Terrorism Risk Insurance Program; Final Netting, 45563-45567 [2010-18952]

Agencies

• DEPARTMENT OF THE TREASURY

[Federal Register Volume 75, Number 148 (Tuesday, August 3, 2010)]
[Proposed Rules]
[Pages 45563-45567]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-18952]


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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505-AC24


Terrorism Risk Insurance Program; Final Netting

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 Extension Act of 2005 (``Extension Act'') and 
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 the risk of insured losses from 
certified acts of terrorism with commercial property and casualty 
insurers. 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 of the Act for the 
final netting of payments under the Program. In particular, the 
proposed rule would establish procedures by which, after the Secretary 
has determined that claims for the Federal share of insured losses 
arising from a particular Program Year shall be considered final, a 
final netting of payments to or from insurers will be accomplished. The 
rule generally builds upon previous rules issued by Treasury.

DATES: Written comments must be received on or before October 4, 2010.

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 Final Netting Proposed Rule Comments.'' 
Please include your name, affiliation, address, e-mail address, and 
telephone number in your comment. Comments received, including 
attachments and other supporting materials, are part of the public 
record and subject to public disclosure. Do not disclose any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure. 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).

[[Page 45564]]


FOR FURTHER INFORMATION CONTACT: James P. Brown, Senior Analyst, 
Terrorism Risk Insurance Program, (202) 622-6770 (not a toll-free 
number).

SUPPLEMENTARY INFORMATION: 

I. Background

    On November 26, 2002, the Terrorism Risk Insurance Act of 2002 
(Pub. L. 107-297, 116 Stat. 2322) was enacted. 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 Terrorism Risk 
Insurance Program, including the issuance of regulations and 
procedures. The Program provides a federal backstop for insured losses 
from an act of terrorism.
    The Program was originally set to expire on December 31, 2005. On 
December 22, 2005, the Terrorism Risk Insurance Extension Act of 2005 
(Pub. L. 109-144, 119 Stat. 2660) was enacted, which extended the 
Program through December 31, 2007. On December 26, 2007, the Terrorism 
Risk Insurance Program Reauthorization Act of 2007 (Pub. L. 110-160, 
121 Stat. 1839), which extends the Program through December 31, 2014, 
was enacted.

II. Previous Rulemaking

    To assist insurers, policyholders, and other interested parties in 
complying with immediately applicable requirements of the Act, Treasury 
has issued interim guidances to be relied upon by insurers until 
superseded by regulations. 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. Subpart H contains recoupment 
and surcharge procedures, while Subpart J of 31 CFR part 50 contains 
rules regarding the cap on annual liability. 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 Sec.  50.56 to subpart F of part 50, 
which comprises Treasury's regulations implementing the Act. It also 
proposes to amend Sec.  50.53 of subpart F.

A. Overview

    Pursuant to Section 103(e)(4) of the Act, the Secretary shall have 
sole discretion to determine the time at which claims relating to any 
insured loss or act of terrorism shall become final. Under this 
authority, this proposed rule would establish procedures by which, 
after the Secretary has determined that claims for the Federal share of 
insured losses arising from a particular Program Year shall be 
considered final, a final netting of payments to or from insurers will 
be accomplished.
    The intent of this proposed rule is to provide a process by which 
Treasury would close out its claims operation for insured losses from a 
Program Year. The proposed rule includes some flexibility in how and 
when steps are taken to accomplish this in order to be able to 
effectively address future circumstances. As a simplified description, 
however, Treasury envisions that the steps in the process to close out 
its claims operation would likely be: (1) Treasury notifies insurers of 
the date by which all insured losses must be finally reported to 
Treasury; (2) insurers submit their certifications of loss by that 
date; (3) Treasury reviews the submissions and requires insurers to 
submit information supporting a commutation of claims for the Federal 
share of insured losses irrespective of claim status; (4) Treasury 
reviews insurer submissions and conducts claims audits as needed; and, 
(5) Treasury makes a final payment to each insurer that discharges 
Treasury's payment obligation to the insurer. The description of the 
proposed rule below provides more detail and discusses certain 
exceptions to this process for closing out the claims operation. 
Treasury seeks comment on all aspects of the proposed rule from 
interested persons and entities.

