Terrorism Risk Insurance Program, 18949-18977 [2016-06920]
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Vol. 81
Friday,
No. 63
April 1, 2016
Part II
Department of the Treasury
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31 CFR Part 50
Terrorism Risk Insurance Program; Proposed Rules
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Federal Register / Vol. 81, No. 63 / Friday, April 1, 2016 / Proposed Rules
DEPARTMENT OF THE TREASURY
31 CFR Part 50
RIN 1505–AC53
Terrorism Risk Insurance Program
Departmental Offices,
Department of the Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
The Department of the
Treasury (Treasury) is issuing these
proposed rules to implement changes to
the Terrorism Risk Insurance Program
(TRIP or Program) required by the
Terrorism Risk Insurance Program
Reauthorization Act of 2015 (2015
Reauthorization Act). In addition,
Treasury proposes for the first time a
Civil Penalties rule under TRIP,
pursuant to authority granted by
Congress in the Terrorism Risk
Insurance Act of 2002 (TRIA). Treasury
also proposes adoption, with certain
minor changes, of a previously proposed
rule addressing the Final Netting of
Payments. Finally, certain other changes
are proposed to various sections of the
prior rules in order to clarify certain
matters, make technical and conforming
changes, and to address changes
required by the passage of time and
other legislation.
DATES: Written comments must be
submitted on or before May 31, 2016.
Early submissions are encouraged.
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 the Federal Insurance Office,
Attention: Richard Ifft, Room 1410 MT,
Department of the Treasury, 1500
Pennsylvania Avenue NW., Washington,
DC 20220. Because postal mail may be
subject to processing delay, it is
recommended that comments be
submitted electronically. All comments
should be captioned with ‘‘2015 TRIA
Reauthorization Proposed Rules
Comments.’’ Please include your name,
group affiliation, address, email address,
and telephone number(s) in your
comment. Where appropriate, a
comment should include a short
Executive Summary (no more than five
single-spaced pages).
In general, comments received will be
posted on https://www.regulations.gov
without change, including any business
or personal information provided.
Comments received, including
attachments and other supporting
materials, will be part of the public
record and subject to public disclosure.
Do not enclose any information in your
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SUMMARY:
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comment or supporting materials that
you consider confidential or
inappropriate for public disclosure.
FOR FURTHER INFORMATION CONTACT:
Richard Ifft, Senior Insurance
Regulatory Policy Analyst, Federal
Insurance Office, 202–622–2922 (not a
toll free number) or Kevin Meehan,
Policy Advisor, Federal Insurance
Office, 202–622–7009 (not a toll free
number).
SUPPLEMENTARY INFORMATION:
I. Background
The Terrorism Risk Insurance Act of
2002 (the Act or TRIA) 1 was enacted on
November 26, 2002, following the
attacks of September 11, 2001, to
address disruptions in the market for
terrorism risk insurance, to help ensure
the continued availability and
affordability of commercial property
and casualty insurance for terrorism
risk, and to allow for the private markets
to stabilize and build insurance capacity
to absorb any future losses for terrorism
events. TRIA requires insurers to ‘‘make
available’’ terrorism risk insurance for
commercial property and casualty losses
resulting from certified acts of terrorism
(insured losses), and provides for shared
public and private compensation for
such insured losses. The Secretary of
the Treasury (Secretary) administers the
Program, including the issuance of
regulations and procedures. Pursuant to
the Dodd-Frank Wall Street Reform and
Consumer Protection Act, the Federal
Insurance Office assists the Secretary in
administering the Program.2
To assist insurers, policyholders, and
other interested parties in complying
with immediately applicable
requirements of the Act, Treasury has
issued interim guidance to be relied
upon by insurers until superseded by
regulations. To date, rules establishing
general provisions implementing the
Program, including key definitions, and
requirements for policy disclosures and
mandatory availability, are found in
Subparts A, B, and C of 31 CFR part 50.3
Treasury’s rules applying provisions of
the Act to state residual market
insurance entities and state workers’
compensation funds are set forth in
1 Public Law 107–297, 116 Stat. 2322, codified at
15 U.S.C. 6701, note. Because the provisions of
TRIA (as amended) appear in a note, instead of
particular sections, of the United States Code, the
provisions of TRIA are identified by the sections of
the law.
2 31 U.S.C. 313(c)(1)(D).
3 See 68 FR 9804 (Feb. 28, 2003) (Program
definitions (Interim Final Rule)); 68 FR 19302
(April 18, 2003) (disclosure and mandatory
availability requirements (Interim Final Rule)); 68
FR 41250 (July 11, 2003) (Program definitions (Final
Rule)); 68 FR 48280 (Aug. 13, 2003) (‘‘direct earned
premium’’ definition (Final Rule)).
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Subpart D of 31 CFR part 50.4 Rules
concerning claims procedures governing
payment of the Federal share of
compensation for insured losses are
currently found at subpart F of 31 CFR
part 50.5 Subpart G of 31 CFR part 50
currently contains rules on audit and
recordkeeping requirements for
insurers,6 while Subpart H of 31 CFR
part 50 currently addresses recoupment
and surcharge procedures.7 Finally,
Subpart I of 31 CFR part 50 currently
contains rules implementing the
litigation management provisions of
TRIA,8 and Subpart J of 31 CFR part 50
currently addresses rules concerning the
cap on annual liability established
under TRIA.9
The Program has been reauthorized
three times. On December 22, 2005, the
Terrorism Risk Insurance Extension Act
of 2005 (Pub. L. 109–444, 119 Stat.
2660) (2005 Extension Act) was enacted,
which extended the Program through
December 31, 2007. In addition to
extending the duration of the Program,
the 2005 Extension Act also eliminated
certain lines of insurance from the
Program, revised the insurer deductible,
Federal share, and recoupment
provisions of the Program, and
introduced the ‘‘Program Trigger’’ as a
threshold that must be met before any
Federal payments can be made. Rules
implementing these changes were
issued by Treasury.10
On December 26, 2007, the Terrorism
Risk Insurance Program Reauthorization
4 See 68 FR 19309 (Apr. 18, 2003) (residual
market entities and state compensation funds
(Notice of Proposed Rulemaking)); 68 FR 59715
(Oct. 17, 2003) (residual market entities and state
compensation funds (Final Rule)).
5 See 68 FR 67100 (Dec. 1, 2003) (claims
procedures (Notice of Proposed Rulemaking)); 69
FR 39296 (June 29, 2004) (claims procedures (Final
Rule)); 70 FR 2830 (Jan. 18, 2005 (timing of
affiliation for purposes of claims payments (Notice
of Proposed Rulemaking)); 70 FR 34348 (June 14,
2005) (timing of affiliation for purposes of claims
payments (Final Rule)).
6 See 68 FR 67100 (Dec. 1, 2003) (audit and
investigative procedures (Notice of Proposed
Rulemaking)); 69 FR 39296 (audit and investigative
procedures (Final Rule)).
7 See 73 FR 53798 (Sept. 17, 2008) (recoupment
and surcharge procedures (Notice of Proposed
Rulemaking)); 74 FR 66051 (Dec. 14, 2009)
(recoupment and surcharge procedures (Final
Rule)).
8 See 69 FR 25341 (May 6, 2004) (Federal cause
of action and settlement approval provisions
(Notice of Proposed Rulemaking)); 69 FR 44932
(July 28, 2004) (Federal cause of action and
settlement approval provisions (Final Rule)).
9 See 73 FR 56767 (Sept. 30, 2008) (cap on annual
liability (Notice of Proposed Rulemaking)); 74 FR
66061 (Dec. 14, 2009) (cap on annual liability (Final
Rule)).
10 See 71 FR 648 (Jan. 5, 2006) (Notice providing
Interim Guidance regarding 2005 Extension Act
revisions to TRIA); 71 FR 27564 (May 11, 2006)
(Interim Final Rule concerning 2005 Extension Act
revisions); 71 FR 50341 (Aug. 25, 2006) (Final Rule
concerning 2005 Extension Act revisions).
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Act of 2007 (Pub. L. 110–160, 121 Stat.
1839) (2007 Reauthorization Act) was
enacted, extending the Program through
December 31, 2014. In addition to
extending the duration of the Program,
the 2007 Reauthorization Act modified
the ‘‘act of terrorism’’ definition to
eliminate the requirement that the act of
terrorism be committed by an individual
acting on behalf of any foreign person or
interest, revised the insurer deductible,
Program Trigger, and Federal share
provisions of the Program, modified the
recoupment provisions, and established
various reporting requirements. Again,
rules implementing these changes were
issued by Treasury.11
Most recently, on January 12, 2015,
the President signed into law the
Terrorism Risk Insurance Program
Reauthorization Act of 2015 (2015
Reauthorization Act),12 reauthorizing
the Program until December 31, 2020.
The 2015 Reauthorization Act reformed
various operational matters respecting
the Program. These reforms include
technical changes to the disclosure
requirements, certain definitional
changes, and modifications involving
the amount and application of the
Program Trigger, the Federal share of
compensation, the recoupment
percentage amount, and the insurance
marketplace aggregate retention
amount—all of which require
modifications to the existing Program
regulations.13 In addition, the 2015
Reauthorization Act mandates other
actions by Treasury and changes to TRIP
that in turn necessitate changes to the
existing Program regulations, requiring
Treasury: (1) To issue final rules
following the submission of a mandated
report on improving the certification
process; 14 (2) to collect certain
information from insurers participating
in the Program so that Treasury can
complete periodic reports concerning
the effectiveness of the Program and
trends over time; and (3) to define small
11 See 73 FR 5264 (Jan. 29, 2008) (Notice
providing Interim Guidance regarding 2007
Reauthorization Act revisions); 73 FR 53359 (Sept.
16, 2008) (Interim Final Rule regarding 2007
Reauthorization Act revisions); 74 FR 18135 (Apr.
21, 2009) (Final Rule regarding 2007
Reauthorization Act revisions).
12 Public Law 114–1, 129 Stat. 3.
13 Treasury issued a Notice providing interim
guidance concerning application of disclosure
requirements in light of the enactment of the 2015
Reauthorization Act. 80 FR 6656 (Feb. 6, 2015).
14 U.S. Department of the Treasury, The Process
for Certifying an ‘‘Act of Terrorism’’ under the
Terrorism Risk Insurance Act of 2002 (October
2015) (Certification Report), available at https://
www.treasury.gov/initiatives/fio/reports-andnotices/Documents/2015%20Report%20on%20the
%20Certification%20Process%20under%20the
%20Terrorism%20-%20Production
%20Version.pdf.
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insurers by regulation, conduct periodic
studies concerning any competitive
challenges small insurers face in the
terrorism risk insurance marketplace,
and submit periodic reports on the
findings.
Additionally, Treasury proposes new
regulations respecting civil penalties (as
provided for in TRIA) and the final
netting of claims for a calendar year,15
and implements certain other changes to
eliminate provisions that are redundant
in light of the passage of time, and/or to
clarify the intent of the regulation.
Finally, Treasury poses several
questions regarding the role of selfinsurance arrangements and captive
insurers in the Program, to which we
seek comments to use in formulating a
proposed rule in the near future
concerning the participation of such
arrangements in the Program.
The changes are explained in further
detail below in the context of the
proposed rules. For the convenience of
the reader, Treasury is restating Part 50
in its entirety. However, this preamble
addresses only those portions of Part 50
that are being amended. For discussion
of Part 50 as previously codified, see the
relevant Federal Register notices
mentioned above.
II. The Proposed Rules
This proposed rule would strike and
replace existing 31 CFR part 50 in its
entirety, with the principal changes
being to: (1) Generally revise 31 CFR
part 50 to incorporate new financial and
operational provisions for the Program
contained in the 2015 Reauthorization
Act; (2) add a new Subpart F to Part 50,
which comprises Treasury’s regulations
concerning data collection; and (3) add
a new Subpart G to Part 50, which
comprises Treasury’s regulations
concerning the certification process.
The proposed rules also add certain
definitions in § 50.4 of Subpart A, a new
§ 50.76 addressing the previously
proposed Final Netting rule, and a new
§ 50.82 addressing Civil Penalties. Other
changes providing further clarification
and eliminating redundancies are
identified and discussed further below.
A. Overview
The Program was established in 2002,
and has been reauthorized and extended
on three occasions since then—in 2005,
2007, and most recently in January
2015. Each reauthorization and
extension changed the operational
provisions of the Program. In prior
15 The regulations relating to final netting of
claims are a modification of a Final Netting of
Payments rule proposed and subject to comment in
2010 but not adopted by Treasury. See 75 FR 45563
(Aug. 3, 2010).
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rulemakings, Treasury has sought to
address such changes by incorporating
provisions in the rules reflecting the
different approaches depending upon
the timing of any particular certified act
of terrorism. While this approach has
captured the relevant changes over time,
it has resulted in a set of rules that
incorporated numerous exceptions and
qualifications. As a result, many
existing provisions in the rules have
been rendered effectively obsolete given
the passage of time. Accordingly,
Treasury is taking the opportunity
during this rulemaking to propose a
more general revision to Part 50, which
describes the Program as it currently
operates and will operate through 2020,
without cumbersome reference to
differences that were in effect prior to
the effective date of the proposed rules.
The revised rules remain subject to the
existing savings provision (proposed
§ 50.6, current § 50.7) which confirms
that, to the extent prior applicable
regulations or guidance remain relevant
for any reason at some point in the
future, such provisions will continue to
provide the rule of decision, and to
provide a safe harbor, for insurers
participating in the Program.
In addition to instituting changes to
the basic financial terms that define the
operation of the Program, the 2015
Reauthorization Act also requires
Treasury to prepare certain reports
concerning the operation of the
Program, based upon data which
Treasury shall collect, and to generate
rules concerning improvements to the
certification process. The proposed
rules define a data collection process
that will allow Treasury to collect the
information necessary to satisfy the
reporting requirements contained in the
2015 Reauthorization Act, in a format
consistent with the manner in which
insurers presently collect and report
financial data, including data
concerning terrorism risk insurance.
These rules, and the specific data
collection elements, which remain
under development and subject to
further refinement, are the result of
extensive and ongoing interaction
among Treasury, industry stakeholders,
and state regulators.
The proposed rules concerning the
certification process follow Treasury’s
October 2015 Certification Report. As
set forth in the Certification Report,
Treasury has determined that it is not
practical to establish detailed rules—
and particularly a timeline—governing a
process that will necessarily vary from
case to case, although Treasury’s
proposed rules do identify the relevant
timing considerations as to when an act
is eligible for certification by the
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Secretary as an act of terrorism. In
addition, the certification process can
and generally should incorporate
improved notification and
communication by Treasury to the
public once an act is under
consideration for certification by the
Secretary as an ‘‘act of terrorism.’’ The
proposed rules provide for public
notifications and updates, as may be
necessary, concerning the existence,
continuation, and conclusion of the
certification process.
Finally, the proposed rules also
include a modified version of a
previously proposed Final Netting Rule,
which was subject to comment in 2010
but never adopted as a final rule by
Treasury, and a rule respecting civil
penalties—authorized by TRIA as
originally enacted in 2002, but never
previously proposed by Treasury.
Treasury seeks comment on all
aspects of the proposed rules from
interested persons and entities.
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B. Description of the Proposed Rules
The changes to the existing rules as
provided for in these proposed rules, on
a section by section basis, are as follows:
Subpart A—General Provisions
The proposed change to § 50.1 adds
the statutory authority extended under
the 2015 Reauthorization Act. The
proposed change in § 50.2 implements
the provision of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act authorizing the Federal Insurance
Office to assist the Secretary of the
Treasury in the administration of
TRIP.16
There are a number of changes to
Program definitions. The proposed
change in § 50.4(b) implements Section
105 of the 2015 Reauthorization Act,
providing that the Secretary will consult
with the Attorney General of the United
States and Secretary of Homeland
Security prior to certifying an act as an
act of terrorism, rather than reaching a
certification decision in concurrence
with the Secretary of State and the
Attorney General.
The proposed change in § 50.4(c)(2)
implements the rule of construction in
Section 106 of the 2015 Reauthorization
Act, which provides that control for
purposes of determining if an insurer is
an ‘‘affiliate’’ under TRIA is not
established solely because an entity acts
as an attorney-in-fact for a another
entity that is a reciprocal insurer.
The proposed changes in § 50.4(f)
(defining ‘‘attorney-in-fact’’) and
§ 50.4(x) (defining ‘‘reciprocal insurer’’)
are required in light of the new rule of
16 31
U.S.C. 313(c)(1)(D).
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construction in § 50.4(c)(2) required by
Section 106 of the 2015 Reauthorization
Act, discussed above. In both cases,
Treasury has relied upon state law in
developing these definitions.
The proposed change in § 50.4(g)
defines ‘‘captive insurer’’ for purposes
of implementing TRIA. This definition
is being adopted now in order to give
effect to the proposed exclusion in
§ 50.4(z) of captive insurers from the
definition of ‘‘small insurer,’’ and
because captive insurers might be
subject to different data collection
protocols than other insurers, both
discussed further below. Treasury
continues to reserve subpart E of 31 CFR
part 50 for further regulations
concerning the participation of captive
insurers in the Program.
The proposed change in § 50.4(m)
incorporates the changes to the
insurance marketplace aggregate
retention amount over the period from
2015 to 2020, as provided for in Section
104 of the 2015 Reauthorization Act.
This section sets the insurance
marketplace aggregate retention amount
at $27.5 billion, and requires it to
increase by $2 billion every calendar
year beginning with the year of
enactment of the 2015 Reauthorization
Act, until the amount reaches $37.5
billion, which will occur in 2019.
Section 50.4(m) also specifies the
manner in which Treasury proposes to
determine the insurance marketplace
aggregate retention amount for any
calendar year beginning with 2020 and
publicize such determinations, in
accordance with requirement in Section
104 of the 2015 Reauthorization Act to
issue rules for determining and
publicizing this amount. The approach
follows the direction in the 2015
Reauthorization Act that the insurance
marketplace aggregate retention amount
for any calendar year after the Program
Trigger reaches $37.5 billion should be
based upon the average of insurer
deductibles during the three prior
calendar years. It calculates this figure
by reference to the data that Treasury
will be collecting concerning insurer
participation in the Program under
proposed § 50.51.
The proposed change in § 50.4(n) is
for clarification purposes only and is
not intended to change the prior
approach, which was to confirm that
outside the United States (as
distinguished from inside the United
States) insured losses under TRIP
involving an air carrier (as defined in 49
U.S.C. 40102) or a United States flag
vessel (or a vessel based principally in
the United States, on which United
States income tax is paid and whose
insurance coverage is subject to
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regulation in the United States) are
limited to the insurance coverage
provided to the air carrier or vessel.
The proposed change in § 50.4(v)
incorporates the changes to the amount
of the Program Trigger over the period
from 2015 to 2020, and specifies that the
Program Trigger is based on all acts of
terrorism certified by the Secretary in a
particular calendar year (as
distinguished from each ‘‘Program
Year’’), as provided for in Section 103
of the 2015 Reauthorization Act.
The proposed change in § 50.4(z)
defines ‘‘small insurer’’ as required
under Section 112 of the 2015
Reauthorization Act for purposes of a
study of small insurers participating in
the Program that Treasury must
conduct. The purpose of the study is to
identify any competitive challenges
small insurers face in the terrorism risk
insurance marketplace—including
whether the increase in amount of the
Program Trigger has affected small
insurers. Treasury proposes a sliding
scale definition of a ‘‘small insurer’’—
which tracks the increasing amount of
the Program Trigger in the years from
2015 to 2020—by reference to both the
insurer’s direct earned premium (for
TRIA-eligible lines) and policyholder
surplus. Treasury has selected this
proposed definition of ‘‘small insurer’’
for purposes of TRIP in light of the
manner in which the Program operates.
An insurer’s deductible under TRIP is
20 percent of the insurer’s direct earned
premium in the prior calendar year.
Assuming the Program Trigger has been
met—an amount of aggregate insured
losses in excess of a defined amount in
a particular calendar year (starting with
$100 million in 2015 and ultimately
increasing to $200 million by 2020)—
Treasury will make payment of the
Federal share for amounts in excess of
any particular insurer’s deductible.
The Program Trigger is based upon
the insured losses of all participants in
the Program and, therefore, a particular
insurer with losses below the Program
Trigger but above its deductible may
still be entitled to payments of the
Federal share, so long as insured losses
of all participating insurers are
sufficient to satisfy the Program Trigger.
A different situation, however, could be
presented if losses arising from a
certified act of terrorism are largely or
entirely sustained by a single insurer
whose deductible is below the Program
Trigger. In this situation, an insurer
with a deductible of (for example) $20
million, and total losses of $50 million
would not be entitled to payments
under the Program (notwithstanding
satisfaction of its deductible) if total
insured losses across all Program
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participants in this hypothetical were,
say, only $60 million in total.
If an insurer’s direct earned premium
is five times the Program Trigger
amount (for example, at $500 million in
2015) that insurer’s deductible would at
least exceed the Program Trigger, even
if all of the insured losses in question
(a theoretical if unlikely possibility)
resulting from a certified act of terrorism
were sustained only by that insurer.
Such an insurer would be paid any
Federal share above its deductible, since
that insurer’s deductible would be equal
to the Program Trigger for the calendar
year in question. If an insurer’s direct
earned premium is less than five times
the Program Trigger amount, however,
the possibility remains that an insurer
might exceed its deductible but not be
entitled to payments of the Federal
share because the Program Trigger has
not been met. The impact upon such an
insurer in this situation, however,
would be lessened to the extent the
insurer’s policyholder surplus was
sufficient to satisfy any amounts that
would not be reimbursed in such a
scenario under the Program.
Since the purpose of studying small
insurers under TRIP is to assess
competitive challenges small insurers
face in the terrorism risk insurance
marketplace, the definition should be
with reference to the insurer’s
deductible and policyholder surplus as
compared with the Program Trigger
threshold. Accordingly, Treasury’s
proposed definition specifies that a
‘‘small insurer’’ is an insurer with prioryear direct earned premium of less than
five times the Program Trigger amount,
and with policyholder surplus at the
end of the prior calendar year that is
also less than five times the Program
Trigger amount. Insurers larger than
this—whose losses alone could trigger
the Program, or whose surplus is well
above the Program Trigger threshold—
cannot be considered ‘‘small’’ for these
purposes.
Finally, captive insurers (as defined
in this proposed rule) are exempted
from the small insurer definition.
Captive insurers typically insure only
the exposures of corporate parents or of
other related policyholders, and thus
while these captives might otherwise
meet the proposed definition of ‘‘small
insurer’’ the establishment of a captive
insurer is a risk management decision
that is not compelled by TRIP, and the
corporate parent or other source of
strength of the captive insurer is
ultimately positioned to manage any
potential risk presented to the captive
by its participation in TRIP. Any issue
relating to the size of captive insurers as
it relates to TRIP should be assessed in
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the context of regulations specifically
applicable to such captives.
The balance of the proposed changes
to Subpart A would delete provisions
that are redundant or unnecessary on
account of the passage of time, would
substitute language to clarify Treasury’s
intent, or would implement other
changes required by the 2015
Reauthorization Act (e.g., the movement
from the term ‘‘Program Year’’ to the
term ‘‘calendar year’’ to describe the
operation of TRIP).
Subpart B—Disclosures as Conditions
for Federal Payment
The proposed change to § 50.12
clarifies the manner in which the
portion or percentage of the annual
premium attributable to terrorism risk
insurance should be disclosed to
policyholders or potential
policyholders, to ensure that the actual
dollar value of the premium is evident.
The proposed changes to § 50.13
implement Section 106(2)(A) of the
2015 Reauthorization Act, which
deleted the previous requirement that
the general disclosure requirements
respecting insured losses (as found in
§ 50.10) apply at the time of policy
purchase, as well as at the time of offer
and renewal.
The proposed change to § 50.15
provides expanded guidance for
ensuring compliance with the
requirement that the cap disclosure be
provided at the time of offer, purchase,
and renewal. It clarifies that a cap
disclosure at the time of purchase needs
only to be provided in the event that
terrorism risk coverage is actually
purchased, and establishes that the
disclosure at that time may refer back to
the disclosure made at the time of offer
or renewal. This guidance is otherwise
consistent with the general approach of
the 2015 Reauthorization Act to
notification requirements.
The balance of the proposed changes
to Subpart B would delete provisions
that are redundant or unnecessary on
account of the passage of time,
substitute language to clarify Treasury’s
intent, or implement other minor
changes that conform the existing
regulations to the requirements of the
2015 Reauthorization Act.
Subpart C—Mandatory Availability
The proposed changes to Subpart C
would delete provisions that are
redundant or unnecessary on account of
the passage of time, substitute language
to clarify Treasury’s intent, or
implement other minor changes that
conform the existing regulations to the
requirements of the 2015
Reauthorization Act, and do not seek to
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establish any further substantive
changes.
Subpart D—State Residual Market
Insurance Entities; Workers’
Compensation Funds
No substantive changes have been
proposed to Subpart D.
Subpart E—Self-Insurance
Arrangements; Captives [Reserved]
Treasury continues to reserve Subpart
E for future additional rules addressing
the participation in TRIP of selfinsurance arrangements and captive
insurers. Comments concerning the
participation in the Program of selfinsurance arrangements and captive
insurers are sought in Section III, below.
Subpart F—Data Collection
Subpart F is new. The proposed rules
establish procedures for collection of
data as mandated by Section 111 of the
2015 Reauthorization Act, and also
address the collection of data by
Treasury in connection with the claims
process, in the event that an act of
terrorism has been certified. A general
explanation of each section of new
Subpart F follows.
Proposed § 50.50 states that Treasury
may generally request information from
insurers in connection with the
Program, as part of its administration
and implementation of the program.
Proposed § 50.51 establishes rules
concerning the annual collection of data
by Treasury concerning the
effectiveness of the Program, as
mandated by Section 111 of the 2015
Reauthorization Act. A reporting
deadline each year of March 1 is
proposed. Treasury has proposed this
reporting deadline to provide insurers
with sufficient time to compile and
provide the necessary information and
ensure it is true and correct. A March 1
deadline is also consistent with other
annual reporting requirements insurers
must meet. The subject matter of the
data to be collected is identified
consistent with the requirements of
Section 111 of the 2015 Reauthorization
Act. The rule further specifies that the
data will be collected electronically by
Treasury, through various forms and
web portals identified on Treasury’s
Web site. The reporting forms and
portals, which will identify the specific
data elements that insurers will be
required to provide on an annual basis,
are under development and will be
published for comment separately.
Given that insurers collect and report
data in a variety of ways, the precise
data elements, instructions, and
methods of reporting may vary by
industry segment. Treasury will publish
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multiple forms if it identifies a need and
will provide clear guidance for insurers
to determine the appropriate forms to
submit. The proposed rule also provides
for periodic reevaluation of and
revisions to the data elements to be
collected, so that ongoing refinements to
the process can be implemented.
Treasury has proposed a 90 day notice
period for any refinements, to provide
insurers with sufficient time to update
any systems they will need to change to
facilitate collection of the new data.
The proposed rule also permits
Treasury to issue supplemental data
requests to participating insurers to the
extent Treasury determines it requires
additional or clarifying information in
order to analyze the effectiveness of the
Program. Like the potential revision to
the annual data element requirements,
this is an additional tool for Treasury to
manage the information it is collecting
to ensure that it is able to evaluate the
effectiveness of the Program, as required
by the 2015 Reauthorization Act. The
timeframe and manner of response to
any such supplemental data request will
be specified by Treasury in the request.
The proposed rule permits—but does
not require—Treasury to exclude small
insurers, as defined in proposed
§ 50.4(z), from the annual data request.
Section 111 of the 2015 Reauthorization
Act requires the Secretary to collect
from insurers participating in the
Program such information as the
Secretary considers appropriate to
analyze the overall effectiveness of the
Program. Treasury may gather all of the
information appropriate for analyzing
the effectiveness of the Program without
requiring collection of information from
every single participating insurer. The
statutory text does not require the
Secretary to require all insurers
participating in the Program to submit
information, nor does it require that all
insurers be required to submit the same
information. Rather, the statute requires
the Secretary to require insurers to
submit such information as the
Secretary considers appropriate.
Therefore, the Secretary may sometimes
exempt a small insurer or class of small
insurers if such exemption would not
interfere with Treasury’s ability to
analyze the effectiveness of the Program.
It would not be appropriate to extend
such an exemption to insurers that do
not qualify as small insurers, as such an
exemption would be more likely to have
a negative impact on Treasury’s ability
to analyze the effectiveness of the
program.
Proposed § 50.52 addresses the
collection of data relating to small
insurers, as defined in proposed
§ 50.4(z), in support of the studies of
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small insurers mandated by the 2015
Reauthorization Act. The data elements
specified in the proposed § 50.52 are
those specified in Section 112 of the
2015 Reauthorization Act.
Proposed § 50.53 establishes rules for
the collection of data by Treasury once
an act has been certified as an act of
terrorism, under Treasury’s general
authority to under Section 104(a) of the
Act to investigate claims under the
Program and prescribe regulations to
effectively administer the Program and
ensure that all insurers that participate
in the Program are treated equally. In
order to effectively administer the
Program, Treasury requires information
regarding losses resulting from a
certified act of terrorism and has
accordingly previously adopted rules
requiring the submission of such
information. The current rules (§ 50.52)
do not require insurers to begin
reporting information to Treasury
concerning losses resulting from a
certified act of terrorism until a
particular insurer’s paid and incurred
losses reach 50 percent of the insurer’s
TRIA deductible. However, given the
size of the deductibles of some
participating insurers, this could result
in losses being paid and reserved by
industry as a whole in an amount far in
excess of the $100 million Program
Trigger before Treasury has obtained
any specific information respecting
losses resulting from the act of terrorism
as they are incurred. This new section
provides for periodic reporting of claims
and loss information associated with the
act of terrorism in question, so that
Treasury may evaluate on a continuing
basis the amount of loss associated with
the certified act of terrorism, and be
prepared in advance to respond to
claims for payment of the Federal share
of compensation in a timely fashion.
The data elements sought under this
rule are consistent with those that each
participating insurer will be generating
in connection with its own
establishment, review, and resolution of
claims as they are processed. As in other
situations involving data collection, the
rule specifies that Treasury may also
seek loss figures and estimates from
other sources in order to inform its
analysis and projections.
Finally, proposed § 50.54 implements
the requirements found in Section 111
of the 2015 Reauthorization Act, which
recognize that the data that Treasury
will need to collect from participating
insurers may constitute proprietary
information that is highly sensitive to
the individual companies (and,
potentially, underlying policyholders
and claimants) from which it is
obtained. The proposed rule provides
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for protection of such data from
disclosure, although it does permit—
pursuant to appropriate agreements—for
the sharing of such information with
other Federal agencies or state insurance
regulatory authorities.
Subpart G—Certification
Subpart G is new. The proposed rules
establish procedures applicable when
Treasury is considering whether an act
constitutes an ‘‘act of terrorism’’ within
the meaning of TRIA.
The 2015 Reauthorization Act
includes a requirement for Treasury to
conduct and complete a study on the
certification process, including
examination of whether a timeline
governing the certification process
could be established, information that
the Secretary would evaluate during the
certification process, and the ability of
the Secretary to provide guidance and
updates to the public during the
certification process. In the Certification
Report, Treasury concluded that it
would be impractical to establish very
specific rules to define a process that
will likely vary greatly in material
respects depending upon the act and its
consequences. Treasury determined,
however, that the certification process
could be improved by periodic reporting
to the public during the pendency of
that process, which Treasury concluded
should permit relevant stakeholders and
the public at large to assess their
positions as they might be affected by
the Secretary’s decision whether to
certify an act as an act of terrorism.
Treasury also addressed in the
Certification Report the types of
information that it might need to
evaluate during the certification
process. Under the 2015
Reauthorization Act, Treasury must
issue final rules governing the
certification process within 9 months
after the Certification Report, including
a timeline for when an act is eligible for
certification by the Secretary as an act
of terrorism. These proposed rules
implement Treasury’s recommendations
in its Certification Report and the
requirements of the 2015
Reauthorization Act.
Proposed § 50.60 sets forth the general
parameters of the certification process,
as required under TRIA, and as
modified by the 2015 Reauthorization
Act, including the requirement in
paragraph (b) that from a timing
standpoint an act is eligible for
certification once the Secretary has
consulted with the Attorney General of
the United States and the Secretary of
Homeland Security.
Proposed § 50.61 addresses the
commencement of the certification
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process and public communication
concerning the process. After the
Secretary commences consideration of
whether an act may be an act of
terrorism under TRIA, Treasury will
publish a statement and a notice in the
Federal Register advising that the act is
under consideration for certification.
Such notice could also reflect that it has
been determined that a particular act is
not under consideration as an act of
terrorism. The proposed rule provides
that such notice will be updated
periodically by Treasury as long as the
act is still under review for certification.
In addition to indicating whether the act
remains under consideration for
certification, the proposed rule provides
that Treasury may publish further
information in connection with such
notifications. Nothing in the proposed
notification provisions, however,
precludes the Secretary from certifying
an act as an act of terrorism before any
notification to the public.
Proposed § 50.62 establishes rules for
the collection of data by Treasury in aid
of the certification process. As
explained in the Certification Report,
Treasury may need to collect data from
insurers, as well as from other entities
in the insurance industry, in connection
with its analysis of whether the
insurance losses resulting from an act
under consideration for certification as
an act of terrorism meet the $5 million
loss threshold under TRIA, which must
be met before any act is eligible for
certification as an act of terrorism.17
This information may therefore be
crucial for informing a certification
decision. Accordingly, Treasury
proposes this section under its general
authority to promulgate rules for
effective administration of the Program
and its authority to issue rules
governing the certification process
pursuant to Section 107(e) of the 2015
Reauthorization Act. Treasury may need
to rely upon insurers who have or
project losses from the act in question
in order to confirm whether the relevant
loss threshold is or will be satisfied. An
insurer that has such information may
also self-report to Treasury, as further
provided in the rule, and Treasury may
also review other industry sources for
such loss information.
Proposed § 50.63 provides for Federal
Register notification and other
communication of any certification
decision, as well separate notifications
to Congress and specified insurance
supervisory authorities.
17 TRIA,
Section 102(1)(B)(ii).
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Subpart H—Claims Procedures
The proposed changes to § 50.70
(formerly § 50.50) implement the
changes to the Federal share of
compensation and Program Trigger
amounts in the years from 2015 through
2020, as provided for in the 2015
Reauthorization Act.
Proposed § 50.76 addresses final
netting. This rule was originally
proposed by Treasury in 2010 and
subject to comment but was not adopted
by Treasury. See generally 75 FR 45563
(August 3, 2010). The intent of the
proposed rule is to provide a process by
which Treasury would close out its
claims operation for insured losses from
a particular calendar year. The proposed
rule provides for some flexibility in how
and when steps are taken to accomplish
this in order to be able to effectively
address future circumstances. Treasury
has addressed certain of the comments
that were received during the prior
comment period by modifications to the
proposed rule, and responds to certain
of the comments that are not addressed
by revisions to the proposed rule.
Interested parties are invited to provide
further comments respecting the
proposed final netting rule during the
current comment period.
Section 103(e)(4) of TRIA provides the
Secretary with the sole discretion to
determine the time at which claims
relating to any insured loss or act of
terrorism shall be accomplished. Based
on that authority, the final netting rule
provides the mechanism for final
payments to be made by Treasury to
insurers, or by insurers to Treasury,
such that Treasury can close out its
claims operation for insured losses for a
given calendar year, once the Secretary
has determined that claims for the
Federal share of compensation shall be
considered final.
