Terrorism Risk Insurance Program; Cap on Annual Liability, 56767-56773 [E8-22940]

Agencies

• DEPARTMENT OF THE TREASURY
• Department of Treasury

[Federal Register Volume 73, Number 190 (Tuesday, September 30, 2008)]
[Proposed Rules]
[Pages 56767-56773]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-22940]


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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505--AB92


Terrorism Risk Insurance Program; Cap on Annual Liability

AGENCY: Departmental Offices, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of the Treasury (``Treasury'') is issuing this 
proposed rule as part of its implementation of Title I of the Terrorism 
Risk Insurance Act of 2002 (``TRIA'' or ``the Act''), as amended by the 
Terrorism Risk Insurance Program Reauthorization Act of 2007 
(``Reauthorization Act''). The Act established a temporary Terrorism 
Risk Insurance Program (``TRIP'' or ``Program'') under which the 
Federal Government would share with commercial property and casualty 
insurers the risk of insured losses from certified acts of terrorism. 
The Reauthorization Act has now extended the Program until December 31, 
2014. This proposed rule is the latest in a series of regulations 
Treasury has issued to implement the Act. The proposed rule 
incorporates and implements statutory requirements in section 103(e) of 
the Act, as amended by the Reauthorization Act, for capping the annual 
liability for insured losses at $100 billion. In particular, the 
proposed rule describes how Treasury intends to determine the pro rata 
share of insured losses under the Program when insured losses would 
otherwise exceed the cap on annual liability. The rule builds upon 
previous rules issued by Treasury.

DATES: Written comments must be submitted on or before October 30, 
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

[[Page 56768]]

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 Cap on Annual Liability Proposed 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

    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. The Act 
authorizes Treasury to administer and implement the Program, including 
the issuance of regulations and procedures. The Program provides a 
federal backstop for insured losses from an act of terrorism. Section 
103(e) of the Act gives Treasury authority to recoup federal payments 
made under the Program through policyholder surcharges. The Act also 
contains provisions designed to manage litigation arising from or 
relating to a certified act of terrorism.
    The Program originally was to expire on December 31, 2005; however, 
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. 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), 
extending the Program through December 31, 2014.
    The Reauthorization Act, among other Program changes, revised the 
provisions of the Act with regard to the cap on annual liability for 
insured losses of $100 billion. Previously, section 103(e)(3) stated 
that Congress would determine the procedures for and the source of any 
payments for insured losses in excess of the cap. This was deleted. 
Instead, this section now requires 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 the cap. TRIA, as amended by the Reauthorization Act, also 
requires the Secretary to determine the pro rata share of insured 
losses to be paid by each insurer incurring losses under the Program 
when insured losses exceed the cap, and to issue regulations for 
carrying this out.

II. Previous Rulemaking

    To assist insurers, policyholders, and other interested parties in 
complying with immediately applicable requirements of the Act, Treasury 
has issued interim guidance for reference until issuance of superseding 
regulation. Rules establishing general provisions implementing the 
Program, including key definitions, and requirements for policy 
disclosures and mandatory availability, can be found in Subparts A, B, 
and C of 31 CFR Part 50. Treasury's rules applying provisions of the 
Act to State residual market insurance entities and State workers' 
compensation funds are at Subpart D of 31 CFR Part 50. Rules setting 
forth procedures for filing claims for payment of the Federal share of 
compensation for insured losses are at Subpart F of 31 CFR Part 50. 
Subpart G of 31 CFR Part 50 contains rules on audit and recordkeeping 
requirements for insurers, while Subpart I of 31 CFR Part 50 contains 
Treasury's rules implementing the litigation management provisions of 
section 107 of the Act.

III. The Proposed Rule

    This proposed rule would add a Subpart J to part 50, which 
comprises Treasury's regulations implementing the Act. It also proposes 
to amend Sec.  50.53 of Subpart F.

