Terrorism Risk Insurance Program; Terrorism Risk Insurance Program Reauthorization Act Implementation, 53359-53366 [E8-21578]

Agencies

• DEPARTMENT OF THE TREASURY

[Federal Register Volume 73, Number 180 (Tuesday, September 16, 2008)]
[Rules and Regulations]
[Pages 53359-53366]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-21578]


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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505-AB93


Terrorism Risk Insurance Program; Terrorism Risk Insurance 
Program Reauthorization Act Implementation

AGENCY: Departmental Offices, Treasury.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
interim final rule as part of its implementation of amendments made by 
the Terrorism Risk Insurance Program Reauthorization Act of 2007 
(Reauthorization Act) to Title I of the Terrorism Risk Insurance Act of 
2002

[[Page 53360]]

(TRIA, or Act), as previously amended by the Terrorism Risk Insurance 
Extension Act of 2005 (Extension Act). The Act established a temporary 
Terrorism Risk Insurance Program (Program) that was scheduled to expire 
on December 31, 2005, under which the Federal Government shared the 
risk of insured losses from certified acts of terrorism with commercial 
property and casualty insurers. The Extension Act extended the Program 
through December 31, 2007, and made other changes. The Reauthorization 
Act extends the Program through December 31, 2014, revises the 
definition of an ``act of terrorism,'' and makes other changes. This 
interim final rule contains regulations that Treasury is issuing to 
implement certain aspects of the Reauthorization Act. In particular, 
the rule addresses mandatory availability (``make available'') and 
disclosure requirements.

DATES: This interim final rule is effective September 16, 2008. Written 
comments on this interim final rule must be submitted on or before 
October 16, 2008.

ADDRESSES: Submit comments electronically through the Federal 
eRulemaking Portal: https://www.regulations.gov, or by mail (if hard 
copy, preferably an original and two copies) to: Terrorism Risk 
Insurance Program, Public Comment Record, Suite 2100, Department of the 
Treasury, 1425 New York Avenue, NW., Washington, DC 20220. Because 
paper mail in the Washington, DC area may be subject to delay, it is 
recommended that comments be submitted electronically. All comments 
should be captioned with ``TRIA Reauthorization Act Interim Final Rule 
Comments.'' Please include your name, affiliation, address, e-mail 
address, and telephone number in your comment. Comments will be 
available for public inspection on the Federal eRulemaking Portal and 
by appointment at the TRIP Office. To make appointments, call (202) 
622-6770 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Howard Leikin, Deputy Director, 
Terrorism Risk Insurance Program (202) 622-6770 (not a toll-free 
number).

SUPPLEMENTARY INFORMATION:

I. Background

A. Terrorism Risk Insurance Act of 2002

    On November 26, 2002, the President signed into law the Terrorism 
Risk Insurance Act of 2002 (Pub. L. 107-297, 116 Stat. 2322). The Act 
was effective immediately. The Act's purposes are to address market 
disruptions, ensure the continued widespread availability and 
affordability of commercial property and casualty insurance for 
terrorism risk, and 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 the Act establishes a temporary federal program of 
shared public and private compensation for insured commercial property 
and casualty losses resulting from an act of terrorism which, as 
defined by the Act, is certified by the Secretary of the Treasury, in 
concurrence with the Secretary of State and the Attorney General. The 
Act authorizes Treasury to administer and implement the Terrorism Risk 
Insurance Program (the Program), including the issuance of regulations 
and procedures.
    Each entity that meets the Act's definition of insurer must 
participate in the Program. The amount of federal payment for an 
insured loss resulting from an act of terrorism is determined by 
insurance company deductibles and excess loss sharing with the Federal 
Government as specified in the Act and Treasury's implementing 
regulations. An insurer's deductible is calculated based on the value 
of direct earned premiums collected over certain prescribed calendar 
periods. Once an insurer has met its individual deductible, the federal 
payments cover a percentage of the insured losses above the deductible, 
all subject to an annual industry aggregate limit of $100 billion.
    The Act gives Treasury authority to recoup federal payments made 
under the Program through policyholder surcharges. The Act reduces the 
Federal share of compensation for insured losses that have been covered 
under any other federal program. The Act also contains provisions 
designed to manage certain litigation arising from or relating to a 
certified act of terrorism. Section 107 of the Act creates an exclusive 
federal cause of action, provides for claims consolidation in federal 
court, and contains a prohibition on federal payments for punitive 
damages under the Program. The Act provides the United States with the 
right of subrogation with respect to any payment or claim paid by the 
United States under the Program.
    The Program was originally set to expire on December 31, 2005. On 
December 22, 2005, the President signed into law the Terrorism Risk 
Insurance Extension Act of 2005 (Pub. L. 109-144, 119 Stat. 2660), 
which extended the Program through December 31, 2007, and made other 
significant changes to TRIA that included a revised definition of 
property and casualty insurance and creation of a new Program trigger 
that prohibits payment of Federal compensation by Treasury unless the 
aggregate industry insured losses resulting from a certified act of 
terrorism exceed a certain amount ($100 million in 2007).