The substantive modifications to the
proposed rule as originally proposed in
2010 are to paragraph (b)(1)(v)
(identifying the manner in which the
Federal courts have been applying tort
and contract statute of limitations as
such decisions may be relevant to the
final netting analysis) and paragraph
(b)(1)(ix) (expressly requiring that if it is
projected that the cap on annual
liability will be reached, consideration
shall be given as to whether any Final
Netting Date should be set) are based on
the comments that were previously
received. Treasury concurs with the
commenters that these are appropriate
considerations for Final Netting.
Treasury has not, however, revised the
proposed rule in response to comments
recommending that Treasury should not
impose a commutation over the
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objection of the relevant insurer, or that
Treasury should expressly obligate itself
to reopen and/or extend the insurer’s
claim for the Federal share of
compensation if the 20 percent
exception threshold of increased
compensation is met. Treasury makes
payment of the Federal share of
compensation pursuant to the terms of
TRIA and not as a matter of contract,
and TRIA leaves to the sole discretion
of the Secretary—who must consider the
impact of the Program upon taxpayers
as well as upon the participating
insurers—when claims shall become
final. The considerations identified in
the proposed rule as to whether and
when a Final Netting Date should be set
are appropriate and sufficiently identify
the relevant considerations.
The balance of the proposed changes
to the previously proposed Final Netting
Rule text revise certain terminology
previously used in the regulations, in
order to distinguish the provisions from
the new proposed rule, or to implement
other technical changes that conform
the existing regulations to the
requirements of the 2015
Reauthorization Act, and do not seek to
establish any substantive changes.
Subpart I—Audit and Investigative
Procedures
The only substantive change to
Subpart I (formerly Subpart G) is new
§ 50.82, addressing civil penalties in
connection with TRIA. The authority for
Treasury to impose civil penalties
against an insurer in connection with
the administration of TRIA is provided
under Section 104(e) of the Act. The
proposed rule tracks the statutory
language as to the situations in which a
civil penalty may be assessed, and
provides (as required by the Act) for any
penalty to be assessed only after
proceedings on the record and after an
opportunity is extended to the insurer
in question for a hearing. Treasury
previously considered a different
penalty rule, addressing only certain
conduct in connection with the
Program; that proposed rule was
withdrawn in light of comments that the
authority generally available under
Section 104(e) of the Act ‘‘cover[s] the
landscape of potential offenses.’’ 69 FR
39296, 39299–300 (June 29, 2004). This
proposed rule is consistent with the
statutory authority provided to Treasury
under the Act.
The only substantive change from the
civil penalty authority as identified in
Section 104(e) of TRIA is with respect
to the amount, which has been
increased from not more than
$1,000,000 as provided for in TRIA to
not more than $1,325,000. This increase
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is based on the Federal Civil Penalties
Inflation Adjustment Act of 1990, 28
U.S.C. 2461 note, which requires (in
Section 5 of that Act) that civil penalties
be increased by the percentage
difference in the Consumer Price Index
(CPI) for June of the year in which the
penalty was originally established (here,
June 2002) versus June of year in which
the penalty is readjusted, or June 2015.
In June 2002, the CPI was 179.9, and in
June 2015 the CPI was 238.638—an
increase of 58.738, which is a
percentage increase from June 2002 of
32.65%. This results in an increased
penalty of $1,326,503 which, according
to Section 4 of the Act, is to be rounded
to the nearest $25,000 in the case of
penalties in excess of $200,000. This
results in the current figure of
$1,325,000.
Subpart J—Recoupment and Surcharge
Procedures
The principal changes in Subpart J are
in connection with proposed § 50.90
(formerly § 50.70), and are based upon
changes to the Program adopted in the
2015 Reauthorization Act—i.e., the
increase, from 133 percent to 140
percent, in the amount of terrorism loss
risk-spreading premiums to be applied
to any mandatory recoupment amount,
and the revised schedule for the
collection of terrorism loss riskspreading premiums, depending upon
the timing of any certified act of
terrorism. The balance of the proposed
changes to Subpart J make certain
clarifying changes and otherwise
conform the existing regulations to the
requirements of the 2015
Reauthorization Act, and do not seek to
establish any further substantive
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Subpart K—Federal Cause of Action;
Approval of Settlements
The proposed Rule incorporates
certain changes and clarifications to
Subpart K, involving the Federal Cause
of Action and Approval of Settlements
by Treasury. These changes are
designed to enhance Treasury’s ability
to evaluate and manage significant
claims that could have a material impact
upon Treasury’s payment of the Federal
share of compensation.
Proposed § 50.100(b) is proposed for
the sake of completeness and tracks the
existing requirement identified in TRIA
that once the Secretary certifies an act
of terrorism the Judicial Panel on
Multidistrict Litigation shall designate
one or more district courts to exercise
exclusive jurisdiction of claims arising
out of the certified act of terrorism. See
TRIA, Section 107(a)(4).
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Proposed § 50.102 (formerly § 50.82)
includes certain clarifying language
confirming that the advance settlement
approval requirement extends to claims
that may ultimately be determined to
fall within an insurer’s deductible.
Insured losses are ultimately submitted
to Treasury as the basis for payment of
the Federal share on an aggregate basis
and, therefore, Treasury has previously
recognized that the advance settlement
approval requirement logically extends
to such cases. See 69 FR 44932, 44936
(July 29, 2004). This proposed change
thus only clarifies existing guidance.
Proposed § 50.103 (formerly 50.83)
contains certain clarifying language
respecting the submission of
information Treasury seeks in support
of settlement approval.
Proposed § 50.104 (formerly § 50.84)
adds a provision recognizing that while
the Government’s subrogation rights
arising from TRIP payments may not be
waived by a participating insurer, those
rights might not be enforced by the
Government in an appropriate situation.
While the general regulatory prohibition
against impairing the subrogation rights
of the United States remains in place,
Treasury recognizes that there may be
litigation situations—for example, when
all parties involved may ultimately be
seeking to have their losses reimbursed
through claims for the Federal share of
compensation—where a sensible
resolution of the matter would be for the
United States to forbear from exercising
those rights as part of a prudent global
settlement agreement that resolves the
matter in question as to all parties. The
proposed change provides the flexibility
to consider such an approach in an
appropriate case.
The balance of the proposed changes
to Subpart K make certain clarifying
changes or delete material that is now
redundant or unnecessary, and do not
seek to establish any substantive
changes.
Subpart L—Cap on Annual Liability
The proposed changes in Subpart L
incorporate language required by the
2015 Reauthorization Act, or conform
the provisions to Treasury’s other data
collection authorities under Part 50.
III. Participation of Captive Insurers
and Other Self-Insurance Arrangements
in the Program: Request for Comments
Under Section 103(f) of TRIA, the
Secretary ‘‘may apply the provisions of
this title, as appropriate, to other classes
or types of captive insurers and other
self-insurance arrangements by
municipalities and other entities. . . .’’
Treasury has previously advised that
state-licensed captive insurers
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participate in the Program by virtue of
their status as licensed insurance
entities, and has issued some guidance
concerning that participation; however,
Treasury has not issued any rules
specifically concerning the participation
of captive insurers in the Program.
Treasury also has not issued any rules
concerning the participation of ‘‘other
self-insurance arrangements by
municipalities and other entities’’ in the
Program.
In anticipation of the development of
rules concerning the participation of
captive insurers and, potentially, other
self-insurance arrangements in the
Program, Treasury invites interested
parties to provide comments concerning
these issues. While interested parties are
invited to address these matters
generally, Treasury particularly invites
responses to the following questions:
(1) What is the current role of captive
insurers (both state-licensed entities and
otherwise) in providing insurance in
TRIP-eligible lines?
(2) Should captive arrangements that
insure U.S.-based risks, other than those
involving state-licensed insurers,
participate in the Program? Upon what
basis should such participation take
place?
(3) Should separate rules address the
criteria for which captives, of any type,
qualify for reimbursement under the
Program? In response to this question,
please address whether and/or how the
relatively small TRIP-eligible premiums
of such insurers should affect their
insurer deductible.
(4) Given the relatively small size of
some captive insurers, should some
assessment be made of their capital and
claims paying ability in connection with
their participation in the Program? If so,
how should Treasury consider and
address such issues?
(5) To what extent are captives being
relied upon to insure so-called ‘‘trophy
risks’’ that might be deemed to be
subject to a heightened risk of terrorism?
(6) What is the current role of selfinsurance arrangements in providing
workers’ compensation reimbursement
for losses that could be subject to the
Program?
(7) What is the current extent of selfinsurance arrangements in other TRIAeligible lines apart from workers’
compensation insurance?
(8) Should self-insurance
arrangements, apart from state-licensed
captives, qualify for participation in the
Program? Do self-insurers wish to
participate in the Program? If selfinsurers were to participate in the
Program, how would such participation
be structured, including in terms of
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deductibles and potential liability for
the recoupment of surcharges?
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. Under the
Regulatory Flexibility Act, 5 U.S.C. 601
et seq., Treasury must consider whether
this rule, if promulgated, will have a
‘‘significant economic impact on a
substantial number of small entities.’’ 5
U.S.C. 605(b). In this case, Treasury
certifies that this Proposed Rule, if
adopted, would likely not have a
significant economic impact on a
substantial number of small entities.
Although the rule may affect a
substantial number of small insurers,
the economic impact is unlikely to be
significant, for the reasons explained
below.
Treasury has previously determined
that regulations issued in connection
with the Program do not have a
significant economic impact on a
substantial number of small entities. As
noted previously, 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 of insurance,
with certain specific exclusions,
without any reference to the size or
scope of the insurer. Thus, the economic
impacts associated with the Program
regulations flow from TRIA, and not
from the prior regulations. Furthermore,
the regulations that have been proposed
and adopted in the past have sought to
be consistent with the manner in which
insurers already conduct their business,
in an effort to minimize the impact of
the Program’s operation upon
participants. All of these considerations
apply with equal force in connection
with the Proposed Rule.
This Proposed Rule may affect a
substantial number of small entities.
Existing Small Business Administration
size regulations (see 13 CFR 121.201)
define small entities within the direct
property and casualty insurance sector
as those with 1500 employees or less;
however, this Proposed Rule (see
proposed 31 CFR 50.4(z)) contains a
definition of ‘‘small insurer’’ for
purposes of the Program that is based
upon the size of the insurer’s
policyholder surplus and direct earned
premiums. Based upon either
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measurement, some ‘‘small entities’’ or
‘‘small insurers’’ will be subject to the
Proposed Rule—just as such insurers are
subject to the requirements of TRIA as
enacted. For purposes of its Paperwork
Reduction Analysis, below, Treasury
has estimated that perhaps about 500
insurers will have lesser reporting
burdens because they are ‘‘small
insurers’’ that, although they write some
amount of TRIP-eligible lines premium,
will likely have less information to
report because of the reduced scope of
their operations (either geographically
or in terms of lines of business, or both),
or may otherwise be excused from more
detailed requirements under the
Proposed Rule.
Treasury has sought to tailor the
Proposed Rule, including the aspects of
the rule respecting data collection, to
the manner in which insurance
companies (including small insurers)
typically operate, such that the
Proposed Rule should not have a
significant economic impact. This
Proposed Rule would implement the
reforms in the 2015 Reauthorization
Act. The aspects of the rule respecting
data collection address data that the
Secretary has been charged under the
2015 Reauthorization Act to collect,
including data that must be collected
and analyzed to determine whether
small insurers face competitive
challenges in the terrorism risk
insurance marketplace.
As discussed in the preamble, the
Proposed Rule imposes certain
requirements respecting the production
of data that could affect the manner in
which insurers, including small
insurers, presently collect and maintain
information. The rule has been
proposed in a way that most insurers,
including small insurers, should already
be collecting and maintaining the data
in question as part of their ordinary
course of business, such that any
additional costs will be occasioned by
some reprogramming costs to permit the
more efficient reporting of the requested
data. Given the character of the
information that is sought, Treasury
believes that any such costs should be
nominal, in light of existing obligations
all insurers have to record and retain the
information sought by Treasury.
Nonetheless, and recognizing that the
provisions of the Proposed Rule
respecting data collection may impose
some additional costs and burdens on
small insurers, the Proposed Rule
provides Treasury with the authority to
excuse or modify the data collection
requirements as applicable to small
insurers. Treasury seeks information
and comments on any costs, compliance
requirements, or changes in operating
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procedures arising from application of
the Proposed Rule on small entities or
insurers, the size and characteristics of
any small entity or insurer that you
believe may be subject to that impact,
and any ways in which you believe—
consistent with the requirements of the
2015 Reauthorization Act—these
aspects of the Proposed Rule could be
modified to avoid or mitigate the impact
that you identify.
Treasury seeks information and
comments on the extent to which the
Proposed Rule will affect small entities
or insurers, the size and characteristics
of any small entity or insurer that you
believe may be subject to that impact,
and any ways in which you believe—
consistent with the requirements of the
2015 Reauthorization Act—these
aspects of the Proposed Rule could be
modified to avoid or mitigate the impact
that you identify.
After reviewing the comments
received during the public comment
period, Treasury will consider whether
to conduct additional regulatory
flexibility analysis.18
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
18 Treasury notes that the proposed final netting
rule was previously analyzed for purposes of the
Regulatory Flexibility Act. 75 FR 45563, 45566
(August 3, 2010). As explained previously, the
economic impact, if any, of the final netting rule
would be most likely to fall upon large insurers
which would be more likely to be subject to the
termination of the claims process and the proposed
commutation procedure. That 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
compensation if significant new claims are reported
to the insurer subsequent to the Final Netting. The
economic impact on all commercial property and
casualty insurers (including any that might be small
entities) should thus be minimal. Treasury invites
any interested parties to comment, if they wish, as
respects this prior analysis.
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collection of information should be
received by May 31, 2016.
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,
including the validity of the
assumptions and the methods used (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
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 new collection of information
in connection with (1) annual data
requests; (2) claims data; (3)
certification; and (4) final netting. As
respects civil penalties, there is no data
collection that would be generally
applicable to responding parties in
general, given the individual nature of
the inquiry as respects an insurer that
might be in violation of some aspect of
the Program.
Annual Data Requests
Beginning in 2017, with respect to
2016 data, insurers would be required to
submit annual data regarding their
participation in the Program, pursuant
to Section 111 of the 2015
Reauthorization Act and proposed 31
CFR 50.51. The proposed rule requires
an annual data collection process which
will continue from year to year as long
as the Program remains in effect. The
information sought by Treasury will
comprise data elements that insurers
currently collect or generate, although
not necessarily grouped together the
way in which insurers currently collect
and evaluate the data. Annual data
collections could involve as many as
about 2,000 Program participants,
although the data to be collected from
at least some of the insurers could be
more limited. For insurers reporting
standard information, Treasury
anticipates approximately 50 hours to
collect, process and report the data, and
approximately 25 hours for collection,
processing and reporting data where
more limited information is sought or
available. The precise breakdown
between these categories will likely vary
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depending upon the year in question
and issues presented. For illustrative
purposes, Treasury assumes that
approximately 1,500 insurers may be
subject to the standard information
request, with perhaps 500 subject to a
more limited request. Assuming this
breakdown, the estimated annual
burden would be 87,500 hours (1,500
insurers × 50 hours + 500 insurers × 25
hours).
Description of recordkeepers: Insurers
as defined in 31 CFR 50.4.
Estimated number of recordkeepers:
2,000 insurers, potentially divided for
illustrative purposes into 1,500 insurers
with standard reporting obligations and
500 insurers with more limited
reporting responsibilities.
Estimated frequency: Annually.
Average estimated recordkeeping
burden: 50 hours per year per insurer,
reducing to 25 hours per year per
insurers with more limited reporting
responsibility.
Total estimated recordkeeping
burden: 87,500 hours per year.
This data collection burden is
imposed by the 2015 Reauthorization
Act which requires the Secretary to
require insurers participating in the
Program to submit information
regarding insurance coverage for
terrorism losses.
Claims Data
The data collection rules also propose
reporting of claims data by insurers as
losses are sustained by insurers in the
ordinary course once there has been a
certified act of terrorism. The claims
data sought is in a form that will be
generated by insurers in the ordinary
course of their operations. Accordingly,
the burden associated with the
requirement should consist of
generating monthly reports of losses
from existing data as generated and
maintained by insurers. The number of
insurers with insured losses in
connection with any act of terrorism
will vary depending upon the size and
nature of the certified act of terrorism,
as will the time period during which
claims information will need to be
reported to Treasury. Accordingly,
Treasury can only make a ‘‘best
estimate’’ as to the burden presented,
which is based upon the estimate that
100 insurers will have insured losses,
and will need to report information on
a monthly basis over, on average, a fouryear period. It is anticipated that the
reporting will require no more than 2
hours per month per insurer to generate
the required report from existing data
and submit it to Treasury. This results
in an estimated burden for each certified
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act of terrorism of 9,600 hours (100
insurers × 2 hours × 48 months).
Description of recordkeepers: Insurers
who have sustained insured losses, as
defined in 31 CFR 50.4.
Estimated number of recordkeepers:
100.
Estimated Frequency: Monthly.
Average estimated recordkeeping
burden: 2 hours.
Total estimated recordkeeping
burden: 9,600 hours over a four-year
period estimated to be necessary on
average to report all insured losses.
Certification
The proposed rules associated with
the certification process contemplate
that if the Secretary is considering an
act for certification as an act of terrorism
Treasury may need to collect loss
information and estimates directly from
insurers in order to confirm that losses
are above relevant loss thresholds. It is
uncertain that this process would ever
require reporting from more than 10
entities, which is the threshold under
the Paperwork Reduction Act.
Depending upon the circumstances,
however, Treasury estimates that it is
possible that it could seek loss
information from as many as 20 insurers
in connection with any individual
certification process. The information
that Treasury would seek would be
generated by insurers during the
ordinary course of their operations,
although given the time-sensitive nature
of the certification process the
information sought from individual
insurers could impose additional
burdens on account of the need to
generate the information in a more
expedited fashion. Treasury estimates
that the burden upon each insurer from
which data is sought could amount to
15 hours per insurer. This results in an
estimated burden for each act under
consideration for certification as an act
of terrorism of 300 hours (20 insurers ×
15 hours).
Description of recordkeepers: Insurers
who may have sustained insured losses
as defined in 31 CFR 50.4.
Estimated number of recordkeepers:
Up to 20.
Estimated Frequency: Once per
certification process.
Average estimated recordkeeping
burden: 15 hours.
Total estimated recordkeeping
burden: Up to 300 hours.
Final Netting-Commutation
Treasury previously analyzed the
potential burdens associated with the
proposed Final Netting Rule. See 75 FR
45563, 45566 (August 3, 2010). As
explained previously, the collection of
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information associated with Final
Netting would be in connection with the
commutation procedure proposed in
§ 50.76(d)(2). As in connection with the
other matters addressed herein, the
required information and process
follows normal business procedures of
insurers—here, in the fashion that they
interact 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 that must be
repaid to Treasury. Utilizing, again, the
estimate that perhaps 100 insurers
might sustain insured losses in
connection with any given act of
terrorism, Treasury estimates that there
might be 15 of those insurers who will
be involved in a commutation after the
determination of a Final Netting Date.
Treasury estimates that an insurer
would need 40 hours, on average, to
assemble and analyze the relevant data
(otherwise collected by the insurer in
the ordinary course) and develop a
submission to Treasury for
commutation. The estimated total
onetime burden would be 600 hours (15
insurers × 40 hours).
Description of recordkeepers: Insurers
part of a commutation procedures, as
defined in 31 CFR 50.76(d)(2).
Estimated number of recordkeepers:
15.
Estimated Frequency: Once per event.
Average estimated recordkeeping
burden: 40 hours.
Total estimated recordkeeping
burden: 600 hours.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by OMB.
List of Subjects
Insurance, Terrorism.
For the reasons stated in the
preamble, the Department of the
Treasury proposes to revise 31 CFR part
50 to read as follows:
PART 50—TERRORISM RISK
INSURANCE PROGRAM
Subpart A—General Provisions
Sec.
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50.1
50.2
50.3
50.4
50.5
50.6
Authority, purpose, and scope.
Responsible office.
Mandatory participation in program.
Definitions.
Rule of construction for dates.
Special rules for Interim Guidance safe
harbors.
50.7 Procedure for requesting
determinations of controlling influence.
50.8 Procedure for requesting general
interpretations of statute.
Subpart B—Disclosures as Conditions for
Federal Payment
50.10 General disclosure requirements.
50.11 Definition.
50.12 Clear and conspicuous disclosure.
50.13 Offer and renewal.
50.14 Separate line item.
50.15 Cap disclosure.
50.16 Use of model forms.
50.17 General disclosure requirements for
State residual market insurance entities
and State workers’ compensation funds.
Subpart C—Mandatory Availability
50.20 General mandatory availability
requirements.
50.21 Make available.
50.22 No material difference from other
coverage.
50.23 Applicability of State law
requirements.
Subpart D—State Residual Market
Insurance Entities; Workers’ Compensation
Funds
50.30 General participation requirements.
50.31 Entities that do not share profits and
losses with private sector insurers.
50.32 Entities that share profits and losses
with private sector insurers.
50.33 Allocation of premium income
associated with entities that do share
profits and losses with private sector
insurers.
Subpart E—Self-Insurance Arrangements;
Captives [Reserved]
Subpart F—Data Collection
50.50 General.
50.51 Annual data reporting.
50.52 Small insurer data.
50.53 Collection of claims data.
50.54 Handling of data.
Subpart G—Certification
50.60 Certification.
50.61 Public communication.
50.62 Certification data collection.
50.63 Notification of certification
determination.
Subpart H—Claims Procedures
50.70 Federal share of compensation.
50.71 Adjustments to the Federal share of
compensation.
50.72 Notice of deductible erosion.
50.73 Loss certifications.
50.74 Payment of Federal share of
compensation.
50.75 Determination of affiliations.
50.76 Final netting.
Subpart I—Audit and Investigative
Procedures
50.80 Audit authority.
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50.81
50.82
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Recordkeeping.
Civil penalties.
Subpart J—Recoupment and Surcharge
Procedures
50.90 Mandatory and discretionary
recoupment.
50.91 Determination of recoupment
amounts.
50.92 Establishment of Federal terrorism
policy surcharge.
50.93 Notification of recoupment.
50.94 Collecting the surcharge.
50.95 Remitting the surcharge.
50.96 Insurer responsibility.
Subpart K—Federal Cause of Action;
Approval of Settlements
50.100 Federal cause of action and remedy.
50.101 State causes of action preempted.
50.102 Advance approval of settlements.
50.103 Procedure for requesting approval of
proposed settlements.
50.104 Subrogation.
Subpart L—Cap on Annual Liability
50.110 Cap on annual liability.
50.111 Notice to Congress.
50.112 Determination of pro rata share.
50.113 Application of pro rata share.
50.114 Data call authority.
50.115 Final amount.
Authority: 5 U.S.C. 301; 31 U.S.C. 321;
Title I, Pub. L. 107–297, 116 Stat. 2322, as
amended by Public Law 109–144, 119 Stat.
2660, Pub. L. 110–160, 121 Stat. 1839 and
Public Law 114–1, 129 Stat. 3 (15 U.S.C. 6701
note).
Subpart A—General Provisions
§ 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, the
Terrorism Risk Insurance Program
Reauthorization Act of 2007, Public Law
110–160, 121 Stat. 1839, and the
Terrorism Risk Insurance Program
Reauthorization Act of 2015, Public Law
114–1, 129 Stat. 3.
(b) Purpose. This part contains rules
prescribed by the Department of the
Treasury to implement and administer
the Terrorism Risk Insurance Program.
(c) Scope. This part applies to
insurers subject to the Act and their
policyholders.
§ 50.2
Responsible office.
The office responsible for the
administration of the Terrorism Risk
Insurance Act in the Department of the
Treasury is the Terrorism Risk
Insurance Program Office within the
Federal Insurance Office. The Treasury
Assistant Secretary for Financial
Institutions prescribes the regulations
under the Act.
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Mandatory participation in program.
Any entity that meets the definition of
an insurer under the Act is required to
participate in the Program.
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§ 50.4
Definitions.
For purposes of this part:
(a) Act means the Terrorism Risk
Insurance Act of 2002 (as amended).
(b) Act of terrorism—(1) In general.
The term act of terrorism means any act
that is certified by the Secretary, in
consultation with the Attorney General
of the United States and the Secretary of
Homeland Security:
(i) To be an act of terrorism;
(ii) To be a violent act or an act that
is dangerous to human life, property, or
infrastructure;
(iii) To have resulted in damage
within the United States, or outside of
the United States in the case of:
(A) An air carrier (as defined in 49
U.S.C. 40102) or a United States flag
vessel (or a vessel based principally in
the United States, on which United
States income tax is paid and whose
insurance coverage is subject to
regulation in the United States); or
(B) The premises of a United States
mission; and
(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.
(2) Limitations. The Secretary is not
authorized to certify an act as an act of
terrorism if:
(i) The act is committed as part of the
course of a war declared by the Congress
(except with respect to any coverage for
workers’ compensation); or
(ii) Property and casualty insurance
losses resulting from the act, in the
aggregate, do not exceed $5,000,000.
(3) Judicial review precluded. The
Secretary’s certification of an act of
terrorism, or determination not to certify
an act as an act of terrorism, is final and
is not subject to judicial review.
(c)(1) Affiliate means, with respect to
an insurer, any entity that controls, is
controlled by, or is under common
control with the insurer. An affiliate
must itself meet the definition of insurer
to participate in the Program.
(2)(i) For purposes of paragraph (c)(1)
of this section, an insurer has control
over another insurer for purposes of the
Program if:
(A) The insurer directly or indirectly
or acting through one or more other
persons owns, controls, or has power to
vote 25 percent or more of any class of
voting securities of the other insurer;
(B) The insurer controls in any
manner the election of a majority of the
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directors or trustees of the other insurer;
or
(C) The Secretary determines, after
notice and opportunity for hearing, that
an insurer directly or indirectly
exercises a controlling influence over
the management or policies of the other
insurer, even if there is no control as
defined in paragraph (c)(2)(i) or (ii) of
this section.
(ii) An entity, including any affiliate
thereof, does not have control or
exercise controlling influence over a
reciprocal insurer under this section if,
as of January 12, 2015, the entity was
acting as an attorney-in-fact for the
reciprocal insurer, provided that the
entity does not, for reasons other than
activities it may perform under the
attorney-in-fact relationship, have
control over the reciprocal insurer as
otherwise defined under this section.
(3) An insurer described in paragraph
(c)(2)(i)(A) or (B) of this section is
conclusively deemed to have control.
(4) For purposes of a determination of
controlling influence under paragraph
(c)(2)(i)(C) of this section, if an insurer
is not described in paragraph (c)(2)(i)(A)
or (B) of this section, the following
rebuttable presumptions will apply:
(i) If an insurer controls another
insurer under the laws of a state, and at
least one of the factors listed in
paragraph (c)(4)(iv) of this section
applies, there is a rebuttable
presumption that the insurer that has
control under state law exercises a
controlling influence over the
management or policies of the other
insurer for purposes of paragraph
(c)(2)(i)(C) of this section.
(ii) If an insurer provides 25 percent
or more of another insurer’s capital (in
the case of a stock insurer), policyholder
surplus (in the case of a mutual insurer),
or corporate capital (in the case of other
entities that qualify as insurers), and at
least one of the factors listed in
paragraph (c)(4)(iv) of this section
applies, there is a rebuttable
presumption that the insurer providing
such capital, policyholder surplus, or
corporate capital exercises a controlling
influence over the management or
policies of the receiving insurer for
purposes of paragraph (c)(2)(i)(C) of this
section.
(iii) If an insurer, at any time during
a calendar year, supplies 25 percent or
more of the underwriting capacity for
that year to an insurer that is a syndicate
consisting of one or more incorporated
or individual unincorporated
underwriters, and at least one of the
factors in paragraph (c)(4)(iv) of this
section applies, there is a rebuttable
presumption that the insurer exercises a
controlling influence over the syndicate
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for purposes of paragraph (c)(2)(i)(C) of
this section.
(iv) If paragraphs (c)(4)(i) through (iii)
of this section are not applicable, but
two or more of the following factors
apply to an insurer, with respect to
another insurer, there is a rebuttable
presumption that the insurer exercises a
controlling influence over the
management or policies of the other
insurer for purposes of paragraph
(c)(2)(i)(C) of this section:
(A) The insurer is one of the two
largest shareholders of any class of
voting stock;
(B) The insurer holds more than 35
percent of the combined debt securities
and equity of the other insurer;
(C) The insurer is party to an
agreement pursuant to which the
insurer possesses a material economic
stake in the other insurer resulting from
a profit-sharing arrangement, use of
common names, facilities or personnel,
or the provision of essential services to
the other insurer;
(D) The insurer is party to an
agreement that enables the insurer to
influence a material aspect of the
management or policies of the other
insurer;
(E) The insurer would have the
ability, other than through the holding
of revocable proxies, to direct the votes
of more than 25 percent of the other
insurer’s voting stock in the future upon
the occurrence of an event;
(F) The insurer has the power to
direct the disposition of more than 25
percent of a class of voting stock of the
other insurer in a manner other than a
widely dispersed or public offering;
(G) The insurer and/or the insurer’s
representative or nominee constitute
more than one member of the other
insurer’s board of directors; or
(H) The insurer or its nominee or an
officer of the insurer serves as the
chairman of the board, chairman of the
executive committee, chief executive
officer, chief operating officer, chief
financial officer or in any position with
similar policymaking authority in the
other insurer.
(5) An insurer that is not described in
paragraph (c)(2)(i) or (ii) of this section
may request a hearing in which the
insurer may rebut a presumption of
controlling influence under paragraph
(c)(4)(i) through (iv) of this section or
otherwise request a determination of
controlling influence by presenting and
supporting its position through written
submissions to Treasury, and in
Treasury’s discretion, through informal
oral presentations, in accordance with
the procedure in § 50.7.
(6) An insurer’s affiliates for a
calendar year, for purposes of subpart H
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of this part, shall be determined in
accordance with the timing
requirements laid out in § 50.75 of this
part.
(d) Aggregate Federal share of
compensation means the aggregate
amount paid by Treasury for the Federal
share of compensation for insured losses
in a calendar year.
(e) Assessment period means a period,
established by Treasury, during which
policyholders of property and casualty
insurance policies must pay, and
insurers must collect, the Federal
terrorism policy surcharge for
remittance to Treasury.
(f) Attorney-in-fact means a person or
entity appointed by the subscribers or
members of a reciprocal insurer to act
for and bind the reciprocal insurer
under relevant state law for the benefit
of its subscribers or members.
(g) Captive insurer means an insurer
licensed under the captive insurance
laws or regulations of any state.
(h) Direct earned premium means
direct earned premium for all property
and casualty insurance issued by any
insurer for insurance against all losses,
including losses from an act of
terrorism, occurring at the locations
described in section 102(5)(A) and (B) of
the Act.
(1) State-licensed or admitted
insurers. For a state licensed or
admitted insurer that reports to the
NAIC, direct earned premium is the
premium information for property and
casualty insurance reported by the
insurer on column 2 of the Exhibit of
Premiums and Losses of the NAIC
Annual Statement (commonly known as
Statutory Page 14).
(i) Premium information as reported
to state regulators through the NAIC
should be included in the calculation of
direct earned premiums for purposes of
the Program only to the extent it reflects
premiums for property and casualty
insurance issued by the insurer against
losses occurring at the locations
described in section 102(5)(A) and (B) of
the Act.
(ii) Premiums for personal property
and casualty lines of insurance
(insurance primarily designed to cover
personal, family or household risk
exposures, with the exception of
insurance written to insure 1 to 4 family
rental dwellings owned for the business
purpose of generating income for the
property owner), or premiums for any
other insurance coverage that does not
meet the definition of property and
casualty insurance, should be excluded
in the calculation of direct earned
premiums for purposes of the Program.
(iii) Personal property and casualty
lines of insurance coverage that
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includes incidental coverage for
commercial purposes are primarily
personal coverage, and therefore
premiums may be fully excluded by an
insurer from the calculation of direct
earned premium. For purposes of this
section, commercial coverage is
incidental if less than 25 percent of the
total direct earned premium is
attributable to commercial coverage.
Property and casualty insurance against
losses occurring at locations other than
the locations described in section
102(5)(A) and (B) of the Act, or other
insurance coverage that does not meet
the definition of property and casualty
insurance, but that includes incidental
coverage for commercial risk exposures
at such locations, is primarily not
commercial, and therefore premiums for
such insurance may also be fully
excluded by an insurer from the
calculation of direct earned premium.
For purposes of this section, property
and casualty insurance for losses
occurring at the locations described in
section 102(5)(A) and (B) of the Act is
incidental if less than 25 percent of the
total direct earned premium for the
insurance policy is attributable to
coverage at such locations. Also for
purposes of this section, coverage for
commercial risk exposures is incidental
if it is combined with coverages that
otherwise do not meet the definition of
property and casualty insurance and
less than 25 percent of the total direct
earned premium for the insurance
policy is attributable to the coverage for
commercial risk exposures.
(iv) If an insurance policy covers both
commercial and personal property and
casualty exposures, insurers may
allocate the premiums in accordance
with the proportion of risk between
commercial and personal components
in order to ascertain direct earned
premium. If a policy includes insurance
coverage that meets the definition of
property and casualty insurance for
losses occurring at the locations
described in section 102(5)(A) and (B) of
the Act, but also includes other
coverage, insurers may allocate the
premiums in accordance with the
proportion of risk attributable to the
components in order to ascertain direct
earned premium.
(2) Insurers that do not report to
NAIC. An insurer that does not report to
the NAIC, but that is licensed or
admitted by any state (such as certain
farm or county mutual insurers), should
use the guidance provided in paragraph
(h)(1) of this section to assist in
ascertaining its direct earned premium.
(i) Direct earned premium may be
ascertained by adjusting data
maintained by such insurer or reported
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by such insurer to its state regulator to
reflect a breakdown of premiums for
commercial and personal property and
casualty exposure risk as described in
paragraph (h)(1) of this section and, if
necessary, re-stated to reflect the accrual
method of determining direct earned
premium versus direct premium.
(ii) Such an insurer should consider
other types of payments that
compensate the insurer for risk of loss
(contributions, assessments, etc.) as part
of its direct earned premium.
(3) Certain eligible surplus line carrier
insurers. An eligible surplus line carrier
insurer listed on the NAIC Quarterly
Listing of Alien Insurers must ascertain
its direct earned premium by pricing
separately its premium for insurance
that meets the definition of property and
casualty insurance for losses occurring
at the locations described in section
102(5)(A) and (B) of the Act.
(4) Federally approved insurers. A
federally approved insurer, defined
under section 102(6)(A)(iii) of the Act,
should use a methodology similar to
that specified for eligible surplus line
carrier insurers in paragraph (h)(3) of
this section to calculate its direct earned
premium. Such calculation should be
adjusted to reflect the limitations on
scope of insurance coverage under the
Program (i.e., to the extent of Federal
approval of property and casualty
insurance in connection with maritime,
energy or aviation activities).
(i) Direct written premium means the
premium information for property and
casualty insurance that is included by
an insurer in column 1 of the Exhibit of
Premiums and Losses of the NAIC
Annual Statement or in an equivalent
reporting requirement. The Federal
terrorism policy surcharge is not
included in amounts reported as direct
written premium.
(j) Discretionary recoupment amount
means such amount of the aggregate
Federal share of compensation in excess
of the mandatory recoupment amount
that the Secretary has determined will
be recouped pursuant to section
103(e)(7)(D) of the Act.
(k) Federal Insurance Office means
the Federal Insurance Office within the
U.S. Department of the Treasury.
(l) Federal terrorism policy surcharge
means the amount established by
Treasury under Subpart J of this Part
that is imposed as a policy surcharge on
property and casualty insurance
policies, expressed as a percentage of
the written premium.