A. Overview

    Generally, section 103(e)(2), as amended, provides that, 
notwithstanding subsection (e)(1) regarding the Federal share of 
compensation or any other provision of Federal or State law, the 
Secretary shall not make any payments for any portion of insured losses 
in excess of the cap on annual liability of $100 billion. Furthermore, 
no insurer that has met its insurer deductible shall be liable for any 
portion of insured losses in excess of the cap. For these purposes, the 
Secretary determines the pro rata share of insured losses to be paid by 
each insurer incurring losses under the Program. Section 103(e)(2) 
further provides that no insurer may be required to make any payment 
for insured losses in excess of its deductible combined with its share 
of insured losses above its deductible. The Reauthorization Act also 
added a provision (Section 103(b)(3) of TRIA) requiring insurers to 
make a disclosure to policyholders of the existence of the $100 billion 
cap under subsection (e)(2).
    The cap on insured losses may be reached as a result of a single 
act of terrorism, or as a result of multiple smaller acts. Either case 
would represent an unprecedented level of losses and present many 
difficulties in assessment and projection of insured losses. The cap's 
impact on the Federal government's and insurer's liabilities, based on 
industry-wide insured losses, involves insurance contract issues not 
normally encountered in the insurance market. Examining different 
approaches to pro rating payments of insured losses within the cap, it 
is apparent that no alternative eliminates the potential for inequities 
in how insured losses are settled, mainly due to the timing of events 
and the timing of loss settlements.
    In developing a proposed process, Treasury is guided by its 
authorities provided in the Act. Treasury is attempting, within these 
authorities, to reduce the potential for inequitable treatment of 
policyholders resulting from the timing of insured losses, the location 
of insured losses, or the particular insurer of the policyholder, while 
providing a process that is relatively easily understood and that is 
operationally reasonable to execute, control, and audit. The proration 
process must be established on a going forward basis so insureds that 
have already received payments from their insurers would not have to 
return any of those payments. The process must also be flexible enough 
to address changing circumstances presented by subsequent events or by 
the development of new, more accurate information regarding insured 
losses.
    The proposed rule describes how Treasury would initially estimate 
whether the cap will be exceeded, the means by which Treasury would 
develop and maintain estimates for determining the pro rata share of 
insured losses to be paid, the factors

[[Page 56769]]

that would be considered in determining a pro rata percentage of the 
insured losses that are to be paid in order to stay within the cap, and 
the application of the pro rata percentage in paying insured losses. 
Treasury has consulted with the National Association of Insurance 
Commissioners in developing this rule. Treasury seeks comment on all 
aspects of the proposed rule and welcomes the submission of 
alternatives to the proposed process for prorating insured losses when 
aggregate insured losses would exceed the cap on annual liability.