B. Terrorism Risk Insurance Program Reauthorization Act of 2007

    Under the Extension Act, the Program was set to expire on December 
31, 2007. On December 26, 2007, the President signed into law the 
Terrorism Risk Insurance Program Reauthorization Act of 2007 (Pub. L. 
110-160, 121 Stat. 1839), which extends the Program through December 
31, 2014 (i.e., adds additional Program Years to the Program). Other 
provisions of the Reauthorization Act:
     Revise the definition of ``act of terrorism'' to remove 
the requirement that the act of terrorism be committed by an individual 
acting on behalf of any foreign person or foreign interest in order to 
be certified as an act of terrorism for purposes of the Act.
     Define ``insurer deductible'' for all additional Program 
Years as the value of an insurer's direct earned premiums for 
commercial property and casualty insurance for the immediately 
preceding calendar year multiplied by 20 percent.
     Set the Federal share of compensation for insured losses 
(subject to a $100,000,000 Program trigger) for all additional Program 
Years at 85 percent of that portion of the amount of insured losses 
that exceeds the applicable insurer deductible.
     Require Treasury to submit a report to Congress and issue 
final regulations for determining the pro rata share of insured losses 
to be paid under the Program when aggregate insured losses exceed 
$100,000,000,000.
     Require the Secretary of the Treasury to notify Congress 
not later than 15 days after the date of an act of terrorism as to 
whether aggregate insured losses are estimated to exceed 
$100,000,000,000.
     Require for policies issued after the date of enactment, 
that insurers provide clear and conspicuous disclosure to the 
policyholder of the existence of the $100,000,000,000 cap at the time 
of offer, purchase, and renewal of a policy (in addition to current 
disclosure requirements).
     Revise the recoupment provisions of the Act. For purposes 
of recouping the Federal share of compensation under the Act, the 
''insurance marketplace aggregate retention amount'' for all additional 
Program Years is the lesser of $27,500,000,000

[[Page 53361]]

and the aggregate amount, for all insurers, of insured losses during 
each Program Year. With regard to mandatory recoupment of the Federal 
share of compensation through policyholder surcharges, collection is 
required within a certain schedule specified in the Reauthorization 
Act. The limitation that surcharges not exceed 3 percent of the premium 
charged for property and casualty insurance coverage under the policy 
is eliminated (but remains in the case of discretionary recoupment).
     Require Treasury to issue recoupment regulations within 
180 days of enactment, and publish an estimate of aggregate insured 
losses within 90 days after an act of terrorism.
     Require the President's Working Group on Financial Markets 
to perform an ongoing analysis regarding the long-term availability and 
affordability of terrorism risk insurance and submit reports in 2010 
and 2013.
     Require the Comptroller General to examine and report on 
the availability and affordability of insurance coverage for nuclear, 
biological, chemical, and radiological terrorist events; the future 
outlook for such coverage; and the capacity of insurers and State 
workers compensation funds to manage the risk associated with nuclear, 
biological, chemical, and radiological terrorist events.
     Require the Comptroller General to study and report on the 
question of whether there are specific markets in the United States 
where there are unique capacity constraints on the amount of terrorism 
risk insurance available.

C. Previously Issued Interim Guidance

    To assist insurers, policyholders, and other interested parties in 
complying with immediately applicable requirements of the 
Reauthorization Act, on December 31, 2007, Treasury posted draft 
interim guidance on its Web site. A Notice containing that interim 
guidance was published in the Federal Register on January 29, 2008 (73 
FR 5264). The notice stated that the guidance could be relied upon by 
insurers in complying with new statutory requirements prior to the 
issuance of regulations, but was not the exclusive means of compliance. 
The interim guidance is superseded by this interim final rule.

II. Analysis of the Interim Final Rule

    This interim final rule incorporates certain changes to 31 CFR Part 
50 required by the amendments to TRIA in the Reauthorization Act. The 
rule generally incorporates the substance of the interim guidance 
previously issued by Treasury. In addition, the rule includes various 
conforming changes, such as a change to the definition of ``act of 
terrorism,'' and extension of applicable insurer deductible amounts and 
the Federal share of compensation for insured losses for additional 
Program Years. Regulations for determining how the pro rata share of 
insured losses is to be paid under the Program when aggregate insured 
losses exceed the annual liability cap and regulations implementing the 
recoupment provisions of the Act will be issued separately. Treasury 
has consulted with the National Association of Insurance Commissioners 
(NAIC) in developing this rule.
    Although Treasury is issuing these requirements as an interim final 
rule, we are soliciting comments on all aspects of the interim final 
rule from all interested parties.

