.

The administration of the TRIA program was originally left generally to the Treasury Secretary. This was changed somewhat in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The act created a new Federal Insurance Office (FIO) to be located within the Department of the Treasury. Among the duties specified for the FIO in the legislation was to assist the Secretary in the administration of the Terrorism Insurance Program.

TRIA addresses the second goal—to protect consumers—by requiring insurers that offer TRIA-covered lines of insurance to make terrorism insurance available prospectively to their commercial policyholders. This coverage may not differ materially from coverage for other types of losses. Each terrorism insurance offer must reveal both the premium charged for terrorism insurance and the possible federal share of compensation. Policyholders are not, however, required to purchase coverage under TRIA. If a policyholder declines to purchase terrorism coverage, the insurer may exclude terrorism losses. Federal law does not limit what insurers can charge for terrorism risk insurance, although state regulators typically have the authority under state law to modify excessive, inadequate, or unfairly discriminatory rates.

Preservation of State Insurance Regulation

TRIA's third goal—to preserve state regulation of insurance—is expressly accomplished in Section 106(a), which provides that "Nothing in this title shall affect the jurisdiction or regulatory authority of the insurance commissioner [of a state]." The Section 106(a) provision has two exceptions, one permanent and one temporary (and expired): (1) the federal statute preempts any state definition of an "act of terrorism" in favor of the federal definition and (2) the statute briefly preempted state rate and form approval laws for terrorism insurance from enactment to the end of 2003. In addition to these exceptions, Section 105 of the law also preempts state laws with respect to insurance policy exclusions for acts of terrorism.

Coverage for Nonconventional Terrorism Attacks

The TRIA statute does not specifically include or exclude property and casualty insurance coverage for terrorist attacks according to the particular methods used in the attacks, such as nuclear, biological, chemical, and radiological (NBCR) and cyber terrorism risks. Such nonconventional means, however, have the potential to cause losses that may or may not end up being covered by TRIA and have been a source of particular concern and attention in the past.

Nuclear, Biological, Chemical, and Radiological Terrorism Coverage

Some observers consider a terrorist attack with some form of NBCR weapon to be the most likely type of attack causing large scale losses. The current TRIA statute does not specifically include or exclude NBCR events; thus, the TRIA program in general would cover insured losses from terrorist actions due to NCBR as it would for an attack by conventional means. The term insured losses , however, is a meaningful distinction. Except for workers' compensation insurance, most insurance policies that would fall under the TRIA umbrella include exclusions that would likely limit insurer coverage of an NCBR event, whether it was due to terrorism or to some sort of accident, although these exclusions have never been legally tested in the United States after a terrorist event. If these exclusions are invoked and do indeed limit the insurer losses due to NBCR terrorism, they would also limit the TRIA coverage of such losses. Language that would have specifically extended TRIA coverage to NBCR events was offered in the past, but was not included in legislation as enacted. In 2007, the Government Accountability Office (GAO) was directed to study the issue and a GAO report was issued in 2008, finding that "insurers generally remain unwilling to offer NBCR coverage because of uncertainties about the risk and the potential for catastrophic losses." In the past, legislation (e.g., H.R. 4871 in the 113 th Congress) would have provided for differential treatment of NBCR attacks under TRIA, but such legislation has not been enacted.

Concern regarding potential damage from cyber terrorism has grown as increasing amounts of economic activity occur online. The TRIA statute does not specifically address the potential for cyber terrorism, thus, there was uncertainty about such attacks would be covered in the same manner as terrorist attacks using conventional means. In 2016, state insurance regulators introduced a new Cyber Liability line of insurance, raising questions as to whether coverage under this line would be covered under TRIA, or whether it would not be covered under the law's exclusion of "professional liability" insurance. The Department of the Treasury released guidance in December 2016 clarifying that "stand-alone cyber insurance policies reported under the 'Cyber Liability' line are included in the definition of 'property and casualty insurance' under TRIA."