B. Description of the Proposed Rule

    The major provisions of the proposed rule are as follows:
1. Notice to Congress (Sec.  50.91)
    Section 103(e)(3) of the Act requires the Secretary to provide an 
initial notice to Congress not later than 15 days after the date of an 
act of terrorism, stating whether the Secretary estimates that 
aggregate insured losses will exceed $100 billion. TRIA defines an 
``act of terrorism,'' in part, as any act that is certified by the 
Secretary, in concurrence with the Secretary of State and the Attorney 
General of the United States. Treasury intends to meet this requirement 
within the designated time following the certification of an act of 
terrorism, although there may be significant challenges involved in 
obtaining data for such an estimate within the designated time. The 
first challenge could be restrictions on access to the affected areas 
that would hinder the ability of anyone to accurately assess losses. 
Additionally, from the Program's perspective, since the $100 billion 
cap applies only to insured losses, the distinction between estimation 
of insured and uninsured losses will be critical.
    In determining initial estimates of insured losses, Treasury's 
preferred means of gathering information would be through contacting 
insurance industry statistical organizations such as the Property 
Claims Services of Insurance Services Office, Inc. To the extent that 
insurers are able to estimate their insured losses early on, aggregate 
loss information would become available through such industry sources. 
Supplemented with other information regarding insurer deductibles and 
expectations for insured losses that would emerge later, such as 
liability losses, this represents, we believe, the best source for an 
initial report as to whether the cap will be exceeded. Treasury is also 
exercising its own data call authority, which is further discussed in 
the description below for Sec.  50.94 in the proposed rule. For the 
purposes of this initial reporting to Congress, however, a Treasury 
data call, separate from other industry efforts, may not be timely 
enough.
    Treasury has also considered the utility of certain computer models 
to estimate initial insured losses. (This modeling has been developed 
as an industry tool for analyzing the terrorism risk for underwriting 
purposes.) While this may be of some value in making initial estimates, 
we have also been advised that the values for input parameters 
necessary for model accuracy for an actual terrorist event are not 
likely to be as readily available in the immediate aftermath as they 
are from natural hazard events such as hurricanes. This seems to limit 
the utility of this approach for purposes of the report to Congress.
    Treasury may also look to Federal, state, and local sources of 
damage assessments in advance of any disaster response and recovery 
efforts. These will likely also be helpful, but, as discussed above, 
such overall estimates may not be refined enough for us to estimate the 
more limited insured losses of concern to the Program.
2. Determination of Pro Rata Share (Sec.  50.92)
    Under the Reauthorization Act, the Secretary shall not make any 
payment for any portion of the amount of such insured losses that 
exceeds $100 billion; and no insurer that has met its deductible shall 
be liable for the payment of any portion of the amount of such insured 
losses that exceeds $100 billion. As previously noted, the timing of 
events and the timing of resulting loss payments have the potential for 
inequities that may be impossible to avoid completely. Treasury is 
proposing a rule that ensures fair and equal treatment of insurers, 
policyholders, and claimants, to the extent possible given the 
inequities inherent in the cap provisions of the Act and the 
possibility that proration may need to be implemented midway in the 
settlement of insured losses arising from a Program Year. Generally, 
Treasury's approach would be to establish any pro ration relatively 
conservatively when it is estimated that the cap will be reached, so 
that early payments are not inequitably higher than later payments, and 
so that, barring a subsequent act of terrorism, later refinements to 
the pro ration would allow additional payments to policyholders for 
prior settled losses. During a Program Year, until events have 
transpired that lead Treasury to believe that the cap could be reached, 
it would be our intention that no pro ration would be established.
    The proposed rule includes a definition of ``pro rata loss 
percentage'' (``PRLP''). This would be the percentage determined by the 
Secretary to be applied against the amount that would otherwise be paid 
by an insurer under the terms and conditions of an insurance policy 
providing property and casualty insurance under the Program if there 
were no cap on annual liability. An insurer would apply the PRLP to 
compute the pro rata share of insured losses to be paid under an 
insurance policy.
    Treasury has examined the issue of whether different lines of 
business or different types of insured losses should have different pro 
rata loss percentages applied. Given the inherent potential for 
inequities arising out of the timing and nature of multiple acts of 
terrorism that are the cause of insured losses, the difficulties in 
quickly estimating aggregate losses, as well as the difficulty in 
prioritizing certain insured losses over others, Treasury believes a 
single pro rata loss percentage should be used in determining the pro 
rata share of insured losses from all lines of business covered by the 
Program.
    The proposed rule provides that if Treasury estimates that insured 
losses may exceed the cap on annual liability for a Program Year, then 
Treasury would determine an initial PRLP and an effective date for that 
PRLP. This percentage would be applied in determining insured loss 
payments for insured losses incurred during the subject Program Year, 
starting with the effective date until Treasury determines a revised 
PRLP. Considerations in establishing the PRLP are proposed to be: (1) 
Estimates of insured losses from insurance industry statistical 
organizations; (2) any data calls issued by Treasury; (3) expected 
reliability and accuracy of insured loss estimates and likelihood that 
insured loss estimates could increase; (4) estimates of insured losses 
and expenses not included in available statistical reporting; and (5) 
such other factors as the Secretary considers important. Revisions to 
the PRLP would be based on the same considerations, as needed. Notices 
of the initial and any revised PRLP would be provided through the 
Federal Register, or in another manner Treasury deems appropriate, 
based upon the circumstances of the act of terrorism under 
consideration.
    It will almost certainly be necessary to continue to update 
aggregate insured loss estimates, in light of more information 
regarding losses from events which have already occurred or