(m) Insurance marketplace aggregate
retention amount means an amount for
a calendar year as calculated under
section 103(e)(6) of the Act.
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(1) For calendar years beginning with
2015 through 2019, such amount is the
lesser of the aggregate amount, for all
insurers, of insured losses once there
has been a Program Trigger Event during
the calendar year and:
(i) For calendar year 2015:
$29,500,000,000;
(ii) For calendar year 2016:
$31,500,000,000;
(iii) For calendar year 2017:
$33,500,000,000;
(iv) For calendar year 2018:
$35,500,000,000; and
(v) For calendar year 2019:
$37,500,000,000.
(2) For calendar years beginning with
2020 and any calendar year thereafter as
may be necessary, such amount is the
lesser of the aggregate amount, for all
insurers, of insured losses once there
has been a Program Trigger Event during
the calendar year and the annual
average of the sum of insurer
deductibles for all insurers for the prior
3 years, to be calculated by taking
(i) the total amount of direct earned
premium reported by insurers to
Treasury pursuant to section 50.51 for
the three calendar years prior to the
calendar year in question, and then
dividing that figure by three; and
(ii) Multiplying the resulting threeyear average figure by 20%.
(3) Beginning in 2020, Treasury shall
publish in the Federal Register the
insurance marketplace aggregate
retention amount for that calendar year
no later than April 30, 2020, and by
every April 30 thereafter for any
subsequent calendar years as necessary.
To the extent the Secretary certifies an
act as an act of terrorism prior to April
30 of any calendar year after 2019,
Treasury will publish the relevant
insurance marketplace aggregate
retention amount as soon as practicable
thereafter.
(n) Insured loss. (1) The term insured
loss means any loss resulting from an
act of terrorism (including an act of war,
in the case of workers’ compensation)
that is covered by primary or excess
property and casualty insurance issued
by an insurer if the loss:
(i) Occurs within the United States;
(ii) Occurs to an air carrier (as defined
in 49 U.S.C. 40102), or to a United
States flag vessel (or a vessel based
principally in the United States, on
which United States income tax is paid
and whose insurance coverage is subject
to regulation in the United States),
regardless of where the loss occurs;
however, to the extent a loss occurs to
such an air carrier or vessel outside the
United States, the insured loss does not
include losses covered by third party
insurance contracts that are separate
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from the insurance coverage provided to
the air carrier or vessel; or
(iii) Occurs at the premises of any
United States mission.
(2) The term insured loss includes
reasonable loss adjustment expenses,
incurred by an insurer in connection
with insured losses, that are allocated
and identified by claim file in insurer
records, including expenses incurred in
the investigation, adjustment, and
defense of claims, but excluding staff
salaries, overhead, and other insurer
expenses that would have been incurred
notwithstanding the insured loss.
(3) The term insured loss does not
include:
(i) Punitive or exemplary damages
awarded or paid in connection with the
Federal cause of action specified in
section 107(a)(1) of the Act. The term
‘‘punitive or exemplary damages’’
means damages that are not
compensatory but are an award of
money made to a claimant solely to
punish or deter; or
(ii) Extra-contractual damages
awarded against, or paid by, an insurer;
or
(iii) Payments by an insurer in excess
of policy limits.
(o) Insurer means any entity,
including any affiliate of the entity, that
meets the following requirements:
(1)(i) The entity must fall within at
least one of the following categories:
(A) It is licensed or admitted to
engage in the business of providing
primary or excess insurance in any state
(including, but not limited to, state
licensed captive insurance companies,
state licensed or admitted risk retention
groups, and state licensed or admitted
farm and county mutuals) and, if a joint
underwriting association, pooling
arrangement, or other similar entity,
then the entity must:
(1) Have gone through a process of
being licensed or admitted to engage in
the business of providing primary or
excess insurance that is administered by
the state’s insurance regulator, which
process generally applies to insurance
companies or is similar in scope and
content to the process applicable to
insurance companies;
(2) Be generally subject to State
insurance regulation, including
financial reporting requirements,
applicable to insurance companies
within the State; and
(3) Be managed independently from
other insurers participating in the
program;
(B) It is not licensed or admitted to
engage in the business of providing
primary or excess insurance in any
state, but is an eligible surplus line
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carrier listed on the NAIC Quarterly
Listing of Alien Insurers;
(C) It is approved or accepted for the
purpose of offering property and
casualty insurance by a Federal agency
in connection with maritime, energy, or
aviation activity, but only to the extent
of such Federal approval of property
and casualty insurance coverage offered
by the insurer in connection with
maritime, energy, or aviation activity;
(D) It is a state residual market
insurance entity or state workers’
compensation fund; or
(E) As determined by the Secretary, it
falls within any of the classes or types
of captive insurers or other selfinsurance arrangements by
municipalities and other entities.
(ii) If an entity falls within more than
one category described in paragraph
(o)(1)(i) of this section, the entity is
considered to fall within the first
category within which it falls for
purposes of the program.
(2) The entity must receive direct
earned premium, except in the case of:
(i) State residual market insurance
entities and state workers’
compensation funds, to the extent
provided in subpart D of this part; and
(ii) Other classes or types of captive
insurers and other self-insurance
arrangements by municipalities and
other entities to the extent provided for
in subpart E of this part.
(3) The entity must meet any other
criteria as prescribed by Treasury.
(p) Insurer deductible means:
(1) For an insurer that has had a full
year of operations during the calendar
year immediately preceding the
applicable calendar year, the value of an
insurer’s direct earned premiums during
the immediately preceding calendar
year, multiplied by 20 percent; and
(2) For an insurer that has not had a
full year of operations during the
immediately preceding calendar year,
the insurer deductible will be based on
data for direct earned premiums for the
applicable calendar year multiplied by
20 percent. If the insurer does not have
a full year of operations during the
applicable calendar year, the direct
earned premiums for the applicable
calendar year will be annualized to
determine the insurer deductible.
(q) Mandatory recoupment amount
means the difference between the
insurance marketplace aggregate
retention amount for a calendar year
and the uncompensated insured losses
during such calendar year.
(r) NAIC means the National
Association of Insurance
Commissioners.
(s) Person means any individual,
business or nonprofit entity (including
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those organized in the form of a
partnership, limited liability company,
corporation, or association), trust or
estate, or a State or political subdivision
of a state or other governmental unit.
(t) Professional liability insurance
means insurance coverage for liability
arising out of the performance of
professional or business duties related
to a specific occupation, with coverage
being tailored to the needs of the
specific occupation. Examples include
abstracters, accountants, insurance
adjusters, architects, engineers,
insurance agents and brokers, lawyers,
real estate agents, stockbrokers, and
veterinarians. For purposes of this
definition, professional liability
insurance does not include directors
and officers liability insurance.
(u) Program means the Terrorism Risk
Insurance Program established by the
Act.
(v) Program Trigger Event means a
certified act of terrorism within a
calendar year that results in aggregate
industry insured losses, either on its
own or in combination with any other
certified act(s) of terrorism having
previously taken place in the same
calendar year, exceeding:
(1) $100,000,000 with respect to
calendar year 2015 insured losses;
(2) $120,000,000 with respect to
calendar year 2016 insured losses;
(3) $140,000,000 with respect to
calendar year 2017 insured losses;
(4) $160,000,000 with respect to
calendar year 2018 insured losses;
(5) $180,000,000 with respect to
calendar year 2019 insured losses; or
(6) $200,000,000 with respect to
calendar year 2020 insured losses and
with respect to any calendar year
thereafter.
(w) Property and casualty insurance
means commercial lines of property and
casualty insurance, including excess
insurance, workers’ compensation
insurance, and directors and officers
liability insurance, and:
(1) Means commercial lines within
only the following lines of insurance
from the NAIC’s Exhibit of Premiums
and Losses (commonly known as
Statutory Page 14): Line 1—Fire; Line
2.1—Allied Lines; Line 5.1—
Commercial Multiple Peril (non-liability
portion); Line 5.2—Commercial
Multiple Peril (liability portion); Line
8—Ocean Marine; Line 9—Inland
Marine; Line 16—Workers’
Compensation; Line 17—Other Liability;
Line 18—Products Liability; Line 22—
Aircraft (all perils); and Line 27—Boiler
and Machinery; and
(2) Does not include:
(i) Federal crop insurance issued or
reinsured under the Federal Crop
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Insurance Act (7 U.S.C. 1501 et seq.), or
any other type of crop or livestock
insurance that is privately issued or
reinsured (including crop insurance
reported under either Line 2.1—Allied
Lines or Line 2.2—Multiple Peril (Crop)
of the NAIC’s Exhibit of Premiums and
Losses (commonly known as Statutory
Page 14);
(ii) Private mortgage insurance (as
defined in section 2 of the Homeowners
Protection Act of 1998) (12 U.S.C. 4901)
or title insurance;
(iii) Financial guaranty insurance
issued by monoline financial guaranty
insurance corporations;
(iv) Insurance for medical
malpractice;
(v) Health or life insurance, including
group life insurance;
(vi) Flood insurance provided under
the National Flood Insurance Act of
1968 (42 U.S.C. 4001 et seq.) or
earthquake insurance reported under
Line 12 of the NAIC’s Exhibit of
Premiums and Losses (commonly
known as Statutory Page 14);
(vii) Reinsurance or retrocessional
reinsurance;
(viii) Commercial automobile
insurance, including insurance reported
under Lines 19.3 (Commercial Auto NoFault (personal injury protection)), 19.4
(Other Commercial Auto Liability) and
21.2 (Commercial Auto Physical
Damage) of the NAIC’s Exhibit of
Premiums and Losses (commonly
known as Statutory Page 14);
(ix) Burglary and theft insurance,
including insurance reported under
Line 26 (Burglary and Theft) of the
NAIC’s Exhibit of Premiums and Losses
(commonly known as Statutory Page
14);
(x) Surety insurance, including
insurance reported under Line 24
(Surety) of the NAIC’s Exhibit of
Premiums and Losses (commonly
known as Statutory Page 14);
(xi) Professional liability insurance as
defined in paragraph (t) of this section;
or
(xii) Farm owners multiple peril
insurance, including insurance reported
under Line 3 (Farmowners Multiple
Peril) of the NAIC’s Exhibit of Premiums
and Losses (commonly known as
Statutory Page 14).
(x) Reciprocal insurer means an
insurer organized under relevant state
law as a reciprocal or interinsurance
exchange.
(y) Secretary means the Secretary of
the U.S. Department of the Treasury.
(z) Small insurer means an insurer (or
an affiliated group of insurers in the
case of affiliates within the meaning of
paragraph (c) of this section) whose
policyholder surplus for the
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18963
immediately preceding year is less than
five times the Program Trigger amount
for the current year and whose direct
earned premium for the preceding year
is also less than five times the Program
Trigger amount for the current year. An
insurer that has not had a full year of
operations during the immediately
preceding calendar year is a small
insurer if its policyholder surplus in the
current year is less than five times the
Program Trigger amount for the current
year. A captive insurer is not a small
insurer, regardless of the size of its
policyholder surplus or direct earned
premium.
(aa) State means any state of the
United States, the District of Columbia,
the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana
Islands, American Samoa, Guam, each
of the United States Virgin Islands, and
any territory or possession of the United
States.
(bb) Surcharge means the Federal
terrorism policy surcharge as defined in
paragraph (l) of this section.
(cc) Surcharge effective date means
the date established by Treasury that
begins the assessment period.
(dd) Treasury means the U.S.
Department of the Treasury.
(ee) Uncompensated insured losses
means the aggregate amount of insured
losses of all insurers in a calendar year,
once there has been a Program Trigger
Event, that is not compensated by the
Federal Government because such
losses:
(1) Are within the insurer deductibles
of insurers, or
(2) Are within the portions of losses
in excess of insurer deductibles that are
not compensated through payments
made as a result of claims for the
Federal share of compensation.
(ff) United States means the several
states, and includes the territorial sea
and the continental shelf of the United
States, as those terms are defined in the
Violent Crime Control and Law
Enforcement Act of 1994 (18 U.S.C.
2280 and 2281).
§ 50.5
Rule of construction for dates.
Unless otherwise expressly provided
in the regulation, any date in these
regulations is intended to be applied so
that the day begins at 12:01 a.m. and
ends at midnight on that date.
§ 50.6 Special rules for Interim Guidance
safe harbors.
(a) An insurer will be deemed to be
in compliance with the requirements of
the Act to the extent the insurer
reasonably relied on Interim Guidance
prior to the effective date of applicable
regulations.
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(b) For purposes of this section,
Interim Guidance means the following
documents, which are also available
from Treasury at https://www.treasury.
gov/resource-center/fin-mkts/Pages/
program.aspx:
(1) Interim Guidance I issued by
Treasury on December 3, 2002, and
published at 67 FR 76206 (December 11,
2002);
(2) Interim Guidance II issued by
Treasury on December 18, 2002, and
published at 67 FR 78864 (December 26,
2002);
(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);
(5) Interim Guidance V issued by
Treasury on December 31, 2007, and
published at 73 FR 5264 (Jan. 29, 2008).
(6) Interim Guidance VI issued by
Treasury on February 4, 2015, and
published at 80 FR 6656 (February 6,
2015).
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§ 50.7 Procedure for requesting
determinations of controlling influence.
(a) An insurer or insurers not having
control over another insurer under
§ 50.4(c)(2)(i) or (ii) may make a written
submission to Treasury to rebut a
presumption of controlling influence
under § 50.4(c)(4)(i) through (iv) or
otherwise to request a determination of
controlling influence. Such submissions
shall be made to the Terrorism Risk
Insurance Program Office, Department
of the Treasury, Room 1410, 1500
Pennsylvania Ave. NW., Washington,
DC 20220. The submission should be
entitled, ‘‘Controlling Influence
Submission,’’ and should provide the
full name and address of the submitting
insurer(s) and the name, title, address
and telephone number of the designated
contact person(s) for such insurer(s).
(b) Treasury will review submissions
and determine whether Treasury needs
additional written or orally presented
information. In its discretion, Treasury
may schedule a date, time, and place for
an oral presentation by the insurer(s).
(c) An insurer or insurers must
provide all relevant facts and
circumstances concerning the
relationship(s) between or among the
affected insurers and the control factors
in § 50.4(c)(4)(i) through (iv); and must
explain in detail any basis for why the
insurer believes that no controlling
influence exists (if a presumption is
being rebutted) in light of the particular
facts and circumstances, as well as the
Act’s language, structure and purpose.
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Any confidential business or trade
secret information submitted to
Treasury should be clearly marked.
Treasury will handle any subsequent
request for information designated by an
insurer as confidential business or trade
secret information in accordance with
Treasury’s Freedom of Information Act
regulations at 31 CFR part 1.
(d) Treasury will review and consider
the insurer submission and other
relevant facts and circumstances. Unless
otherwise extended by Treasury, within
60 days after receipt of a complete
submission, including any additional
information requested by Treasury, and
including any oral presentation,
Treasury will issue a final
determination of whether one insurer
has a controlling influence over another
insurer for purposes of the Program. The
determination shall set forth Treasury’s
basis for its determination.
(Approved by the Office of
Management & Budget under control
number 1505–0190.)
§ 50.8 Procedure for requesting general
interpretations of statute.
Persons actually or potentially
affected by the Act or regulations in this
Part may request an interpretation of the
Act or regulations by writing to the
Terrorism Risk Insurance Program
Office, Room 1410, Department of the
Treasury, 1500 Pennsylvania Ave. NW.,
Washington, DC 20220, giving a detailed
explanation of the facts and
circumstances and the reason why an
interpretation is needed. A requester
should segregate and mark any
confidential business or trade secret
information clearly. Treasury in its
discretion will provide written
responses to requests for interpretation.
Treasury reserves the right to decline to
provide a response in any case. Except
in the case of any confidential business
or trade secret information, Treasury
will make written requests for
interpretations and responses publicly
available at the Treasury Department
Library, on the Treasury Web site, or
through other means as soon as
practicable after the response has been
provided. Treasury will handle any
subsequent request for information that
had been designated by a requester as
confidential business or trade secret
information in accordance with
Treasury’s Freedom of Information Act
regulations at 31 CFR part 1.
Subpart B—Disclosures as Conditions
for Federal Payment
§ 50.10
General disclosure requirements.
(a) Content of disclosure. As a
condition for Federal payments under
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section 103(b) of the Act, the Act
requires that an insurer provide clear
and conspicuous disclosure to the
policyholder of:
(1) The premium charged for insured
losses covered by the Program; and
(2) The Federal share of compensation
for insured losses under the Program.
(b) Form and timing of disclosure. The
disclosure required by the Act must be
made on a separate line item in the
policy, at the time of offer and of
renewal of the policy.
§ 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 § 50.10.
The term ‘‘cap disclosure’’ refers to the
disclosure required by section 103(b)(3)
of the Act and § 50.15.
§ 50.12
Clear and conspicuous disclosure.
(a) General. Whether a disclosure is
clear and conspicuous depends on the
totality of the facts and circumstances of
the disclosure. See § 50.16 for model
forms.
(b) Description of premium. An
insurer may describe the premium
charged for insured losses covered by
the Program as a portion or percentage
of an annual premium, if consistent
with standard business practice and
provided that the amount of annual
premium or the method of determining
the annual premium is also stated. An
insurer may not describe the premium
in a manner that is misleading in the
context of the Program, such as by
characterizing the premium as a
‘‘surcharge.’’
(c) Method of disclosure. Subject to
§ 50.10(b), an insurer may provide
disclosures using normal business
practices, including forms and methods
of communication used to communicate
similar policyholder information to
policyholders.
(d) Use of producer. If an insurer
normally communicates with a
policyholder through an insurance
producer or other intermediary, an
insurer may provide disclosures through
such producer or other intermediary. If
an insurer elects to make the disclosures
through an insurance producer or other
intermediary, the insurer remains
responsible for ensuring that the
disclosures are provided by the
insurance producer or other
intermediary to policyholders in
accordance with the Act.
(e) Demonstration of compliance. An
insurer may demonstrate that it has
satisfied the requirement to provide
clear and conspicuous disclosure as
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described in § 50.10 through use of
appropriate systems and normal
business practices that demonstrate a
practice of compliance.
(f) Certification of compliance. An
insurer must certify that it has complied
with the requirement to provide
disclosure to the policyholder on all
policies that form the basis for any
claim that is submitted by an insurer for
Federal payment under the Program.
§ 50.13
Offer and renewal.
An insurer is deemed to be in
compliance with the requirement of
providing disclosure ‘‘at the time of
offer and of renewal of the policy’’
under § 50.10(b) if the insurer makes the
disclosure no later than the time the
insurer first formally offers to provide
insurance coverage or renew a policy for
a current policyholder.
§ 50.14
Separate line item.
An insurer is deemed to be in
compliance with the requirement of
providing disclosure on a ‘‘separate line
item in the policy’’ under § 50.10(b) if
the insurer makes the disclosure:
(a) On the declarations page of the
policy;
(b) Elsewhere within the policy itself;
or
(c) In any rider or endorsement, or
other document that is made a part of
the policy.
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§ 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
calendar 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, 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) Offer, purchase, and renewal. An
insurer is deemed to be in compliance
with the requirement of providing
disclosure ‘‘at the time of offer,
purchase, and renewal of the policy’’
under § 50.15(b) if the insurer:
(1) Makes the disclosure no later than
the time the insurer first formally offers
to provide insurance coverage or renew
a policy for a current policyholder; and
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(2) If terrorism risk coverage is
purchased, the insurer makes clear and
conspicuous reference back to that
disclosure, as well as the final terms of
terrorism insurance coverage, at the
time the transaction is completed.
(d) Other applicable rules. The cap
disclosure is covered by the rules in
§ 50.12(a), (c), (d), (e), and (f) (relating to
clear and conspicuous disclosure).
met rests with the insurer filing a claim
under the Program.
(b) Other requirements. Except as
provided in this section, all other
disclosure requirements set out in this
subpart B apply to state residual
insurance market entities and state
workers’ compensation funds.
§ 50.16
§ 50.20 General mandatory availability
requirements.
Use of model forms.
(a) General. An insurer that is
required to make the disclosure under
§ 50.10(b) or § 50.15(b) is deemed to be
in compliance with the disclosure
requirements if the insurer uses NAIC
Model Disclosure Form No. 1 or NAIC
Model Disclosure Form No. 2, as
appropriate.
(b) Not exclusive means of
compliance. An insurer is not required
to use NAIC Model Disclosure Form No.
1 or NAIC Model Disclosure Form No.
2 to satisfy the disclosure requirements.
An insurer may use other means to
comply with the disclosure
requirements, as long as the disclosures
comport with the requirements of the
Act.
(c) Definitions. For purposes of this
section, references to NAIC Model
Disclosure Form No. 1 and NAIC Model
Disclosure Form No. 2 refer to such
forms as revised in January 2015, or as
subsequently modified by the NAIC,
provided Treasury has stated that usage
by insurers of the subsequently
modified forms is deemed to satisfy the
disclosure requirements of the Act and
the insurer uses the most current forms,
so approved by Treasury, that are
available at the time of disclosure.
These forms may be found on the
Treasury Web site at https://
www.treasury.gov/resource-center/finmkts/Pages/program.aspx.
§ 50.17 General disclosure requirements
for State residual market insurance entities
and State workers’ compensation funds.
(a) Residual market mechanism
disclosure. A state residual market
insurance entity or state workers’
compensation fund may provide the
disclosures required by this subpart B to
policyholders using normal business
practices, including forms and methods
of communication used to communicate
similar information to policyholders.
The disclosures may be made by the
state residual market insurance entity or
state workers’ compensation fund itself,
the individual insurers that participate
in the state residual market insurance
entity or state workers’ compensation
fund, or its servicing carriers. The
ultimate responsibility for ensuring that
the disclosure requirements have been
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Subpart C—Mandatory Availability
(a) General requirements. Under
section 103(c) of the Act, an insurer
must:
(1) Make available, in all of its
property and casualty insurance
policies, coverage for insured losses;
and
(2) Make available property and
casualty insurance 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.
(b) Compliance through 2020. Under
section 108(a) of the Act, an insurer
must comply with paragraphs (a)(1) and
(2) of this section through calendar year
2020.
(c) Beyond 2020. Notwithstanding
paragraph (a)(2) of this section and
§ 50.22(a), property and casualty
insurance coverage for insured losses
does not have to be made available
beyond December 31, 2020, even if the
policy period of insurance coverage for
losses from events other than acts of
terrorism extends beyond that date.
§ 50.21
Make available.
(a) General. The requirement to make
available coverage as provided in
§ 50.20 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 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 defined in
§ 50.4(b).
(c) Changes negotiated subsequent to
initial offer. If an insurer satisfies the
requirement to make available coverage
as described in § 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 or prospective
policyholder declines, the insurer may
negotiate with the policyholder or
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prospective 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 or
prospective policyholder declines full
coverage. See § 50.23.
(d) Demonstrations of compliance. 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
§ 50.20 through use of appropriate
systems and normal business practices
that demonstrate a practice of
compliance.
§ 50.22 No Material difference from other
coverage.
(a) Terms, amounts, and other
coverage limitations. As provided in
§ 50.20(a)(2), an insurer must offer
coverage for insured losses arising from
an act of terrorism that does not differ
materially from the terms, amounts, and
other coverage limitations (including
deductibles) applicable to losses arising
from events other than acts of terrorism.
For purposes of this requirement,
‘‘terms’’ excludes price.
(b) Limitations on types of risk. An
insurer is not required to cover risks
that it typically excludes or does not
write to satisfy the requirement to make
available coverage for losses resulting
from an act of terrorism that does not
differ materially from the terms,
amounts, and other coverage limitations
applicable to losses arising from events
other than acts of terrorism. For
example, if an insurer does not cover all
types of risks, either because the insurer
is outside of direct state regulatory
oversight, or because a state permits
certain exclusions for certain types of
losses, such as nuclear, biological, or
chemical events, then the insurer is not
required to make such coverage
available.
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§ 50.23 Applicability of State law
requirements.
(a) General. After satisfying the
requirement to make available 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, if coverage is rejected
an insurer may then offer coverage that
is on different terms, amounts, or
coverage limitations, as long as such an
offer does not violate any applicable
state law requirements.
(b) Examples. (1) If an insurer subject
to state regulation first makes available
coverage in accordance with § 50.20 and
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the state has a requirement that an
insurer offer full coverage without any
exclusion, then the requirement would
continue to apply and the insurer may
not subsequently offer less than full
coverage or coverage with exclusions.
(2) If an insurer subject to state
regulation first makes available coverage
in accordance with § 50.20 and the state
permits certain exclusions or allows for
other limitations, or an insurance policy
is not governed by state law
requirements, then the insurer may
subsequently offer limited coverage or
coverage with exclusions.
Subpart D—State Residual Market
Insurance Entities; State Workers’
Compensation Funds
§ 50.30 General participation
requirements.
(a) Insurers. As defined in § 50.4(o),
all state residual market insurance
entities and state workers’
compensation funds are insurers under
the Program even if such entities do not
receive direct earned premiums.
(b) Mandatory participation. State
residual market insurance entities and
State workers’ compensation funds are
mandatory participants in the Program
subject to the rules issued in this
Subpart.
(c) Identification. Treasury maintains
a list of state residual market insurance
entities and state workers’
compensation funds at https://
www.treasury.gov/resource-center/finmkts/Pages/program.aspx. Procedures
for providing comments and updates to
that list are posted with the list.
§ 50.31 Entities that do not share profits
and losses with private sector insurers.
(a) Treatment. A state residual market
insurance entity or a state workers’
compensation fund that does not share
profits and losses with a private sector
insurer is deemed to be a separate
insurer under the Program.
(b) Premium calculation. A state
residual market insurance entity or a
state workers’ compensation fund that is
deemed to be a separate insurer should
follow the guidelines specified in
§ 50.4(h)(1) or (2) for the purposes of
calculating the appropriate measure of
direct earned premium.
§ 50.32 Entities that share profits and
losses with private sector insurers.
(a) Treatment. A State residual market
insurance entity or a State workers’
compensation fund that shares profits
and losses with a private sector insurer
is deemed not to be a separate insurer
under the Program.
(b) Premium and loss calculation. A
state residual market insurance entity or
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a State workers’ compensation fund that
is deemed not to be a separate insurer
should continue to report, in accordance
with normal business practices, to each
participant insurer its share of premium
income and insured losses, which shall
then be included respectively in the
participant insurer’s direct earned
premium or insured loss calculations.
§ 50.33 Allocation of premium income
associated with entities that do share
profits and losses with private sector
insurers.
(a) Servicing carriers. For purposes of
this subpart, a servicing carrier is an
insurer that enters into an agreement to
place and service insurance contracts
for a state residual market insurance
entity or a state workers’ compensation
fund and to cede premiums associated
with such insurance contracts to the
State residual market insurance entity or
State workers’ compensation fund.
Premiums written by a servicing carrier
on behalf of a state residual market
insurance entity or State workers’
compensation fund that are ceded to
such an entity or fund shall not be
included as direct earned premium (as
described in § 50.4(h)(1) or (2)) of the
servicing carrier.
(b) Participant insurers. For purposes
of this Subpart, a participant insurer is
an insurer that shares in the profits and
losses of a state residual market
insurance entity or a state workers’
compensation fund. Premium income
that is distributed to or assumed by
participant insurers in a state residual
market insurance entity or state
workers’ compensation fund (whether
directly or as quota share insurers of
risks written by servicing carriers), shall
be included in direct earned premium
(as described in § 50.4(h)(1) or (2)) of the
participant insurer.
Subpart E—Self-Insurance
Arrangements; Captives [Reserved].
Subpart F—Data Collection
§ 50.50
General.
Treasury may request from insurers
such data and information as may be
reasonably required in support of
Treasury’s administration of the
Program.
§ 50.51
Annual data reporting.
(a) General. No later than March 1 of
each calendar year, all insurers shall
provide specified data and information
respecting their Program participation.
(b) Scope. The information to be
provided shall address: The lines of
property and casualty insurance subject
to the Program, the premiums earned for
terrorism risk insurance within those
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lines and for those lines generally, the
geographical location of exposures
covered under terrorism risk insurance,
the pricing of terrorism risk insurance,
the take-up rate for terrorism risk
insurance, the amount of private
reinsurance obtained by participating
insurers in connection with such
policies, and other matters concerning
the Program as may be identified by
Treasury.
(c) Method of reporting. (1) Treasury
will promulgate forms defining the
specific data and information that each
insurer must submit and make these
forms available on its Web site. Each
insurer shall submit the required data
and information by electronic
submission through the forms and data
portal(s) identified on Treasury’s Web
site. All data and information provided
as part of such electronic submission
shall be certified by the insurer as a full
and true statement of the information
provided to the best of its knowledge,
information and belief.
(2) The data and information required
to be provided under this subsection
may be modified annually by Treasury.
Any modification shall be made during
the prior calendar year, and Treasury
shall provide insurers at least 90 days
before requiring collection of any newly
specified data or information.
(d) Supplemental requests. Treasury
may issue supplemental requests, to
some or all participating insurers, in
connection with the annual data request
provided for under this section, to the
extent Treasury determines that it
requires additional or clarifying
information in order to analyze the
effectiveness of the Program. Insurers
shall respond to any such supplemental
requests as may be made within the
timeframe and in the manner specified
by Treasury.
(e) Small insurer exception. The
Secretary may exempt a small insurer
that meets the definition in § 50.4(z)
from any or all data calls under this
section, or may modify the requests as
applicable to such small insurer.
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§ 50.52
Small insurer data.
(a) General. The Secretary may collect
information relating to small insurers, as
defined in § 50.4(z), in order to conduct
a study of small insurers participating in
the Program, and identify any
competitive challenges small insurers
face in the terrorism risk insurance
marketplace.
(b) Scope. Information collected
concerning small insurers may include
information necessary for Treasury to
identify:
(1) Changes to the market share,
premium volume, and policyholder
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surplus of small insurers relative to
large insurers;
(2) How the property and casualty
insurance market for terrorism risk
differs between small and large insurers,
and whether such a difference exists
within other perils;
(3) The impact on small insurers of
the Program’s mandatory availability
requirement under section 103(c) of the
Act;
(4) The effect on small insurers of
increasing the trigger amount for the
Program under section 103(e)(1)(B) of
the Act;
(5) The availability and cost of private
reinsurance for small insurers; and
(6) The impact that state workers
compensation laws have on small
insurers and workers compensation
carriers in the terrorism risk insurance
marketplace.
§ 50.53
Collection of claims data.
(a) General. Subsequent to any
certification by the Secretary of an act
of terrorism, insurers shall report to
Treasury information respecting insured
losses arising from the act of terrorism.
(b) Contents of periodic reporting.
Reporting under this subsection shall be
by a form prescribed by Treasury and
made available on the Treasury Web
site, which provides basic information
about each claim established by an
insurer that involves or potentially
involves an insured loss. Information to
be reported for any claims by or against
a policyholder shall identify paid and
reserved amounts associated with the
claim. In the case of an affiliated group
of insurers, the form required by this
subsection shall be submitted by a
single insurer designated within the
affiliated group, which shall report on a
consolidated basis. Data and
information reported under this
subsection will include:
(1) A listing of each claim by name of
insured, catastrophe code, line of
business, and in the case of an affiliated
group of insurers, the particular insurer
or insurers within the group associated
with each claim;
(2) Amounts paid, both loss and loss
adjustment expenses, in connection
with the claim as of the effective date of
the report; and
(3) Amounts reserved, both loss and
loss adjustment expenses, in connection
with the claim as of the effective date of
the report.
(c) Timing of reporting. To the extent
that an insurer has established one or
more claims that it believes involve
insured losses arising from an act of
terrorism, the insurer shall submit its
first report within 60 days of
establishing the first of such claims. An
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updated report shall be submitted each
month thereafter, reporting data as of
the prior month, until all claims arising
from the act of terrorism have been
resolved.
(d) Interrelationship with other
reporting requirements. The reporting
requirements under this subsection are
independent of the Initial Notice of
Deductible Erosion, Initial Certification
of Loss, and Supplementary
Certifications of Loss requirements in
subpart H.
(e) Other sources of information.
Subsequent to any certification of an act
of terrorism, Treasury may also seek
information respecting loss estimates
and projections from one or more
organizations that are not participants in
the Program, such as state insurance
regulators, insurance modeling
organizations, rating agencies, insurance
brokers and producers, and insurance
data aggregators. A data request may
also be directed to insurers identified in
connection with such inquiries. An
insurer subject to such a data call shall
respond to this request within the time
frame specified in the request.
§ 50.54
Handling of data.
(a) General. All nonpublic
information submitted to the Secretary
under subparts F and G of this part shall
be considered proprietary information
and shall:
(1) Be handled and stored by Treasury
in an appropriately secure manner;
(2) Be considered, where appropriate,
to be trade secrets or commercial or
financial information obtained from a
person and privileged or confidential;
and
(3) Not be publicly released in any
unaggregated form in which a
consumer, policyholder, or insurer is
identifiable.
(b) Confidentiality. (1) The
submission of any non-publicly
available data and information to the
Secretary under subparts F and G of this
part, and the sharing of any nonpublicly available data with or by the
Secretary among other Federal agencies,
the state insurance regulatory
authorities, or any other entities shall
not constitute a waiver of, or otherwise
affect, any privilege or immunity arising
under Federal or state law (including
the rules of any Federal or state court)
to which the data or information is
otherwise subject.
(2) Any requirement under Federal or
state law to the extent otherwise
applicable, or any requirement pursuant
to a written agreement in effect between
the original source of any non-publicly
available data or information and the
source of such data or information to the
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Secretary, regarding privacy or
confidentiality of any data or
information in the possession of the
source to the Secretary, shall continue
to apply to such data or information
after the data or information has been
provided pursuant to this Subpart.
(3) Any data or information obtained
by the Secretary under subparts F or G
of this part may be made available to
state insurance regulatory authorities,
individually or collectively through an
information-sharing agreement that:
(i) Shall comply with applicable
Federal law; and
(ii) Shall not constitute a waiver of, or
otherwise affect, any privilege or
immunity under Federal or state law
(including any privilege referred to in
paragraph (b)(1) of this section and the
rules of any Federal or State court) to
which the data or information is
otherwise subject.
(4) Section 552 of title 5, United
States Code, including any exceptions
thereunder, shall apply to any data or
information submitted under this
Subpart by an insurer or affiliate of an
insurer.
Subpart G—Certification
§ 50.60
Certification.
(a) Certification decision. The
Secretary, in consultation with the
United States Attorney General and the
Secretary of Homeland Security, is
responsible for determining whether to
certify an act as an act of terrorism.
(b) Eligibility; timing. An act which
satisfies the definition in § 50.4(b) is
eligible for certification by the Secretary
as an act of terrorism after consultation
by the Secretary with the United States
Attorney General and the Secretary of
Homeland Security.
(c) Finality. Any decision by the
Secretary to certify, or determination
not to certify, an act as an act of
terrorism shall be final, and shall not be
subject to judicial review.
(d) Nondelegation. The Secretary may
not delegate or designate to any other
officer, employee, or person, the
determination of whether to certify an
act as an act of terrorism.
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§ 50.61
Public communication.
(a) Initial notification. After the
Secretary commences consideration of
whether an act may satisfy the
definition in § 50.4(b), and if
circumstances allow, Treasury shall
publish a document in the Federal
Register notifying the public that the act
is under review for certification as an
act of terrorism. Treasury may also
announce that an act is not under
consideration for certification.
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(b) Update notification. Not later than
30 days following the publication of a
notice under paragraph (a) of this
section that an act is under
consideration for certification, and not
later than every 60 days thereafter,
Treasury shall publish a document in
the Federal Register notifying the
public whether the act is still under
review for certification as an act of
terrorism.