Despite Treasury's guidance, cyber terrorism coverage remains a particular concern. The Treasury Department devoted a specific section of the latest report on TRIA to cyber coverage, reporting that 50% of standalone cyber insurance policies (based on premium value) included terrorism coverage. The take-up rate for those choosing cyber coverage that is embedded in policies covering additional perils was 54%. These rates are similar to, but slightly lower than, the 62% take-up rate for general terrorism coverage found across all TRIA-eligible lines.

Stripped to its most basic elements, insurance is a fairly straightforward operation. An insurer agrees to assume an indefinite future risk in exchange for a definite current premium. The insurer pools a large number of risks such that, at any given point in time, the ongoing losses will not be larger than the current premiums being paid, plus the residual amount of past premiums that the insurer retains and invests, plus, in a last resort, any borrowing against future profits if this is possible. For the insurer to operate successfully and avoid failure, it is critical to accurately estimate the probability of a loss and the severity of that loss so that a sufficient premium can be charged. Insurers generally depend upon huge databases of past loss information in setting these rates. Everyday occurrences, such as automobile accidents or natural deaths, can be estimated with great accuracy. Extraordinary events, such as large hurricanes, are more difficult, but insurers have many years of weather data, coupled with sophisticated computer models, with which to make predictions.

Many see terrorism risk as fundamentally different from other risks, and thus it is often perceived as uninsurable by the private insurance market without government support for the most catastrophic risk. The argument that catastrophic terrorism risk is uninsurable typically focuses on lack of public data about both the probability and severity of terrorist acts. The reason for the lack of historical data is generally seen as a good thing—few terrorist attacks are attempted and fewer have succeeded. Nevertheless, the insurer needs some type of measurable data to determine which terrorism risks it can take on without putting the company at risk of failure. As a replacement for large amounts of historical data, insurers turn to various forms of terrorism models similar to those used to assess future hurricane losses. Even the best model, however, can only partly replace good data, and terrorism models are still relatively new compared with hurricane models.

One prominent insurance textbook identifies four ideal elements of an insurable risk: (1) a sufficiently large number of insureds to make losses reasonably predictable; (2) losses must be definite and measurable; (3) losses must be fortuitous or accidental; and (4) losses must not be catastrophic (i.e., it must be unlikely to produce losses to a large percentage of the risks at the same time). Terrorism risk in the United States would appear to fail the first criterion as terrorism losses have not proved predictable over time. Losses to terrorism, when they occur, are generally definite and measurable, so terrorism risk could pass under criteria two. Such risk, however, also likely fails the third criterion due to the malevolent human actors behind terrorist attacks, whose motives, means, and targets of attack are constantly in flux. Whether it fails the fourth criterion is largely decided by the underwriting actions of insurers themselves (i.e., whether the insurers insure a large number of risks in a single geographic area that would be affected by a terrorist strike). Unsurprisingly, insurers generally have sought to limit their exposures in particular geographic locations with a conceptually higher risk for terrorist attacks, making terrorism insurance more difficult to find in those areas.

International Experience with Terrorism Risk Insurance27

Although the U.S. experience with terrorism is relatively limited, other countries have dealt with the issue more extensively and have developed their own responses to the challenges presented by terrorism risk. Spain, which has seen significant terrorist activity by Basque separatist movements, insures against acts of terrorism via a broader government-owned reinsurer that has provided coverage for catastrophes since 1954. The United Kingdom, responding to the Irish Republican Army attacks in the 1980s, created Pool Re, a privately owned mutual insurance company with government backing, specifically to insure terrorism risk. In the aftermath of the September 11, 2001, attacks, many foreign countries reassessed their terrorism risks and created a variety of approaches to deal with the risks. The UK greatly expanded Pool Re, whereas Germany created a private insurer with government backing to offer terrorism insurance policies. Germany's plan, like the United States' TRIA, was created as a temporary measure. It has been extended since its inception, most recently until the end of 2019. Not all countries, however, concluded that some sort of government backing for terrorism insurance was necessary. Canada specifically considered, and rejected, creating a government program following September 11, 2001.