[[Page 56770]]

because of subsequent events. New and refined information may result in 
Treasury's determination of a new PRLP. In developing this proposed 
rule, Treasury contemplated including a schedule for updating estimates 
of aggregate insured losses. Because of the unique circumstances of any 
act of terrorism, we believe that it would be better to formulate a 
plan for updating this information when we know more about what has 
actually occurred.
    Treasury needs information on unprorated insured losses in order to 
accurately determine an appropriate initial or subsequent PRLP. It is 
Treasury's understanding that as insured losses develop and are paid 
under a pro rata share calculation, insurer loss reserves generally 
will reflect the reduced payments expected to be made. For this reason, 
Treasury anticipates requiring, both for data call purposes discussed 
below, and for insurer claim submissions for the Federal share of 
compensation, the provision to Treasury of insured loss amount 
information that would reflect the unprorated amounts of both 
settlements and losses yet to be paid in the future.
    Treasury is concerned that there could be circumstances where we 
estimate that the cap on annual liability will be exceeded, but there 
is not yet adequate knowledge of insured losses with which to determine 
a PRLP. Allowing payments for early insured losses to continue without 
proration appears to be inequitable to those coming in later, for which 
the pro rata share calculation would have to be that much more severe. 
Treasury is proposing in this rule that in such a circumstance it would 
call a brief hiatus in insurer loss payments of up to two weeks. During 
this time Treasury would develop a PRLP as quickly as possible. During 
this hiatus, insurers could still make payments, but with the 
understanding that the PRLP would be effective retroactively to the 
start of the hiatus. Any insured losses later submitted in support of 
an insurer's claim for the Federal share of compensation would be 
reviewed for compliance with the regulations pertaining to the pro rata 
share payments.
3. Application of Pro Rata Share (Sec.  50.93)
    Treasury is proposing that the PRLP be applied by insurers 
prospectively on individual insured losses that have not been settled 
as of the effective date of a PRLP. The intention is that the process 
of pro ration will not retroactively require repayment of any claims 
already legitimately made (or agreed to be paid) to insureds for 
insured losses. The impracticality of recovering payments already made 
is generally recognized.
    From the standpoint of operational ease and in the interest of 
equitable treatment of all insured losses once it is expected that the 
cap on annual liability will be reached, Treasury sees merit in 
applying pro rata sharing of insured losses whether they are within or 
in excess of an individual insurer's deductible. In closely examining 
its authorities as stipulated in the Reauthorization Act, however, 
Treasury has concluded that it cannot provide for pro rata sharing of 
insured losses in such a way that an insurer's liability would be 
limited when it has not met its deductible. The proposed rule addresses 
this issue.
    Proposed Sec.  50.93 directs insurers to apply the PRLP to 
determine the pro rata share of each insured loss to be paid by the 
insurer on all insured losses where there is not a signed settlement as 
of the effective date established by Treasury for the PRLP. The same 
procedure applies whether this is an initial PRLP or a subsequent PRLP 
that is superseding the prior determination. Treasury is proposing that 
the pro rata share is determined based on the final claim settlement 
amount that would otherwise be paid. If partial payments have already 
been made as of the effective date of the PRLP, then the pro rata share 
for that loss is the greater of the amount already paid or the amount 
computed by applying the PRLP to the final claim settlement amount. The 
proposed rule refers to ``estimated or actual'' final claim settlement 
amounts. This recognizes that insurers may be submitting underlying 
claim information in support of a claim for the Federal share of 
compensation after making partial payments, but prior to a final 
adjustment of the claim.
    Some insured losses, such as those associated with workers' 
compensation or business interruption, may involve ongoing regular 
payments. In these cases, the proration is still determined based on 
the final claim settlement amount that would otherwise be paid. In the 
claims procedures regulations and in the forms for insurer submissions 
for the Federal share of compensation that Treasury has promulgated, 
workers' compensation losses are required to be substantiated at the 
policy level. That is to say, underlying loss information on the 
bordereaux and reviewed by Treasury in determining the Federal share is 
submitted in aggregate by policy/employer rather than individual 
claimant/employee. In this proposed rule, Treasury proposes to continue 
that scheme. The application of the PRLP to determine the pro rata 
share would be against the estimated or actual unprorated loss amounts 
by policy (broken down by medical only, medical portion of indemnity, 
and indemnity portion of indemnity), following the way loss information 
has been required to be reported as part of the TRIP Certifications of 
Loss. Despite this calculation of the pro rata share at the policy 
level for purposes of reporting to Treasury, Treasury expects that 
insurers would pro rate payments made to individual claimants.
    If an insurer that has not yet made payments in excess of its 
insurer deductible estimates it will exceed its deductible making 
payments based on the application of the PRLP, then that insurer shall 
apply the PRLP as of the effective date of the PRLP. If an insurer that 
has not yet made payments in excess of its insurer deductible estimates 
it will not exceed its deductible making payments based on the 
application of the PRLP, then that insurer may make payments on the 
same basis as prior to the effective date of the PRLP. This means there 
is no requirement to pro-rate losses. In such circumstances, whether to 
pro-rate as of the effective date of the PRLP is up to the insurer. If 
the insurer pro rates and does not exceed its deductible, then it is 
liable for additional, retroactive loss payments that in the aggregate 
bring the insurer's total insured loss payments up to an amount equal 
to the lesser of its insured losses without proration or its insurer 
deductible. If the insurer does not pro rate, but does exceed its 
deductible, then it must apply the PRLP to its remaining insured losses 
once it makes payments equal to its insurer deductible. Once an insurer 
exceeds its deductible and submits a claim for the Federal share of 
compensation, however, Treasury's review of eligible payments 
associated with the underlying losses and calculations for the Federal 
share would be based on the application of the PRLP as if the insurer 
had originally been subject to paragraph (b) of this section.
4. Data Call Authority (Sec.  50.94)
    Treasury is proposing that it may issue a data call to insurers for 
the submission of insured loss information. We anticipate requesting 
summary level information on insured losses and insurer deductible 
information. Such a collection of data may be necessary not only for 
the purposes of the cap on annual liability, but also with regard to 
potential recoupment. Treasury intends, to the extent possible, to rely 
on existing industry statistical reporting