(c) Contents of notification. Nothing
in this section shall require Treasury to
provide any information other than
whether the act is under review for
certification as an act of terrorism (or is
no longer under such review) or shall
limit Treasury from providing further
information of relevance.
(d) Rules of construction. Nothing in
this section precludes the Secretary
from certifying or determining not to
certify an act as an act of terrorism
before notifying the public that the act
is under review for certification. If, in
the discretion of the Secretary,
circumstances relating to an act render
timely notification under this section by
Treasury impracticable, Treasury shall
provide the notification as soon as
practicable, in a manner the Secretary
determines is appropriate.
(e) Nonbinding decision. A
notification made under this section
shall not be construed to be a final
determination by the Secretary of
whether to certify an act as an act of
terrorism.
§ 50.62
Certification data collection.
(a) General. (1) The Secretary, when
evaluating an act for certification as an
act of terrorism, may at any time direct
one or more insurers to submit
information regarding projected and
actual losses in connection with an act
and any other information the Secretary
determines appropriate. The
information sought by the Secretary
shall be specified in the data request,
and any insurer subject to the data
request shall respond to the request
within the time frame specified by the
Secretary at the time of the request. The
data requested may include actual loss
reserves established by insurers in
connection with the act under
consideration, loss estimates generated
by insurers in connection with the act
under consideration which have not yet
been established as actual loss reserves,
and information respecting an insurer’s
property and casualty exposures in a
particular geographic area associated
with the act under consideration.
(2) An insurer not required by
Treasury to submit information under
paragraph (a)(1) of this section may
voluntarily submit information to the
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Secretary as specified in public
notifications issued by Treasury.
(b) Other sources of information. The
Secretary may request information with
respect to loss estimates and likely
affected insurers from organizations,
including state insurance regulators,
insurance modeling organizations,
rating agencies, insurance brokers and
producers, and insurance data
aggregators.
§ 50.63 Notification of certification
determination.
(a) Public notification. Not later than
5 business days after the Secretary
determines whether to certify an act as
an act of terrorism, Treasury shall
publish a statement and submit a
document to the Federal Register
notifying the public of the Secretary’s
decision.
(b) Insurance supervisor notification.
Not later than 5 business days after the
Secretary determines whether to certify
an act as an act of terrorism, Treasury
shall notify in writing any relevant
supervisory officials of the Secretary’s
decision.
(c) Congressional notification. Not
later than 5 business days after the
Secretary determines whether to certify
an act as an act of terrorism, Treasury
shall notify in writing the President of
the U.S. Senate and the Speaker of the
U.S. House of Representatives of the
Secretary’s decision.
(d) Rule of construction. If, in the
discretion of the Secretary,
circumstances relating to an act render
timely notification by Treasury under
this section impracticable, Treasury
shall provide the notification as soon as
practicable, in a manner the Secretary
determines is appropriate.
Subpart H—Claims Procedures
§ 50.70
Federal share of compensation.
(a) General. (1) Treasury will pay the
Federal share of compensation for
insured losses as provided in section
103 of the Act once a Certification of
Loss required by § 50.73 is deemed
sufficient. The Federal share of
compensation under the Program shall
be:
(i) 85 percent of that portion of the
insurer’s aggregate insured losses that
exceeds its insurer deductible during
calendar year 2015;
(ii) 84 percent of that portion of the
insurer’s aggregate insured losses that
exceeds its insurer deductible during
calendar year 2016;
(iii) 83 percent of that portion of the
insurer’s aggregate insured losses that
exceeds its insurer deductible during
calendar year 2017;
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(iv) 82 percent of that portion of the
insurer’s aggregate insured losses that
exceeds its insurer deductible during
calendar year 2018;
(v) 81 percent of that portion of the
insurer’s aggregate insured losses that
exceeds its insurer deductible during
calendar year 2019; and
(vi) 80 percent of that portion of the
insurer’s aggregate insured losses that
exceeds its insurer deductible during
calendar year 2020 and any calendar
year thereafter.
(2) The percentages in paragraph
(a)(1) of this section are subject to any
adjustments described in § 50.71 and to
the cap of $100 billion as provided in
section 103(e)(2) of the Act.
(b) Program Trigger amounts.
Notwithstanding paragraph (a) of this
section or anything in this subpart to the
contrary, Federal compensation will not
be paid by Treasury unless the aggregate
industry insured losses resulting from
one or more certified acts of terrorism
exceed the following amounts:
(1) For insured losses resulting from
acts of terrorism taking place in
calendar year 2015: $100 million;
(2) For insured losses resulting from
acts of terrorism taking place in
calendar year 2016: $120 million;
(3) For insured losses resulting from
acts of terrorism taking place in
calendar year 2017: $140 million;
(4) For insured losses resulting from
acts of terrorism taking place in
calendar year 2018: $160 million;
(5) For insured losses resulting from
acts of terrorism taking place in
calendar year 2019: $180 million;
(6) For insured losses resulting from
acts of terrorism taking place in
calendar year 2020 and any calendar
year thereafter: $200 million.
(c) Conditions for payment of Federal
share. Subject to paragraph (d) of this
section, Treasury shall pay the
appropriate amount of the Federal share
of compensation for an insured loss to
an insurer upon a determination that:
(1) The insurer is an entity, including
an affiliate thereof, that meets the
requirements of § 50.4(o);
(2) The insurer’s insured losses, as
defined in § 50.4(n) and limited by
paragraph (d) of this section (including
the allocated dollar value of the
insurer’s proportionate share of insured
losses from a state residual market
insurance entity or a state workers’
compensation fund as described in
§ 50.33), have exceeded its insurer
deductible as defined in § 50.4(p);
(3) The insurer has paid or is prepared
to pay an insured loss, based on a filed
claim for the insured loss;
(4) Neither the insurer’s claim for
Federal payment nor any underlying
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claim for an insured loss is fraudulent,
collusive, made in bad faith, dishonest
or otherwise designed to circumvent the
purposes of the Act and regulations;
(5) The insurer has provided a clear
and conspicuous disclosure as required
by §§ 50.10 through 50.14 and a cap
disclosure as required by § 50.15;
(6) The insurer offered coverage for
insured losses and the offer was
accepted by the insured prior to the act
which results in the insured loss;
(7) The insurer took all steps
reasonably necessary to properly and
carefully investigate the insured loss
and otherwise processed the insured
loss using practices appropriate for the
business of insurance;
(8) The insured loss is within the
scope of coverage issued by the insurer
under the terms and conditions of one
or more policies for commercial
property and casualty insurance as
defined in § 50.4(w); and
(9) The procedures specified in this
Subpart have been followed and all
conditions for payment have been met.
(d) Adjustments. Treasury may
subsequently adjust, including requiring
repayment of, any payment made under
paragraph (c) of this section in
accordance with its authority under the
Act.
(e) Suspension of payment for other
insured losses. Upon a determination by
Treasury that an insurer has failed to
meet any of the requirements for
payment specified in paragraph (c) of
this section for a particular insured loss,
Treasury may suspend payment of the
Federal share of compensation for all
other insured losses of the insurer
pending investigation and audit of the
insurer’s insured losses.
(f) Aggregate industry losses. Treasury
will determine the amount of aggregate
industry insured losses resulting from a
certified act of terrorism. If aggregate
industry insured losses in a calendar
year resulting from one or more certified
acts of terrorism exceed the applicable
Program Trigger amounts specified in
paragraph (b) of this section, Treasury
will publish a document in the Federal
Register of a Program Trigger Event.
§ 50.71 Adjustments to the Federal share
of compensation.
(a) Aggregate amount of insured
losses. The aggregate amount of insured
losses of an insurer in a calendar year
used to calculate the Federal share of
compensation shall be reduced by any
amounts recovered by the insurer as
salvage or subrogation for its insured
losses in the calendar year.
(b) Amount of Federal share of
compensation. The Federal share of
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compensation shall be adjusted as
follows:
(1) No excess recoveries. For any
calendar year, the sum of the Federal
share of compensation paid by Treasury
to an insurer and the insurer’s
recoveries for insured losses from other
sources shall not be greater than the
insurer’s aggregate amount of insured
losses for acts of terrorism in that
calendar year. Amounts recovered for
insured losses in excess of an insurer’s
aggregate amount of insured losses for
acts of terrorism in a calendar year shall
be repaid to Treasury within 45 days
after the end of the month in which total
recoveries of the insurer, from all
sources, become excess. For purposes of
this paragraph, amounts recovered from
a reinsurer pursuant to an agreement
whereby the reinsurer’s right to any
excess recovery has priority over the
rights of Treasury shall not be
considered a recovery subject to
repayment to Treasury.
(2) Reduction of amount payable. The
Federal share of compensation for
insured losses under the Program shall
be reduced by the amount of other
compensation provided by other Federal
programs to an insured or a third party
to the extent such other compensation
duplicates the insurance
indemnification for those insured
losses.
(i) Other Federal program
compensation. For purposes of this
section, compensation provided by
other Federal programs for insured
losses means compensation that is
provided by Federal programs
established for the purpose of
compensating persons for losses in the
event of emergencies, disasters, acts of
terrorism, or similar events.
Compensation provided by Federal
programs for insured losses excludes
benefit or entitlement payments, such as
those made under the Social Security
Act, under laws administered by the
Secretary of Veteran Affairs, railroad
retirement benefit payments, and other
similar types of benefit payments.
(ii) Insurer due diligence. With
respect to any underlying claim for
insured losses, each insurer shall
inquire of all involved policyholders,
insureds, and claimants whether the
person receiving insurance proceeds for
an insured loss has received, expects to
receive, or is entitled to receive
compensation from another Federal
program for the insured loss, and if so,
the source and the amount of the
compensation received or expected. The
response, source, and such amounts
shall be reported with each underlying
claim on the form specified in
§ 50.73(b)(1).
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Notice of deductible erosion.
Each insurer shall submit to Treasury
a Notice on a form prescribed by
Treasury whenever the insurer’s
aggregate insured losses (including
reserves for ‘‘incurred but not reported’’
losses) within a calendar year exceed an
amount equal to 50 percent of the
insurer’s deductible as specified in
§ 50.4(p). Insurers are advised that the
form for the Notice of Deductible
Erosion will include an initial estimate
of aggregate insured losses for the
calendar year, the amount of the insurer
deductible, and an estimate of the
Federal share of compensation for the
insurer’s aggregate insured losses. In the
case of an affiliated group of insurers,
the Notice will include the name and
address of a single designated insurer
within the affiliated group that will
serve as the single point of contact for
the purpose of providing loss and
compliance certifications as required in
§ 50.73 and for receiving, disbursing,
and distributing payments of the
Federal share of compensation in
accordance with § 50.74. An insurer, at
its option, may elect to include with its
Notice of Deductible Erosion the
certification of direct earned premium
required by § 50.73(b)(3).
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§ 50.73
Loss certifications.
(a) General. When an insurer has paid
aggregate insured losses that exceed its
insurer deductible for a calendar year,
the insurer may make claim upon
Treasury for the payment of the Federal
share of compensation for its insured
losses. The insurer shall file an Initial
Certification of Loss, on a form
prescribed by Treasury, and thereafter
such Supplementary Certifications of
Loss, on a form prescribed by Treasury,
as may be necessary to receive payment
for the Federal share of compensation
for its insured losses.
(b) Initial certification of loss. An
insurer shall use its best efforts to file
with the Program the Initial
Certification of Loss within 45 days
following the last calendar day of the
month when an insurer has paid
aggregate insured losses that exceed its
insurer deductible. The Initial
Certification of Loss will include the
following:
(1) Basic information, on a form
prescribed by Treasury, about each
insured loss paid (or to be paid pursuant
to § 50.73(b)(2)(i)) by the insurer. The
form will include:
(i) A listing of each insured loss paid
(or to be paid pursuant to
§ 50.73(b)(2)(i)) by the insurer by
catastrophe code and line of business;
(ii) The total amount of reinsurance
recovered from other sources;
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(iii) A calculation of the aggregate
insured losses sustained by the insurer
above its insurer deductible for the
calendar year; and
(iv) The amount the insurer claims as
the Federal share of compensation for
its aggregate insured losses.
(2) A certification that the insurer is
in compliance with the provisions of
section 103(b) of the Act and this part,
including certifications that:
(i) The underlying insured losses
reported pursuant to § 50.73(b)(1) 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 not
longer than five business days after
receipt of the Federal share of
compensation;
(ii) The underlying claims for insured
losses were filed by persons who
suffered an insured loss, or by persons
acting on behalf of such persons;
(iii) The underlying claims for insured
losses were processed in accordance
with appropriate business practices and
the procedures specified in this subpart;
(iv) The insurer has complied with
the disclosure requirements of §§ 50.10
through 50.14, and the cap disclosure
requirement of § 50.15, for each
underlying insured loss that is included
in the amount of the insurer’s aggregate
insured losses; and
(v) The insurer has complied with the
mandatory availability requirements of
subpart C of this part.
(3) A certification of the amount of the
insurer’s direct earned premium,
together with the calculation of its
insurer deductible (provided this
certification was not submitted
previously with the Notice of
Deductible Erosion).
(4) A certification that the insurer will
disburse payment of the Federal share of
compensation in accordance with this
Subpart.
(5) A certification that if Treasury has
determined a Pro Rata Loss Percentage
(PRLP) (see § 50.112), the insurer has
complied with applying the PRLP to
insured loss payments, where required.
(c) Supplementary certifications of
loss. If the total amount of the Federal
share of compensation due an insurer
for insured losses under the Act has not
been determined at the time an Initial
Certification of Loss has been filed, the
insurer shall file monthly, or on a
schedule otherwise determined by
Treasury, Supplementary Certifications
of Loss updating the amount of the
Federal share of compensation due for
the insurer’s insured losses.
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Supplementary Certifications of Loss
will include the following:
(1) A form as described in
§ 50.73(b)(1); and
(2) A certification as described in
§ 50.73(b)(2).
(d) Supplementary information. In
addition to the information required in
paragraphs (b) and (c) of this section,
Treasury may require such additional
supporting documentation as required
to ascertain the Federal share of
compensation for the insured losses of
any insurer.
(e) State Residual Market Insurance
Entities and State Workers’
Compensation Funds. A state residual
market insurance entity or a state
workers’ compensation fund described
in § 50.32 shall provide the
Certifications of Loss described in
§ 50.73(b) and (c) for all of its insured
losses to each participating insurer at
the time it provides the allocated dollar
value of the participating insurer’s
proportionate share of insured losses. In
addition, at such time the state residual
market insurance entity or state
workers’ compensation fund shall
provide the certification described in
§ 50.73(b)(2) to Treasury. Participating
insurers shall treat the allocated dollar
value of their proportionate share of
insured losses from a state residual
market insurance entity or state
workers’ compensation fund as an
insured loss for the purpose of their
own reporting to Treasury in seeking the
Federal share of compensation.
§ 50.74 Payment of Federal share of
compensation.
(a) Timing. Treasury will promptly
pay to an insurer the Federal share of
compensation due the insurer for its
insured losses. Payment shall be made
in such installments and on such
conditions as determined by the
Treasury to be appropriate. Any
overpayments by Treasury of the
Federal share of compensation will be
offset from future payments to the
insurer or returned to Treasury within
45 days.
(b) Payment process. Payment of the
Federal share of compensation for
insured losses will be made to the
insurer designated on the Notice of
Deductible Erosion required by § 50.72.
An insurer that requests payment of the
Federal share of compensation for
insured losses must receive payment
through electronic funds transfer. The
insurer must establish either an account
for reimbursement as described in
paragraph (c) of this section (if the
insurer only seeks reimbursement) or a
segregated account as described in
paragraph (d) of this section (if the
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insurer seeks advance payments or a
combination of advance payments and
reimbursement). Applicable procedures
will be posted at https://
www.treasury.gov/resource-center/finmkts/Pages/program.aspx or otherwise
will be made publicly available.
(c) Account for reimbursement. An
insurer shall designate an account for
the receipt of reimbursement of the
Federal share of compensation at an
institution eligible to receive payments
through the Automated Clearing House
(ACH) network.
(d) Segregated account for advance
payments. An insurer that seeks
advance payments of the Federal share
of compensation as certified according
to § 50.73(b)(2)(i) shall establish a
segregated account into which Treasury
will make advance payments as well as
reimbursements to the insurer.
(1) Definition of segregated account.
For purposes of this section, a
segregated account is an interest-bearing
separate account established by an
insurer at a financial institution eligible
to receive payments through the ACH
network. Such an account is limited to
the purposes of:
(i) Receiving payments of the Federal
share of compensation;
(ii) Disbursing payments to insureds
and claimants; and
(iii) Transferring payments to the
insurer or affiliated insurers for insured
losses reported as already paid.
(2) Remittance of interest. All interest
earned on advance payments in the
segregated account must be remitted at
least quarterly to Treasury’s Bureau of
the Fiscal Service or as otherwise
prescribed in applicable procedures.
(e) Denial or withholding of advance
payment. Treasury may deny or
withhold advance payments of the
Federal share of compensation to an
insurer if Treasury determines that the
insurer has not properly disbursed
previous advances of the Federal share
of compensation or otherwise has not
complied with the requirements for
advance payment as provided in this
Subpart.
(f) Affiliated group. In the case of an
affiliated group of insurers, Treasury
will make payment of the Federal share
of compensation for the insured losses
of the affiliated group to the insurer
designated in the Notice of Deductible
Erosion to receive payment on behalf of
the affiliated group. The designated
insurer receiving payment from
Treasury must distribute payment to
affiliated insurers in a manner that
ensures that each insurer in the
affiliated group is compensated for its
share of insured losses, taking into
account a reasonable and fair allocation
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of the group deductible among affiliated
insurers. Upon payment of the Federal
share of compensation to the designated
insurer, Treasury’s payment obligation
to the insurers in the affiliated group
with respect to any insured losses
covered is discharged to the extent of
the payment.
§ 50.75
Determination of affiliations.
For the purposes of this subpart, an
insurer’s affiliates for any calendar year
shall be determined by the
circumstances existing on the date of
the act which is the Program Trigger
Event for that calendar year.
§ 50.76
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 calendar year, which for purposes of
this Part is the date on or before which
an insurer must report to Treasury on
the insurer’s Certifications of Loss (both
Initial Certification of Loss and any
Supplemental Certifications of Loss) all
insured losses that have been reported
by its policyholders for the calendar
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 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 Supplementary
Certifications of Loss 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
and the manner in which they are being
applied by the Federal courts;
(vi) Common business practices;
(vii) Issues that are delaying final
resolution of insured losses;
(viii) The application of the liability
limitations and procedures under the
Support Anti-terrorism by Fostering
Effective Technologies Act of 2002 (6
U.S.C. 441 et seq.) that may affect final
resolution of insured losses;
(ix) Issues related to the cap on
annual liability for insurer losses,
including whether a projection that the
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18971
cap on annual liability will be reached
in connection with any calendar year
indicates that no Final Netting Date
should be set for that calendar year;
(x) Treasury’s claims administration
costs; and
(xii) Such other factors as the
Secretary considers appropriate to take
into account.
(2) Notice of Final Netting Date.
Treasury shall announce and publish in
the Federal Register notice of a
proposed Final Netting Date and its
application to a specific calendar year,
and will solicit comments from the
public regarding the appropriateness of
the proposed Final Netting Date. After
receipt and evaluation of comments
respecting its proposed Final Netting
Date, Treasury will publish in the
Federal Register a Final Netting Date,
which is at least 180 days after the date
of publication. The Secretary’s
determination of a Final Netting Date is
final and not subject to judicial review.
(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. 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 the number of 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 in
the future, as provided in this section.
(1) In lieu of continued submission of
Supplemental 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
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all future liabilities to the insurer for the
Federal share of compensation for
insured losses for the applicable
calendar year. In the case of an affiliated
group of insurers, the requirements of
§ 50.74(f) apply, and 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 calendar year.
(2) If future claims are to be
commuted, Treasury may require
additional information from 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 final payment
amounts are derived. If Treasury notifies
an insurer of a requirement to submit
additional information to inform its
commutation decision, the insurer will
be provided (depending upon the
complexity of the material sought) no
less than 90 days from the date of
notification to submit material required
in the notice. If the insurer fails to
provide the requested information, it
will 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 to be repaid to
Treasury. Treasury may determine that
it will not consider commutation until
it has completed an audit of an insurer’s
insured losses pursuant to the authority
set forth in Subpart I of these
regulations.
(3) Payments of commuted amounts
are not considered to be advance
payments requiring a segregated account
as described in § 50.74(d).
(4) Notwithstanding § 50.70(d), 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,
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would result in an increase of the
Federal share of compensation to that
insurer by 20% of the total amount
already paid to that insurer, 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 that all other conditions for
payment have been met, Treasury may
reopen or extend the insurer’s claim for
the Federal share of compensation for
insured losses for the pertinent calendar
year.
Subpart I—Audit and Investigative
Procedures
§ 50.80
Audit authority.
The Secretary of the Treasury, or an
authorized representative, shall have,
upon reasonable notice, access to all
books, documents, papers and records
of an insurer that are pertinent to
amounts paid to the insurer as the
Federal share of compensation for
insured losses, or pertinent to any
Federal terrorism policy surcharge that
is imposed pursuant to subpart J of this
part, for the purposes of investigation,
confirmation, audit, and examination.
§ 50.81
Recordkeeping.
(a) Each insurer that seeks payment of
a Federal share of compensation under
subpart H of this part shall retain such
records as are necessary to fully disclose
all material matters pertinent to insured
losses and the Federal share of
compensation sought under the
Program, including, but not limited to,
records regarding premiums and
insured losses for all commercial
property and casualty insurance issued
by the insurer and information relating
to any adjustment in the amount of the
Federal share of compensation payable.
Insurers shall maintain detailed records
for not less than five (5) years from the
termination dates of all reinsurance
agreements involving property and
casualty insurance subject to the Act.
Records relating to premiums shall be
retained and available for review for not
less than three (3) years following the
conclusion of the policy year. Records
relating to underlying claims shall be
retained for not less than five (5) years
following the final adjustment of the
claim.
(b) Each insurer that collects a Federal
terrorism policy surcharge as required
by Subpart J of this part shall retain
records related to such surcharge,
including records of the property and
casualty insurance premiums subject to
the surcharge, the amount of the
surcharge imposed on each policy,
aggregate Federal terrorism policy
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surcharges collected, and aggregate
Federal terrorism policy surcharges
remitted to Treasury during each
assessment period. Such records shall
be retained and kept available for
review for not less than three (3) years
following the conclusion of the
assessment period or settlement of
accounts with Treasury, whichever is
later.
§ 50.82
Civil penalties.
(a) General. The Secretary may assess
a civil monetary penalty in an amount
not exceeding the amount under
paragraph (b) of this section against any
insurer that the Secretary determines,
on the record after opportunity for a
hearing:
(1) Has failed to charge, collect, or
remit the Federal terrorism policy
surcharge under Subpart J;
(2) Has intentionally provided to
Treasury erroneous information
regarding premium or loss amounts;
(3) Submits to Treasury fraudulent
claims under the Program for insured
losses;
(4) Has failed to provide any
disclosures or other information
required by Treasury; or
(5) Has otherwise failed to comply
with provisions of the Act or these
regulations.
(b) Amount. The amount under this
section is the greater of $1,325,000 and,
in the case of any failure to pay, charge,
collect, or remit amounts in accordance
with the Act or these regulations, such
amount in dispute.
(c) Recovery of amount in dispute. A
penalty under this section for any
failure to pay, charge, collect, or remit
amounts in accordance with the Act or
under these regulations shall be in
addition to any such amounts recovered
by Treasury.
(d) Procedure. Treasury shall notify in
writing any insurer that it believes has
committed one or more of the acts
identified in paragraph (a) of this
section. In that notification, Treasury
shall identify the act or acts that it
believes has been violated, and its basis
for that belief, and shall set a schedule
for further proceedings which shall
include:
(1) The opportunity for a written
submission by the insurer that provides
all relevant facts and circumstances
concerning the alleged conduct,
including any information that the
insurer wishes Treasury to consider in
connection with the alleged conduct;
and
(2) A hearing on the record, unless
waived by the insurer, during which
Treasury and the insurer may present
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further information respecting the
conduct in question.
(e) Other remedies preserved.
Treasury’s assessment and collection of
a civil monetary penalty under this
section shall be in addition and without
prejudice to any other civil remedies or
criminal penalties that may arise on
account of the conduct in question
under any other laws or regulations of
the United States.
Subpart J—Recoupment and
Surcharge Procedures
§ 50.90 Mandatory and discretionary
recoupment.
(a) Pursuant to section 103(e) of the
Act, the Secretary shall impose, and
insurers shall collect, such Federal
terrorism policy surcharges as needed to
recover 140 percent of the mandatory
recoupment amount for any calendar
year.
(b) In the Secretary’s discretion, the
Secretary may recover any portion of the
aggregate Federal share of compensation
that exceeds the mandatory recoupment
amount through a Federal terrorism
policy surcharge based on the factors set
forth in section 103(e)(7)(D) of the Act.
(c) If the Secretary imposes a Federal
terrorism policy surcharge as provided
in paragraph (a) of this section, then the
required amounts, based on the extent
to which payments for the Federal share
of compensation have been made by the
collection deadlines in section
103(e)(7)(E) of the Act, shall be collected
in accordance with such deadlines:
(1) For any act of terrorism that occurs
on or before December 31, 2017, the
Secretary shall collect all required
amounts by September 30, 2019;
(2) For any act of terrorism that occurs
between January 1 and December 31,
2018, the Secretary shall collect 35
percent of any required amounts by
September 30, 2019, and the remainder
by September 30, 2024; and
(3) For any act of terrorism that occurs
on or after January 1, 2019, the Secretary
shall collect all required amounts by
September 30, 2024.
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§ 50.91 Determination of recoupment
amounts.
(a) If payments for the Federal share
of compensation have been made for a
calendar year, and Treasury determines
that insured loss information is
sufficiently developed and credible to
serve as a basis for calculating
recoupment amounts, Treasury will
make an initial determination of any
mandatory or discretionary recoupment
amounts for that calendar year.
(b)(1) Within 90 days after
certification of an act of terrorism, the
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Secretary shall publish in the Federal
Register an estimate of aggregate
insured losses which shall be used as
the basis for initially determining
whether mandatory recoupment will be
required.
(2) If at any time Treasury projects
that payments for the Federal share of
compensation will be made for a
calendar year, and that in order to meet
the collection timing requirements of
section 103(e)(7)(E) of the Act it is
necessary to use an estimate of such
payments as a basis for calculating
recoupment amounts, Treasury will
make an initial determination of any
mandatory recoupment amounts for that
calendar year.
(c) Following the initial determination
of recoupment amounts for a calendar
year, Treasury will recalculate any
mandatory or discretionary recoupment
amount as necessary and appropriate,
and at least annually, until a final
recoupment amount for the calendar
year is determined. Treasury will
compare any recalculated recoupment
amount to amounts already remitted
and/or to be remitted to Treasury for a
Federal terrorism policy surcharge
previously established to determine
whether any additional amount will be
recouped by Treasury.
(d) For the purpose of determining
initial or recalculated recoupment
amounts, Treasury may issue a data call
to insurers for insurer deductible and
insured loss information by calendar
year. Treasury’s determination of the
aggregate amount of insured losses from
Program Trigger Events of all insurers
for a calendar year will be based on the
amounts reported in response to a data
call and any other information Treasury
in its discretion considers appropriate.
Submission of data in response to a data
call shall be on a form promulgated by
Treasury.
§ 50.92 Establishment of Federal terrorism
policy surcharge.
(a) Treasury will establish the Federal
terrorism policy surcharge based on the
following factors and considerations:
(1) In the case of a mandatory
recoupment amount, the requirement to
collect 140 percent of that amount;
(2) The total dollar amount to be
recouped as a percentage of the latest
available annual aggregate industry
direct written premium information;
(3) The adjustment factors for
terrorism loss risk-spreading premiums
described in section 103(e)(8)(D) of the
Act;
(4) The annual 3 percent limitation on
terrorism loss risk-spreading premiums
collected on a discretionary basis as
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18973
provided in section 103(e)(8)(C) of the
Act;
(5) A preferred minimum initial
assessment period of one full year and
subsequent extension periods in full
year increments;
(6) The collection timing
requirements of section 103(e)(8)(E) of
the Act;
(7) The likelihood that the amount of
the Federal terrorism policy surcharge
may result in the collection of an
aggregate recoupment amount in excess
of the planned recoupment amount; and
(8) Such other factors as the Secretary
considers appropriate to take into
account.
(b) The Federal terrorism policy
surcharge shall be the obligation of the
policyholder and is payable to the
insurer with the premium for a property
and casualty insurance policy in effect
during the assessment period
established by Treasury. See § 50.94(c).
§ 50.93
Notification of recoupment.
(a) Treasury will provide notifications
of recoupment through publication of
notices in the Federal Register or in
another manner Treasury deems
appropriate, based upon the
circumstances of the certified act(s) of
terrorism under consideration.
(b) Treasury will provide reasonable
advance notice to insurers of any initial
Federal terrorism policy surcharge
effective date. This effective date shall
be January 1 of the calendar year
following publication of the notice,
unless such date would not provide for
sufficient notice of implementation
while meeting the collection timing
requirements of section 103(e)(8)(E) of
the Act.
(c) Treasury will provide reasonable
advance notice to insurers of any
modification or cessation of the Federal
terrorism policy surcharge.
(d) Treasury will provide notification
to insurers annually as to the
continuation of the Federal terrorism
policy surcharge.
§ 50.94
Collecting the surcharge.
(a) Insurers shall collect a Federal
terrorism policy surcharge from
policyholders as required by Treasury.
(b) Policies subject to the Federal
terrorism policy surcharge are those for
which direct written premium is
reported on commercial lines of
business on the NAIC’s Exhibit of
Premiums and Losses of the NAIC
Annual Statement (commonly known as
Statutory Page 14) as provided in
§ 50.4(w)(1), or equivalently reported.
(c) For policies subject to the Federal
terrorism policy surcharge, the
surcharge shall be imposed and
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collected on a written premium basis for
policies that become effective or renew
during the assessment period. All new,
renewal, mid-term, and audit premiums
for a policy term are subject to the
surcharge in effect on the policy term
effective date. Notwithstanding this
paragraph, if the premium for a policy
term that would otherwise be subject to
the surcharge is revised after the end of
the reporting period described in
§ 50.95(e), then any additional premium
attributable to such revision is not
subject to the Surcharge. For purposes
of this Subpart:
(1) Written premium basis means the
premium amount charged a
policyholder by an insurer for property
and casualty insurance, including all
premiums, policy expense constants
and fees defined as premium pursuant
to the Statements of Statutory
Accounting Principles established by
the NAIC, as adopted by the state for
which the premium will be reported.
(2) In the case of a policy providing
multiple insurance coverages, if an
insurer cannot identify the premium
amount charged a policyholder
specifically for property and casualty
insurance under the policy, then:
(i) If the insurer estimates that the
portion of the premium amount charged
for coverage other than property and
casualty insurance is de minimis to the
total premium for the policy, the insurer
may impose and collect from the
policyholder a surcharge amount based
on the total premium for the policy, but
(ii) If the insurer estimates that the
portion of the premium amount charged
for coverage other than property and
casualty insurance is not de minimis,
the insurer shall impose and collect
from the policyholder a Surcharge
amount based on a reasonable estimate
of the premium amount for the property
and casualty insurance coverage under
the policy.
(3) The Federal terrorism policy
surcharge is not considered premium.
(d) A policyholder must pay the
applicable Federal terrorism policy
surcharge when due. The insurer shall
have such rights and remedies to
enforce the collection of the surcharge
that are the equivalent to those that exist
under applicable state or other law for
nonpayment of premium.
(e) When an insurer returns an
unearned premium, or otherwise
refunds premium to a policyholder, it
shall also return any Federal terrorism
policy surcharge collected that is
attributable to the refunded unearned
premium. Notwithstanding this
paragraph, if the written premium for a
policy is revised and refunded after the
end of the reporting period described in
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§ 50.95(e), then the insurer is not
required to refund any Surcharge that is
attributable to the refunded premium.
(f) Notwithstanding paragraphs (a),
(b), and (c) of this section, if the expense
of collecting the Federal terrorism
policy surcharge from all policyholders
of an insurer during an assessment
period exceeds the amount of the
Surcharges anticipated to be collected,
such insurer may satisfy its obligation to
collect by omitting actual collection and
instead remitting to Treasury the
amount otherwise due.
(g) The Federal terrorism policy
surcharge is repayment of Federal
financial assistance in an amount
required by law. No fee or commission
shall be charged on the Federal
terrorism policy surcharge.
§ 50.95
Remitting the surcharge.
(a) Each insurer shall report direct
written premium and Federal terrorism
policy surcharges to Treasury on a
monthly and annual basis during the
assessment period. Reporting will be on
a form prescribed by Treasury and will
be due according to the following
schedule:
(1) Monthly: From the beginning of
the assessment period through
November, on the last business day of
the calendar month following the month
for which premium is reported, and
(2) Annually: March 1 for the prior
calendar year.
(b) The monthly statements provided
to Treasury will include the following:
(1) Cumulative calendar year direct
written premium adjusted for premium
not subject to the Federal terrorism
policy surcharge, summarized by policy
year.
(2) The aggregate Federal terrorism
policy surcharge amount calculated by
applying the established surcharge
percentage to the insurer’s adjusted
direct written premium by policy year.
(3) Insurer certification of the
submission.
(c) The annual statements to be
provided to Treasury will include the
following:
(1) Direct written premium, adjusted
for premium not subject to the Federal
terrorism policy surcharge, summarized
by policy year and by commercial line
of insurance as specified in § 50.4(w).
(2) The aggregate Federal terrorism
policy surcharge amount calculated by
applying the established surcharge
percentage to the insurer’s adjusted
direct written premium by policy year.
(3) In the case of an insurer that has
chosen not to collect the Federal
terrorism policy surcharge from its
policyholders as provided in § 50.94(f),
a certification that the expense of
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collecting the Surcharge during the
assessment period would have exceeded
the amount of the surcharges collected
over the assessment period.
(4) Insurer certification of the
submission.
(d) The calculated aggregate Federal
terrorism policy surcharge amount, as
described in paragraphs (b)(2) and (c)(2)
of this section, shall be remitted to
Treasury upon submission of each
monthly and annual statement. Through
its submitted statements, an insurer
obtains credit for a refund of any
Federal terrorism policy surcharge
previously remitted to Treasury that was
subsequently returned by the insurer to
a policyholder as attributable to
refunded premium under § 50.94(e). A
negative calculated amount in a
monthly or annual statement indicates
payment from Treasury is due to the
insurer.
(e) Reporting shall continue for the
one-year period following the end of the
assessment period established by
Treasury, unless otherwise permitted by
Treasury.
§ 50.96
Insurer responsibility.
Notwithstanding § 50.4(o), for
purposes of the collection, reporting and
remittance of Federal terrorism policy
surcharges to Treasury, the definition of
insurer shall not include any affiliate of
the insurer.
Subpart K—Federal Cause of Action;
Approval of Settlements
§ 50.100 Federal cause of action and
remedy.
(a) General. If the Secretary certifies
an act as an act of terrorism pursuant to
Subpart G of this Part, there shall exist
a Federal cause of action for property
damage, personal injury, or death
arising out of or resulting from such act
of terrorism, pursuant to section 107 of
the Act, which shall be the exclusive
cause of action and remedy for claims
for property damage, personal injury, or
death arising out of or relating to such
act of terrorism, except as provided in
paragraph (d) of this section.