A. Definitions (Sec.  50.5)

    The interim final rule incorporates revised definitions for the 
terms ``act of terrorism,'' ``Program Years,'' ``insurer deductible,'' 
and ``Program Trigger event.''
    To conform to the Reauthorization Act, the definition of ``act of 
terrorism'' in Sec.  50.5(b)(1)(iv) is revised to remove the 
requirement that the act be committed by an individual ``acting on 
behalf of any foreign person or foreign interest'' in order to be 
certified as an act of terrorism for purposes of TRIA.
    As noted in the Interim Guidance, Treasury recognizes that the 
existing language in property and casualty insurance policies 
describing a ``certified'' act of terrorism covered by TRIA and other 
terrorist events has varied. In addition, insurers have designed their 
insurance contracts and notifications to policyholders concerning 
potential changes to the certification criteria for acts of terrorism 
differently. Insurers must determine how their existing policy language 
and particular circumstances are affected by the revised definition of 
an act of terrorism. The decision whether to certify an act of 
terrorism will be governed by the criteria in TRIA, as amended by the 
Reauthorization Act. Treasury will consider losses resulting from an 
act of terrorism (as now defined in TRIA) that are covered by an 
insurer under a policy for property and casualty insurance to be 
insured losses covered by the Program, provided the insurer makes 
payment to the policyholder in accordance with the terms and conditions 
of the policy, appropriate business practices, and other applicable 
requirements and conditions, e.g., disclosure.
    The revisions to the definitions of ``Program Years,'' ``insurer 
deductible,'' and ``Program Trigger event'' merely conform these 
definitions to the changes in the Reauthorization Act.

B. Interim Guidance Safe Harbors (Sec.  50.7)

    Section 50.7 of the interim final rule adds the Interim Guidance 
issued by Treasury on January 22, 2008, and published at 73 FR 5264 
(January 29, 2008) to the list of Interim Guidance documents Treasury 
has issued.

C. Disclosure (Sec.  50.12)

    The Reauthorization Act made no change to the requirement in 
section 103(b) of TRIA that insurers provide clear and conspicuous 
disclosure to the policyholder of the premium charged for insured 
losses covered by the Program and the Federal share of compensation for 
insured losses under the Program. These disclosures must be made on a 
separate line item in the policy, at the time of offer, purchase, and 
renewal of the policy. However, because an ``insured loss'' is defined, 
in part, as a loss resulting from an act of terrorism, the revision of 
the definition of an act of terrorism to eliminate the ``foreign person 
or interest'' element (i.e., to add what is often referred to as 
``domestic terrorism'') may affect the premium charged for insured 
losses and an insurer's compliance with the disclosure requirements.
    Under Section 50.13(a) of the current regulations, disclosures must 
be made no later than the time the insurer first formally offers to 
provide insurance coverage or renew a policy for a current 
policyholder. Section 50.12(b)(2) of the interim final rule states that 
if an insurer makes an initial offer of coverage, or offers to renew an 
existing policy on or after December 26, 2007, the disclosure provided 
to the policyholder must reflect the premium charged for insured losses 
covered by the Program consistent with the definition of an act of 
terrorism as amended by the Reauthorization Act. As a general matter, 
and as further explained below, the requirement to make available 
coverage for insured losses must be met according to the provisions of 
the Act in effect at the time the offer is made. The disclosure must be 
consistent with the offer that is made.
    The Interim Guidance addressed the possibility that an insurer 
processed a policy application or renewal in 2007 for coverage becoming 
effective in 2008, but did not make available terrorism coverage or did 
not provide a proper disclosure due, in part, to the expected 
expiration of TRIA on December 31,

[[Page 53362]]

2007. Treasury also recognized that an insurer might have to modify 
operations and might be subject to rate and policy form filing and/or 
prior approval processes to reflect changes to TRIA in the 
Reauthorization Act.
    Section 50.12(e)(3) of the interim final rule provides that if an 
insurer made available coverage for insured losses in a new policy or 
policy renewal in 2007 or in the first three months of 2008 for 
coverage becoming effective in 2008, but did not provide a disclosure 
at the time of offer, purchase or renewal of the policy, then the 
insurer must be able to demonstrate to Treasury's satisfaction that it 
has provided a disclosure as soon as possible following January 1, 
2008. For example, if an insurer made available coverage in an offer of 
renewal in January 2008 as required by the Reauthorization Act, but did 
not provide a disclosure either at the time of the offer of renewal or 
the purchase, then it must provide a disclosure as soon as possible 
after January 1, 2008.
    Treasury considers March 31, 2008, to be the latest reasonable date 
for compliant disclosures to policyholders, barring unforeseen or 
unusual circumstances. If the March 31, 2008, date was not met by an 
insurer, Treasury will expect the insurer to demonstrate, when 
submitting a claim for the Federal share of compensation under the 
Program, why it could not comply by that date.