[[Page 56771]]

mechanisms in making initial estimates. However, in order to estimate 
whether the cap on annual liability will be reached and determine an 
initial or subsequent PRLP, it may be necessary to have more timely 
detail regarding insurer deductibles and reserves for insured losses 
from lines of business not normally included in existing industry 
reporting.
    It is Treasury's intention to proceed with the development of forms 
for the electronic submission of insurer responses to a data call, with 
appropriate opportunity provided for public review and comment. It has 
been observed that reporting similar to that required on the current 
TRIP Initial Notice of Loss may be sufficient for these purposes. 
Treasury will review this as part of its forms development process. The 
circumstances of a particular Program Trigger Event will likely have a 
significant bearing on which insurers should receive the data call and 
how the data should be coordinated, perhaps with the NAIC or a 
particular state. Additional data call guidance will be provided as 
necessary based on the circumstances of the particular Program Trigger 
Event.
5. Final Amount (Sec.  50.95)
    As previously discussed, Treasury intends to establish, to the 
extent possible, pro ration of insured losses conservatively so as to 
not exceed the legislative cap on annual liability. The proposed rule 
includes provision for Treasury to determine a final PRLP that would be 
used for determining the pro rata share to be paid on all remaining 
insured losses as well as for being able to provide additional payments 
on previously settled losses and still remain within the cap. The 
proposed rule also proposes that there may be a need for supplementary 
explanation regarding how additional payments are provided on 
previously settled losses that would accompany the Certifications of 
Loss submitted by insurers for the Federal share of compensation. The 
proposed rule also includes a provision, consistent with the above 
discussion of the treatment of pro rata sharing in connection with 
insurer deductibles, that at the time of determination of a final pro 
ration, an insurer may still be liable for loss payments that in the 
aggregate bring the insurer's total loss payments up to an amount equal 
to the lesser of its insured losses without proration or its insurer 
deductible.