Previous U.S. Experience with "Uninsurable" Risks

Terrorism risk post-2001 is not the first time the United States has faced a risk perceived as uninsurable in private markets that Congress chooses to address through government action. During World War II, for example, Congress created a "war damage" insurance program and it expanded a program insuring against aviation war risk following September 11, 2002. Since 1968, the National Flood Insurance Program has covered most of the insured flooding losses in the United States.

The closest previous analog to the situation with terrorism risk may be the federal riot reinsurance program created in the late 1960s. Following large scale riots in American cities in the late 1960s, insurers generally pulled back from insuring in those markets, either adding policy exclusions to limit their exposure to damage from riots or ceasing to sell property damage insurance altogether. In response, Congress created a riot reinsurance program as part of the Housing and Urban Development Act of 1968. The federal riot reinsurance program offered reinsurance contracts similar to commercial excess reinsurance. The government agreed to cover some percentage of an insurance company's losses above a certain deductible in exchange for a premium paid by that insurance company. Private reinsurers eventually returned to the market, and the federal riot reinsurance program was terminated in 1985.

The September 2001 terrorist attacks, and the resulting billions of dollars in insured losses, caused significant upheaval in the insurance market. Even before the attacks, the insurance market was showing signs of a cyclical "hardening" of the market in which prices typically rise and availability is somewhat limited. The unexpectedly large losses caused by terrorist acts exacerbated this trend, especially with respect to the commercial lines of insurance most at risk for terrorism losses. Post-September 11, insurers and reinsurers started including substantial surcharges for terrorism risk, or, more commonly, they excluded coverage for terrorist attacks altogether. Reinsurers could make such rapid adjustments because reinsurance contracts and rates are generally unregulated. Primary insurance contracts and rates are more closely regulated by the individual states, and the exclusion of terrorism coverage for the individual insurance purchaser required regulatory approval at the state level in most cases. States acted fairly quickly, and, by early 2002, 45 states had approved insurance policy language prepared by the Insurance Services Office, Inc. (ISO, an insurance consulting firm), excluding terrorism damage in standard commercial policies.

The lack of readily available terrorism insurance caused fears of a larger economic impact, particularly on the real estate market. In most cases, lenders prefer or require that a borrower maintain insurance coverage on a property. Lack of terrorism insurance coverage could lead to defaults on existing loans and a downturn in future lending, causing economic ripple effects as buildings are not built and construction workers remain idle.

The 14-month period after the September 2001 terrorist attacks and before the November 2002 passage of TRIA provides some insight into the effects of a lack of terrorism insurance. Some examples in September 2002 include the Real Estate Roundtable releasing a survey finding that "$15.5 billion of real estate projects in 17 states were stalled or cancelled because of a continuing scarcity of terrorism insurance" and Moody's Investors Service downgrading $4.5 billion in commercial mortgage-backed securities. This picture, however, was not uniform. For example, in July 2002, The Wall Street Journal reported that "despite concerns over landlords' ability to get terrorism insurance, trophy properties were in demand." CBO concluded in 2005 that "[TRIA] appears to have had little measurable effect on office construction, employment in the construction industry, or the volume of commercial construction loans made by large commercial banks," but CBO also noted that a variety of economic factors at the time "could be masking positive macroeconomic effects of TRIA."

TRIA's "make available" provisions addressed the availability problem in the terrorism insurance market, as insurers were required by law to offer commercial terrorism coverage. However, significant uncertainty existed as to how businesses would react, because there was no general requirement to purchase terrorism coverage and the pricing of terrorism coverage was initially high. Analyzing the terrorism insurance market in the aftermath of TRIA is challenging as well since there was no consistent regulatory reporting by insurers until P.L. 114-1 required detailed reporting, which Treasury began in 2016. Before this time, data on terrorism insurance typically stemmed from insurance industry surveys or rating bureaus. In examining the terrorism insurance market since TRIA, it is also important to note that no terrorist attacks have occurred that reached TRIA thresholds, thus property and casualty insurance has not made any large scale payouts for terrorism damages.