(b) Jurisdiction. For each
determination described in paragraph
(a) of this section, not later than 90 days
after the Secretary certifies an act as an
act of terrorism, the Judicial Panel on
Multidistrict Litigation shall designate a
single district court or, if necessary,
multiple district courts of the United
States that shall have original and
exclusive jurisdiction over all actions
for any claim (including any claim for
loss of property, personal injury, or
death) relating to or arising out of an act
of terrorism subject to section 107 of the
Act.
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(c) Effective period. The exclusive
Federal cause of action and remedy
described in paragraph (a) of this
section shall exist only for causes of
action for property damage, personal
injury, or death that arise out of or result
from acts of terrorism during the
effective period of the Program.
(d) Rights not affected. Nothing in
section 107 of the Act or this Subpart
shall in any way:
(1) Limit the liability of any
government, organization, or person
who knowingly participates in,
conspires to commit, aids and abets, or
commits any act of terrorism;
(2) Affect any party’s contractual right
to arbitrate a dispute; or
(3) Affect any provision of the Air
Transportation Safety and System
Stabilization Act (Pub. L. 107–42; 49
U.S.C. 40101 note).
§ 50.101
State causes of action preempted.
All State causes of action of any kind
for property damage, personal injury, or
death arising out of or resulting from an
act of terrorism that are otherwise
available under state law are preempted,
except that, pursuant to section 107(b)
of the Act, nothing in this section shall
limit in any way the liability of any
government, organization, or person
who knowingly participates in,
conspires to commit, aids and abets, or
commits the act of terrorism certified by
the Secretary.
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§ 50.102
Advance approval of settlements.
(a) Mandatory submission of
settlements for advance approval.
Pursuant to section 107(a)(6) of the Act,
an insurer shall submit to Treasury for
advance approval any proposed
agreement to settle or compromise any
Federal cause of action for property
damage, personal injury, or death,
asserted by a third-party or parties
against an insured, involving an insured
loss, all or part of the payment of which
the insurer intends to include in its
aggregate insured losses for purposes of
calculating the insurer deductible or the
Federal share of compensation of its
insured losses under the Program,
when:
(1) Any portion of the proposed
settlement amount that is attributable to
an insured loss or losses involving
personal injury or death in the aggregate
is $2 million or more per third-party
claimant, regardless of the number of
causes of action or insured losses being
settled; or
(2) Any portion of the proposed
settlement amount that is attributable to
an insured loss or losses involving
property damage (including loss of use)
in the aggregate is $10 million or more
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per third-party claimant, regardless of
the number of causes of action or
insured losses being settled.
(b) Discretionary review of other
settlements. Notwithstanding paragraph
(a) of this section, Treasury may require
that an insurer submit for review and
advance approval any proposed
agreement to settle or compromise any
Federal cause of action for property
damage, personal injury, or death,
asserted by a third-party or parties
against an insured, involving an insured
loss, all or part of the payment of which
the insurer intends to include in its
aggregate insured losses for purposes of
calculating the insurer deductible or the
Federal share of compensation of its
insured losses where the settlement
amounts are below the applicable
monetary thresholds identified in
paragraphs (a)(1) and (2) of this section.
(c) Factors. In determining whether to
approve a proposed settlement,
Treasury will consider the nature of the
loss, the facts and circumstances
surrounding the loss, and other factors
such as whether:
(1) The proposed settlement
compensates for a third-party’s loss, the
liability for which is an insured loss
under the terms and conditions of the
underlying commercial property and
casualty insurance policy, as certified
by the insurer pursuant to
§ 50.103(d)(2);
(2) Any amount of the proposed
settlement is attributable to punitive or
exemplary damages intended to punish
or deter (whether or not specifically so
described as such damages);
(3) The settlement amount offsets
amounts received from the United
States pursuant to any other Federal
program;
(4) The settlement amount does not
include any items such as fees and
expenses of attorneys, experts, and other
professionals that have caused the
insured losses under the underlying
commercial property and casualty
insurance policy to be overstated; and
(5) Any other criteria that Treasury
may consider appropriate, depending on
the facts and circumstances surrounding
the settlement, including the
information contained in § 50.103.
(d) Settlement without seeking
advance approval or despite
disapproval. If an insurer settles a cause
of action or agrees to the settlement of
a cause of action without submitting the
proposed settlement for Treasury’s
advance approval in accordance with
paragraph (a) or (b) of this section, and
in accordance with § 50.103 or despite
Treasury’s disapproval of the proposed
settlement, the insurer will not be
entitled to include the paid settlement
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18975
amount (or portion of the settlement
amount, to the extent partially
disapproved) in its aggregate insured
losses for purposes of calculating the
Federal share of compensation of its
insured losses, unless the insurer can
demonstrate, to the satisfaction of
Treasury, extenuating circumstances.
§ 50.103 Procedure for requesting
approval of proposed settlements.
(a) Submission of notice. Insurers
must request advance approval of a
proposed settlement by submitting a
notice of the proposed settlement and
other required information in writing to
the Terrorism Risk Insurance Program
Office or its designated representative.
The address where notices are to be
submitted will be available at https://
www.treasury.gov/resource-center/finmkts/Pages/program.aspx following any
certification of an act of terrorism
pursuant to section 102(1) of the Act.
(b) Complete notice. Treasury will
review requests for advance approval
and determine whether additional
information is needed to complete the
notice.
(c) Treasury response or deemed
approval. Within 30 days after
Treasury’s receipt of a complete notice,
or as extended in writing by Treasury,
Treasury may issue a written response
and indicate its partial or full approval
or rejection of the proposed settlement.
If Treasury does not issue a response
within 30 days after Treasury’s receipt
of a complete notice, unless extended in
writing by Treasury, the request for
advance approval is deemed approved
by Treasury. Any settlement is still
subject to review under the claim
procedures pursuant to § 50.80.
(d) Notice format. A notice of a
proposed settlement should be entitled,
‘‘Notice of Proposed Settlement—
Request for Approval,’’ and should
provide the full name and address of the
submitting insurer and the name, title,
address, and telephone number of the
designated contact person. An insurer
must provide all relevant information,
including the following, as applicable:
(1) A brief description of the claim
against the insured, the amount of the
claim, the operative policy terms, and
defenses to coverage;
(2) A certification by the insurer that
the settlement is for a third-party’s loss,
the liability for which is an insured loss
under the terms and conditions of the
underlying commercial property and
casualty insurance policy;
(3) A brief description of all damages
allegedly sustained and an itemized
statement of all damages by category
(i.e., actual, economic and noneconomic loss, punitive damages, etc.);
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(4) A statement from the insurer or its
attorney in support of the settlement;
(5) The total dollar amount of the
proposed settlement and the amount of
the proposed settlement which is an
insured loss;
(6) Indication as to whether the
settlement was negotiated by counsel;
(7) The amount to be paid that will
compensate for any items such as fees
and expenses of attorneys, experts, and
other professionals for their services and
expenses related to the insured loss
and/or settlement and the net amount to
be received by the third-party after such
payment;
(8) The amount(s) received from the
United States pursuant to any other
Federal program(s) for compensation of
insured losses related to an act of
terrorism;
(9) The proposed terms of the written
settlement agreement, including release
language and subrogation terms;
(10) Other relevant agreements,
including:
(i) Admissions of liability or
insurance coverage;
(ii) Determinations of the number of
occurrences under a commercial
property and casualty insurance policy;
(iii) The allocation of paid amounts or
amounts to be paid to certain policies,
or to a specific policy, coverage and/or
aggregate limits;
(iv) Any other agreement that may
affect the payment or amount of the
Federal share of compensation to be
paid to the insurer; and
(v) Any other relevant agreement
requested by Treasury.
(11) A statement indicating whether
the proposed settlement has been
approved by the Federal court or is
subject to such approval and whether
such approval is expected or likely; and
(12) Such other information that is
related to the insured loss as may be
requested by Treasury that it deems
necessary to evaluate the proposed
settlement.
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§ 50.104
Subrogation.
An insurer shall not waive its rights
of subrogation under its property and
casualty insurance policy with respect
to any losses the payment of which the
insurer intends to include in its insurer
deductible or the aggregate insured
losses for purposes of calculating the
Federal share of compensation of its
insured losses and shall, unless upon
request the United States agrees in
writing to forbear from exercising such
right, preserve the subrogation right of
the United States as provided by section
107(c) of the Act by not taking any
action that would prejudice the
subrogation right of the United States.
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Subpart L—Cap on Annual Liability
§ 50.110
Cap on annual liability.
Pursuant to section 103 of the Act, if
the aggregate insured losses exceed
$100,000,000,000 during a calendar
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) An insurer that has met its insurer
deductible shall not 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.
§ 50.111
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 calendar year
in which the event occurs. Such initial
estimate may be based on insured loss
amounts as compiled by insurance
industry statistical organizations, data
previously collected by the Secretary,
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 calendar
year.
§ 50.112
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
calendar year, then Treasury will
determine a PRLP. The PRLP applies to
insured loss payments by insurers for
insured losses incurred in the subject
calendar year, as specified in § 50.113,
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:
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(1) Estimates of insured losses from
insurance industry statistical
organizations;
(2) Any data calls issued by Treasury
(see § 50.114);
(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 calendar 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, after consulting with
the relevant state authorities, may
initiate the action described in either
paragraph (e)(1) or (2) of this section.
(1) Hiatus in payments. Call 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.
(2) Determine an interim PRLP. (i) An
interim PRLP is an amount determined
without the availability of information
necessary for consideration of all factors
listed in § 50.112(b). It is a
conservatively low percentage amount
determined in order to facilitate initial
partial claim payments by insurers after
an act of terrorism and prior to the time
that information becomes available to
determine a PRLP based on
consideration of the factors listed in
§ 50.112(b).
(ii) In such a circumstance, Treasury
will determine a PRLP to replace the
interim PRLP as quickly as possible.
The PRLP, as later determined, will be
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effective retroactively as of the effective
date of the interim PRLP. 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 interim PRLP, or as
later replaced by the PRLP as
appropriate.
§ 50.113
Application of pro rata share.
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
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 in the absence of an
agreement on a complete and final
settlement as evidenced by a signed
settlement agreement or other means
reviewable by a third party 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 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.
(b) All policies. 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 as of the
effective date of the PRLP or the amount
computed by applying the PRLP to the
estimated or actual final claim
settlement amount that would otherwise
be paid.
(c) Certain workers’ compensation
insurance policies. If an insurer’s
payments under a workers’
compensation policy cumulatively
exceed the amount computed by
applying the PRLP to the estimated or
actual final claim settlement amount
that would otherwise be paid because
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such estimated or actual final settlement
amount is reduced from a previous
estimate, then the insurer may request a
review and adjustment by Treasury in
the calculation of the Federal share of
compensation. In requesting such a
review, the insurer must submit
information to supplement its
Certification of Loss demonstrating a
reasonable estimate invalidated by
unexpected conditions differing from
prior assumptions including, but not
limited to, an explanation and the basis
for the prior assumptions.
(d) If an insurer has not yet made
payments in excess of its insurer
deductible, the rules in this paragraph
apply.
(1) If the insurer 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 § 50.112(b).
(2)(i) If the insurer 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. The
insurer may also make payments on the
basis of applying some other pro rata
amount it determines that is greater than
the PRLP, where the insurer estimates
that application of such other pro rata
amount will result in it not exceeding
its insurer deductible. The insurer
remains liable for losses in accordance
with § 50.115(c).
(ii) If an insurer estimates that it will
not exceed its insurer deductible and
has made payments on the basis
provided in paragraph (d)(2)(i) of this
section, but thereafter reaches its insurer
deductible, then the insurer shall apply
the PRLP to any 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
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18977
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.
§ 50.114
Data call authority.
For the purpose of determining initial
or recalculated PRLPs, Treasury may
issue a data call to insurers for insured
loss information, seeking information in
addition to any information provided to
Treasury under subparts F and H of this
part.
§ 50.115
Final amount.
(a) Treasury shall determine if, as a
final proration, remaining insured loss
payments, as well as adjustments to
previous insured loss payments, can be
made by insurers based on an adjusted
PLRP, 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, a supplementary explanation
regarding how additional payments will
be provided on previously settled
insured losses.
(c) An insurer that has prorated 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.
Dated: March 21, 2016.
Amias Moore Gerety,
Acting Assistant Secretary for Financial
Institutions.
[FR Doc. 2016–06920 Filed 3–31–16; 8:45 am]
BILLING CODE 4810–25–P
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Agencies
[Federal Register Volume 81, Number 63 (Friday, April 1, 2016)]
[Proposed Rules]
[Pages 18949-18977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06920]
[[Page 18949]]
Vol. 81
Friday,
No. 63
April 1, 2016
Part II
Department of the Treasury
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31 CFR Part 50
Terrorism Risk Insurance Program; Proposed Rules
Federal Register / Vol. 81 , No. 63 / Friday, April 1, 2016 /
Proposed Rules
[[Page 18950]]
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DEPARTMENT OF THE TREASURY
31 CFR Part 50
RIN 1505-AC53
Terrorism Risk Insurance Program
AGENCY: Departmental Offices, Department of the Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Department of the Treasury (Treasury) is issuing these
proposed rules to implement changes to the Terrorism Risk Insurance
Program (TRIP or Program) required by the Terrorism Risk Insurance
Program Reauthorization Act of 2015 (2015 Reauthorization Act). In
addition, Treasury proposes for the first time a Civil Penalties rule
under TRIP, pursuant to authority granted by Congress in the Terrorism
Risk Insurance Act of 2002 (TRIA). Treasury also proposes adoption,
with certain minor changes, of a previously proposed rule addressing
the Final Netting of Payments. Finally, certain other changes are
proposed to various sections of the prior rules in order to clarify
certain matters, make technical and conforming changes, and to address
changes required by the passage of time and other legislation.
DATES: Written comments must be submitted on or before May 31, 2016.
Early submissions are encouraged.
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 the Federal Insurance
Office, Attention: Richard Ifft, Room 1410 MT, Department of the
Treasury, 1500 Pennsylvania Avenue NW., Washington, DC 20220. Because
postal mail may be subject to processing delay, it is recommended that
comments be submitted electronically. All comments should be captioned
with ``2015 TRIA Reauthorization Proposed Rules Comments.'' Please
include your name, group affiliation, address, email address, and
telephone number(s) in your comment. Where appropriate, a comment
should include a short Executive Summary (no more than five single-
spaced pages).
In general, comments received will be posted on https://www.regulations.gov without change, including any business or personal
information provided. Comments received, including attachments and
other supporting materials, will be part of the public record and
subject to public disclosure. Do not enclose any information in your
comment or supporting materials that you consider confidential or
inappropriate for public disclosure.
FOR FURTHER INFORMATION CONTACT: Richard Ifft, Senior Insurance
Regulatory Policy Analyst, Federal Insurance Office, 202-622-2922 (not
a toll free number) or Kevin Meehan, Policy Advisor, Federal Insurance
Office, 202-622-7009 (not a toll free number).
SUPPLEMENTARY INFORMATION:
I. Background
The Terrorism Risk Insurance Act of 2002 (the Act or TRIA) \1\ was
enacted on November 26, 2002, following the attacks of September 11,
2001, to address disruptions in the market for terrorism risk
insurance, to help ensure the continued availability and affordability
of commercial property and casualty insurance for terrorism risk, and
to allow for the private markets to stabilize and build insurance
capacity to absorb any future losses for terrorism events. TRIA
requires insurers to ``make available'' terrorism risk insurance for
commercial property and casualty losses resulting from certified acts
of terrorism (insured losses), and provides for shared public and
private compensation for such insured losses. The Secretary of the
Treasury (Secretary) administers the Program, including the issuance of
regulations and procedures. Pursuant to the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the Federal Insurance Office
assists the Secretary in administering the Program.\2\
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\1\ Public Law 107-297, 116 Stat. 2322, codified at 15 U.S.C.
6701, note. Because the provisions of TRIA (as amended) appear in a
note, instead of particular sections, of the United States Code, the
provisions of TRIA are identified by the sections of the law.
\2\ 31 U.S.C. 313(c)(1)(D).
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To assist insurers, policyholders, and other interested parties in
complying with immediately applicable requirements of the Act, Treasury
has issued interim guidance to be relied upon by insurers until
superseded by regulations. To date, rules establishing general
provisions implementing the Program, including key definitions, and
requirements for policy disclosures and mandatory availability, are
found in Subparts A, B, and C of 31 CFR part 50.\3\ Treasury's rules
applying provisions of the Act to state residual market insurance
entities and state workers' compensation funds are set forth in Subpart
D of 31 CFR part 50.\4\ Rules concerning claims procedures governing
payment of the Federal share of compensation for insured losses are
currently found at subpart F of 31 CFR part 50.\5\ Subpart G of 31 CFR
part 50 currently contains rules on audit and recordkeeping
requirements for insurers,\6\ while Subpart H of 31 CFR part 50
currently addresses recoupment and surcharge procedures.\7\ Finally,
Subpart I of 31 CFR part 50 currently contains rules implementing the
litigation management provisions of TRIA,\8\ and Subpart J of 31 CFR
part 50 currently addresses rules concerning the cap on annual
liability established under TRIA.\9\
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\3\ See 68 FR 9804 (Feb. 28, 2003) (Program definitions (Interim
Final Rule)); 68 FR 19302 (April 18, 2003) (disclosure and mandatory
availability requirements (Interim Final Rule)); 68 FR 41250 (July
11, 2003) (Program definitions (Final Rule)); 68 FR 48280 (Aug. 13,
2003) (``direct earned premium'' definition (Final Rule)).
\4\ See 68 FR 19309 (Apr. 18, 2003) (residual market entities
and state compensation funds (Notice of Proposed Rulemaking)); 68 FR
59715 (Oct. 17, 2003) (residual market entities and state
compensation funds (Final Rule)).
\5\ See 68 FR 67100 (Dec. 1, 2003) (claims procedures (Notice of
Proposed Rulemaking)); 69 FR 39296 (June 29, 2004) (claims
procedures (Final Rule)); 70 FR 2830 (Jan. 18, 2005 (timing of
affiliation for purposes of claims payments (Notice of Proposed
Rulemaking)); 70 FR 34348 (June 14, 2005) (timing of affiliation for
purposes of claims payments (Final Rule)).
\6\ See 68 FR 67100 (Dec. 1, 2003) (audit and investigative
procedures (Notice of Proposed Rulemaking)); 69 FR 39296 (audit and
investigative procedures (Final Rule)).
\7\ See 73 FR 53798 (Sept. 17, 2008) (recoupment and surcharge
procedures (Notice of Proposed Rulemaking)); 74 FR 66051 (Dec. 14,
2009) (recoupment and surcharge procedures (Final Rule)).
\8\ See 69 FR 25341 (May 6, 2004) (Federal cause of action and
settlement approval provisions (Notice of Proposed Rulemaking)); 69
FR 44932 (July 28, 2004) (Federal cause of action and settlement
approval provisions (Final Rule)).
\9\ See 73 FR 56767 (Sept. 30, 2008) (cap on annual liability
(Notice of Proposed Rulemaking)); 74 FR 66061 (Dec. 14, 2009) (cap
on annual liability (Final Rule)).
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The Program has been reauthorized three times. On December 22,
2005, the Terrorism Risk Insurance Extension Act of 2005 (Pub. L. 109-
444, 119 Stat. 2660) (2005 Extension Act) was enacted, which extended
the Program through December 31, 2007. In addition to extending the
duration of the Program, the 2005 Extension Act also eliminated certain
lines of insurance from the Program, revised the insurer deductible,
Federal share, and recoupment provisions of the Program, and introduced
the ``Program Trigger'' as a threshold that must be met before any
Federal payments can be made. Rules implementing these changes were
issued by Treasury.\10\
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\10\ See 71 FR 648 (Jan. 5, 2006) (Notice providing Interim
Guidance regarding 2005 Extension Act revisions to TRIA); 71 FR
27564 (May 11, 2006) (Interim Final Rule concerning 2005 Extension
Act revisions); 71 FR 50341 (Aug. 25, 2006) (Final Rule concerning
2005 Extension Act revisions).
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On December 26, 2007, the Terrorism Risk Insurance Program
Reauthorization
[[Page 18951]]
Act of 2007 (Pub. L. 110-160, 121 Stat. 1839) (2007 Reauthorization
Act) was enacted, extending the Program through December 31, 2014. In
addition to extending the duration of the Program, the 2007
Reauthorization Act modified the ``act of terrorism'' definition to
eliminate the requirement that the act of terrorism be committed by an
individual acting on behalf of any foreign person or interest, revised
the insurer deductible, Program Trigger, and Federal share provisions
of the Program, modified the recoupment provisions, and established
various reporting requirements. Again, rules implementing these changes
were issued by Treasury.\11\
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\11\ See 73 FR 5264 (Jan. 29, 2008) (Notice providing Interim
Guidance regarding 2007 Reauthorization Act revisions); 73 FR 53359
(Sept. 16, 2008) (Interim Final Rule regarding 2007 Reauthorization
Act revisions); 74 FR 18135 (Apr. 21, 2009) (Final Rule regarding
2007 Reauthorization Act revisions).
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Most recently, on January 12, 2015, the President signed into law
the Terrorism Risk Insurance Program Reauthorization Act of 2015 (2015
Reauthorization Act),\12\ reauthorizing the Program until December 31,
2020. The 2015 Reauthorization Act reformed various operational matters
respecting the Program. These reforms include technical changes to the
disclosure requirements, certain definitional changes, and
modifications involving the amount and application of the Program
Trigger, the Federal share of compensation, the recoupment percentage
amount, and the insurance marketplace aggregate retention amount--all
of which require modifications to the existing Program regulations.\13\
In addition, the 2015 Reauthorization Act mandates other actions by
Treasury and changes to TRIP that in turn necessitate changes to the
existing Program regulations, requiring Treasury: (1) To issue final
rules following the submission of a mandated report on improving the
certification process; \14\ (2) to collect certain information from
insurers participating in the Program so that Treasury can complete
periodic reports concerning the effectiveness of the Program and trends
over time; and (3) to define small insurers by regulation, conduct
periodic studies concerning any competitive challenges small insurers
face in the terrorism risk insurance marketplace, and submit periodic
reports on the findings.
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\12\ Public Law 114-1, 129 Stat. 3.
\13\ Treasury issued a Notice providing interim guidance
concerning application of disclosure requirements in light of the
enactment of the 2015 Reauthorization Act. 80 FR 6656 (Feb. 6,
2015).
\14\ U.S. Department of the Treasury, The Process for Certifying
an ``Act of Terrorism'' under the Terrorism Risk Insurance Act of
2002 (October 2015) (Certification Report), available at https://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/2015%20Report%20on%20the%20Certification%20Process%20under%20the%20Terrorism%20-%20Production%20Version.pdf.
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Additionally, Treasury proposes new regulations respecting civil
penalties (as provided for in TRIA) and the final netting of claims for
a calendar year,\15\ and implements certain other changes to eliminate
provisions that are redundant in light of the passage of time, and/or
to clarify the intent of the regulation.
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\15\ The regulations relating to final netting of claims are a
modification of a Final Netting of Payments rule proposed and
subject to comment in 2010 but not adopted by Treasury. See 75 FR
45563 (Aug. 3, 2010).
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Finally, Treasury poses several questions regarding the role of
self-insurance arrangements and captive insurers in the Program, to
which we seek comments to use in formulating a proposed rule in the
near future concerning the participation of such arrangements in the
Program.
The changes are explained in further detail below in the context of
the proposed rules. For the convenience of the reader, Treasury is
restating Part 50 in its entirety. However, this preamble addresses
only those portions of Part 50 that are being amended. For discussion
of Part 50 as previously codified, see the relevant Federal Register
notices mentioned above.
II. The Proposed Rules
This proposed rule would strike and replace existing 31 CFR part 50
in its entirety, with the principal changes being to: (1) Generally
revise 31 CFR part 50 to incorporate new financial and operational
provisions for the Program contained in the 2015 Reauthorization Act;
(2) add a new Subpart F to Part 50, which comprises Treasury's
regulations concerning data collection; and (3) add a new Subpart G to
Part 50, which comprises Treasury's regulations concerning the
certification process. The proposed rules also add certain definitions
in Sec. 50.4 of Subpart A, a new Sec. 50.76 addressing the previously
proposed Final Netting rule, and a new Sec. 50.82 addressing Civil
Penalties. Other changes providing further clarification and
eliminating redundancies are identified and discussed further below.
A. Overview
The Program was established in 2002, and has been reauthorized and
extended on three occasions since then--in 2005, 2007, and most
recently in January 2015. Each reauthorization and extension changed
the operational provisions of the Program. In prior rulemakings,
Treasury has sought to address such changes by incorporating provisions
in the rules reflecting the different approaches depending upon the
timing of any particular certified act of terrorism. While this
approach has captured the relevant changes over time, it has resulted
in a set of rules that incorporated numerous exceptions and
qualifications. As a result, many existing provisions in the rules have
been rendered effectively obsolete given the passage of time.
Accordingly, Treasury is taking the opportunity during this rulemaking
to propose a more general revision to Part 50, which describes the
Program as it currently operates and will operate through 2020, without
cumbersome reference to differences that were in effect prior to the
effective date of the proposed rules. The revised rules remain subject
to the existing savings provision (proposed Sec. 50.6, current Sec.
50.7) which confirms that, to the extent prior applicable regulations
or guidance remain relevant for any reason at some point in the future,
such provisions will continue to provide the rule of decision, and to
provide a safe harbor, for insurers participating in the Program.
In addition to instituting changes to the basic financial terms
that define the operation of the Program, the 2015 Reauthorization Act
also requires Treasury to prepare certain reports concerning the
operation of the Program, based upon data which Treasury shall collect,
and to generate rules concerning improvements to the certification
process. The proposed rules define a data collection process that will
allow Treasury to collect the information necessary to satisfy the
reporting requirements contained in the 2015 Reauthorization Act, in a
format consistent with the manner in which insurers presently collect
and report financial data, including data concerning terrorism risk
insurance. These rules, and the specific data collection elements,
which remain under development and subject to further refinement, are
the result of extensive and ongoing interaction among Treasury,
industry stakeholders, and state regulators.
The proposed rules concerning the certification process follow
Treasury's October 2015 Certification Report. As set forth in the
Certification Report, Treasury has determined that it is not practical
to establish detailed rules--and particularly a timeline--governing a
process that will necessarily vary from case to case, although
Treasury's proposed rules do identify the relevant timing
considerations as to when an act is eligible for certification by the
[[Page 18952]]
Secretary as an act of terrorism. In addition, the certification
process can and generally should incorporate improved notification and
communication by Treasury to the public once an act is under
consideration for certification by the Secretary as an ``act of
terrorism.'' The proposed rules provide for public notifications and
updates, as may be necessary, concerning the existence, continuation,
and conclusion of the certification process.
Finally, the proposed rules also include a modified version of a
previously proposed Final Netting Rule, which was subject to comment in
2010 but never adopted as a final rule by Treasury, and a rule
respecting civil penalties--authorized by TRIA as originally enacted in
2002, but never previously proposed by Treasury.
Treasury seeks comment on all aspects of the proposed rules from
interested persons and entities.
B. Description of the Proposed Rules
The changes to the existing rules as provided for in these proposed
rules, on a section by section basis, are as follows:
Subpart A--General Provisions
The proposed change to Sec. 50.1 adds the statutory authority
extended under the 2015 Reauthorization Act. The proposed change in
Sec. 50.2 implements the provision of the Dodd-Frank Wall Street
Reform and Consumer Protection Act authorizing the Federal Insurance
Office to assist the Secretary of the Treasury in the administration of
TRIP.\16\
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\16\ 31 U.S.C. 313(c)(1)(D).
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There are a number of changes to Program definitions. The proposed
change in Sec. 50.4(b) implements Section 105 of the 2015
Reauthorization Act, providing that the Secretary will consult with the
Attorney General of the United States and Secretary of Homeland
Security prior to certifying an act as an act of terrorism, rather than
reaching a certification decision in concurrence with the Secretary of
State and the Attorney General.
The proposed change in Sec. 50.4(c)(2) implements the rule of
construction in Section 106 of the 2015 Reauthorization Act, which
provides that control for purposes of determining if an insurer is an
``affiliate'' under TRIA is not established solely because an entity
acts as an attorney-in-fact for a another entity that is a reciprocal
insurer.
The proposed changes in Sec. 50.4(f) (defining ``attorney-in-
fact'') and Sec. 50.4(x) (defining ``reciprocal insurer'') are
required in light of the new rule of construction in Sec. 50.4(c)(2)
required by Section 106 of the 2015 Reauthorization Act, discussed
above. In both cases, Treasury has relied upon state law in developing
these definitions.
The proposed change in Sec. 50.4(g) defines ``captive insurer''
for purposes of implementing TRIA. This definition is being adopted now
in order to give effect to the proposed exclusion in Sec. 50.4(z) of
captive insurers from the definition of ``small insurer,'' and because
captive insurers might be subject to different data collection
protocols than other insurers, both discussed further below. Treasury
continues to reserve subpart E of 31 CFR part 50 for further
regulations concerning the participation of captive insurers in the
Program.
The proposed change in Sec. 50.4(m) incorporates the changes to
the insurance marketplace aggregate retention amount over the period
from 2015 to 2020, as provided for in Section 104 of the 2015
Reauthorization Act. This section sets the insurance marketplace
aggregate retention amount at $27.5 billion, and requires it to
increase by $2 billion every calendar year beginning with the year of
enactment of the 2015 Reauthorization Act, until the amount reaches
$37.5 billion, which will occur in 2019. Section 50.4(m) also specifies
the manner in which Treasury proposes to determine the insurance
marketplace aggregate retention amount for any calendar year beginning
with 2020 and publicize such determinations, in accordance with
requirement in Section 104 of the 2015 Reauthorization Act to issue
rules for determining and publicizing this amount. The approach follows
the direction in the 2015 Reauthorization Act that the insurance
marketplace aggregate retention amount for any calendar year after the
Program Trigger reaches $37.5 billion should be based upon the average
of insurer deductibles during the three prior calendar years. It
calculates this figure by reference to the data that Treasury will be
collecting concerning insurer participation in the Program under
proposed Sec. 50.51.
The proposed change in Sec. 50.4(n) is for clarification purposes
only and is not intended to change the prior approach, which was to
confirm that outside the United States (as distinguished from inside
the United States) insured losses under TRIP involving an air carrier
(as defined in 49 U.S.C. 40102) or a United States flag vessel (or a
vessel based principally in the United States, on which United States
income tax is paid and whose insurance coverage is subject to
regulation in the United States) are limited to the insurance coverage
provided to the air carrier or vessel.
The proposed change in Sec. 50.4(v) incorporates the changes to
the amount of the Program Trigger over the period from 2015 to 2020,
and specifies that the Program Trigger is based on all acts of
terrorism certified by the Secretary in a particular calendar year (as
distinguished from each ``Program Year''), as provided for in Section
103 of the 2015 Reauthorization Act.
The proposed change in Sec. 50.4(z) defines ``small insurer'' as
required under Section 112 of the 2015 Reauthorization Act for purposes
of a study of small insurers participating in the Program that Treasury
must conduct. The purpose of the study is to identify any competitive
challenges small insurers face in the terrorism risk insurance
marketplace--including whether the increase in amount of the Program
Trigger has affected small insurers. Treasury proposes a sliding scale
definition of a ``small insurer''--which tracks the increasing amount
of the Program Trigger in the years from 2015 to 2020--by reference to
both the insurer's direct earned premium (for TRIA-eligible lines) and
policyholder surplus. Treasury has selected this proposed definition of
``small insurer'' for purposes of TRIP in light of the manner in which
the Program operates.
An insurer's deductible under TRIP is 20 percent of the insurer's
direct earned premium in the prior calendar year. Assuming the Program
Trigger has been met--an amount of aggregate insured losses in excess
of a defined amount in a particular calendar year (starting with $100
million in 2015 and ultimately increasing to $200 million by 2020)--
Treasury will make payment of the Federal share for amounts in excess
of any particular insurer's deductible.
The Program Trigger is based upon the insured losses of all
participants in the Program and, therefore, a particular insurer with
losses below the Program Trigger but above its deductible may still be
entitled to payments of the Federal share, so long as insured losses of
all participating insurers are sufficient to satisfy the Program
Trigger. A different situation, however, could be presented if losses
arising from a certified act of terrorism are largely or entirely
sustained by a single insurer whose deductible is below the Program
Trigger. In this situation, an insurer with a deductible of (for
example) $20 million, and total losses of $50 million would not be
entitled to payments under the Program (notwithstanding satisfaction of
its deductible) if total insured losses across all Program
[[Page 18953]]
participants in this hypothetical were, say, only $60 million in total.
If an insurer's direct earned premium is five times the Program
Trigger amount (for example, at $500 million in 2015) that insurer's
deductible would at least exceed the Program Trigger, even if all of
the insured losses in question (a theoretical if unlikely possibility)
resulting from a certified act of terrorism were sustained only by that
insurer. Such an insurer would be paid any Federal share above its
deductible, since that insurer's deductible would be equal to the
Program Trigger for the calendar year in question. If an insurer's
direct earned premium is less than five times the Program Trigger
amount, however, the possibility remains that an insurer might exceed
its deductible but not be entitled to payments of the Federal share
because the Program Trigger has not been met. The impact upon such an
insurer in this situation, however, would be lessened to the extent the
insurer's policyholder surplus was sufficient to satisfy any amounts
that would not be reimbursed in such a scenario under the Program.
Since the purpose of studying small insurers under TRIP is to
assess competitive challenges small insurers face in the terrorism risk
insurance marketplace, the definition should be with reference to the
insurer's deductible and policyholder surplus as compared with the
Program Trigger threshold. Accordingly, Treasury's proposed definition
specifies that a ``small insurer'' is an insurer with prior-year direct
earned premium of less than five times the Program Trigger amount, and
with policyholder surplus at the end of the prior calendar year that is
also less than five times the Program Trigger amount. Insurers larger
than this--whose losses alone could trigger the Program, or whose
surplus is well above the Program Trigger threshold--cannot be
considered ``small'' for these purposes.
Finally, captive insurers (as defined in this proposed rule) are
exempted from the small insurer definition. Captive insurers typically
insure only the exposures of corporate parents or of other related
policyholders, and thus while these captives might otherwise meet the
proposed definition of ``small insurer'' the establishment of a captive
insurer is a risk management decision that is not compelled by TRIP,
and the corporate parent or other source of strength of the captive
insurer is ultimately positioned to manage any potential risk presented
to the captive by its participation in TRIP. Any issue relating to the
size of captive insurers as it relates to TRIP should be assessed in
the context of regulations specifically applicable to such captives.
The balance of the proposed changes to Subpart A would delete
provisions that are redundant or unnecessary on account of the passage
of time, would substitute language to clarify Treasury's intent, or
would implement other changes required by the 2015 Reauthorization Act
(e.g., the movement from the term ``Program Year'' to the term
``calendar year'' to describe the operation of TRIP).
Subpart B--Disclosures as Conditions for Federal Payment
The proposed change to Sec. 50.12 clarifies the manner in which
the portion or percentage of the annual premium attributable to
terrorism risk insurance should be disclosed to policyholders or
potential policyholders, to ensure that the actual dollar value of the
premium is evident.
The proposed changes to Sec. 50.13 implement Section 106(2)(A) of
the 2015 Reauthorization Act, which deleted the previous requirement
that the general disclosure requirements respecting insured losses (as
found in Sec. 50.10) apply at the time of policy purchase, as well as
at the time of offer and renewal.
The proposed change to Sec. 50.15 provides expanded guidance for
ensuring compliance with the requirement that the cap disclosure be
provided at the time of offer, purchase, and renewal. It clarifies that
a cap disclosure at the time of purchase needs only to be provided in
the event that terrorism risk coverage is actually purchased, and
establishes that the disclosure at that time may refer back to the
disclosure made at the time of offer or renewal. This guidance is
otherwise consistent with the general approach of the 2015
Reauthorization Act to notification requirements.