IV. Procedural Requirements

    Executive Order 12866, ``Regulatory Planning and Review''. This 
rule is a significant regulatory action for purposes of Executive Order 
12866, ``Regulatory Planning and Review,'' and has been reviewed by the 
Office of Management and Budget.
    Regulatory Flexibility Act. Pursuant to the Regulatory Flexibility 
Act, 5 U.S.C. 601 et seq., it is hereby certified that this proposed 
rule will not have a significant economic impact on a substantial 
number of small entities. Under the Act, Treasury shall not make any 
payment for any portion of the amount of annual aggregate insured 
losses that exceed $100 billion and no insurer that has met its insurer 
deductible is liable for the payment of any portion of the amount of 
annual aggregate insured losses that exceeds $100 billion. Further, the 
Act requires the Secretary to determine the pro rata share of insured 
losses to be paid by each insurer and to issue regulations for 
determining the pro rata share of insured losses under the Program. 
Accordingly, any economic impact associated with the proposed rule 
flows from the Act and not the proposed rule. A regulatory flexibility 
analysis is thus not required.
    Paperwork Reduction Act. The collection of information contained in 
this proposed rule has been submitted to the Office of Management and 
Budget (OMB) for review under the requirements of the Paperwork 
Reduction Act, 44 U.S.C. 3507(d).
    Organizations and individuals desiring to submit comments 
concerning the collection of information in the proposed rule should 
direct them to: Office of Management and Budget, Attn: Desk Officer for 
the Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, or by e-mail to Alexander_T._
Hunt@omb.eop.gov. A copy of the comments should also be sent to 
Treasury at the addresses previously specified. Comments on the 
collection of information should be received by December 1, 2008.
    Treasury specifically invites comments on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the mission of Treasury, and whether the information will have 
practical utility; (b) the accuracy of the estimate of the burden of 
the collections of information (see below); (c) ways to enhance the 
quality, utility, and clarity of the information collection; (d) ways 
to minimize the burden of the information collection, including through 
the use of automated collection techniques or other forms of 
information technology; and (e) estimates of capital or start-up costs 
and costs of operation, maintenance, and purchase of services to 
maintain the information.
    The forms to be prescribed by Treasury for the data call pursuant 
to the authority in Sec.  50.94 to collect information to ascertain the 
aggregate amount of insured losses will require information readily 
derived from existing normal industry internal and external reporting. 
Treasury may issue data calls to insurers to make initial estimates of 
aggregate losses where available industry statistical information is 
not specific enough, and to further refine the information needed to 
determine the PRLP. The number of respondents to such a data call is 
not expected to exceed 200 insurers. The data to be obtained in the 
immediate aftermath of certification of an act of terrorism would 
include the insurers' total expected losses and estimated insurer 
deductibles. Subsequent data calls to refine the information would 
include catastrophe code, line of business, losses paid, allocated loss 
adjustment expenses paid, case reserves, incurred but not reported 
reserves as well as the total expected loss (unprorated) and insurer 
deductible data. Treasury estimates that an insurer will require 5 
hours, on average, to assemble data and respond to the Treasury 
request. The estimated total burden would therefore be 1,000 hours (200 
insurers x 5 hours). At a blended, fully loaded hourly rate of $85.00, 
the cost would $85,000. (Note, the data call forms and submission 
would, as appropriate, also be utilized to obtain aggregate insured 
loss data needed for making recoupment determinations and notices 
required by the Act).
    In the event of imposition of a PRLP, it will be necessary to 
determine insurer compliance when the Treasury is processing insurer 
claims for payment of the Federal share of compensation. This would be 
accomplished by revision to the currently approved Treasury form TRIP 
02C, revised April 2006 (OMB 1505-0200, expiration December 31, 2010). 
This form, the ``Bordereau'' or ``Schedule C'' is submitted in support 
of the insurer's certification of loss (see 31 CFR 50.53) and provides 
detailed information about individual underlying claims. The revised 
form would require the addition of the settlement date of an underlying 
claim, the total unprorated amount of the loss, and the date of the 
latest payment on the claim. These are data that are normally in the 
insurer's own file and their reporting and recordkeeping are estimated 
to not represent any measurable additional reporting or recordkeeping 
burden.
    Executive Order 13132, ``Federalism.'' The proposed rule may have 
federalism implications to the extent it deals with

[[Page 56772]]