B. Description of the Proposed Rule

    The major provisions of the proposed rule are as follows:
1. Final Netting Date
    Sec.  50.56(b) of the proposed rule provides that the Secretary may 
determine a Final Netting Date for a Program Year. This would be the 
date by which an insurer must report to Treasury all underlying losses 
that have been reported to the insurer by its policyholders. Reporting 
to Treasury would be on the insurer's bordereaux in support of its 
Certifications of Loss. Rather than for a particular act of terrorism, 
the Final Netting Date would apply to a particular Program Year. 
Treasury believes that this is simpler and consistent operationally 
with how the TRIP claims process is administered, including treatment 
of deductibles, insured loss reporting and review of insurer claims for 
the Federal share of losses.
    The criteria that would guide the determination of a Final Netting 
Date (Sec.  50.56(b)(1) of the proposed rule) primarily relate to 
amounts of insured losses that are yet to be paid, and the rate at 
which insured losses are developing. Certain lines of business may 
require longer periods for the losses to approach a final amount 
because of the nature of the losses. Based on discussions with experts 
in the field of reinsurance concerning sunset clauses in reinsurance 
contracts, general rules of thumb, and consideration of various 
statutes of limitation, Treasury believes that a reasonable period of 
time prior to Final Netting could be as long as 10 years, but is very 
likely to be in the range of 5-7 years. The proposed rule does not 
specify such timeframes, however. The determination of a Final Netting 
Date would be based on the following factors and considerations: (i) 
Amounts of case reserves previously reported by insurers to Treasury 
for open, underlying insured losses; (ii) the rate at which claims for 
the Federal share of compensation for insured losses are being made by 
insurers to Treasury; (iii) the rate at which new, underlying insured 
losses are being added by insurers to their bordereaux and reported; 
(iv) the predominant lines of business for which underlying insured 
losses are being reported; (v) tort and contract statutes of 
limitations relevant to insured losses; (vi) common business practices; 
(vii) issues that are delaying final resolution of insured losses; 
(viii) the applicability of the liability limitations and procedures 
under the Support Anti-terrorism by Fostering Effective Technologies 
Act of 2002 may

[[Page 45565]]