D. Cap Disclosure (Sec. Sec.  50.15 and 50.11)

    Section 103(e)(2) of TRIA provides that if aggregate insured losses 
exceed $100,000,000,000 during any Program Year, Treasury shall not 
make any payment for any portion of the amount of such losses that 
exceeds $100,000,000,000, and no insurer that has met its insurer 
deductible shall be liable for the payment of any portion of the amount 
of such losses that exceeds $100,000,000,000. Section 103(b)(3) of 
TRIA, as amended by the Reauthorization Act, requires an insurer to 
provide a clear and conspicuous disclosure to the policyholder of the 
existence of the $100,000,000,000 cap under section 103(e)(2). The 
requirement applies to ``any policy that is issued after the date of 
enactment'' of the Reauthorization Act, or December 26, 2007. The 
disclosure must be made at the time of offer, purchase, and renewal of 
the policy.
    New section 50.15 in the interim final rule addresses these 
requirements. Section 50.11 also includes a minor change to clarify 
that the term ``cap disclosure'' in the regulations refers to this 
disclosure required by section 103(b)(3) of the Act.
    For policies issued after December 26, 2007, this cap disclosure 
must initially be provided to the policyholder at the first occurrence 
thereafter of an offer, purchase or renewal. The interim final rule 
provides that, for policies issued after December 26, 2007, if an 
insurer does not provide a cap disclosure by the time of the first 
offer, purchase or renewal of the policy after December 26, 2007, then 
the insurer must be able to demonstrate to Treasury's satisfaction that 
it has provided the disclosure as soon as possible following December 
26, 2007. As stated in the Interim Guidance, Treasury considers March 
31, 2008, to be the latest reasonable date for providing the cap 
disclosure (including reprocessing of policies, if necessary, where a 
compliant disclosure was not possible), barring unforeseen or unusual 
circumstances. If the March 31, 2008, date was not met by an insurer, 
Treasury will expect the insurer to demonstrate, when submitting a 
claim for the Federal share of compensation under the Program, why it 
could not comply by that date.

E. Use of Model Forms (Sec.  50.17)

    Under current section 50.17(e) of the TRIA regulations, insurers 
are permitted to use NAIC Model Disclosure Forms No. 1 and 2 to satisfy 
the disclosure requirements of section 103(b)(2) of the Act, provided 
that the insurer uses the most current forms that are available at the 
time of disclosure. On December 19, 2007, the NAIC modified the forms 
and Treasury has deemed the newly modified forms to satisfy the 
disclosure requirements, including the cap disclosure requirement under 
section 103(b)(3). The new forms are found on the Treasury Web site at 
https://www.treasury.gov/trip. However, insurers are not required to use 
the NAIC forms, and may use other means to comply with the disclosure 
requirements.
    Section 50.17(e) of the interim final rule adds a provision 
specifically addressing the cap disclosure. In addition, a minor 
refinement of current section 50.17(a)(2) has been made in order to 
more accurately reflect section 105(c) of the Act.

F. Make Available (Sec. Sec.  50.20 and 50.21)

    The Reauthorization Act made no change to the TRIA requirements in 
section 103(c) that insurers make available, in all property and 
casualty insurance policies, coverage for insured losses that does not 
differ materially from the terms, amounts, and other coverage 
limitations applicable to losses arising from events other than acts of 
terrorism. However, because the ``make available'' requirements apply 
to insured losses, and an ``insured loss'' is defined, in part, as a 
loss resulting from an act of terrorism, the revision of the definition 
of an act of terrorism in the Reauthorization Act to add domestic 
terrorism may have an impact on an insurer's compliance with the ``make 
available'' requirements.
    The Reauthorization Act was effective immediately upon enactment, 
December 26, 2007. The TRIA regulations in 31 CFR 50.21(a) generally 
provide that the ``make available'' requirements apply at the time of 
the initial offer of coverage or offer of renewal of an existing 
policy. Thus, any initial offers of coverage or offers of renewal of 
existing policies, made on or after the date of enactment, must be 
consistent with the revised definition of act of terrorism. In 
addition, if an insurer makes an offer of coverage on or after December 
26, 2007 on a policy that is in mid term, then the insurer must make 
available coverage for insured losses consistent with the revised 
definition of an act of terrorism. These general rules are included in 
revised section 50.21(b) of the interim final rule.
    Section 50.21 addresses in detail insurer implementation of the 
``make available'' requirements under various circumstances as a result 
of enactment of the Reauthorization Act. Although there are no 
substantive changes to existing provisions, the entire section is set 
forth in the interim final rule for the convenience of the reader. In 
all cases where new offers are required, the insurer must be able to 
demonstrate to Treasury's satisfaction that it has provided an offer of 
coverage for insured losses as soon as possible following January 1, 
2008. The Interim Guidance stated that Treasury considers March 31, 
2008, to be the latest reasonable date for compliant offers of coverage 
(including reprocessing of policies, if necessary, where a compliant 
post-December 26, 2007 offer was not possible), barring unforeseen or 
unusual circumstances. If the March 31, 2008, date was not met by an 
insurer, Treasury will expect the insurer to demonstrate, when 
submitting a claim for the Federal share of compensation under the 
Program, why it could not comply by that date.
    Section 50.21(c)(2) addresses policies where the coverage for 
insured losses expired as of December 31, 2007, but other coverage 
under the policy continued in force in 2008. An insurer must make 
coverage for insured losses available for the remaining portion of the 
policy term and, under section 50.21(e)(4), an insurer must be able to 
demonstrate to Treasury's satisfaction