the making of payments by insurers to their policyholders under 
contracts of insurance, which is ordinarily regulated under State 
insurance law. However, TRIA established a temporary Federal program 
that is national in scope and significance. Section 106 of TRIA 
preserves the jurisdiction or regulatory authority of State insurance 
commissioners or similar offices, except as specifically provided in 
TRIA. Section 103(e)(2) requires Treasury to issue regulations for 
determining the pro rata share of insured losses under the Program when 
insured losses exceed $100 billion.
    Treasury consulted with the National Association of Insurance 
Commissioners early in the process of formulating this proposed rule. 
State insurance commissioners who are members of the NAIC Terrorism 
Insurance Working Group were given an opportunity to submit comments, 
and a few minor and technical comments were received and considered by 
Treasury. The NAIC and State insurance commissioners will have a 
further opportunity to comment on this proposed rule.
    The provision in the proposed rule (Sec. 50.92(e)) where Treasury 
would call for a hiatus in payments by insurers in circumstances where 
the cap on annual liability may be exceeded, but an appropriate PRLP 
cannot yet be determined, could potentially conflict with State 
insurance laws prescribing fixed periods for insurers to pay claims. 
However, Treasury believes the impact is limited in the proposed rule 
because the period of the hiatus is brief (up to two weeks), and it 
would apply shortly after an act of terrorism occurs. Treasury has 
concluded that a brief hiatus is necessary to carry out the purpose of 
the statute to establish shares of insured losses on a pro rata basis 
by avoiding the inequity of allowing early claims to be paid in full 
before a PRLP can be determined.

List of Subjects in 31 CFR Part 50

    Terrorism risk insurance.

Authority and Issuance

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

PART 50--TERRORISM RISK INSURANCE PROGRAM

    1. The authority citation for part 50 continues to read as follows:

    Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107-
297, 116 Stat. 2322, as amended by Pub. L. 109-144, 119 Stat. 2660 
and Pub. L. 110-160, 121 Stat. 1839 (15 U.S.C. 6701 note).
    2. Subpart J is added to read as follows:

Subpart J--Cap on Annual Liability

Sec.
50.90 Cap on annual liability.
50.91 Notice to Congress.
50.92 Determination of pro rata share.
50.93 Application of pro rata share.
50.94 Data call authority.
50.95 Final amount.


Sec.  50.90  Cap on annual liability.

    Pursuant to Section 103 of the Act, if the aggregate insured losses 
exceed $100,000,000,000 during any Program Year:
    (a) The Secretary shall not make any payment for any portion of the 
amount of such losses that exceeds $100,000,000,000;
    (b) 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; and
    (c) The Secretary shall determine the pro rata share of insured 
losses to be paid by each insurer that incurs insured losses under the 
Program.


Sec.  50.91  Notice to Congress.

    Pursuant to Section 103(e)(3) of the Act, the Secretary shall 
provide an initial notice to Congress within 15 days of the 
certification of an act of terrorism, stating whether the Secretary 
estimates that aggregate insured losses will exceed $100,000,000,000 
for the Program Year in which the event occurs. Such initial estimate 
shall be based on insured loss amounts as compiled by insurance 
industry statistical organizations and any other information the 
Secretary in his or her discretion considers appropriate. The Secretary 
shall also notify Congress if estimated or actual aggregate insured 
losses exceed $100,000,000,000 during any Program Year.


Sec.  50.92  Determination of pro rata share.

    (a) Pro rata Loss Percentage (PRLP) is the percentage determined by 
the Secretary to be applied by an insurer against the amount that would 
otherwise be paid by the insurer under the terms and conditions of an 
insurance policy providing property and casualty insurance under the 
Program if there were no cap on annual liability under Section 
103(e)(2)(A) of the Act.
    (b) Except as provided in paragraph (e) of this section, if 
Treasury estimates that aggregate insured losses may exceed the cap on 
annual liability for a Program Year, then Treasury will determine an 
initial PRLP. The PRLP applies to insured loss payments by insurers for 
insured losses incurred in the subject Program Year, as specified in 
Sec.  50.93, from the effective date of the PRLP, as established by 
Treasury, until such time as Treasury provides notice that the PRLP is 
revised. Treasury will determine the PRLP based on the following 
considerations:
    (1) Estimates of insured losses from insurance industry statistical 
organizations;
    (2) Any data calls issued by Treasury (see Sec.  50.94);
    (3) Expected reliability and accuracy of insured loss estimates and 
likelihood that insured loss estimates could increase;
    (4) Estimates of insured losses and expenses not included in 
available statistical reporting;
    (5) Such other factors as the Secretary considers important.
    (c) Treasury shall provide notice of the determination of the PRLP 
through publication in the Federal Register, or in another manner 
Treasury deems appropriate, based upon the circumstances of the act of 
terrorism under consideration.
    (d) As appropriate, Treasury will determine any revision to a PRLP 
based on the same considerations listed in paragraph (b) of this 
section, and will provide notice for its application to insured loss 
payments.
    (e) If Treasury estimates based on an initial act of terrorism or 
subsequent act of terrorism within a Program Year that aggregate 
insured losses may exceed the cap on annual liability, but an 
appropriate PRLP cannot yet be determined, Treasury will provide 
notification advising insurers of this circumstance and calling a 
hiatus in insurer loss payments for insured losses of up to two weeks. 
In such a circumstance, Treasury will determine a PRLP as quickly as 
possible. The PRLP, as later determined, will be effective 
retroactively as of the start of the hiatus. Any insured losses 
submitted in support of an insurer's claim for the Federal share of 
compensation will be reviewed for the insurer's compliance with pro 
rata payments in accordance with the effective date of the PRLP.