affect final resolution of insured losses; (ix) issues related to the 
cap on annual liability for insurer losses; (x) Treasury's claims 
administration costs; and (xi) such other factors as the Secretary 
considers important.
2. Notice of Final Netting Date
    Sec.  50.56(b)(2) of the proposed rule provides that Treasury would 
give notice of a Final Netting Date and its application to a specific 
Program Year at least 180 days in advance of such a date.
3. Post-Final Netting Date Claims
    Treasury has examined a couple of alternatives for defining and 
implementing the Final Netting Date. One possibility was to define the 
Final Netting Date as the date by which all insured losses would be 
considered final for purposes of claiming the Federal share. Such a 
specific cut-off could be problematic, however, for insured losses 
under litigation or otherwise unable to be settled. In addition, 
Treasury is concerned that this approach could encourage an imprudent 
rush to settle claims merely to ensure that they are eligible for the 
Federal share.
    Another alternative, which is set forth in proposed Sec.  50.56(c), 
is to define the Final Netting Date to be the cut-off for any new 
underlying insured losses to be reported to Treasury. After this date, 
supplemental certifications of loss for purposes of claiming the 
Federal share of compensation would only be allowed to provide updated 
information for the underlying losses already reported to Treasury. 
Such updated information may reflect a decision by a court of competent 
jurisdiction concerning a limitation of liability under the Support 
Anti-terrorism by Fostering Effective Technologies Act of 2002 (6 
U.S.C. et seq.). In the case of workers' compensation, where the TRIP 
bordereau requires the claim to be reported at the policy level with 
the number of claimants, but not a detailed listing of claimants, 
updated payment information would be allowed for the number of workers' 
compensation claimants already included, but no new claimants could be 
added. The Final Netting Date will be established long enough after the 
certified act of terrorism so that further significant loss development 
for reported losses is unlikely.
4. Commutation
    A commutation generally is the payment of a lump sum present value 
of future loss payments in lieu of making payments for losses as they 
come due in the future. After the establishment of a Final Netting 
Date, proposed Sec.  50.56(d) provides that Treasury may require, or 
consider an insurer's request for, a commutation of an insurer's future 
claims for the Federal share of compensation based on estimates for the 
underlying insured losses reported to Treasury on or before the Final 
Netting Date.
    Commutation of reinsurance losses normally is heavily influenced by 
estimates of an insurer's Incurred but Not Reported (IBNR) amounts. 
Under Section 103(b) of TRIA, as a condition for Federal payment, a 
claim must first be filed with the insurer. In addition, pursuant to 
Sec.  50.53(b)(2), the claim must have been paid (or must be paid 
within five business days upon receipt of an advance payment of the 
Federal share of compensation). Thus, Federal reimbursement ordinarily 
is based on paid losses while outstanding losses and IBNR amounts are 
not considered in computing the Federal share of insured losses. 
Nevertheless, once a Final Netting Date has been determined, it may be 
in Treasury's or an insurer's interest to commute the insurer's claim 
for the Federal share of insured losses that have been reported to the 
insurer and to Treasury, but have not yet been paid by the insurer.
    Prior to consummating any commutation, Treasury may elect to 
conduct an audit of the insurer's insured losses. Treasury may require 
additional information to be supplied by the insurer, including an 
insurer's justification for a final payment amount with necessary 
actuarial factors and methodology, and pertinent information regarding 
the insurer's business relationships and other reinsurance 
recoverables. (See Procedural Requirements Section below.) If Treasury 
notifies an insurer of a commutation requirement, the insurer will have 
90 days from the date of notification to submit material required in 
the notice or forfeit the right to future payments from Treasury. 
Treasury will evaluate such information in order to determine a final 
payment amount or (if applicable) an amount owed to the Government. 
Treasury does not anticipate mandating the use of specific discount 
factors in determining final payments for commuted amounts. Insurers 
will be required to justify the factors from which commutation amounts 
are derived and Treasury will consider them.
    Payments of commuted amounts would not be considered to be advance 
payments requiring a segregated account as described in current Sec.  
50.54(d) of the TRIP claims regulations.
    Treasury understands that a standard practice in commutation under 
insurance contracts is for the parties to enter into a commutation and 
release agreement that serves as the settlement and discharge of both 
parties' contractual obligations. Because Treasury makes payment of the 
Federal share of compensation under authority of the Act and not as a 
matter of contract, Treasury is not proposing that an insurer must sign 
a release as a condition for payment of a final commuted amount. The 
conditions for payment, including the discharge of Treasury's 
obligation and the circumstances under which Treasury may reclaim any 
payment, are set forth in the regulations. Treasury anticipates, 
however, that it may provide a statement with any final payment 
reciting those conditions.
    The proposed rule provides that payment by Treasury of a final 
commuted amount to an insurer is final except under two circumstances. 
One such circumstance is where Treasury is put on notice that an 
insurer's claim was fraudulent or that other conditions for Federal 
payment were not met, in which case an insurer would be required to 
repay to Treasury those amounts that were not due the insurer. The 
other circumstance is that additional payments may be made by Treasury 
under the exception described below.
    Because Treasury cannot consider IBNR amounts in establishing final 
payment, the proposed rule would allow an insurer to request Treasury's 
reconsideration of its insured losses if there were to be a significant 
increase due to losses reported to the insurer after the Final Netting 
Date. The proposed rule states that if within one year after the Final 
Netting Date, and regardless of commutation, an insurer has additional 
underlying insured losses that, in the absence of a Final Netting Date, 
would result in an increase of the Federal share of compensation to 
that insurer by 20% or more, the insurer may request Treasury to allow 
those underlying insured losses to be submitted as part of a 
certification of loss. Under such circumstances and provided other 
conditions for payment have been met, Treasury may reopen and/or extend 
the insurer's claim for the Federal share of compensation for insured 
losses for the pertinent Program Year.
5. Revision to Sec.  50.53(b)(2)
    The proposed rule proposes to amend existing Sec.  50.53(b)(2)(i) 
of the TRIP claims regulations. Sec.  50.53(b)(2) requires, in part, 
that an insurer certify

[[Page 45566]]

that the underlying losses on its bordereau either ``have been paid by 
the insurer; or will be paid by the insurer upon receipt of an advance 
payment of the Federal share of compensation as soon as possible, 
consistent with the insurer's normal business practices, but no longer 
than five business days after receipt of the Federal share of 
compensation''. The amendment adds the language ``with current payment 
information'' which restricts the certification to insured losses on 
the bordereau that are currently being paid by the insurer. This 
clarifies that the reporting of underlying losses that an insurer has 
not yet paid, nor is about to pay is allowed. The reporting of case 
reserve or other information may be appropriate even if losses are not 
currently being paid and this is particularly pertinent when an insurer 
must report to Treasury all losses reported to the insurer prior to the 
Final Netting Date.