The initial consumer reaction to the terrorism coverage offers was relatively subdued. Marsh, Inc., a large insurance broker, reported that 27% of their clients bought terrorism insurance in 2003. This take-up rate, however, climbed relatively quickly to 49% in 2004 and 58% in 2005. Marsh reported that, since 2005, the overall take-up rate has remained near 60%, with Marsh reporting a rate of 62% in 2017. The Treasury reports based on industry data calls have found similar or higher take-up rates. For 2017, Treasury found that the take-up rate based on premium volumes was 62%, whereas based on policy counts, the rate was 78%.

The price for terrorism insurance has appeared to decline over time, although the level of pricing reported may not always be comparable between sources. The 2013 report by the President's Working Group on Financial Markets, based on survey data by insurance broker Aon, showed a high of above 7% for the median terrorism premium as a percentage of the total property premium in 2003, with a generally downward trend, and more recent values around 3%. The trend may be downward, but there has been variability, particularly across industries. For example, Marsh reported rates in 2009 as high as 24% of the property premium for financial institutions and as low as 2% in the food and beverage industry. In the 2013 Marsh report, this variability was lower as 2012 rates varied from 7% in the transportation industry and the hospitality and gaming industry to 1% in the energy and mining industry. In 2017, Marsh found rates varying from 10% in hospitality and gaming to 2% in energy and mining and construction industries. The 2018 Treasury report, based on lines of insurance, not on industry category, found premiums varying from 6.1% in excess workers' compensation to 1.4% in ocean marine in 2017.

Treasury found that the total premium amount paid for terrorism coverage in 2017 was approximately $3.65 billion, or 1.75%, of the $209.15 billion in total premiums for TRIA-eligible lines of insurance. Since the passage of TRIA, Treasury estimates that a total of approximately $38 billion was earned for terrorism coverage by non-related insurers, with another $7.4 billion earned by captive insurers (which are insurers who are owned by the insureds).

In general, the capacity of insurers to bear terrorism risk has increased over the life of the TRIA program. The combined policyholder surplus among all U.S. property and casualty insurers was $686.9 billion at the end of 2017 compared to $408.6 billion (inflation adjusted) at the start of 2002. This $686.9 billion has been bolstered by the estimated $38 billion in premiums paid for terrorism coverage over the years without significant claims payments. The policyholder surplus, however, backs all property and casualty insurance policies in the United States and is subject to depletion in a wide variety of events. For example, extreme weather losses could particularly draw capital away from the terrorism insurance market, because events such as hurricanes share some characteristics—low frequency and the possibility of catastrophic levels of loss—with terrorism risk.

Evolution of Terrorism Risk Insurance Laws

Table 1 presents a side-by-side comparison of selected provisions from the original TRIA law, along with the reauthorizing laws of 2005, 2007, and 2015.

Appendix. Calculation of TRIA Recoupment Amounts

Table A-1 contains illustrative examples of how the recoupment for the government portion of terrorism losses under TRIA might be calculated in the aggregate for various sizes of losses. The total amount of the combined deductibles in the table is simply assumed to be 30% of the insured losses for illustrative purposes. (The actual deductible amount is, as detailed above, based on the total amount of premiums collected by each insurer.) Without knowing the actual distribution of losses due to a terrorist attack, it is impossible to know what the actual total combined deductible amount would be. Table conclusions with regard to recoupment, however, hold across different actual deductible amounts.

The specific provisions of the law define the "insurance marketplace aggregate retention amount" (Column F) for 2019 as the lesser of $37.5 billion or the total amount of insured losses (Column A). The "mandatory recoupment amount" (Column G) is defined as the difference between $37.5 billion and the aggregate insurer losses that were not compensated for by the program (i.e., the total of the insurers' deductible (Column B) and their 19% loss share (Column C)). If the aggregate insured loss is less than $37.5 billion, the law requires recoupment of 140% of the government outlays (Column H). For insured losses over $37.5 billion, the mandatory recoupment amount decreases, thus the Secretary would be required to recoup less than 133% of the outlays. Depending on the precise deductible amounts, the uncompensated industry losses (Column D) may eventually rise to be greater than $37.5 billion, which would then mean that the mandatory recoupment provisions would not apply. The Secretary would still retain discretionary authority to apply recoupment surcharges no matter what level uncompensated losses reached.