Sec.  50.93  Application of pro rata share.

    An insurer shall apply the PRLP to determine the pro rata share of 
each insured loss to be paid by the insurer on all insured losses where 
there is not a signed settlement as of the effective date established 
by Treasury. Payments based on the application of the PRLP and 
determination of the pro rata share satisfy the insurer's liability for 
payment under the Program. Application of the PRLP and the 
determination of the pro

[[Page 56773]]

rata share are the exclusive means for calculating the amount of 
insured losses for Program purposes. The pro rata share is subject to 
the following:
    (a) The pro rata share is determined based on the estimated or 
actual final claim settlement amount that would otherwise be paid. If 
partial payments have already been made as of the effective date of the 
PRLP, then the pro rata share for that loss is the greater of the 
amount already paid or the amount computed by applying the PRLP to the 
estimated or actual final claim settlement amount.
    (b) If an insurer that has not yet made payments in excess of its 
insurer deductible estimates that it will exceed its insurer deductible 
making payments based on the application of the PRLP to its insured 
losses, then the insurer shall apply the PRLP as of the effective date 
specified in Sec.  50.92(b).
    (c) If an insurer that has not yet made payments in excess of its 
insurer deductible estimates that it will not exceed its insurer 
deductible making payments based on the application of the PRLP to its 
insured losses, then the insurer may make payments on the same basis as 
prior to the effective date of the PRLP. If such insurer thereafter 
reaches its insurer deductible, then the insurer shall apply the PRLP 
to its remaining insured losses. When such an insurer submits a claim 
for the Federal share of compensation, the amount of the insurer's 
losses will be deemed to be the amount it would have paid if it had 
applied the PRLP as of the effective date, and the Federal share of 
compensation will be calculated on that amount. However, an insurer may 
request an exception if it can demonstrate that its estimate was 
invalidated as a result of insured losses from a subsequent act of 
terrorism.


Sec.  50.94  Data call authority.

    For the purpose of determining initial or recalculated PRLPs 
Treasury may issue a data call to insurers for insured loss 
information. Submission of data in response to a data call shall be on 
a form promulgated by Treasury.


Sec.  50.95  Final amount.

    (a) Treasury shall determine if, as a final pro ration, remaining 
insured loss payments, as well as adjustments to previous insured loss 
payments, can be made by insurers based on an adjusted PRLP, and 
aggregate insured losses still remain within the cap on annual 
liability. In such a circumstance, Treasury will notify insurers as to 
the final PRLP and its application to insured losses.
    (b) If paragraph (a) of this section applies, Treasury may require, 
as part of the insurer submission for the Federal share of compensation 
for insured losses, supplementary explanation regarding how additional 
payments will be provided on previously settled insured losses.
    (c) An insurer that has pro rated its insured losses, but that has 
not met its insurer deductible, remains liable for loss payments that 
in the aggregate bring the insurer's total insured loss payments up to 
an amount equal to the lesser of its insured losses without proration 
or its insurer deductible.


Sec.  50.53  [Amended]

    3. Section 50.53 is amended by adding paragraph (b)(5) to read as 
follows:
* * * * *
    (b) * * *
    (5) A certification that if Treasury has determined a Pro rata Loss 
Percentage (PRLP) (see Sec.  50.92), the insurer has complied with 
applying the PRLP to insured loss payments, where required.
* * * * *

David G. Nason,
Assistant Secretary (Financial Institutions).
[FR Doc. E8-22940 Filed 9-29-08; 8:45 am]
BILLING CODE 4810-25-P