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 rule, if 
promulgated, will not have a significant economic impact on a 
substantial number of small entities. TRIA requires all insurers, 
regardless of size or sophistication, which receive direct earned 
premiums for commercial property and casualty insurance, to participate 
in the Program. The Act also defines property and casualty insurance to 
mean commercial lines insurance, with certain specific exclusions, 
without any reference to the size or scope of the insurer. The proposed 
rule proposes that the Secretary of the Treasury may, as authorized by 
the Act, establish a Final Netting Date by which all underlying losses 
to an insurer's claim for the Federal share of compensation must be 
reported to Treasury. Insurers that are affected by these regulations 
tend to be large businesses; therefore, Treasury has determined that 
the rule will not affect a substantial number of small entities. In 
addition, Treasury has determined that the economic impact of the rule 
is not significant. Unless there is an act of terrorism, and a Federal 
sharing of compensation for insured losses, there is no economic impact 
at all. The only potential economic impact on insurers would be if they 
were to receive less than a full Federal share of compensation that 
would be due in the absence of a Final Netting process. The Final 
Netting Date, as proposed, will be established long enough after the 
certified act of terrorism so that further significant loss development 
for reported losses is unlikely. The rule proposes to provide for 
commutation of remaining losses, and includes a provision that allows 
for a reopening of an insurer's claim for the Federal share of losses 
if significant new claims are reported to the insurer subsequent to 
Final Netting. The economic impact on all commercial property and 
casualty insurers (including any that might be small entities) should 
thus be minimal. A regulatory flexibility analysis is therefore 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. 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 October 4, 2010.
    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.
    Comments are being sought with respect to the collection of 
information in connection with commutation as proposed at Sec.  
50.56(d)(2). The required information and process follow normal 
business procedures of insurers interacting with their reinsurers. 
Information would include an insurer's justification for a final 
payment amount with necessary actuarial factors and methodology, and 
pertinent information regarding the insurer's business relationships 
and other reinsurance recoverables. Information must be supplied in 
enough detail to clearly show the expected future loss payments, how 
the present value amount has been determined, and reconciliation to the 
last Certification of Loss. Treasury will evaluate the submission in 
order to determine a final payment amount or (if applicable) an amount 
owed to the Government.
    If an act of terrorism is certified under the Act, the number of 
insurers with losses will be determined by the size and nature of the 
certified act of terrorism. Because of the extreme uncertainty 
regarding any such event, a ``best estimate'' has been developed based 
on the considered judgment of Treasury. This estimate has 100 insurers 
sustaining insured losses. Out of this initial number, Treasury 
estimates that there would be 15 insurers involved in commutation after 
the determination of a Final Netting Date. The necessary data are 
routinely generated and reported in the insurance industry. Treasury 
estimates that an insurer would need 40 hours, on average, to assemble 
and analyze data and develop a submission to Treasury for commutation. 
The estimated total onetime burden would be 600 hours (15 insurers 
times 40 hours). At a blended, fully loaded hourly rate of $75, the 
cost would be $45,000.

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. In Sec.  50.53, paragraph (b)(2)(i) is revised to read as 
follows:


Sec.  50.53  Loss certifications.

* * * * *
    (b) * * *
    (2) * * *
    (i) The underlying insured losses listed with current payment 
information on the bordereau filed pursuant to Sec.  50.53(b)(1) 
either: Have been paid by the insurer; or will be paid by the

[[Page 45567]]

insurer upon receipt of an advance payment of the Federal share of 
compensation as soon as possible, consistent with the insurer's normal 
business practices, but not longer than five business days after 
receipt of the Federal share of compensation;
* * * * *
    3. Add Sec.  50.56 to subpart F to read as follows:


Sec.  50.56  Final Netting

    (a) General. Pursuant to Section 103(e)(4) of the Act, the 
Secretary shall have sole discretion to determine the time at which 
claims relating to any insured loss or act of terrorism shall become 
final.
    (b) Final Netting Date. The Secretary may determine a Final Netting 
Date for a Program Year, which for purposes of this section is the date 
on or before which an insurer must report to Treasury all underlying 
insured losses that have been reported by its policyholders on the 
insurer's bordereaux (see Sec.  50.53) in support of its Certifications 
of Loss for the Program Year.
    (1) Criteria for Final Netting Date. The establishment of a Final 
Netting Date will be based on factors and considerations including:
    (i) Amounts of case reserves previously reported by insurers to 
Treasury for open, underlying insured losses;
    (ii) The rate at which claims for the Federal share of compensation 
for insured losses are being made by insurers to Treasury;
    (iii) The rate at which new, underlying insured losses are being 
added by insurers to their bordereaux and reported;
    (iv) The predominant lines of business for which underlying insured 
losses are being reported;
    (v) Tort and contract statutes of limitations relevant to insured 
losses;
    (vi) Common business practices;
    (vii) Issues that are delaying final resolution of insured losses;
    (viii) The applicability of the liability limitations and 
procedures under the Support Anti-terrorism by Fostering Effective 
Technologies Act of 2002 may affect final resolution of insured losses;
    (ix) Issues related to the cap on annual liability for insurer 
losses;
    (x) Treasury's claims administration costs; and
    (xi) Such other factors as the Secretary considers important.
    (2) Notice of Final Netting Date. Treasury shall announce and 
publish in the Federal Register, or in another manner Treasury deems 
appropriate, notice of a Final Netting Date and its application to a 
specific Program Year at least 180 days in advance of such date.
    (c) Post-Final Netting Date Claims. After the Final Netting Date, 
insurers may only make further claims for the Federal share of 
compensation for insured losses by submission of Supplemental 
Certifications of Loss with updated information on underlying insured 
losses previously reported to Treasury. Such updated information may 
reflect a decision by a court of competent jurisdiction concerning a 
limitation of liability under the Support Anti-terrorism by Fostering 
Effective Technologies Act of 2002 (6 U.S.C. et seq.) In the case of 
workers' compensation losses, the insurer may provide updated 
information based on the number of workers' compensation claimants 
previously reported. An insurer may not report any new underlying 
insured losses, or increased workers' compensation loss amounts based 
on an increase in workers' compensation claimants, to Treasury after a 
Final Netting Date, except as provided in this section.
    (d) Commutation. A commutation is the payment by Treasury of a lump 
sum present value of future payments to an insurer in lieu of making 
payments as they come due in the future, as provided in this section.
    (1) In lieu of continued submission of Certifications of Loss after 
the Final Netting Date as provided in paragraph (c) of this section, 
Treasury may require, or consider an insurer's request for, a 
commutation of an insurer's future claims for the Federal share of 
compensation based on estimates for the underlying insured losses 
reported to Treasury on or before the Final Netting Date. The payment 
by Treasury of a final commuted amount to an insurer will discharge 
Treasury from all further liabilities to the insurer for the Federal 
share of compensation for insured losses for the applicable Program 
Year. In the case of an affiliated group of insurers, the requirements 
of Sec.  50.54(f) apply, provided that payment of the final commuted 
amount to the designated insurer of the affiliated group discharges 
Treasury's payment obligation to the insurers in the affiliated group 
for insured losses for the applicable Program Year.
    (2) If future claims are to be commuted, Treasury may require 
additional information to be supplied by the insurer, including an 
insurer's justification for a final payment amount with necessary 
actuarial factors and methodology, and pertinent information regarding 
the insurer's business relationships and other reinsurance 
recoverables. Insurers will be required to justify discount and other 
factors from which the final payment amounts are derived. If Treasury 
notifies an insurer of a commutation requirement, the insurer will have 
90 days from the date of notification to submit material required in 
the notice or forfeit the right to future payments from Treasury. 
Treasury will evaluate such information in order to determine a final 
payment amount or (if applicable) an amount owed to the Government. 
Treasury may determine that it will not consider commutation until it 
has completed an audit of an insurer's insured losses.
    (3) Payments of commuted amounts are not considered to be advance 
payments requiring a segregated account as described in Sec.  50.54(d).
    (4) Notwithstanding Sec.  50.50(e), a payment by Treasury of a 
final commuted amount to an insurer is final unless:
    (i) Treasury is put on notice that an insurer's claim was 
fraudulent or that other conditions for Federal payment were not met, 
in which case the insurer will be required to repay amounts that were 
not due; or
    (ii) The exception in paragraph (e) of this section applies, in 
which case Treasury may make additional payments for insured losses, 
but only under the conditions described in paragraph (e).
    (e) Exception. If within one year after the Final Netting Date, and 
regardless of commutation, an insurer has additional underlying 
reported insured losses that, in the absence of a Final Netting Date, 
would result in an increase of the Federal share of compensation to 
that insurer by 20% or more, the insurer may request Treasury to allow 
those underlying insured losses to be submitted as part of a 
certification of loss. Under such circumstances and provided other 
conditions for payment have been met, Treasury may reopen and/or extend 
the insurer's claim for the Federal share of compensation for insured 
losses for the pertinent Program Year.

    Dated: July 14, 2010.
Michael S. Barr,
Assistant Secretary (Financial Institutions).
[FR Doc. 2010-18952 Filed 8-2-10; 8:45 am]
BILLING CODE 4810-25-P