[[Page 53363]]

that it has offered such coverage as soon as possible following January 
1, 2008. However, if a policyholder had declined an offer made by an 
insurer for coverage for insured losses expiring as of December 31, 
2007, then the insurer is not required to make a new offer of coverage 
before the policy is due to be renewed.
    Section 50.21(e)(5) addresses situations where coverage became 
effective in 2008. Section 50.21(e)(5)(i) requires that if an insurer 
processed a new policy or policy renewal in 2007 or in the first three 
months of 2008, for coverage becoming effective in 2008, but did not 
make available coverage for insured losses, then the insurer must be 
able to demonstrate to Treasury's satisfaction that it has provided an 
offer of coverage for insured losses as soon as possible following 
January 1, 2008. As noted in the Interim Guidance, if an insurer wishes 
to receive Federal compensation under the Program for insured losses, 
the insurer must make available coverage for insured losses for all 
policies becoming effective in 2008, even if the policy was processed 
in late 2007 or early 2008.
    Under section 50.21(e)(5)(ii), if an insurer made an initial offer 
or offer of renewal of coverage for insured losses on or after December 
26, 2007, for a policy term becoming effective in 2008, but the scope 
of the insured losses in the offer was inconsistent with the 
Reauthorization Act's revised definition of an act of terrorism, then 
an insurer must make a new offer of coverage as soon as possible 
following January 1, 2008. If an insurer made an initial offer of 
coverage or offer of renewal before December 26, 2007, for a policy 
term becoming effective in 2008, and coverage for insured losses was in 
compliance with the Act and the definition of an act of terrorism at 
the time of the offer, then the insurer is not required to make a new 
offer of coverage before the policy is due to be renewed. These rules 
are consistent with the Interim Guidance Treasury first released on 
December 31, 2007, which has been in effect since that time.

G. Federal Share of Compensation (Sec. Sec.  50.50 and 50.53)

    These sections of the interim final rule include other minor and 
conforming changes to reflect the extension of the Program and the 
inclusion of the cap disclosure.

III. Procedural Requirements

    The Reauthorization Act extended the Program to provide for loss 
sharing payments by the Federal Government for insured losses resulting 
from certified acts of terrorism. The Act's extension and other new 
provisions became effective immediately upon the date of enactment. 
Changes contained in the Reauthorization Act applied immediately to 
those entities that come within the Act's definition of ``insurer.''
    The Reauthorization Act revised the definition of an ``act of 
terrorism'' to include domestic terrorism within the Program, which had 
an immediate impact on insurers' compliance with existing disclosure 
and ``make available'' requirements under TRIA. In addition, the 
Reauthorization Act added a new disclosure that applied to any policies 
issued beginning on the day after the date of enactment. These changes, 
which affected both insurers' obligations under TRIA and the conditions 
for payment by the Federal Government, resulted in the need to provide 
immediate guidance to insurers, policyholders, and regulators. Given 
the significance of these changes made by the Reauthorization Act, 
there is an urgent need to issue immediately effective regulations that 
incorporate the substance of interim guidance with regard to these 
requirements.
    Accordingly, pursuant to 5 U.S.C. 553(b)(B), Treasury has 
determined that it would be contrary to the public interest to delay 
the publication of this rule in final form pending an opportunity for 
public comment. For the same reasons, pursuant to 5 U.S.C. 553(d)(3), 
Treasury has determined that there is good cause for the interim final 
rule to become effective immediately upon publication. While this 
regulation is effective immediately upon publication, Treasury is 
seeking public comment on the regulation and will consider all comments 
in developing a final rule. This interim final rule is a significant 
regulatory action and has been reviewed by the Office of Management and 
Budget under the terms of Executive Order 12866.
    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that this interim final rule will not have a 
significant economic impact on a substantial number of small entities. 
The interim final rule implements changes prescribed or authorized by 
the Reauthorization Act. TRIA requires all insurers, regardless of size 
or sophistication, that receive direct earned premiums for any type of 
commercial property and casualty insurance, to participate in the 
Program. The Act also defines ``property and casualty insurance'' to 
mean commercial lines without any reference to the size or scope of the 
commercial entity. The rule allows all insurers, whether large or 
small, to use existing systems and business practices to demonstrate 
compliance. The disclosure and ``make available'' requirements are 
required by the Act. In addition, the Act now defines an ``act of 
terrorism'' to include domestic terrorism. Any economic impact 
associated with the interim final rule flows from the Act and not the 
interim final rule. However, the Act and the Program are intended to 
provide benefits to the U.S. economy and all businesses, including 
small businesses, by providing a federal reinsurance-type backstop to 
commercial property and casualty insurers and spreading the risk of 
insured losses resulting from an act of terrorism. Accordingly, a 
regulatory flexibility analysis is not required.

List of Subjects in 31 CFR Part 50

    Terrorism risk insurance.