The balance of the proposed changes to Subpart B would delete
provisions that are redundant or unnecessary on account of the passage
of time, substitute language to clarify Treasury's intent, or implement
other minor changes that conform the existing regulations to the
requirements of the 2015 Reauthorization Act.
Subpart C--Mandatory Availability
The proposed changes to Subpart C would delete provisions that are
redundant or unnecessary on account of the passage of time, substitute
language to clarify Treasury's intent, or implement other minor changes
that conform the existing regulations to the requirements of the 2015
Reauthorization Act, and do not seek to establish any further
substantive changes.
Subpart D--State Residual Market Insurance Entities; Workers'
Compensation Funds
No substantive changes have been proposed to Subpart D.
Subpart E--Self-Insurance Arrangements; Captives [Reserved]
Treasury continues to reserve Subpart E for future additional rules
addressing the participation in TRIP of self-insurance arrangements and
captive insurers. Comments concerning the participation in the Program
of self-insurance arrangements and captive insurers are sought in
Section III, below.
Subpart F--Data Collection
Subpart F is new. The proposed rules establish procedures for
collection of data as mandated by Section 111 of the 2015
Reauthorization Act, and also address the collection of data by
Treasury in connection with the claims process, in the event that an
act of terrorism has been certified. A general explanation of each
section of new Subpart F follows.
Proposed Sec. 50.50 states that Treasury may generally request
information from insurers in connection with the Program, as part of
its administration and implementation of the program.
Proposed Sec. 50.51 establishes rules concerning the annual
collection of data by Treasury concerning the effectiveness of the
Program, as mandated by Section 111 of the 2015 Reauthorization Act. A
reporting deadline each year of March 1 is proposed. Treasury has
proposed this reporting deadline to provide insurers with sufficient
time to compile and provide the necessary information and ensure it is
true and correct. A March 1 deadline is also consistent with other
annual reporting requirements insurers must meet. The subject matter of
the data to be collected is identified consistent with the requirements
of Section 111 of the 2015 Reauthorization Act. The rule further
specifies that the data will be collected electronically by Treasury,
through various forms and web portals identified on Treasury's Web
site. The reporting forms and portals, which will identify the specific
data elements that insurers will be required to provide on an annual
basis, are under development and will be published for comment
separately. Given that insurers collect and report data in a variety of
ways, the precise data elements, instructions, and methods of reporting
may vary by industry segment. Treasury will publish
[[Page 18954]]
multiple forms if it identifies a need and will provide clear guidance
for insurers to determine the appropriate forms to submit. The proposed
rule also provides for periodic reevaluation of and revisions to the
data elements to be collected, so that ongoing refinements to the
process can be implemented. Treasury has proposed a 90 day notice
period for any refinements, to provide insurers with sufficient time to
update any systems they will need to change to facilitate collection of
the new data.
The proposed rule also permits Treasury to issue supplemental data
requests to participating insurers to the extent Treasury determines it
requires additional or clarifying information in order to analyze the
effectiveness of the Program. Like the potential revision to the annual
data element requirements, this is an additional tool for Treasury to
manage the information it is collecting to ensure that it is able to
evaluate the effectiveness of the Program, as required by the 2015
Reauthorization Act. The timeframe and manner of response to any such
supplemental data request will be specified by Treasury in the request.
The proposed rule permits--but does not require--Treasury to
exclude small insurers, as defined in proposed Sec. 50.4(z), from the
annual data request. Section 111 of the 2015 Reauthorization Act
requires the Secretary to collect from insurers participating in the
Program such information as the Secretary considers appropriate to
analyze the overall effectiveness of the Program. Treasury may gather
all of the information appropriate for analyzing the effectiveness of
the Program without requiring collection of information from every
single participating insurer. The statutory text does not require the
Secretary to require all insurers participating in the Program to
submit information, nor does it require that all insurers be required
to submit the same information. Rather, the statute requires the
Secretary to require insurers to submit such information as the
Secretary considers appropriate. Therefore, the Secretary may sometimes
exempt a small insurer or class of small insurers if such exemption
would not interfere with Treasury's ability to analyze the
effectiveness of the Program. It would not be appropriate to extend
such an exemption to insurers that do not qualify as small insurers, as
such an exemption would be more likely to have a negative impact on
Treasury's ability to analyze the effectiveness of the program.
Proposed Sec. 50.52 addresses the collection of data relating to
small insurers, as defined in proposed Sec. 50.4(z), in support of the
studies of small insurers mandated by the 2015 Reauthorization Act. The
data elements specified in the proposed Sec. 50.52 are those specified
in Section 112 of the 2015 Reauthorization Act.
Proposed Sec. 50.53 establishes rules for the collection of data
by Treasury once an act has been certified as an act of terrorism,
under Treasury's general authority to under Section 104(a) of the Act
to investigate claims under the Program and prescribe regulations to
effectively administer the Program and ensure that all insurers that
participate in the Program are treated equally. In order to effectively
administer the Program, Treasury requires information regarding losses
resulting from a certified act of terrorism and has accordingly
previously adopted rules requiring the submission of such information.
The current rules (Sec. 50.52) do not require insurers to begin
reporting information to Treasury concerning losses resulting from a
certified act of terrorism until a particular insurer's paid and
incurred losses reach 50 percent of the insurer's TRIA deductible.
However, given the size of the deductibles of some participating
insurers, this could result in losses being paid and reserved by
industry as a whole in an amount far in excess of the $100 million
Program Trigger before Treasury has obtained any specific information
respecting losses resulting from the act of terrorism as they are
incurred. This new section provides for periodic reporting of claims
and loss information associated with the act of terrorism in question,
so that Treasury may evaluate on a continuing basis the amount of loss
associated with the certified act of terrorism, and be prepared in
advance to respond to claims for payment of the Federal share of
compensation in a timely fashion. The data elements sought under this
rule are consistent with those that each participating insurer will be
generating in connection with its own establishment, review, and
resolution of claims as they are processed. As in other situations
involving data collection, the rule specifies that Treasury may also
seek loss figures and estimates from other sources in order to inform
its analysis and projections.
Finally, proposed Sec. 50.54 implements the requirements found in
Section 111 of the 2015 Reauthorization Act, which recognize that the
data that Treasury will need to collect from participating insurers may
constitute proprietary information that is highly sensitive to the
individual companies (and, potentially, underlying policyholders and
claimants) from which it is obtained. The proposed rule provides for
protection of such data from disclosure, although it does permit--
pursuant to appropriate agreements--for the sharing of such information
with other Federal agencies or state insurance regulatory authorities.
Subpart G--Certification
Subpart G is new. The proposed rules establish procedures
applicable when Treasury is considering whether an act constitutes an
``act of terrorism'' within the meaning of TRIA.
The 2015 Reauthorization Act includes a requirement for Treasury to
conduct and complete a study on the certification process, including
examination of whether a timeline governing the certification process
could be established, information that the Secretary would evaluate
during the certification process, and the ability of the Secretary to
provide guidance and updates to the public during the certification
process. In the Certification Report, Treasury concluded that it would
be impractical to establish very specific rules to define a process
that will likely vary greatly in material respects depending upon the
act and its consequences. Treasury determined, however, that the
certification process could be improved by periodic reporting to the
public during the pendency of that process, which Treasury concluded
should permit relevant stakeholders and the public at large to assess
their positions as they might be affected by the Secretary's decision
whether to certify an act as an act of terrorism. Treasury also
addressed in the Certification Report the types of information that it
might need to evaluate during the certification process. Under the 2015
Reauthorization Act, Treasury must issue final rules governing the
certification process within 9 months after the Certification Report,
including a timeline for when an act is eligible for certification by
the Secretary as an act of terrorism. These proposed rules implement
Treasury's recommendations in its Certification Report and the
requirements of the 2015 Reauthorization Act.
Proposed Sec. 50.60 sets forth the general parameters of the
certification process, as required under TRIA, and as modified by the
2015 Reauthorization Act, including the requirement in paragraph (b)
that from a timing standpoint an act is eligible for certification once
the Secretary has consulted with the Attorney General of the United
States and the Secretary of Homeland Security.
Proposed Sec. 50.61 addresses the commencement of the
certification
[[Page 18955]]
process and public communication concerning the process. After the
Secretary commences consideration of whether an act may be an act of
terrorism under TRIA, Treasury will publish a statement and a notice in
the Federal Register advising that the act is under consideration for
certification. Such notice could also reflect that it has been
determined that a particular act is not under consideration as an act
of terrorism. The proposed rule provides that such notice will be
updated periodically by Treasury as long as the act is still under
review for certification. In addition to indicating whether the act
remains under consideration for certification, the proposed rule
provides that Treasury may publish further information in connection
with such notifications. Nothing in the proposed notification
provisions, however, precludes the Secretary from certifying an act as
an act of terrorism before any notification to the public.
Proposed Sec. 50.62 establishes rules for the collection of data
by Treasury in aid of the certification process. As explained in the
Certification Report, Treasury may need to collect data from insurers,
as well as from other entities in the insurance industry, in connection
with its analysis of whether the insurance losses resulting from an act
under consideration for certification as an act of terrorism meet the
$5 million loss threshold under TRIA, which must be met before any act
is eligible for certification as an act of terrorism.\17\ This
information may therefore be crucial for informing a certification
decision. Accordingly, Treasury proposes this section under its general
authority to promulgate rules for effective administration of the
Program and its authority to issue rules governing the certification
process pursuant to Section 107(e) of the 2015 Reauthorization Act.
Treasury may need to rely upon insurers who have or project losses from
the act in question in order to confirm whether the relevant loss
threshold is or will be satisfied. An insurer that has such information
may also self-report to Treasury, as further provided in the rule, and
Treasury may also review other industry sources for such loss
information.
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\17\ TRIA, Section 102(1)(B)(ii).
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Proposed Sec. 50.63 provides for Federal Register notification and
other communication of any certification decision, as well separate
notifications to Congress and specified insurance supervisory
authorities.
Subpart H--Claims Procedures
The proposed changes to Sec. 50.70 (formerly Sec. 50.50)
implement the changes to the Federal share of compensation and Program
Trigger amounts in the years from 2015 through 2020, as provided for in
the 2015 Reauthorization Act.
Proposed Sec. 50.76 addresses final netting. This rule was
originally proposed by Treasury in 2010 and subject to comment but was
not adopted by Treasury. See generally 75 FR 45563 (August 3, 2010).
The intent of the proposed rule is to provide a process by which
Treasury would close out its claims operation for insured losses from a
particular calendar year. The proposed rule provides for some
flexibility in how and when steps are taken to accomplish this in order
to be able to effectively address future circumstances. Treasury has
addressed certain of the comments that were received during the prior
comment period by modifications to the proposed rule, and responds to
certain of the comments that are not addressed by revisions to the
proposed rule. Interested parties are invited to provide further
comments respecting the proposed final netting rule during the current
comment period.
Section 103(e)(4) of TRIA provides the Secretary with the sole
discretion to determine the time at which claims relating to any
insured loss or act of terrorism shall be accomplished. Based on that
authority, the final netting rule provides the mechanism for final
payments to be made by Treasury to insurers, or by insurers to
Treasury, such that Treasury can close out its claims operation for
insured losses for a given calendar year, once the Secretary has
determined that claims for the Federal share of compensation shall be
considered final.
The substantive modifications to the proposed rule as originally
proposed in 2010 are to paragraph (b)(1)(v) (identifying the manner in
which the Federal courts have been applying tort and contract statute
of limitations as such decisions may be relevant to the final netting
analysis) and paragraph (b)(1)(ix) (expressly requiring that if it is
projected that the cap on annual liability will be reached,
consideration shall be given as to whether any Final Netting Date
should be set) are based on the comments that were previously received.
Treasury concurs with the commenters that these are appropriate
considerations for Final Netting. Treasury has not, however, revised
the proposed rule in response to comments recommending that Treasury
should not impose a commutation over the objection of the relevant
insurer, or that Treasury should expressly obligate itself to reopen
and/or extend the insurer's claim for the Federal share of compensation
if the 20 percent exception threshold of increased compensation is met.
Treasury makes payment of the Federal share of compensation pursuant to
the terms of TRIA and not as a matter of contract, and TRIA leaves to
the sole discretion of the Secretary--who must consider the impact of
the Program upon taxpayers as well as upon the participating insurers--
when claims shall become final. The considerations identified in the
proposed rule as to whether and when a Final Netting Date should be set
are appropriate and sufficiently identify the relevant considerations.
The balance of the proposed changes to the previously proposed
Final Netting Rule text revise certain terminology previously used in
the regulations, in order to distinguish the provisions from the new
proposed rule, or to implement other technical changes that conform the
existing regulations to the requirements of the 2015 Reauthorization
Act, and do not seek to establish any substantive changes.
Subpart I--Audit and Investigative Procedures
The only substantive change to Subpart I (formerly Subpart G) is
new Sec. 50.82, addressing civil penalties in connection with TRIA.
The authority for Treasury to impose civil penalties against an insurer
in connection with the administration of TRIA is provided under Section
104(e) of the Act. The proposed rule tracks the statutory language as
to the situations in which a civil penalty may be assessed, and
provides (as required by the Act) for any penalty to be assessed only
after proceedings on the record and after an opportunity is extended to
the insurer in question for a hearing. Treasury previously considered a
different penalty rule, addressing only certain conduct in connection
with the Program; that proposed rule was withdrawn in light of comments
that the authority generally available under Section 104(e) of the Act
``cover[s] the landscape of potential offenses.'' 69 FR 39296, 39299-
300 (June 29, 2004). This proposed rule is consistent with the
statutory authority provided to Treasury under the Act.
The only substantive change from the civil penalty authority as
identified in Section 104(e) of TRIA is with respect to the amount,
which has been increased from not more than $1,000,000 as provided for
in TRIA to not more than $1,325,000. This increase
[[Page 18956]]
is based on the Federal Civil Penalties Inflation Adjustment Act of
1990, 28 U.S.C. 2461 note, which requires (in Section 5 of that Act)
that civil penalties be increased by the percentage difference in the
Consumer Price Index (CPI) for June of the year in which the penalty
was originally established (here, June 2002) versus June of year in
which the penalty is readjusted, or June 2015. In June 2002, the CPI
was 179.9, and in June 2015 the CPI was 238.638--an increase of 58.738,
which is a percentage increase from June 2002 of 32.65%. This results
in an increased penalty of $1,326,503 which, according to Section 4 of
the Act, is to be rounded to the nearest $25,000 in the case of
penalties in excess of $200,000. This results in the current figure of
$1,325,000.
Subpart J--Recoupment and Surcharge Procedures
The principal changes in Subpart J are in connection with proposed
Sec. 50.90 (formerly Sec. 50.70), and are based upon changes to the
Program adopted in the 2015 Reauthorization Act--i.e., the increase,
from 133 percent to 140 percent, in the amount of terrorism loss risk-
spreading premiums to be applied to any mandatory recoupment amount,
and the revised schedule for the collection of terrorism loss risk-
spreading premiums, depending upon the timing of any certified act of
terrorism. The balance of the proposed changes to Subpart J make
certain clarifying changes and otherwise conform the existing
regulations to the requirements of the 2015 Reauthorization Act, and do
not seek to establish any further substantive changes.
Subpart K--Federal Cause of Action; Approval of Settlements
The proposed Rule incorporates certain changes and clarifications
to Subpart K, involving the Federal Cause of Action and Approval of
Settlements by Treasury. These changes are designed to enhance
Treasury's ability to evaluate and manage significant claims that could
have a material impact upon Treasury's payment of the Federal share of
compensation.
Proposed Sec. 50.100(b) is proposed for the sake of completeness
and tracks the existing requirement identified in TRIA that once the
Secretary certifies an act of terrorism the Judicial Panel on
Multidistrict Litigation shall designate one or more district courts to
exercise exclusive jurisdiction of claims arising out of the certified
act of terrorism. See TRIA, Section 107(a)(4).
Proposed Sec. 50.102 (formerly Sec. 50.82) includes certain
clarifying language confirming that the advance settlement approval
requirement extends to claims that may ultimately be determined to fall
within an insurer's deductible. Insured losses are ultimately submitted
to Treasury as the basis for payment of the Federal share on an
aggregate basis and, therefore, Treasury has previously recognized that
the advance settlement approval requirement logically extends to such
cases. See 69 FR 44932, 44936 (July 29, 2004). This proposed change
thus only clarifies existing guidance.
Proposed Sec. 50.103 (formerly 50.83) contains certain clarifying
language respecting the submission of information Treasury seeks in
support of settlement approval.
Proposed Sec. 50.104 (formerly Sec. 50.84) adds a provision
recognizing that while the Government's subrogation rights arising from
TRIP payments may not be waived by a participating insurer, those
rights might not be enforced by the Government in an appropriate
situation. While the general regulatory prohibition against impairing
the subrogation rights of the United States remains in place, Treasury
recognizes that there may be litigation situations--for example, when
all parties involved may ultimately be seeking to have their losses
reimbursed through claims for the Federal share of compensation--where
a sensible resolution of the matter would be for the United States to
forbear from exercising those rights as part of a prudent global
settlement agreement that resolves the matter in question as to all
parties. The proposed change provides the flexibility to consider such
an approach in an appropriate case.
The balance of the proposed changes to Subpart K make certain
clarifying changes or delete material that is now redundant or
unnecessary, and do not seek to establish any substantive changes.
Subpart L--Cap on Annual Liability
The proposed changes in Subpart L incorporate language required by
the 2015 Reauthorization Act, or conform the provisions to Treasury's
other data collection authorities under Part 50.
III. Participation of Captive Insurers and Other Self-Insurance
Arrangements in the Program: Request for Comments
Under Section 103(f) of TRIA, the Secretary ``may apply the
provisions of this title, as appropriate, to other classes or types of
captive insurers and other self-insurance arrangements by
municipalities and other entities. . . .'' Treasury has previously
advised that state-licensed captive insurers participate in the Program
by virtue of their status as licensed insurance entities, and has
issued some guidance concerning that participation; however, Treasury
has not issued any rules specifically concerning the participation of
captive insurers in the Program. Treasury also has not issued any rules
concerning the participation of ``other self-insurance arrangements by
municipalities and other entities'' in the Program.
In anticipation of the development of rules concerning the
participation of captive insurers and, potentially, other self-
insurance arrangements in the Program, Treasury invites interested
parties to provide comments concerning these issues. While interested
parties are invited to address these matters generally, Treasury
particularly invites responses to the following questions:
(1) What is the current role of captive insurers (both state-
licensed entities and otherwise) in providing insurance in TRIP-
eligible lines?
(2) Should captive arrangements that insure U.S.-based risks, other
than those involving state-licensed insurers, participate in the
Program? Upon what basis should such participation take place?
(3) Should separate rules address the criteria for which captives,
of any type, qualify for reimbursement under the Program? In response
to this question, please address whether and/or how the relatively
small TRIP-eligible premiums of such insurers should affect their
insurer deductible.
(4) Given the relatively small size of some captive insurers,
should some assessment be made of their capital and claims paying
ability in connection with their participation in the Program? If so,
how should Treasury consider and address such issues?
(5) To what extent are captives being relied upon to insure so-
called ``trophy risks'' that might be deemed to be subject to a
heightened risk of terrorism?
(6) What is the current role of self-insurance arrangements in
providing workers' compensation reimbursement for losses that could be
subject to the Program?
(7) What is the current extent of self-insurance arrangements in
other TRIA-eligible lines apart from workers' compensation insurance?
(8) Should self-insurance arrangements, apart from state-licensed
captives, qualify for participation in the Program? Do self-insurers
wish to participate in the Program? If self-insurers were to
participate in the Program, how would such participation be structured,
including in terms of
[[Page 18957]]
deductibles and potential liability for the recoupment of surcharges?
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. Under the Regulatory Flexibility Act, 5
U.S.C. 601 et seq., Treasury must consider whether this rule, if
promulgated, will have a ``significant economic impact on a substantial
number of small entities.'' 5 U.S.C. 605(b). In this case, Treasury
certifies that this Proposed Rule, if adopted, would likely not have a
significant economic impact on a substantial number of small entities.
Although the rule may affect a substantial number of small insurers,
the economic impact is unlikely to be significant, for the reasons
explained below.
Treasury has previously determined that regulations issued in
connection with the Program do not have a significant economic impact
on a substantial number of small entities. As noted previously, 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 of insurance, with
certain specific exclusions, without any reference to the size or scope
of the insurer. Thus, the economic impacts associated with the Program
regulations flow from TRIA, and not from the prior regulations.
Furthermore, the regulations that have been proposed and adopted in the
past have sought to be consistent with the manner in which insurers
already conduct their business, in an effort to minimize the impact of
the Program's operation upon participants. All of these considerations
apply with equal force in connection with the Proposed Rule.
This Proposed Rule may affect a substantial number of small
entities. Existing Small Business Administration size regulations (see
13 CFR 121.201) define small entities within the direct property and
casualty insurance sector as those with 1500 employees or less;
however, this Proposed Rule (see proposed 31 CFR 50.4(z)) contains a
definition of ``small insurer'' for purposes of the Program that is
based upon the size of the insurer's policyholder surplus and direct
earned premiums. Based upon either measurement, some ``small entities''
or ``small insurers'' will be subject to the Proposed Rule--just as
such insurers are subject to the requirements of TRIA as enacted. For
purposes of its Paperwork Reduction Analysis, below, Treasury has
estimated that perhaps about 500 insurers will have lesser reporting
burdens because they are ``small insurers'' that, although they write
some amount of TRIP-eligible lines premium, will likely have less
information to report because of the reduced scope of their operations
(either geographically or in terms of lines of business, or both), or
may otherwise be excused from more detailed requirements under the
Proposed Rule.
Treasury has sought to tailor the Proposed Rule, including the
aspects of the rule respecting data collection, to the manner in which
insurance companies (including small insurers) typically operate, such
that the Proposed Rule should not have a significant economic impact.
This Proposed Rule would implement the reforms in the 2015
Reauthorization Act. The aspects of the rule respecting data collection
address data that the Secretary has been charged under the 2015
Reauthorization Act to collect, including data that must be collected
and analyzed to determine whether small insurers face competitive
challenges in the terrorism risk insurance marketplace.
As discussed in the preamble, the Proposed Rule imposes certain
requirements respecting the production of data that could affect the
manner in which insurers, including small insurers, presently collect
and maintain information. The rule has been proposed in a way that most
insurers, including small insurers, should already be collecting and
maintaining the data in question as part of their ordinary course of
business, such that any additional costs will be occasioned by some
reprogramming costs to permit the more efficient reporting of the
requested data. Given the character of the information that is sought,
Treasury believes that any such costs should be nominal, in light of
existing obligations all insurers have to record and retain the
information sought by Treasury. Nonetheless, and recognizing that the
provisions of the Proposed Rule respecting data collection may impose
some additional costs and burdens on small insurers, the Proposed Rule
provides Treasury with the authority to excuse or modify the data
collection requirements as applicable to small insurers. Treasury seeks
information and comments on any costs, compliance requirements, or
changes in operating procedures arising from application of the
Proposed Rule on small entities or insurers, the size and
characteristics of any small entity or insurer that you believe may be
subject to that impact, and any ways in which you believe--consistent
with the requirements of the 2015 Reauthorization Act--these aspects of
the Proposed Rule could be modified to avoid or mitigate the impact
that you identify.
Treasury seeks information and comments on the extent to which the
Proposed Rule will affect small entities or insurers, the size and
characteristics of any small entity or insurer that you believe may be
subject to that impact, and any ways in which you believe--consistent
with the requirements of the 2015 Reauthorization Act--these aspects of
the Proposed Rule could be modified to avoid or mitigate the impact
that you identify.
After reviewing the comments received during the public comment
period, Treasury will consider whether to conduct additional regulatory
flexibility analysis.\18\
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\18\ Treasury notes that the proposed final netting rule was
previously analyzed for purposes of the Regulatory Flexibility Act.
75 FR 45563, 45566 (August 3, 2010). As explained previously, the
economic impact, if any, of the final netting rule would be most
likely to fall upon large insurers which would be more likely to be
subject to the termination of the claims process and the proposed
commutation procedure. That 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 compensation if significant new claims are reported
to the insurer subsequent to the Final Netting. The economic impact
on all commercial property and casualty insurers (including any that
might be small entities) should thus be minimal. Treasury invites
any interested parties to comment, if they wish, as respects this
prior analysis.
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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
[[Page 18958]]
collection of information should be received by May 31, 2016.
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, including the validity of the assumptions and the
methods used (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 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 new collection of
information in connection with (1) annual data requests; (2) claims
data; (3) certification; and (4) final netting. As respects civil
penalties, there is no data collection that would be generally
applicable to responding parties in general, given the individual
nature of the inquiry as respects an insurer that might be in violation
of some aspect of the Program.
Annual Data Requests
Beginning in 2017, with respect to 2016 data, insurers would be
required to submit annual data regarding their participation in the
Program, pursuant to Section 111 of the 2015 Reauthorization Act and
proposed 31 CFR 50.51. The proposed rule requires an annual data
collection process which will continue from year to year as long as the
Program remains in effect. The information sought by Treasury will
comprise data elements that insurers currently collect or generate,
although not necessarily grouped together the way in which insurers
currently collect and evaluate the data. Annual data collections could
involve as many as about 2,000 Program participants, although the data
to be collected from at least some of the insurers could be more
limited. For insurers reporting standard information, Treasury
anticipates approximately 50 hours to collect, process and report the
data, and approximately 25 hours for collection, processing and
reporting data where more limited information is sought or available.
The precise breakdown between these categories will likely vary
depending upon the year in question and issues presented. For
illustrative purposes, Treasury assumes that approximately 1,500
insurers may be subject to the standard information request, with
perhaps 500 subject to a more limited request. Assuming this breakdown,
the estimated annual burden would be 87,500 hours (1,500 insurers x 50
hours + 500 insurers x 25 hours).
Description of recordkeepers: Insurers as defined in 31 CFR 50.4.
Estimated number of recordkeepers: 2,000 insurers, potentially
divided for illustrative purposes into 1,500 insurers with standard
reporting obligations and 500 insurers with more limited reporting
responsibilities.
Estimated frequency: Annually.
Average estimated recordkeeping burden: 50 hours per year per
insurer, reducing to 25 hours per year per insurers with more limited
reporting responsibility.
Total estimated recordkeeping burden: 87,500 hours per year.
This data collection burden is imposed by the 2015 Reauthorization
Act which requires the Secretary to require insurers participating in
the Program to submit information regarding insurance coverage for
terrorism losses.
Claims Data
The data collection rules also propose reporting of claims data by
insurers as losses are sustained by insurers in the ordinary course
once there has been a certified act of terrorism. The claims data
sought is in a form that will be generated by insurers in the ordinary
course of their operations. Accordingly, the burden associated with the
requirement should consist of generating monthly reports of losses from
existing data as generated and maintained by insurers. The number of
insurers with insured losses in connection with any act of terrorism
will vary depending upon the size and nature of the certified act of
terrorism, as will the time period during which claims information will
need to be reported to Treasury. Accordingly, Treasury can only make a
``best estimate'' as to the burden presented, which is based upon the
estimate that 100 insurers will have insured losses, and will need to
report information on a monthly basis over, on average, a four-year
period. It is anticipated that the reporting will require no more than
2 hours per month per insurer to generate the required report from
existing data and submit it to Treasury. This results in an estimated
burden for each certified act of terrorism of 9,600 hours (100 insurers
x 2 hours x 48 months).
Description of recordkeepers: Insurers who have sustained insured
losses, as defined in 31 CFR 50.4.
Estimated number of recordkeepers: 100.
Estimated Frequency: Monthly.
Average estimated recordkeeping burden: 2 hours.
Total estimated recordkeeping burden: 9,600 hours over a four-year
period estimated to be necessary on average to report all insured
losses.
Certification
The proposed rules associated with the certification process
contemplate that if the Secretary is considering an act for
certification as an act of terrorism Treasury may need to collect loss
information and estimates directly from insurers in order to confirm
that losses are above relevant loss thresholds. It is uncertain that
this process would ever require reporting from more than 10 entities,
which is the threshold under the Paperwork Reduction Act. Depending
upon the circumstances, however, Treasury estimates that it is possible
that it could seek loss information from as many as 20 insurers in
connection with any individual certification process. The information
that Treasury would seek would be generated by insurers during the
ordinary course of their operations, although given the time-sensitive
nature of the certification process the information sought from
individual insurers could impose additional burdens on account of the
need to generate the information in a more expedited fashion. Treasury
estimates that the burden upon each insurer from which data is sought
could amount to 15 hours per insurer. This results in an estimated
burden for each act under consideration for certification as an act of
terrorism of 300 hours (20 insurers x 15 hours).
Description of recordkeepers: Insurers who may have sustained
insured losses as defined in 31 CFR 50.4.
Estimated number of recordkeepers: Up to 20.
Estimated Frequency: Once per certification process.
Average estimated recordkeeping burden: 15 hours.
Total estimated recordkeeping burden: Up to 300 hours.
Final Netting-Commutation
Treasury previously analyzed the potential burdens associated with
the proposed Final Netting Rule. See 75 FR 45563, 45566 (August 3,
2010). As explained previously, the collection of
[[Page 18959]]
information associated with Final Netting would be in connection with
the commutation procedure proposed in Sec. 50.76(d)(2). As in
connection with the other matters addressed herein, the required
information and process follows normal business procedures of
insurers--here, in the fashion that they interact 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 that must be repaid to Treasury. Utilizing,
again, the estimate that perhaps 100 insurers might sustain insured
losses in connection with any given act of terrorism, Treasury
estimates that there might be 15 of those insurers who will be involved
in a commutation after the determination of a Final Netting Date.
Treasury estimates that an insurer would need 40 hours, on average, to
assemble and analyze the relevant data (otherwise collected by the
insurer in the ordinary course) and develop a submission to Treasury
for commutation. The estimated total onetime burden would be 600 hours
(15 insurers x 40 hours).
Description of recordkeepers: Insurers part of a commutation
procedures, as defined in 31 CFR 50.76(d)(2).
Estimated number of recordkeepers: 15.
Estimated Frequency: Once per event.
Average estimated recordkeeping burden: 40 hours.
Total estimated recordkeeping burden: 600 hours.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by OMB.
List of Subjects
Insurance, Terrorism.
For the reasons stated in the preamble, the Department of the
Treasury proposes to revise 31 CFR part 50 to read as follows:
PART 50--TERRORISM RISK INSURANCE PROGRAM
Subpart A--General Provisions
Sec.
50.1 Authority, purpose, and scope.
50.2 Responsible office.
50.3 Mandatory participation in program.
50.4 Definitions.
50.5 Rule of construction for dates.
50.6 Special rules for Interim Guidance safe harbors.
50.7 Procedure for requesting determinations of controlling
influence.
50.8 Procedure for requesting general interpretations of statute.
Subpart B--Disclosures as Conditions for Federal Payment
50.10 General disclosure requirements.
50.11 Definition.
50.12 Clear and conspicuous disclosure.
50.13 Offer and renewal.
50.14 Separate line item.
50.15 Cap disclosure.
50.16 Use of model forms.
50.17 General disclosure requirements for State residual market
insurance entities and State workers' compensation funds.
Subpart C--Mandatory Availability
50.20 General mandatory availability requirements.
50.21 Make available.
50.22 No material difference from other coverage.
50.23 Applicability of State law requirements.
Subpart D--State Residual Market Insurance Entities; Workers'
Compensation Funds
50.30 General participation requirements.
50.31 Entities that do not share profits and losses with private
sector insurers.
50.32 Entities that share profits and losses with private sector
insurers.
50.33 Allocation of premium income associated with entities that do
share profits and losses with private sector insurers.
Subpart E--Self-Insurance Arrangements; Captives [Reserved]
Subpart F--Data Collection
50.50 General.
50.51 Annual data reporting.
50.52 Small insurer data.
50.53 Collection of claims data.
50.54 Handling of data.
Subpart G--Certification
50.60 Certification.
50.61 Public communication.
50.62 Certification data collection.
50.63 Notification of certification determination.
Subpart H--Claims Procedures
50.70 Federal share of compensation.
50.71 Adjustments to the Federal share of compensation.
50.72 Notice of deductible erosion.
50.73 Loss certifications.
50.74 Payment of Federal share of compensation.
50.75 Determination of affiliations.
50.76 Final netting.
Subpart I--Audit and Investigative Procedures
50.80 Audit authority.
50.81 Recordkeeping.
50.82 Civil penalties.
Subpart J--Recoupment and Surcharge Procedures
50.90 Mandatory and discretionary recoupment.
50.91 Determination of recoupment amounts.
50.92 Establishment of Federal terrorism policy surcharge.
50.93 Notification of recoupment.
50.94 Collecting the surcharge.
50.95 Remitting the surcharge.
50.96 Insurer responsibility.
Subpart K--Federal Cause of Action; Approval of Settlements
50.100 Federal cause of action and remedy.
50.101 State causes of action preempted.
50.102 Advance approval of settlements.
50.103 Procedure for requesting approval of proposed settlements.
50.104 Subrogation.
Subpart L--Cap on Annual Liability
50.110 Cap on annual liability.
50.111 Notice to Congress.
50.112 Determination of pro rata share.
50.113 Application of pro rata share.
50.114 Data call authority.
50.115 Final amount.
Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107-
297, 116 Stat. 2322, as amended by Public Law 109-144, 119 Stat.
2660, Pub. L. 110-160, 121 Stat. 1839 and Public Law 114-1, 129
Stat. 3 (15 U.S.C. 6701 note).
Subpart A--General Provisions
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, the Terrorism Risk Insurance
Program Reauthorization Act of 2007, Public Law 110-160, 121 Stat.
1839, and the Terrorism Risk Insurance Program Reauthorization Act of
2015, Public Law 114-1, 129 Stat. 3.
(b) Purpose. This part contains rules prescribed by the Department
of the Treasury to implement and administer the Terrorism Risk
Insurance Program.
(c) Scope. This part applies to insurers subject to the Act and
their policyholders.
Sec. 50.2 Responsible office.
The office responsible for the administration of the Terrorism Risk
Insurance Act in the Department of the Treasury is the Terrorism Risk
Insurance Program Office within the Federal Insurance Office. The
Treasury Assistant Secretary for Financial Institutions prescribes the
regulations under the Act.
[[Page 18960]]
Sec. 50.3 Mandatory participation in program.
Any entity that meets the definition of an insurer under the Act is
required to participate in the Program.
Sec. 50.4 Definitions.
For purposes of this part:
(a) Act means the Terrorism Risk Insurance Act of 2002 (as
amended).
(b) Act of terrorism--(1) In general. The term act of terrorism
means any act that is certified by the Secretary, in consultation with
the Attorney General of the United States and the Secretary of Homeland
Security:
(i) To be an act of terrorism;
(ii) To be a violent act or an act that is dangerous to human life,
property, or infrastructure;
(iii) To have resulted in damage within the United States, or
outside of the United States in the case of:
(A) An air carrier (as defined in 49 U.S.C. 40102) or a United
States flag vessel (or a vessel based principally in the United States,
on which United States income tax is paid and whose insurance coverage
is subject to regulation in the United States); or
(B) The premises of a United States mission; and
(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.
(2) Limitations. The Secretary is not authorized to certify an act
as an act of terrorism if:
(i) The act is committed as part of the course of a war declared by
the Congress (except with respect to any coverage for workers'
compensation); or
(ii) Property and casualty insurance losses resulting from the act,
in the aggregate, do not exceed $5,000,000.
(3) Judicial review precluded. The Secretary's certification of an
act of terrorism, or determination not to certify an act as an act of
terrorism, is final and is not subject to judicial review.