Authority and Issuance

0
For the reasons set forth above, 31 CFR part 50 is amended as follows:

PART 50--TERRORISM RISK INSURANCE PROGRAM

0
1. The authority citation for part 50 is revised to read as follows:

    Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Public Law 107-
297, 116 Stat. 2322, as amended by Public Law 109-144, 119 Stat. 
2660 and Public Law 110-160, 121 Stat. 1839 (15 U.S.C. 6701 note).


0
2. Section 50.1 is amended by revising paragraph (a) to read as 
follows:


Sec.  50.1  Authority, purpose and scope.

    (a) Authority. This part is issued pursuant to authority in Title I 
of the Terrorism Risk Insurance Act of 2002, Public Law 107-297, 116 
Stat. 2322, as amended by the Terrorism Risk Insurance Extension Act of 
2005, Public Law 109-144, 119 Stat. 2660, and the Terrorism Risk 
Insurance Program Reauthorization Act of 2007, Public Law 110-160, 121 
Stat. 1839.
* * * * *

0
3. Section 50.5 is amended by revising paragraphs (b)(1)(iv), 
(g)(1)(vi), (l), and (m) to read as follows:


Sec.  50.5  Definitions.

* * * * *
    (b) * * *
    (1) * * *
    (iv) To have been committed by an individual or individuals as part 
of an effort to coerce the civilian population of the United States or 
to influence the policy or affect the conduct of the United States 
Government by coercion.
* * * * *
    (g) * * *
    (1) * * *

[[Page 53364]]

    (vi) For Program Year 5 (January 1, 2007 through December 31, 
2007), or any Program Year thereafter, the value of an insurer's direct 
earned premiums over the calendar year immediately preceding that 
Program Year, multiplied by 20 percent; and
* * * * *
    (l) Program Trigger event means a certified act of terrorism that 
occurs after March 31, 2006, for which the aggregate industry insured 
losses resulting from such act exceed $50,000,000 with respect to such 
insured losses occurring in 2006 or $100,000,000 with respect to such 
insured losses occurring in 2007 and any Program Year thereafter.
    (m) Program Years means the Transition Period (November 26, 2002 
through December 31, 2002), Program Year 1 (January 1, 2003 through 
December 31, 2003), Program Year 2 (January 1, 2004 though December 31, 
2004), Program Year 3 (January 1, 2005 through December 31, 2005), 
Program Year 4 (January 1, 2006 through December 31, 2006), Program 
Year 5 (January 1, 2007 through December 31, 2007), and any Program 
Year thereafter (calendar years 2008 through 2014).
* * * * *

0
4. Section 50.7 is amended by revising paragraphs (b)(3) and (b)(4) and 
adding paragraph (b)(5) to read as follows:


Sec.  50.7  Special Rules for Interim Guidance Safe Harbors.

* * * * *
    (b) * * *
    (3) Interim Guidance III issued by Treasury on January 22, 2003, 
and published at 68 FR 4544 (January 29, 2003);
    (4) Interim Guidance IV issued by Treasury on December 29, 2005, 
and published at 71 FR 648 (January 5, 2006); and
    (5) Interim Guidance issued by Treasury on January 22, 2008, and 
published at 73 FR 5264 (January 29, 2008).

0
5. Section 50.11 is revised to read as follows:


Sec.  50.11  Definition.

    For purposes of this subpart, unless the context indicates 
otherwise, the term ``disclosure'' or ``disclosures'' refers to the 
disclosure described in section 103(b)(2) of the Act and Sec.  50.10. 
The term ``cap disclosure'' refers to the disclosure required by 
section 103(b)(3) of the Act and Sec.  50.15.

0
6. Section 50.12 is amended by redesignating paragraph (b) as paragraph 
(b)(1) and adding paragraphs (b)(2) and (e)(3) to read as follows:


Sec.  50.12  Clear and conspicuous disclosure.

* * * * *
    (b) * * *
    (2) Premium to reflect definition of act of terrorism. If an 
insurer makes an initial offer of coverage, or offers to renew an 
existing policy on or after December 26, 2007, the disclosure provided 
to the policyholder must reflect the premium charged for insured losses 
covered by the Act, consistent with the definition of an act of 
terrorism as amended by the Terrorism Risk Insurance Program 
Reauthorization Act of 2007, Public Law 110-160, 121 Stat. 1839.
* * * * *
    (e) * * *
    (3) If an insurer made available coverage for insured losses in a 
new policy or policy renewal in 2007 or in the first three months of 
2008 for coverage becoming effective in 2008, but did not provide a 
disclosure at the time of offer, purchase or renewal of the policy, 
then the insurer must be able to demonstrate to Treasury's satisfaction 
that it has provided a disclosure as soon as possible following January 
1, 2008.

0
7. Section 50.15 is added to read as follows:


Sec.  50.15  Cap disclosure.