(c)(1) Affiliate means, with respect to an insurer, any entity that
controls, is controlled by, or is under common control with the
insurer. An affiliate must itself meet the definition of insurer to
participate in the Program.
(2)(i) For purposes of paragraph (c)(1) of this section, an insurer
has control over another insurer for purposes of the Program if:
(A) The insurer directly or indirectly or acting through one or
more other persons owns, controls, or has power to vote 25 percent or
more of any class of voting securities of the other insurer;
(B) The insurer controls in any manner the election of a majority
of the directors or trustees of the other insurer; or
(C) The Secretary determines, after notice and opportunity for
hearing, that an insurer directly or indirectly exercises a controlling
influence over the management or policies of the other insurer, even if
there is no control as defined in paragraph (c)(2)(i) or (ii) of this
section.
(ii) An entity, including any affiliate thereof, does not have
control or exercise controlling influence over a reciprocal insurer
under this section if, as of January 12, 2015, the entity was acting as
an attorney-in-fact for the reciprocal insurer, provided that the
entity does not, for reasons other than activities it may perform under
the attorney-in-fact relationship, have control over the reciprocal
insurer as otherwise defined under this section.
(3) An insurer described in paragraph (c)(2)(i)(A) or (B) of this
section is conclusively deemed to have control.
(4) For purposes of a determination of controlling influence under
paragraph (c)(2)(i)(C) of this section, if an insurer is not described
in paragraph (c)(2)(i)(A) or (B) of this section, the following
rebuttable presumptions will apply:
(i) If an insurer controls another insurer under the laws of a
state, and at least one of the factors listed in paragraph (c)(4)(iv)
of this section applies, there is a rebuttable presumption that the
insurer that has control under state law exercises a controlling
influence over the management or policies of the other insurer for
purposes of paragraph (c)(2)(i)(C) of this section.
(ii) If an insurer provides 25 percent or more of another insurer's
capital (in the case of a stock insurer), policyholder surplus (in the
case of a mutual insurer), or corporate capital (in the case of other
entities that qualify as insurers), and at least one of the factors
listed in paragraph (c)(4)(iv) of this section applies, there is a
rebuttable presumption that the insurer providing such capital,
policyholder surplus, or corporate capital exercises a controlling
influence over the management or policies of the receiving insurer for
purposes of paragraph (c)(2)(i)(C) of this section.
(iii) If an insurer, at any time during a calendar year, supplies
25 percent or more of the underwriting capacity for that year to an
insurer that is a syndicate consisting of one or more incorporated or
individual unincorporated underwriters, and at least one of the factors
in paragraph (c)(4)(iv) of this section applies, there is a rebuttable
presumption that the insurer exercises a controlling influence over the
syndicate for purposes of paragraph (c)(2)(i)(C) of this section.
(iv) If paragraphs (c)(4)(i) through (iii) of this section are not
applicable, but two or more of the following factors apply to an
insurer, with respect to another insurer, there is a rebuttable
presumption that the insurer exercises a controlling influence over the
management or policies of the other insurer for purposes of paragraph
(c)(2)(i)(C) of this section:
(A) The insurer is one of the two largest shareholders of any class
of voting stock;
(B) The insurer holds more than 35 percent of the combined debt
securities and equity of the other insurer;
(C) The insurer is party to an agreement pursuant to which the
insurer possesses a material economic stake in the other insurer
resulting from a profit-sharing arrangement, use of common names,
facilities or personnel, or the provision of essential services to the
other insurer;
(D) The insurer is party to an agreement that enables the insurer
to influence a material aspect of the management or policies of the
other insurer;
(E) The insurer would have the ability, other than through the
holding of revocable proxies, to direct the votes of more than 25
percent of the other insurer's voting stock in the future upon the
occurrence of an event;
(F) The insurer has the power to direct the disposition of more
than 25 percent of a class of voting stock of the other insurer in a
manner other than a widely dispersed or public offering;
(G) The insurer and/or the insurer's representative or nominee
constitute more than one member of the other insurer's board of
directors; or
(H) The insurer or its nominee or an officer of the insurer serves
as the chairman of the board, chairman of the executive committee,
chief executive officer, chief operating officer, chief financial
officer or in any position with similar policymaking authority in the
other insurer.
(5) An insurer that is not described in paragraph (c)(2)(i) or (ii)
of this section may request a hearing in which the insurer may rebut a
presumption of controlling influence under paragraph (c)(4)(i) through
(iv) of this section or otherwise request a determination of
controlling influence by presenting and supporting its position through
written submissions to Treasury, and in Treasury's discretion, through
informal oral presentations, in accordance with the procedure in Sec.
50.7.
(6) An insurer's affiliates for a calendar year, for purposes of
subpart H
[[Page 18961]]
of this part, shall be determined in accordance with the timing
requirements laid out in Sec. 50.75 of this part.
(d) Aggregate Federal share of compensation means the aggregate
amount paid by Treasury for the Federal share of compensation for
insured losses in a calendar year.
(e) Assessment period means a period, established by Treasury,
during which policyholders of property and casualty insurance policies
must pay, and insurers must collect, the Federal terrorism policy
surcharge for remittance to Treasury.
(f) Attorney-in-fact means a person or entity appointed by the
subscribers or members of a reciprocal insurer to act for and bind the
reciprocal insurer under relevant state law for the benefit of its
subscribers or members.
(g) Captive insurer means an insurer licensed under the captive
insurance laws or regulations of any state.
(h) Direct earned premium means direct earned premium for all
property and casualty insurance issued by any insurer for insurance
against all losses, including losses from an act of terrorism,
occurring at the locations described in section 102(5)(A) and (B) of
the Act.
(1) State-licensed or admitted insurers. For a state licensed or
admitted insurer that reports to the NAIC, direct earned premium is the
premium information for property and casualty insurance reported by the
insurer on column 2 of the Exhibit of Premiums and Losses of the NAIC
Annual Statement (commonly known as Statutory Page 14).
(i) Premium information as reported to state regulators through the
NAIC should be included in the calculation of direct earned premiums
for purposes of the Program only to the extent it reflects premiums for
property and casualty insurance issued by the insurer against losses
occurring at the locations described in section 102(5)(A) and (B) of
the Act.
(ii) Premiums for personal property and casualty lines of insurance
(insurance primarily designed to cover personal, family or household
risk exposures, with the exception of insurance written to insure 1 to
4 family rental dwellings owned for the business purpose of generating
income for the property owner), or premiums for any other insurance
coverage that does not meet the definition of property and casualty
insurance, should be excluded in the calculation of direct earned
premiums for purposes of the Program.
(iii) Personal property and casualty lines of insurance coverage
that includes incidental coverage for commercial purposes are primarily
personal coverage, and therefore premiums may be fully excluded by an
insurer from the calculation of direct earned premium. For purposes of
this section, commercial coverage is incidental if less than 25 percent
of the total direct earned premium is attributable to commercial
coverage. Property and casualty insurance against losses occurring at
locations other than the locations described in section 102(5)(A) and
(B) of the Act, or other insurance coverage that does not meet the
definition of property and casualty insurance, but that includes
incidental coverage for commercial risk exposures at such locations, is
primarily not commercial, and therefore premiums for such insurance may
also be fully excluded by an insurer from the calculation of direct
earned premium. For purposes of this section, property and casualty
insurance for losses occurring at the locations described in section
102(5)(A) and (B) of the Act is incidental if less than 25 percent of
the total direct earned premium for the insurance policy is
attributable to coverage at such locations. Also for purposes of this
section, coverage for commercial risk exposures is incidental if it is
combined with coverages that otherwise do not meet the definition of
property and casualty insurance and less than 25 percent of the total
direct earned premium for the insurance policy is attributable to the
coverage for commercial risk exposures.
(iv) If an insurance policy covers both commercial and personal
property and casualty exposures, insurers may allocate the premiums in
accordance with the proportion of risk between commercial and personal
components in order to ascertain direct earned premium. If a policy
includes insurance coverage that meets the definition of property and
casualty insurance for losses occurring at the locations described in
section 102(5)(A) and (B) of the Act, but also includes other coverage,
insurers may allocate the premiums in accordance with the proportion of
risk attributable to the components in order to ascertain direct earned
premium.
(2) Insurers that do not report to NAIC. An insurer that does not
report to the NAIC, but that is licensed or admitted by any state (such
as certain farm or county mutual insurers), should use the guidance
provided in paragraph (h)(1) of this section to assist in ascertaining
its direct earned premium.
(i) Direct earned premium may be ascertained by adjusting data
maintained by such insurer or reported by such insurer to its state
regulator to reflect a breakdown of premiums for commercial and
personal property and casualty exposure risk as described in paragraph
(h)(1) of this section and, if necessary, re-stated to reflect the
accrual method of determining direct earned premium versus direct
premium.
(ii) Such an insurer should consider other types of payments that
compensate the insurer for risk of loss (contributions, assessments,
etc.) as part of its direct earned premium.
(3) Certain eligible surplus line carrier insurers. An eligible
surplus line carrier insurer listed on the NAIC Quarterly Listing of
Alien Insurers must ascertain its direct earned premium by pricing
separately its premium for insurance that meets the definition of
property and casualty insurance for losses occurring at the locations
described in section 102(5)(A) and (B) of the Act.
(4) Federally approved insurers. A federally approved insurer,
defined under section 102(6)(A)(iii) of the Act, should use a
methodology similar to that specified for eligible surplus line carrier
insurers in paragraph (h)(3) of this section to calculate its direct
earned premium. Such calculation should be adjusted to reflect the
limitations on scope of insurance coverage under the Program (i.e., to
the extent of Federal approval of property and casualty insurance in
connection with maritime, energy or aviation activities).
(i) Direct written premium means the premium information for
property and casualty insurance that is included by an insurer in
column 1 of the Exhibit of Premiums and Losses of the NAIC Annual
Statement or in an equivalent reporting requirement. The Federal
terrorism policy surcharge is not included in amounts reported as
direct written premium.
(j) Discretionary recoupment amount means such amount of the
aggregate Federal share of compensation in excess of the mandatory
recoupment amount that the Secretary has determined will be recouped
pursuant to section 103(e)(7)(D) of the Act.
(k) Federal Insurance Office means the Federal Insurance Office
within the U.S. Department of the Treasury.
(l) Federal terrorism policy surcharge means the amount established
by Treasury under Subpart J of this Part that is imposed as a policy
surcharge on property and casualty insurance policies, expressed as a
percentage of the written premium.
(m) Insurance marketplace aggregate retention amount means an
amount for a calendar year as calculated under section 103(e)(6) of the
Act.
[[Page 18962]]
(1) For calendar years beginning with 2015 through 2019, such
amount is the lesser of the aggregate amount, for all insurers, of
insured losses once there has been a Program Trigger Event during the
calendar year and:
(i) For calendar year 2015: $29,500,000,000;
(ii) For calendar year 2016: $31,500,000,000;
(iii) For calendar year 2017: $33,500,000,000;
(iv) For calendar year 2018: $35,500,000,000; and
(v) For calendar year 2019: $37,500,000,000.
(2) For calendar years beginning with 2020 and any calendar year
thereafter as may be necessary, such amount is the lesser of the
aggregate amount, for all insurers, of insured losses once there has
been a Program Trigger Event during the calendar year and the annual
average of the sum of insurer deductibles for all insurers for the
prior 3 years, to be calculated by taking
(i) the total amount of direct earned premium reported by insurers
to Treasury pursuant to section 50.51 for the three calendar years
prior to the calendar year in question, and then dividing that figure
by three; and
(ii) Multiplying the resulting three-year average figure by 20%.
(3) Beginning in 2020, Treasury shall publish in the Federal
Register the insurance marketplace aggregate retention amount for that
calendar year no later than April 30, 2020, and by every April 30
thereafter for any subsequent calendar years as necessary. To the
extent the Secretary certifies an act as an act of terrorism prior to
April 30 of any calendar year after 2019, Treasury will publish the
relevant insurance marketplace aggregate retention amount as soon as
practicable thereafter.
(n) Insured loss. (1) The term insured loss means any loss
resulting from an act of terrorism (including an act of war, in the
case of workers' compensation) that is covered by primary or excess
property and casualty insurance issued by an insurer if the loss:
(i) Occurs within the United States;
(ii) Occurs to an air carrier (as defined in 49 U.S.C. 40102), or
to a United States flag vessel (or a vessel based principally in the
United States, on which United States income tax is paid and whose
insurance coverage is subject to regulation in the United States),
regardless of where the loss occurs; however, to the extent a loss
occurs to such an air carrier or vessel outside the United States, the
insured loss does not include losses covered by third party insurance
contracts that are separate from the insurance coverage provided to the
air carrier or vessel; or
(iii) Occurs at the premises of any United States mission.
(2) The term insured loss includes reasonable loss adjustment
expenses, incurred by an insurer in connection with insured losses,
that are allocated and identified by claim file in insurer records,
including expenses incurred in the investigation, adjustment, and
defense of claims, but excluding staff salaries, overhead, and other
insurer expenses that would have been incurred notwithstanding the
insured loss.
(3) The term insured loss does not include:
(i) Punitive or exemplary damages awarded or paid in connection
with the Federal cause of action specified in section 107(a)(1) of the
Act. The term ``punitive or exemplary damages'' means damages that are
not compensatory but are an award of money made to a claimant solely to
punish or deter; or
(ii) Extra-contractual damages awarded against, or paid by, an
insurer; or
(iii) Payments by an insurer in excess of policy limits.
(o) Insurer means any entity, including any affiliate of the
entity, that meets the following requirements:
(1)(i) The entity must fall within at least one of the following
categories:
(A) It is licensed or admitted to engage in the business of
providing primary or excess insurance in any state (including, but not
limited to, state licensed captive insurance companies, state licensed
or admitted risk retention groups, and state licensed or admitted farm
and county mutuals) and, if a joint underwriting association, pooling
arrangement, or other similar entity, then the entity must:
(1) Have gone through a process of being licensed or admitted to
engage in the business of providing primary or excess insurance that is
administered by the state's insurance regulator, which process
generally applies to insurance companies or is similar in scope and
content to the process applicable to insurance companies;
(2) Be generally subject to State insurance regulation, including
financial reporting requirements, applicable to insurance companies
within the State; and
(3) Be managed independently from other insurers participating in
the program;
(B) It is not licensed or admitted to engage in the business of
providing primary or excess insurance in any state, but is an eligible
surplus line carrier listed on the NAIC Quarterly Listing of Alien
Insurers;
(C) It is approved or accepted for the purpose of offering property
and casualty insurance by a Federal agency in connection with maritime,
energy, or aviation activity, but only to the extent of such Federal
approval of property and casualty insurance coverage offered by the
insurer in connection with maritime, energy, or aviation activity;
(D) It is a state residual market insurance entity or state
workers' compensation fund; or
(E) As determined by the Secretary, it falls within any of the
classes or types of captive insurers or other self-insurance
arrangements by municipalities and other entities.
(ii) If an entity falls within more than one category described in
paragraph (o)(1)(i) of this section, the entity is considered to fall
within the first category within which it falls for purposes of the
program.
(2) The entity must receive direct earned premium, except in the
case of:
(i) State residual market insurance entities and state workers'
compensation funds, to the extent provided in subpart D of this part;
and
(ii) Other classes or types of captive insurers and other self-
insurance arrangements by municipalities and other entities to the
extent provided for in subpart E of this part.
(3) The entity must meet any other criteria as prescribed by
Treasury.
(p) Insurer deductible means:
(1) For an insurer that has had a full year of operations during
the calendar year immediately preceding the applicable calendar year,
the value of an insurer's direct earned premiums during the immediately
preceding calendar year, multiplied by 20 percent; and
(2) For an insurer that has not had a full year of operations
during the immediately preceding calendar year, the insurer deductible
will be based on data for direct earned premiums for the applicable
calendar year multiplied by 20 percent. If the insurer does not have a
full year of operations during the applicable calendar year, the direct
earned premiums for the applicable calendar year will be annualized to
determine the insurer deductible.
(q) Mandatory recoupment amount means the difference between the
insurance marketplace aggregate retention amount for a calendar year
and the uncompensated insured losses during such calendar year.
(r) NAIC means the National Association of Insurance Commissioners.
(s) Person means any individual, business or nonprofit entity
(including
[[Page 18963]]
those organized in the form of a partnership, limited liability
company, corporation, or association), trust or estate, or a State or
political subdivision of a state or other governmental unit.
(t) Professional liability insurance means insurance coverage for
liability arising out of the performance of professional or business
duties related to a specific occupation, with coverage being tailored
to the needs of the specific occupation. Examples include abstracters,
accountants, insurance adjusters, architects, engineers, insurance
agents and brokers, lawyers, real estate agents, stockbrokers, and
veterinarians. For purposes of this definition, professional liability
insurance does not include directors and officers liability insurance.
(u) Program means the Terrorism Risk Insurance Program established
by the Act.
(v) Program Trigger Event means a certified act of terrorism within
a calendar year that results in aggregate industry insured losses,
either on its own or in combination with any other certified act(s) of
terrorism having previously taken place in the same calendar year,
exceeding:
(1) $100,000,000 with respect to calendar year 2015 insured losses;
(2) $120,000,000 with respect to calendar year 2016 insured losses;
(3) $140,000,000 with respect to calendar year 2017 insured losses;
(4) $160,000,000 with respect to calendar year 2018 insured losses;
(5) $180,000,000 with respect to calendar year 2019 insured losses;
or
(6) $200,000,000 with respect to calendar year 2020 insured losses
and with respect to any calendar year thereafter.
(w) Property and casualty insurance means commercial lines of
property and casualty insurance, including excess insurance, workers'
compensation insurance, and directors and officers liability insurance,
and:
(1) Means commercial lines within only the following lines of
insurance from the NAIC's Exhibit of Premiums and Losses (commonly
known as Statutory Page 14): Line 1--Fire; Line 2.1--Allied Lines; Line
5.1--Commercial Multiple Peril (non-liability portion); Line 5.2--
Commercial Multiple Peril (liability portion); Line 8--Ocean Marine;
Line 9--Inland Marine; Line 16--Workers' Compensation; Line 17--Other
Liability; Line 18--Products Liability; Line 22--Aircraft (all perils);
and Line 27--Boiler and Machinery; and
(2) Does not include:
(i) Federal crop insurance issued or reinsured under the Federal
Crop Insurance Act (7 U.S.C. 1501 et seq.), or any other type of crop
or livestock insurance that is privately issued or reinsured (including
crop insurance reported under either Line 2.1--Allied Lines or Line
2.2--Multiple Peril (Crop) of the NAIC's Exhibit of Premiums and Losses
(commonly known as Statutory Page 14);
(ii) Private mortgage insurance (as defined in section 2 of the
Homeowners Protection Act of 1998) (12 U.S.C. 4901) or title insurance;
(iii) Financial guaranty insurance issued by monoline financial
guaranty insurance corporations;
(iv) Insurance for medical malpractice;
(v) Health or life insurance, including group life insurance;
(vi) Flood insurance provided under the National Flood Insurance
Act of 1968 (42 U.S.C. 4001 et seq.) or earthquake insurance reported
under Line 12 of the NAIC's Exhibit of Premiums and Losses (commonly
known as Statutory Page 14);
(vii) Reinsurance or retrocessional reinsurance;
(viii) Commercial automobile insurance, including insurance
reported under Lines 19.3 (Commercial Auto No-Fault (personal injury
protection)), 19.4 (Other Commercial Auto Liability) and 21.2
(Commercial Auto Physical Damage) of the NAIC's Exhibit of Premiums and
Losses (commonly known as Statutory Page 14);
(ix) Burglary and theft insurance, including insurance reported
under Line 26 (Burglary and Theft) of the NAIC's Exhibit of Premiums
and Losses (commonly known as Statutory Page 14);
(x) Surety insurance, including insurance reported under Line 24
(Surety) of the NAIC's Exhibit of Premiums and Losses (commonly known
as Statutory Page 14);
(xi) Professional liability insurance as defined in paragraph (t)
of this section; or
(xii) Farm owners multiple peril insurance, including insurance
reported under Line 3 (Farmowners Multiple Peril) of the NAIC's Exhibit
of Premiums and Losses (commonly known as Statutory Page 14).
(x) Reciprocal insurer means an insurer organized under relevant
state law as a reciprocal or interinsurance exchange.
(y) Secretary means the Secretary of the U.S. Department of the
Treasury.
(z) Small insurer means an insurer (or an affiliated group of
insurers in the case of affiliates within the meaning of paragraph (c)
of this section) whose policyholder surplus for the immediately
preceding year is less than five times the Program Trigger amount for
the current year and whose direct earned premium for the preceding year
is also less than five times the Program Trigger amount for the current
year. An insurer that has not had a full year of operations during the
immediately preceding calendar year is a small insurer if its
policyholder surplus in the current year is less than five times the
Program Trigger amount for the current year. A captive insurer is not a
small insurer, regardless of the size of its policyholder surplus or
direct earned premium.
(aa) State means any state of the United States, the District of
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the
Northern Mariana Islands, American Samoa, Guam, each of the United
States Virgin Islands, and any territory or possession of the United
States.
(bb) Surcharge means the Federal terrorism policy surcharge as
defined in paragraph (l) of this section.
(cc) Surcharge effective date means the date established by
Treasury that begins the assessment period.
(dd) Treasury means the U.S. Department of the Treasury.
(ee) Uncompensated insured losses means the aggregate amount of
insured losses of all insurers in a calendar year, once there has been
a Program Trigger Event, that is not compensated by the Federal
Government because such losses:
(1) Are within the insurer deductibles of insurers, or
(2) Are within the portions of losses in excess of insurer
deductibles that are not compensated through payments made as a result
of claims for the Federal share of compensation.
(ff) United States means the several states, and includes the
territorial sea and the continental shelf of the United States, as
those terms are defined in the Violent Crime Control and Law
Enforcement Act of 1994 (18 U.S.C. 2280 and 2281).
Sec. 50.5 Rule of construction for dates.
Unless otherwise expressly provided in the regulation, any date in
these regulations is intended to be applied so that the day begins at
12:01 a.m. and ends at midnight on that date.
Sec. 50.6 Special rules for Interim Guidance safe harbors.
(a) An insurer will be deemed to be in compliance with the
requirements of the Act to the extent the insurer reasonably relied on
Interim Guidance prior to the effective date of applicable regulations.
[[Page 18964]]
(b) For purposes of this section, Interim Guidance means the
following documents, which are also available from Treasury at https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx:
(1) Interim Guidance I issued by Treasury on December 3, 2002, and
published at 67 FR 76206 (December 11, 2002);
(2) Interim Guidance II issued by Treasury on December 18, 2002,
and published at 67 FR 78864 (December 26, 2002);
(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);
(5) Interim Guidance V issued by Treasury on December 31, 2007, and
published at 73 FR 5264 (Jan. 29, 2008).
(6) Interim Guidance VI issued by Treasury on February 4, 2015, and
published at 80 FR 6656 (February 6, 2015).
Sec. 50.7 Procedure for requesting determinations of controlling
influence.
(a) An insurer or insurers not having control over another insurer
under Sec. 50.4(c)(2)(i) or (ii) may make a written submission to
Treasury to rebut a presumption of controlling influence under Sec.
50.4(c)(4)(i) through (iv) or otherwise to request a determination of
controlling influence. Such submissions shall be made to the Terrorism
Risk Insurance Program Office, Department of the Treasury, Room 1410,
1500 Pennsylvania Ave. NW., Washington, DC 20220. The submission should
be entitled, ``Controlling Influence Submission,'' and should provide
the full name and address of the submitting insurer(s) and the name,
title, address and telephone number of the designated contact person(s)
for such insurer(s).
(b) Treasury will review submissions and determine whether Treasury
needs additional written or orally presented information. In its
discretion, Treasury may schedule a date, time, and place for an oral
presentation by the insurer(s).
(c) An insurer or insurers must provide all relevant facts and
circumstances concerning the relationship(s) between or among the
affected insurers and the control factors in Sec. 50.4(c)(4)(i)
through (iv); and must explain in detail any basis for why the insurer
believes that no controlling influence exists (if a presumption is
being rebutted) in light of the particular facts and circumstances, as
well as the Act's language, structure and purpose. Any confidential
business or trade secret information submitted to Treasury should be
clearly marked. Treasury will handle any subsequent request for
information designated by an insurer as confidential business or trade
secret information in accordance with Treasury's Freedom of Information
Act regulations at 31 CFR part 1.
(d) Treasury will review and consider the insurer submission and
other relevant facts and circumstances. Unless otherwise extended by
Treasury, within 60 days after receipt of a complete submission,
including any additional information requested by Treasury, and
including any oral presentation, Treasury will issue a final
determination of whether one insurer has a controlling influence over
another insurer for purposes of the Program. The determination shall
set forth Treasury's basis for its determination.
(Approved by the Office of Management & Budget under control number
1505-0190.)
Sec. 50.8 Procedure for requesting general interpretations of
statute.
Persons actually or potentially affected by the Act or regulations
in this Part may request an interpretation of the Act or regulations by
writing to the Terrorism Risk Insurance Program Office, Room 1410,
Department of the Treasury, 1500 Pennsylvania Ave. NW., Washington, DC
20220, giving a detailed explanation of the facts and circumstances and
the reason why an interpretation is needed. A requester should
segregate and mark any confidential business or trade secret
information clearly. Treasury in its discretion will provide written
responses to requests for interpretation. Treasury reserves the right
to decline to provide a response in any case. Except in the case of any
confidential business or trade secret information, Treasury will make
written requests for interpretations and responses publicly available
at the Treasury Department Library, on the Treasury Web site, or
through other means as soon as practicable after the response has been
provided. Treasury will handle any subsequent request for information
that had been designated by a requester as confidential business or
trade secret information in accordance with Treasury's Freedom of
Information Act regulations at 31 CFR part 1.
Subpart B--Disclosures as Conditions for Federal Payment
Sec. 50.10 General disclosure requirements.
(a) Content of disclosure. As a condition for Federal payments
under section 103(b) of the Act, the Act requires that an insurer
provide clear and conspicuous disclosure to the policyholder of:
(1) The premium charged for insured losses covered by the Program;
and
(2) The Federal share of compensation for insured losses under the
Program.
(b) Form and timing of disclosure. The disclosure required by the
Act must be made on a separate line item in the policy, at the time of
offer and of renewal of the policy.
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.
Sec. 50.12 Clear and conspicuous disclosure.
(a) General. Whether a disclosure is clear and conspicuous depends
on the totality of the facts and circumstances of the disclosure. See
Sec. 50.16 for model forms.
(b) Description of premium. An insurer may describe the premium
charged for insured losses covered by the Program as a portion or
percentage of an annual premium, if consistent with standard business
practice and provided that the amount of annual premium or the method
of determining the annual premium is also stated. An insurer may not
describe the premium in a manner that is misleading in the context of
the Program, such as by characterizing the premium as a ``surcharge.''
(c) Method of disclosure. Subject to Sec. 50.10(b), an insurer may
provide disclosures using normal business practices, including forms
and methods of communication used to communicate similar policyholder
information to policyholders.
(d) Use of producer. If an insurer normally communicates with a
policyholder through an insurance producer or other intermediary, an
insurer may provide disclosures through such producer or other
intermediary. If an insurer elects to make the disclosures through an
insurance producer or other intermediary, the insurer remains
responsible for ensuring that the disclosures are provided by the
insurance producer or other intermediary to policyholders in accordance
with the Act.
(e) Demonstration of compliance. An insurer may demonstrate that it
has satisfied the requirement to provide clear and conspicuous
disclosure as
[[Page 18965]]
described in Sec. 50.10 through use of appropriate systems and normal
business practices that demonstrate a practice of compliance.
(f) Certification of compliance. An insurer must certify that it
has complied with the requirement to provide disclosure to the
policyholder on all policies that form the basis for any claim that is
submitted by an insurer for Federal payment under the Program.
Sec. 50.13 Offer and renewal.
An insurer is deemed to be in compliance with the requirement of
providing disclosure ``at the time of offer and of renewal of the
policy'' under Sec. 50.10(b) if the insurer makes the disclosure no
later than the time the insurer first formally offers to provide
insurance coverage or renew a policy for a current policyholder.
Sec. 50.14 Separate line item.
An insurer is deemed to be in compliance with the requirement of
providing disclosure on a ``separate line item in the policy'' under
Sec. 50.10(b) if the insurer makes the disclosure:
(a) On the declarations page of the policy;
(b) Elsewhere within the policy itself; or
(c) In any rider or endorsement, or other document that is made a
part of the policy.
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 calendar 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, 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) Offer, purchase, and renewal. An insurer is deemed to be in
compliance with the requirement of providing disclosure ``at the time
of offer, purchase, and renewal of the policy'' under Sec. 50.15(b) if
the insurer:
(1) Makes the disclosure no later than the time the insurer first
formally offers to provide insurance coverage or renew a policy for a
current policyholder; and
(2) If terrorism risk coverage is purchased, the insurer makes
clear and conspicuous reference back to that disclosure, as well as the
final terms of terrorism insurance coverage, at the time the
transaction is completed.
(d) Other applicable rules. The cap disclosure is covered by the
rules in Sec. 50.12(a), (c), (d), (e), and (f) (relating to clear and
conspicuous disclosure).
Sec. 50.16 Use of model forms.
(a) General. An insurer that is required to make the disclosure
under Sec. 50.10(b) or Sec. 50.15(b) is deemed to be in compliance
with the disclosure requirements if the insurer uses NAIC Model
Disclosure Form No. 1 or NAIC Model Disclosure Form No. 2, as
appropriate.
(b) Not exclusive means of compliance. An insurer is not required
to use NAIC Model Disclosure Form No. 1 or NAIC Model Disclosure Form
No. 2 to satisfy the disclosure requirements. An insurer may use other
means to comply with the disclosure requirements, as long as the
disclosures comport with the requirements of the Act.
(c) Definitions. For purposes of this section, references to NAIC
Model Disclosure Form No. 1 and NAIC Model Disclosure Form No. 2 refer
to such forms as revised in January 2015, or as subsequently modified
by the NAIC, provided Treasury has stated that usage by insurers of the
subsequently modified forms is deemed to satisfy the disclosure
requirements of the Act and the insurer uses the most current forms, so
approved by Treasury, that are available at the time of disclosure.
These forms may be found on the Treasury Web site at https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx.
Sec. 50.17 General disclosure requirements for State residual market
insurance entities and State workers' compensation funds.
(a) Residual market mechanism disclosure. A state residual market
insurance entity or state workers' compensation fund may provide the
disclosures required by this subpart B to policyholders using normal
business practices, including forms and methods of communication used
to communicate similar information to policyholders. The disclosures
may be made by the state residual market insurance entity or state
workers' compensation fund itself, the individual insurers that
participate in the state residual market insurance entity or state
workers' compensation fund, or its servicing carriers. The ultimate
responsibility for ensuring that the disclosure requirements have been
met rests with the insurer filing a claim under the Program.
(b) Other requirements. Except as provided in this section, all
other disclosure requirements set out in this subpart B apply to state
residual insurance market entities and state workers' compensation
funds.
Subpart C--Mandatory Availability
Sec. 50.20 General mandatory availability requirements.
(a) General requirements. Under section 103(c) of the Act, an
insurer must:
(1) Make available, in all of its property and casualty insurance
policies, coverage for insured losses; and
(2) Make available property and casualty insurance 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.
(b) Compliance through 2020. Under section 108(a) of the Act, an
insurer must comply with paragraphs (a)(1) and (2) of this section
through calendar year 2020.
(c) Beyond 2020. Notwithstanding paragraph (a)(2) of this section
and Sec. 50.22(a), property and casualty insurance coverage for
insured losses does not have to be made available beyond December 31,
2020, even if the policy period of insurance coverage for losses from
events other than acts of terrorism extends beyond that date.
Sec. 50.21 Make available.
(a) General. The requirement to make available coverage as provided
in Sec. 50.20 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 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 defined in Sec. 50.4(b).
(c) 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 or prospective
policyholder declines, the insurer may negotiate with the policyholder
or
[[Page 18966]]
prospective 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 or prospective policyholder declines full
coverage. See Sec. 50.23.
(d) Demonstrations of compliance. 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.
Sec. 50.22 No Material difference from other coverage.
(a) Terms, amounts, and other coverage limitations. As provided in
Sec. 50.20(a)(2), an insurer must offer coverage for insured losses
arising from an act of terrorism that does not differ materially from
the terms, amounts, and other coverage limitations (including
deductibles) applicable to losses arising from events other than acts
of terrorism. For purposes of this requirement, ``terms'' excludes
price.
(b) Limitations on types of risk. An insurer is not required to
cover risks that it typically excludes or does not write to satisfy the
requirement to make available coverage for losses resulting from an act
of terrorism that does not differ materially from the terms, amounts,
and other coverage limitations applicable to losses arising from events
other than acts of terrorism. For example, if an insurer does not cover
all types of risks, either because the insurer is outside of direct
state regulatory oversight, or because a state permits certain
exclusions for certain types of losses, such as nuclear, biological, or
chemical events, then the insurer is not required to make such coverage
available.
Sec. 50.23 Applicability of State law requirements.
(a) General. After satisfying the requirement to make available
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, if coverage is
rejected an insurer may then offer coverage that is on different terms,
amounts, or coverage limitations, as long as such an offer does not
violate any applicable state law requirements.
(b) Examples. (1) If an insurer subject to state regulation first
makes available coverage in accordance with Sec. 50.20 and the state
has a requirement that an insurer offer full coverage without any
exclusion, then the requirement would continue to apply and the insurer
may not subsequently offer less than full coverage or coverage with
exclusions.
(2) If an insurer subject to state regulation first makes available
coverage in accordance with Sec. 50.20 and the state permits certain
exclusions or allows for other limitations, or an insurance policy is
not governed by state law requirements, then the insurer may
subsequently offer limited coverage or coverage with exclusions.
Subpart D--State Residual Market Insurance Entities; State Workers'
Compensation Funds
Sec. 50.30 General participation requirements.
(a) Insurers. As defined in Sec. 50.4(o), all state residual
market insurance entities and state workers' compensation funds are
insurers under the Program even if such entities do not receive direct
earned premiums.
(b) Mandatory participation. State residual market insurance
entities and State workers' compensation funds are mandatory
participants in the Program subject to the rules issued in this
Subpart.
(c) Identification. Treasury maintains a list of state residual
market insurance entities and state workers' compensation funds at
https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx.
Procedures for providing comments and updates to that list are posted
with the list.
Sec. 50.31 Entities that do not share profits and losses with private
sector insurers.
(a) Treatment. A state residual market insurance entity or a state
workers' compensation fund that does not share profits and losses with
a private sector insurer is deemed to be a separate insurer under the
Program.
(b) Premium calculation. A state residual market insurance entity
or a state workers' compensation fund that is deemed to be a separate
insurer should follow the guidelines specified in Sec. 50.4(h)(1) or
(2) for the purposes of calculating the appropriate measure of direct
earned premium.
Sec. 50.32 Entities that share profits and losses with private sector
insurers.
(a) Treatment. A State residual market insurance entity or a State
workers' compensation fund that shares profits and losses with a
private sector insurer is deemed not to be a separate insurer under the
Program.
(b) Premium and loss calculation. A state residual market insurance
entity or a State workers' compensation fund that is deemed not to be a
separate insurer should continue to report, in accordance with normal
business practices, to each participant insurer its share of premium
income and insured losses, which shall then be included respectively in
the participant insurer's direct earned premium or insured loss
calculations.
Sec. 50.33 Allocation of premium income associated with entities that
do share profits and losses with private sector insurers.