    (a) General. Under section 103(e)(2) of the Act, if the aggregate 
insured losses exceed $100,000,000,000 during any Program Year, the 
Secretary shall not make any payment for any portion of the amount of 
such losses that exceeds $100,000,000,000, and no insurer that has met 
its insurer deductible shall be liable for the payment of any portion 
of the amount of such losses that exceeds $100,000,000,000.
    (b) Other requirements. As a condition for federal payments under 
section 103(b) of the Act, in the case of any policy that is issued 
after December 26, 2007, an insurer must provide clear and conspicuous 
disclosure to the policyholder of the existence of the $100,000,000,000 
cap under section 103(e)(2). The cap disclosure must be made at the 
time of offer, purchase, and renewal of the policy.
    (c) Demonstration of compliance. For policies issued after December 
26, 2007, if an insurer does not provide a cap disclosure by the time 
of the first offer, purchase or renewal of the policy after December 
26, 2007, then the insurer must be able to demonstrate to Treasury's 
satisfaction that it has provided the disclosure as soon as possible 
following December 26, 2007.
    (d) Other applicable rules. The rules in Sec.  50.12(a), (c), (d), 
(e)(1), and (f) (relating to clear and conspicuous disclosure) and in 
Sec.  50.13 (relating to offer, purchase, and renewal) apply to the cap 
disclosure.

0
8. Section 50.17 is amended by revising the second sentence of 
paragraph (a)(2), by redesignating paragraph (e) as paragraph (f), and 
by adding paragraph (e) to read as follows:


Sec.  50.17  Use of model forms.

    (a) * * *
    (2) * * * Such an insurer may also use the same NAIC Model 
Disclosure Form No. 1 to comply with the notice requirement of section 
105(c) of the Act.* * *
* * * * *
    (e) Cap disclosure. An insurer may use NAIC Model Disclosure Form 
No. 1 or NAIC Model Disclosure Form No. 2 dated December 19, 2007, or 
as subsequently modified in accordance with paragraph (f) of this 
section, to satisfy the cap disclosure requirement, or another 
disclosure that meets the requirements of Sec.  50.15 may be developed.

0
9. Section 50.18 is amended by revising the section title to read as 
follows:


Sec.  50.18  Notice required by reinstatement provision.

0
10. Section 50.20 is amended by revising paragraph (c) and adding 
paragraphs (d) and (e) to read as follows:


Sec.  50.20  General mandatory availability requirements.

* * * * *
    (c) Program Years 4 and 5--calendar years 2006 and 2007. Under 
section 103(c) of the Act, an insurer must comply with paragraphs 
(a)(1) and (a)(2) of this section during Program Years 4 and 5.
    (d) Program Years thereafter. Under section 103(c) of the Act, an 
insurer must comply with paragraphs (a)(1) and (a)(2) of this section 
during Program Years 2008 through 2014.
    (e) Beyond 2014. Notwithstanding paragraph (a)(2) of this section 
and Sec.  50.23(a), property and casualty insurance coverage for 
insured losses does not have to be made available beyond December 31, 
2014, even if the policy period of insurance coverage for losses from 
events other than acts of terrorism extends beyond that date.

0
11. Section 50.21 is revised to read as follows:


Sec.  50.21  Make available.

    (a) General. The requirement to make available coverage as provided 
in Sec.  50.20 applies to policies in existence on November 26, 2002, 
and new policies issued and renewals of existing

[[Page 53365]]

policies during the period beginning on November 26, 2002 and ending on 
December 31, 2002, and in any Program Year thereafter. Except as 
provided in paragraph (c) of this section, the requirement applies at 
the time an insurer makes the initial offer of coverage as well as at 
the time an insurer makes an initial offer of renewal of an existing 
policy.
    (b) Offer consistent with amended definition of act of terrorism. 
An insurer must make available coverage for insured losses in a policy 
of property and casualty insurance consistent with the definition of an 
act of terrorism as amended by the Terrorism Risk Insurance Program 
Reauthorization Act of 2007 beginning with the first initial offer of 
coverage or offer of renewal of the policy made on or after December 
26, 2007. Notwithstanding this requirement, if an insurer makes an 
offer of coverage on or after December 26, 2007 on a policy that is in 
mid term, then the insurer must make available coverage for insured 
losses consistent with the definition of an act of terrorism.
    (c) Rules concerning extension of Program. (1) Special Program Year 
4 requirement for certain new policies issued and renewals of existing 
policies in Program Year 3. If coverage for insured losses under a 
policy of property and casualty insurance (as defined by the Act, as 
amended) expired as of December 31, 2005, but the remainder of coverage 
under the policy continued in force in Program Year 4, then an insurer 
must make available coverage as provided in Sec.  50.20 for insured 
losses for the remaining portion of the policy term in the manner 
specified in paragraphs (e)(1) and (e)(2) of this section. This 
requirement does not apply if during Program Year 3 a policyholder 
declined an offer of coverage for insured losses made at the time of 
the initial offer of coverage or offer of renewal of the existing 
policy.
    (2) Special 2008 requirement for certain policies where coverage 
expired. If coverage for insured losses under a policy of property and 
casualty insurance expired as of December 31, 2007, but the remainder 
of coverage under the policy continued in force in 2008, then an 
insurer must make available coverage as provided in Sec.  50.20 for 
insured losses for the remaining portion of the policy term in the 
manner specified in paragraphs (e)(1) and (e)(4) of this section. 
However, if a policyholder declined an offer made by an insurer for 
such coverage expiring as of December 31, 2007, then the insurer is not 
required to make a new offer of coverage for insured losses before any 
offer of renewal.
    (d) Changes negotiated subsequent to initial offer. If an insurer 
satisfies the requirement to ``make available'' coverage as described 
in Sec.  50.20 by first making an offer with coverage for insured 
losses that does not differ materially from the terms, amounts, and 
other coverage limitations applicable to losses arising from events 
other than acts of terrorism, which the policyholder declines, the 
insurer may negotiate with the policyholder an option of partial 
coverage for insured losses at a lower amount of coverage if permitted 
by any applicable State law. An insurer is not required by the Act to 
offer partial coverage if the policyholder declines full coverage. See 
Sec.  50.24.
    (e) Demonstrations of compliance. (1) No contract. If an insurer 
makes an offer of insurance but no contract of insurance is concluded, 
the insurer may demonstrate that it has satisfied the requirement to 
make available coverage as described in Sec.  50.20 through use of 
appropriate systems and normal business practices that demonstrate a 
practice of compliance.
    (2) Policy periods beginning in Program Year 3. If an insurer must 
make available coverage for insured losses as required by paragraph 
(c)(1) of this section for a policy whose coverage period began in 
Program Year 3 but extends into Program Year 4, then the insurer must 
be able to demonstrate to Treasury's satisfaction that it has offered 
such coverage by January 1, 2006, or as soon as possible following that 
date.
    (3) Coverage becoming effective in Program Year 4. If an insurer 
processed a new policy or policy renewal in Program Year 3 for coverage 
becoming effective in Program Year 4, but did not make available 
coverage for insured losses as required by Sec.  50.20 by January 1, 
2006, then the insurer must be able to demonstrate to Treasury's 
satisfaction that it has provided an offer of coverage for insured 
losses as soon as possible following that date.
    (4) Coverage expired as of December 31, 2007. If an insurer must 
make available coverage for insured losses under the circumstances 
described in paragraph (c)(2) of this section, the insurer must be able 
to demonstrate to Treasury's satisfaction that it has offered such 
coverage as soon as possible following January 1, 2008.
    (5) Coverage becoming effective in 2008. (i) No coverage. If an 
insurer processed a new policy or policy renewal in 2007 or in the 
first three months of 2008 for coverage becoming effective in 2008, but 
did not make available coverage for insured losses as required by Sec.  
50.20(a), then the insurer must be able to demonstrate to Treasury's 
satisfaction that it has provided an offer of coverage for insured 
losses as soon as possible following January 1, 2008.
    (ii) Not consistent with amended definition of act of terrorism. If 
an insurer made an initial offer of coverage or offer of renewal on or 
after December 26, 2007 for a policy term becoming effective in 2008, 
and made available coverage for insured losses, but the scope of the 
coverage for insured losses in the offer was not consistent with the 
definition of an act of terrorism as amended by the Terrorism Risk 
Insurance Program Reauthorization Act of 2007, then the insurer must be 
able to demonstrate to Treasury's satisfaction that it has provided a 
new offer of coverage as soon as possible following January 1, 2008. If 
an insurer made an initial offer of coverage or offer of renewal before 
December 26, 2007, for a policy term becoming effective in 2008, and 
the insurer made available coverage for insured losses in compliance 
with the Act and the definition of an act of terrorism in effect at the 
time of the offer, then the insurer is not required to make a new offer 
of coverage before the policy is due to be renewed by its terms, 
regardless of whether the offer was accepted or rejected.

0
12. Section 50.50 is amended by revising paragraphs (a)(1)(ii), (b)(2), 
and (d)(5) to read as follows:


Sec.  50.50  Federal share of compensation.

    (a) * * *
    (1) * * *
    (ii) 85 percent of that portion of the insurer's aggregate insured 
losses that exceed its insurer deductible during Program Year 5 and any 
Program Year thereafter.
    (b) * * *
    (2) For a certified act of terrorism occurring in 2007 and any 
Program Year thereafter: $100 million.
* * * * *
    (d) * * *
    (5) The insurer had provided a clear and conspicuous disclosure as 
required by Sec. Sec.  50.10 through 50.19 and a cap disclosure as 
required by Sec.  50.15;
* * * * *

0
13. Section 50.53 is amended by revising paragraph (b)(2)(iv) to read 
as follows:


Sec.  50.53  Loss certifications.

* * * * *
    (b) * * *
    (2) * * *
    (iv) The insurer has complied with the disclosure requirements of 
Sec. Sec.  50.10

[[Page 53366]]

through 50.19, and the cap disclosure requirement of Sec.  50.15, for 
each underlying insured loss that is included in the amount of the 
insurer's aggregate insured losses; and
* * * * *

David G. Nason,
Assistant Secretary (Financial Institutions).
[FR Doc. E8-21578 Filed 9-15-08; 8:45 am]
BILLING CODE 4810-25-P