(a) Servicing carriers. For purposes of this subpart, a servicing
carrier is an insurer that enters into an agreement to place and
service insurance contracts for a state residual market insurance
entity or a state workers' compensation fund and to cede premiums
associated with such insurance contracts to the State residual market
insurance entity or State workers' compensation fund. Premiums written
by a servicing carrier on behalf of a state residual market insurance
entity or State workers' compensation fund that are ceded to such an
entity or fund shall not be included as direct earned premium (as
described in Sec. 50.4(h)(1) or (2)) of the servicing carrier.
(b) Participant insurers. For purposes of this Subpart, a
participant insurer is an insurer that shares in the profits and losses
of a state residual market insurance entity or a state workers'
compensation fund. Premium income that is distributed to or assumed by
participant insurers in a state residual market insurance entity or
state workers' compensation fund (whether directly or as quota share
insurers of risks written by servicing carriers), shall be included in
direct earned premium (as described in Sec. 50.4(h)(1) or (2)) of the
participant insurer.
Subpart E--Self-Insurance Arrangements; Captives [Reserved].
Subpart F--Data Collection
Sec. 50.50 General.
Treasury may request from insurers such data and information as may
be reasonably required in support of Treasury's administration of the
Program.
Sec. 50.51 Annual data reporting.
(a) General. No later than March 1 of each calendar year, all
insurers shall provide specified data and information respecting their
Program participation.
(b) Scope. The information to be provided shall address: The lines
of property and casualty insurance subject to the Program, the premiums
earned for terrorism risk insurance within those
[[Page 18967]]
lines and for those lines generally, the geographical location of
exposures covered under terrorism risk insurance, the pricing of
terrorism risk insurance, the take-up rate for terrorism risk
insurance, the amount of private reinsurance obtained by participating
insurers in connection with such policies, and other matters concerning
the Program as may be identified by Treasury.
(c) Method of reporting. (1) Treasury will promulgate forms
defining the specific data and information that each insurer must
submit and make these forms available on its Web site. Each insurer
shall submit the required data and information by electronic submission
through the forms and data portal(s) identified on Treasury's Web site.
All data and information provided as part of such electronic submission
shall be certified by the insurer as a full and true statement of the
information provided to the best of its knowledge, information and
belief.
(2) The data and information required to be provided under this
subsection may be modified annually by Treasury. Any modification shall
be made during the prior calendar year, and Treasury shall provide
insurers at least 90 days before requiring collection of any newly
specified data or information.
(d) Supplemental requests. Treasury may issue supplemental
requests, to some or all participating insurers, in connection with the
annual data request provided for under this section, to the extent
Treasury determines that it requires additional or clarifying
information in order to analyze the effectiveness of the Program.
Insurers shall respond to any such supplemental requests as may be made
within the timeframe and in the manner specified by Treasury.
(e) Small insurer exception. The Secretary may exempt a small
insurer that meets the definition in Sec. 50.4(z) from any or all data
calls under this section, or may modify the requests as applicable to
such small insurer.
Sec. 50.52 Small insurer data.
(a) General. The Secretary may collect information relating to
small insurers, as defined in Sec. 50.4(z), in order to conduct a
study of small insurers participating in the Program, and identify any
competitive challenges small insurers face in the terrorism risk
insurance marketplace.
(b) Scope. Information collected concerning small insurers may
include information necessary for Treasury to identify:
(1) Changes to the market share, premium volume, and policyholder
surplus of small insurers relative to large insurers;
(2) How the property and casualty insurance market for terrorism
risk differs between small and large insurers, and whether such a
difference exists within other perils;
(3) The impact on small insurers of the Program's mandatory
availability requirement under section 103(c) of the Act;
(4) The effect on small insurers of increasing the trigger amount
for the Program under section 103(e)(1)(B) of the Act;
(5) The availability and cost of private reinsurance for small
insurers; and
(6) The impact that state workers compensation laws have on small
insurers and workers compensation carriers in the terrorism risk
insurance marketplace.
Sec. 50.53 Collection of claims data.
(a) General. Subsequent to any certification by the Secretary of an
act of terrorism, insurers shall report to Treasury information
respecting insured losses arising from the act of terrorism.
(b) Contents of periodic reporting. Reporting under this subsection
shall be by a form prescribed by Treasury and made available on the
Treasury Web site, which provides basic information about each claim
established by an insurer that involves or potentially involves an
insured loss. Information to be reported for any claims by or against a
policyholder shall identify paid and reserved amounts associated with
the claim. In the case of an affiliated group of insurers, the form
required by this subsection shall be submitted by a single insurer
designated within the affiliated group, which shall report on a
consolidated basis. Data and information reported under this subsection
will include:
(1) A listing of each claim by name of insured, catastrophe code,
line of business, and in the case of an affiliated group of insurers,
the particular insurer or insurers within the group associated with
each claim;
(2) Amounts paid, both loss and loss adjustment expenses, in
connection with the claim as of the effective date of the report; and
(3) Amounts reserved, both loss and loss adjustment expenses, in
connection with the claim as of the effective date of the report.
(c) Timing of reporting. To the extent that an insurer has
established one or more claims that it believes involve insured losses
arising from an act of terrorism, the insurer shall submit its first
report within 60 days of establishing the first of such claims. An
updated report shall be submitted each month thereafter, reporting data
as of the prior month, until all claims arising from the act of
terrorism have been resolved.
(d) Interrelationship with other reporting requirements. The
reporting requirements under this subsection are independent of the
Initial Notice of Deductible Erosion, Initial Certification of Loss,
and Supplementary Certifications of Loss requirements in subpart H.
(e) Other sources of information. Subsequent to any certification
of an act of terrorism, Treasury may also seek information respecting
loss estimates and projections from one or more organizations that are
not participants in the Program, such as state insurance regulators,
insurance modeling organizations, rating agencies, insurance brokers
and producers, and insurance data aggregators. A data request may also
be directed to insurers identified in connection with such inquiries.
An insurer subject to such a data call shall respond to this request
within the time frame specified in the request.
Sec. 50.54 Handling of data.
(a) General. All nonpublic information submitted to the Secretary
under subparts F and G of this part shall be considered proprietary
information and shall:
(1) Be handled and stored by Treasury in an appropriately secure
manner;
(2) Be considered, where appropriate, to be trade secrets or
commercial or financial information obtained from a person and
privileged or confidential; and
(3) Not be publicly released in any unaggregated form in which a
consumer, policyholder, or insurer is identifiable.
(b) Confidentiality. (1) The submission of any non-publicly
available data and information to the Secretary under subparts F and G
of this part, and the sharing of any non-publicly available data with
or by the Secretary among other Federal agencies, the state insurance
regulatory authorities, or any other entities shall not constitute a
waiver of, or otherwise affect, any privilege or immunity arising under
Federal or state law (including the rules of any Federal or state
court) to which the data or information is otherwise subject.
(2) Any requirement under Federal or state law to the extent
otherwise applicable, or any requirement pursuant to a written
agreement in effect between the original source of any non-publicly
available data or information and the source of such data or
information to the
[[Page 18968]]
Secretary, regarding privacy or confidentiality of any data or
information in the possession of the source to the Secretary, shall
continue to apply to such data or information after the data or
information has been provided pursuant to this Subpart.
(3) Any data or information obtained by the Secretary under
subparts F or G of this part may be made available to state insurance
regulatory authorities, individually or collectively through an
information-sharing agreement that:
(i) Shall comply with applicable Federal law; and
(ii) Shall not constitute a waiver of, or otherwise affect, any
privilege or immunity under Federal or state law (including any
privilege referred to in paragraph (b)(1) of this section and the rules
of any Federal or State court) to which the data or information is
otherwise subject.
(4) Section 552 of title 5, United States Code, including any
exceptions thereunder, shall apply to any data or information submitted
under this Subpart by an insurer or affiliate of an insurer.
Subpart G--Certification
Sec. 50.60 Certification.
(a) Certification decision. The Secretary, in consultation with the
United States Attorney General and the Secretary of Homeland Security,
is responsible for determining whether to certify an act as an act of
terrorism.
(b) Eligibility; timing. An act which satisfies the definition in
Sec. 50.4(b) is eligible for certification by the Secretary as an act
of terrorism after consultation by the Secretary with the United States
Attorney General and the Secretary of Homeland Security.
(c) Finality. Any decision by the Secretary to certify, or
determination not to certify, an act as an act of terrorism shall be
final, and shall not be subject to judicial review.
(d) Nondelegation. The Secretary may not delegate or designate to
any other officer, employee, or person, the determination of whether to
certify an act as an act of terrorism.
Sec. 50.61 Public communication.
(a) Initial notification. After the Secretary commences
consideration of whether an act may satisfy the definition in Sec.
50.4(b), and if circumstances allow, Treasury shall publish a document
in the Federal Register notifying the public that the act is under
review for certification as an act of terrorism. Treasury may also
announce that an act is not under consideration for certification.
(b) Update notification. Not later than 30 days following the
publication of a notice under paragraph (a) of this section that an act
is under consideration for certification, and not later than every 60
days thereafter, Treasury shall publish a document in the Federal
Register notifying the public whether the act is still under review for
certification as an act of terrorism.
(c) Contents of notification. Nothing in this section shall require
Treasury to provide any information other than whether the act is under
review for certification as an act of terrorism (or is no longer under
such review) or shall limit Treasury from providing further information
of relevance.
(d) Rules of construction. Nothing in this section precludes the
Secretary from certifying or determining not to certify an act as an
act of terrorism before notifying the public that the act is under
review for certification. If, in the discretion of the Secretary,
circumstances relating to an act render timely notification under this
section by Treasury impracticable, Treasury shall provide the
notification as soon as practicable, in a manner the Secretary
determines is appropriate.
(e) Nonbinding decision. A notification made under this section
shall not be construed to be a final determination by the Secretary of
whether to certify an act as an act of terrorism.
Sec. 50.62 Certification data collection.
(a) General. (1) The Secretary, when evaluating an act for
certification as an act of terrorism, may at any time direct one or
more insurers to submit information regarding projected and actual
losses in connection with an act and any other information the
Secretary determines appropriate. The information sought by the
Secretary shall be specified in the data request, and any insurer
subject to the data request shall respond to the request within the
time frame specified by the Secretary at the time of the request. The
data requested may include actual loss reserves established by insurers
in connection with the act under consideration, loss estimates
generated by insurers in connection with the act under consideration
which have not yet been established as actual loss reserves, and
information respecting an insurer's property and casualty exposures in
a particular geographic area associated with the act under
consideration.
(2) An insurer not required by Treasury to submit information under
paragraph (a)(1) of this section may voluntarily submit information to
the Secretary as specified in public notifications issued by Treasury.
(b) Other sources of information. The Secretary may request
information with respect to loss estimates and likely affected insurers
from organizations, including state insurance regulators, insurance
modeling organizations, rating agencies, insurance brokers and
producers, and insurance data aggregators.
Sec. 50.63 Notification of certification determination.
(a) Public notification. Not later than 5 business days after the
Secretary determines whether to certify an act as an act of terrorism,
Treasury shall publish a statement and submit a document to the Federal
Register notifying the public of the Secretary's decision.
(b) Insurance supervisor notification. Not later than 5 business
days after the Secretary determines whether to certify an act as an act
of terrorism, Treasury shall notify in writing any relevant supervisory
officials of the Secretary's decision.
(c) Congressional notification. Not later than 5 business days
after the Secretary determines whether to certify an act as an act of
terrorism, Treasury shall notify in writing the President of the U.S.
Senate and the Speaker of the U.S. House of Representatives of the
Secretary's decision.
(d) Rule of construction. If, in the discretion of the Secretary,
circumstances relating to an act render timely notification by Treasury
under this section impracticable, Treasury shall provide the
notification as soon as practicable, in a manner the Secretary
determines is appropriate.
Subpart H--Claims Procedures
Sec. 50.70 Federal share of compensation.
(a) General. (1) Treasury will pay the Federal share of
compensation for insured losses as provided in section 103 of the Act
once a Certification of Loss required by Sec. 50.73 is deemed
sufficient. The Federal share of compensation under the Program shall
be:
(i) 85 percent of that portion of the insurer's aggregate insured
losses that exceeds its insurer deductible during calendar year 2015;
(ii) 84 percent of that portion of the insurer's aggregate insured
losses that exceeds its insurer deductible during calendar year 2016;
(iii) 83 percent of that portion of the insurer's aggregate insured
losses that exceeds its insurer deductible during calendar year 2017;
[[Page 18969]]
(iv) 82 percent of that portion of the insurer's aggregate insured
losses that exceeds its insurer deductible during calendar year 2018;
(v) 81 percent of that portion of the insurer's aggregate insured
losses that exceeds its insurer deductible during calendar year 2019;
and
(vi) 80 percent of that portion of the insurer's aggregate insured
losses that exceeds its insurer deductible during calendar year 2020
and any calendar year thereafter.
(2) The percentages in paragraph (a)(1) of this section are subject
to any adjustments described in Sec. 50.71 and to the cap of $100
billion as provided in section 103(e)(2) of the Act.
(b) Program Trigger amounts. Notwithstanding paragraph (a) of this
section or anything in this subpart to the contrary, Federal
compensation will not be paid by Treasury unless the aggregate industry
insured losses resulting from one or more certified acts of terrorism
exceed the following amounts:
(1) For insured losses resulting from acts of terrorism taking
place in calendar year 2015: $100 million;
(2) For insured losses resulting from acts of terrorism taking
place in calendar year 2016: $120 million;
(3) For insured losses resulting from acts of terrorism taking
place in calendar year 2017: $140 million;
(4) For insured losses resulting from acts of terrorism taking
place in calendar year 2018: $160 million;
(5) For insured losses resulting from acts of terrorism taking
place in calendar year 2019: $180 million;
(6) For insured losses resulting from acts of terrorism taking
place in calendar year 2020 and any calendar year thereafter: $200
million.
(c) Conditions for payment of Federal share. Subject to paragraph
(d) of this section, Treasury shall pay the appropriate amount of the
Federal share of compensation for an insured loss to an insurer upon a
determination that:
(1) The insurer is an entity, including an affiliate thereof, that
meets the requirements of Sec. 50.4(o);
(2) The insurer's insured losses, as defined in Sec. 50.4(n) and
limited by paragraph (d) of this section (including the allocated
dollar value of the insurer's proportionate share of insured losses
from a state residual market insurance entity or a state workers'
compensation fund as described in Sec. 50.33), have exceeded its
insurer deductible as defined in Sec. 50.4(p);
(3) The insurer has paid or is prepared to pay an insured loss,
based on a filed claim for the insured loss;
(4) Neither the insurer's claim for Federal payment nor any
underlying claim for an insured loss is fraudulent, collusive, made in
bad faith, dishonest or otherwise designed to circumvent the purposes
of the Act and regulations;
(5) The insurer has provided a clear and conspicuous disclosure as
required by Sec. Sec. 50.10 through 50.14 and a cap disclosure as
required by Sec. 50.15;
(6) The insurer offered coverage for insured losses and the offer
was accepted by the insured prior to the act which results in the
insured loss;
(7) The insurer took all steps reasonably necessary to properly and
carefully investigate the insured loss and otherwise processed the
insured loss using practices appropriate for the business of insurance;
(8) The insured loss is within the scope of coverage issued by the
insurer under the terms and conditions of one or more policies for
commercial property and casualty insurance as defined in Sec. 50.4(w);
and
(9) The procedures specified in this Subpart have been followed and
all conditions for payment have been met.
(d) Adjustments. Treasury may subsequently adjust, including
requiring repayment of, any payment made under paragraph (c) of this
section in accordance with its authority under the Act.
(e) Suspension of payment for other insured losses. Upon a
determination by Treasury that an insurer has failed to meet any of the
requirements for payment specified in paragraph (c) of this section for
a particular insured loss, Treasury may suspend payment of the Federal
share of compensation for all other insured losses of the insurer
pending investigation and audit of the insurer's insured losses.
(f) Aggregate industry losses. Treasury will determine the amount
of aggregate industry insured losses resulting from a certified act of
terrorism. If aggregate industry insured losses in a calendar year
resulting from one or more certified acts of terrorism exceed the
applicable Program Trigger amounts specified in paragraph (b) of this
section, Treasury will publish a document in the Federal Register of a
Program Trigger Event.
Sec. 50.71 Adjustments to the Federal share of compensation.
(a) Aggregate amount of insured losses. The aggregate amount of
insured losses of an insurer in a calendar year used to calculate the
Federal share of compensation shall be reduced by any amounts recovered
by the insurer as salvage or subrogation for its insured losses in the
calendar year.
(b) Amount of Federal share of compensation. The Federal share of
compensation shall be adjusted as follows:
(1) No excess recoveries. For any calendar year, the sum of the
Federal share of compensation paid by Treasury to an insurer and the
insurer's recoveries for insured losses from other sources shall not be
greater than the insurer's aggregate amount of insured losses for acts
of terrorism in that calendar year. Amounts recovered for insured
losses in excess of an insurer's aggregate amount of insured losses for
acts of terrorism in a calendar year shall be repaid to Treasury within
45 days after the end of the month in which total recoveries of the
insurer, from all sources, become excess. For purposes of this
paragraph, amounts recovered from a reinsurer pursuant to an agreement
whereby the reinsurer's right to any excess recovery has priority over
the rights of Treasury shall not be considered a recovery subject to
repayment to Treasury.
(2) Reduction of amount payable. The Federal share of compensation
for insured losses under the Program shall be reduced by the amount of
other compensation provided by other Federal programs to an insured or
a third party to the extent such other compensation duplicates the
insurance indemnification for those insured losses.
(i) Other Federal program compensation. For purposes of this
section, compensation provided by other Federal programs for insured
losses means compensation that is provided by Federal programs
established for the purpose of compensating persons for losses in the
event of emergencies, disasters, acts of terrorism, or similar events.
Compensation provided by Federal programs for insured losses excludes
benefit or entitlement payments, such as those made under the Social
Security Act, under laws administered by the Secretary of Veteran
Affairs, railroad retirement benefit payments, and other similar types
of benefit payments.
(ii) Insurer due diligence. With respect to any underlying claim
for insured losses, each insurer shall inquire of all involved
policyholders, insureds, and claimants whether the person receiving
insurance proceeds for an insured loss has received, expects to
receive, or is entitled to receive compensation from another Federal
program for the insured loss, and if so, the source and the amount of
the compensation received or expected. The response, source, and such
amounts shall be reported with each underlying claim on the form
specified in Sec. 50.73(b)(1).
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Sec. 50.72 Notice of deductible erosion.
Each insurer shall submit to Treasury a Notice on a form prescribed
by Treasury whenever the insurer's aggregate insured losses (including
reserves for ``incurred but not reported'' losses) within a calendar
year exceed an amount equal to 50 percent of the insurer's deductible
as specified in Sec. 50.4(p). Insurers are advised that the form for
the Notice of Deductible Erosion will include an initial estimate of
aggregate insured losses for the calendar year, the amount of the
insurer deductible, and an estimate of the Federal share of
compensation for the insurer's aggregate insured losses. In the case of
an affiliated group of insurers, the Notice will include the name and
address of a single designated insurer within the affiliated group that
will serve as the single point of contact for the purpose of providing
loss and compliance certifications as required in Sec. 50.73 and for
receiving, disbursing, and distributing payments of the Federal share
of compensation in accordance with Sec. 50.74. An insurer, at its
option, may elect to include with its Notice of Deductible Erosion the
certification of direct earned premium required by Sec. 50.73(b)(3).
Sec. 50.73 Loss certifications.
(a) General. When an insurer has paid aggregate insured losses that
exceed its insurer deductible for a calendar year, the insurer may make
claim upon Treasury for the payment of the Federal share of
compensation for its insured losses. The insurer shall file an Initial
Certification of Loss, on a form prescribed by Treasury, and thereafter
such Supplementary Certifications of Loss, on a form prescribed by
Treasury, as may be necessary to receive payment for the Federal share
of compensation for its insured losses.
(b) Initial certification of loss. An insurer shall use its best
efforts to file with the Program the Initial Certification of Loss
within 45 days following the last calendar day of the month when an
insurer has paid aggregate insured losses that exceed its insurer
deductible. The Initial Certification of Loss will include the
following:
(1) Basic information, on a form prescribed by Treasury, about each
insured loss paid (or to be paid pursuant to Sec. 50.73(b)(2)(i)) by
the insurer. The form will include:
(i) A listing of each insured loss paid (or to be paid pursuant to
Sec. 50.73(b)(2)(i)) by the insurer by catastrophe code and line of
business;
(ii) The total amount of reinsurance recovered from other sources;
(iii) A calculation of the aggregate insured losses sustained by
the insurer above its insurer deductible for the calendar year; and
(iv) The amount the insurer claims as the Federal share of
compensation for its aggregate insured losses.
(2) A certification that the insurer is in compliance with the
provisions of section 103(b) of the Act and this part, including
certifications that:
(i) The underlying insured losses reported pursuant to Sec.
50.73(b)(1) 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 not longer than five business days after
receipt of the Federal share of compensation;
(ii) The underlying claims for insured losses were filed by persons
who suffered an insured loss, or by persons acting on behalf of such
persons;
(iii) The underlying claims for insured losses were processed in
accordance with appropriate business practices and the procedures
specified in this subpart;
(iv) The insurer has complied with the disclosure requirements of
Sec. Sec. 50.10 through 50.14, 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
(v) The insurer has complied with the mandatory availability
requirements of subpart C of this part.
(3) A certification of the amount of the insurer's direct earned
premium, together with the calculation of its insurer deductible
(provided this certification was not submitted previously with the
Notice of Deductible Erosion).
(4) A certification that the insurer will disburse payment of the
Federal share of compensation in accordance with this Subpart.
(5) A certification that if Treasury has determined a Pro Rata Loss
Percentage (PRLP) (see Sec. 50.112), the insurer has complied with
applying the PRLP to insured loss payments, where required.
(c) Supplementary certifications of loss. If the total amount of
the Federal share of compensation due an insurer for insured losses
under the Act has not been determined at the time an Initial
Certification of Loss has been filed, the insurer shall file monthly,
or on a schedule otherwise determined by Treasury, Supplementary
Certifications of Loss updating the amount of the Federal share of
compensation due for the insurer's insured losses. Supplementary
Certifications of Loss will include the following:
(1) A form as described in Sec. 50.73(b)(1); and
(2) A certification as described in Sec. 50.73(b)(2).
(d) Supplementary information. In addition to the information
required in paragraphs (b) and (c) of this section, Treasury may
require such additional supporting documentation as required to
ascertain the Federal share of compensation for the insured losses of
any insurer.
(e) State Residual Market Insurance Entities and State Workers'
Compensation Funds. A state residual market insurance entity or a state
workers' compensation fund described in Sec. 50.32 shall provide the
Certifications of Loss described in Sec. 50.73(b) and (c) for all of
its insured losses to each participating insurer at the time it
provides the allocated dollar value of the participating insurer's
proportionate share of insured losses. In addition, at such time the
state residual market insurance entity or state workers' compensation
fund shall provide the certification described in Sec. 50.73(b)(2) to
Treasury. Participating insurers shall treat the allocated dollar value
of their proportionate share of insured losses from a state residual
market insurance entity or state workers' compensation fund as an
insured loss for the purpose of their own reporting to Treasury in
seeking the Federal share of compensation.
Sec. 50.74 Payment of Federal share of compensation.
(a) Timing. Treasury will promptly pay to an insurer the Federal
share of compensation due the insurer for its insured losses. Payment
shall be made in such installments and on such conditions as determined
by the Treasury to be appropriate. Any overpayments by Treasury of the
Federal share of compensation will be offset from future payments to
the insurer or returned to Treasury within 45 days.
(b) Payment process. Payment of the Federal share of compensation
for insured losses will be made to the insurer designated on the Notice
of Deductible Erosion required by Sec. 50.72. An insurer that requests
payment of the Federal share of compensation for insured losses must
receive payment through electronic funds transfer. The insurer must
establish either an account for reimbursement as described in paragraph
(c) of this section (if the insurer only seeks reimbursement) or a
segregated account as described in paragraph (d) of this section (if
the
[[Page 18971]]
insurer seeks advance payments or a combination of advance payments and
reimbursement). Applicable procedures will be posted at https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx or
otherwise will be made publicly available.
(c) Account for reimbursement. An insurer shall designate an
account for the receipt of reimbursement of the Federal share of
compensation at an institution eligible to receive payments through the
Automated Clearing House (ACH) network.
(d) Segregated account for advance payments. An insurer that seeks
advance payments of the Federal share of compensation as certified
according to Sec. 50.73(b)(2)(i) shall establish a segregated account
into which Treasury will make advance payments as well as
reimbursements to the insurer.
(1) Definition of segregated account. For purposes of this section,
a segregated account is an interest-bearing separate account
established by an insurer at a financial institution eligible to
receive payments through the ACH network. Such an account is limited to
the purposes of:
(i) Receiving payments of the Federal share of compensation;
(ii) Disbursing payments to insureds and claimants; and
(iii) Transferring payments to the insurer or affiliated insurers
for insured losses reported as already paid.
(2) Remittance of interest. All interest earned on advance payments
in the segregated account must be remitted at least quarterly to
Treasury's Bureau of the Fiscal Service or as otherwise prescribed in
applicable procedures.
(e) Denial or withholding of advance payment. Treasury may deny or
withhold advance payments of the Federal share of compensation to an
insurer if Treasury determines that the insurer has not properly
disbursed previous advances of the Federal share of compensation or
otherwise has not complied with the requirements for advance payment as
provided in this Subpart.
(f) Affiliated group. In the case of an affiliated group of
insurers, Treasury will make payment of the Federal share of
compensation for the insured losses of the affiliated group to the
insurer designated in the Notice of Deductible Erosion to receive
payment on behalf of the affiliated group. The designated insurer
receiving payment from Treasury must distribute payment to affiliated
insurers in a manner that ensures that each insurer in the affiliated
group is compensated for its share of insured losses, taking into
account a reasonable and fair allocation of the group deductible among
affiliated insurers. Upon payment of the Federal share of compensation
to the designated insurer, Treasury's payment obligation to the
insurers in the affiliated group with respect to any insured losses
covered is discharged to the extent of the payment.
Sec. 50.75 Determination of affiliations.
For the purposes of this subpart, an insurer's affiliates for any
calendar year shall be determined by the circumstances existing on the
date of the act which is the Program Trigger Event for that calendar
year.
Sec. 50.76 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 calendar year, which for purposes of this Part is the date
on or before which an insurer must report to Treasury on the insurer's
Certifications of Loss (both Initial Certification of Loss and any
Supplemental Certifications of Loss) all insured losses that have been
reported by its policyholders for the calendar 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 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 Supplementary Certifications of Loss 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 and the manner in which they are being applied by the Federal
courts;
(vi) Common business practices;
(vii) Issues that are delaying final resolution of insured losses;
(viii) The application of the liability limitations and procedures
under the Support Anti-terrorism by Fostering Effective Technologies
Act of 2002 (6 U.S.C. 441 et seq.) that may affect final resolution of
insured losses;
(ix) Issues related to the cap on annual liability for insurer
losses, including whether a projection that the cap on annual liability
will be reached in connection with any calendar year indicates that no
Final Netting Date should be set for that calendar year;
(x) Treasury's claims administration costs; and
(xii) Such other factors as the Secretary considers appropriate to
take into account.
(2) Notice of Final Netting Date. Treasury shall announce and
publish in the Federal Register notice of a proposed Final Netting Date
and its application to a specific calendar year, and will solicit
comments from the public regarding the appropriateness of the proposed
Final Netting Date. After receipt and evaluation of comments respecting
its proposed Final Netting Date, Treasury will publish in the Federal
Register a Final Netting Date, which is at least 180 days after the
date of publication. The Secretary's determination of a Final Netting
Date is final and not subject to judicial review.
(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. 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
the number of 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 in the future, as provided in this section.
(1) In lieu of continued submission of Supplemental 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
[[Page 18972]]
all future liabilities to the insurer for the Federal share of
compensation for insured losses for the applicable calendar year. In
the case of an affiliated group of insurers, the requirements of Sec.
50.74(f) apply, and 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 calendar year.
(2) If future claims are to be commuted, Treasury may require
additional information from 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 final payment amounts are derived. If Treasury notifies an
insurer of a requirement to submit additional information to inform its
commutation decision, the insurer will be provided (depending upon the
complexity of the material sought) no less than 90 days from the date
of notification to submit material required in the notice. If the
insurer fails to provide the requested information, it will 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 to be repaid to Treasury. Treasury may determine
that it will not consider commutation until it has completed an audit
of an insurer's insured losses pursuant to the authority set forth in
Subpart I of these regulations.
(3) Payments of commuted amounts are not considered to be advance
payments requiring a segregated account as described in Sec. 50.74(d).
(4) Notwithstanding Sec. 50.70(d), 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% of the total amount already paid to that insurer,
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 that all other conditions for payment have
been met, Treasury may reopen or extend the insurer's claim for the
Federal share of compensation for insured losses for the pertinent
calendar year.
Subpart I--Audit and Investigative Procedures
Sec. 50.80 Audit authority.
The Secretary of the Treasury, or an authorized representative,
shall have, upon reasonable notice, access to all books, documents,
papers and records of an insurer that are pertinent to amounts paid to
the insurer as the Federal share of compensation for insured losses, or
pertinent to any Federal terrorism policy surcharge that is imposed
pursuant to subpart J of this part, for the purposes of investigation,
confirmation, audit, and examination.
Sec. 50.81 Recordkeeping.
(a) Each insurer that seeks payment of a Federal share of
compensation under subpart H of this part shall retain such records as
are necessary to fully disclose all material matters pertinent to
insured losses and the Federal share of compensation sought under the
Program, including, but not limited to, records regarding premiums and
insured losses for all commercial property and casualty insurance
issued by the insurer and information relating to any adjustment in the
amount of the Federal share of compensation payable. Insurers shall
maintain detailed records for not less than five (5) years from the
termination dates of all reinsurance agreements involving property and
casualty insurance subject to the Act. Records relating to premiums
shall be retained and available for review for not less than three (3)
years following the conclusion of the policy year. Records relating to
underlying claims shall be retained for not less than five (5) years
following the final adjustment of the claim.
(b) Each insurer that collects a Federal terrorism policy surcharge
as required by Subpart J of this part shall retain records related to
such surcharge, including records of the property and casualty
insurance premiums subject to the surcharge, the amount of the
surcharge imposed on each policy, aggregate Federal terrorism policy
surcharges collected, and aggregate Federal terrorism policy surcharges
remitted to Treasury during each assessment period. Such records shall
be retained and kept available for review for not less than three (3)
years following the conclusion of the assessment period or settlement
of accounts with Treasury, whichever is later.
Sec. 50.82 Civil penalties.
(a) General. The Secretary may assess a civil monetary penalty in
an amount not exceeding the amount under paragraph (b) of this section
against any insurer that the Secretary determines, on the record after
opportunity for a hearing:
(1) Has failed to charge, collect, or remit the Federal terrorism
policy surcharge under Subpart J;
(2) Has intentionally provided to Treasury erroneous information
regarding premium or loss amounts;
(3) Submits to Treasury fraudulent claims under the Program for
insured losses;
(4) Has failed to provide any disclosures or other information
required by Treasury; or
(5) Has otherwise failed to comply with provisions of the Act or
these regulations.
(b) Amount. The amount under this section is the greater of
$1,325,000 and, in the case of any failure to pay, charge, collect, or
remit amounts in accordance with the Act or these regulations, such
amount in dispute.
(c) Recovery of amount in dispute. A penalty under this section for
any failure to pay, charge, collect, or remit amounts in accordance
with the Act or under these regulations shall be in addition to any
such amounts recovered by Treasury.
(d) Procedure. Treasury shall notify in writing any insurer that it
believes has committed one or more of the acts identified in paragraph
(a) of this section. In that notification, Treasury shall identify the
act or acts that it believes has been violated, and its basis for that
belief, and shall set a schedule for further proceedings which shall
include:
(1) The opportunity for a written submission by the insurer that
provides all relevant facts and circumstances concerning the alleged
conduct, including any information that the insurer wishes Treasury to
consider in connection with the alleged conduct; and
(2) A hearing on the record, unless waived by the insurer, during
which Treasury and the insurer may present
[[Page 18973]]
further information respecting the conduct in question.
(e) Other remedies preserved. Treasury's assessment and collection
of a civil monetary penalty under this section shall be in addition and
without prejudice to any other civil remedies or criminal penalties
that may arise on account of the conduct in question under any other
laws or regulations of the United States.
Subpart J--Recoupment and Surcharge Procedures
Sec. 50.90 Mandatory and discretionary recoupment.
(a) Pursuant to section 103(e) of the Act, the Secretary shall
impose, and insurers shall collect, such Federal terrorism policy
surcharges as needed to recover 140 percent of the mandatory recoupment
amount for any calendar year.
(b) In the Secretary's discretion, the Secretary may recover any
portion of the aggregate Federal share of compensation that exceeds the
mandatory recoupment amount through a Federal terrorism policy
surcharge based on the factors set forth in section 103(e)(7)(D) of the
Act.
(c) If the Secretary imposes a Federal terrorism policy surcharge
as provided in paragraph (a) of this section, then the required
amounts, based on the extent to which payments for the Federal share of
compensation have been made by the collection deadlines in section
103(e)(7)(E) of the Act, shall be collected in accordance with such
deadlines:
(1) For any act of terrorism that occurs on or before December 31,
2017, the Secretary shall collect all required amounts by September 30,
2019;
(2) For any act of terrorism that occurs between January 1 and
December 31, 2018, the Secretary shall collect 35 percent of any
required amounts by September 30, 2019, and the remainder by September
30, 2024; and
(3) For any act of terrorism that occurs on or after January 1,
2019, the Secretary shall collect all required amounts by September 30,
2024.
Sec. 50.91 Determination of recoupment amounts.
(a) If payments for the Federal share of compensation have been
made for a calendar year, and Treasury determines that insured loss
information is sufficiently developed and credible to serve as a basis
for calculating recoupment amounts, Treasury will make an initial
determination of any mandatory or discretionary recoupment amounts for
that calendar year.
(b)(1) Within 90 days after certification of an act of terrorism,
the Secretary shall publish in the Federal Register an estimate of
aggregate insured losses which shall be used as the basis for initially
determining whether mandatory recoupment will be required.
(2) If at any time Treasury projects that payments for the Federal
share of compensation will be made for a calendar year, and that in
order to meet the collection timing requirements of section
103(e)(7)(E) of the Act it is necessary to use an estimate of such
payments as a basis for calculating recoupment amounts, Treasury will
make an initial determination of any mandatory recoupment amounts for
that calendar year.
(c) Following the initial determination of recoupment amounts for a
calendar year, Treasury will recalculate any mandatory or discretionary
recoupment amount as necessary and appropriate, and at least annually,
until a final recoupment amount for the calendar year is determined.
Treasury will compare any recalculated recoupment amount to amounts
already remitted and/or to be remitted to Treasury for a Federal
terrorism policy surcharge previously established to determine whether
any additional amount will be recouped by Treasury.
(d) For the purpose of determining initial or recalculated
recoupment amounts, Treasury may issue a data call to insurers for
insurer deductible and insured loss information by calendar year.
Treasury's determination of the aggregate amount of insured losses from
Program Trigger Events of all insurers for a calendar year will be
based on the amounts reported in response to a data call and any other
information Treasury in its discretion considers appropriate.
Submission of data in response to a data call shall be on a form
promulgated by Treasury.
Sec. 50.92 Establishment of Federal terrorism policy surcharge.
(a) Treasury will establish the Federal terrorism policy surcharge
based on the following factors and considerations:
(1) In the case of a mandatory recoupment amount, the requirement
to collect 140 percent of that amount;
(2) The total dollar amount to be recouped as a percentage of the
latest available annual aggregate industry direct written premium
information;
(3) The adjustment factors for terrorism loss risk-spreading
premiums described in section 103(e)(8)(D) of the Act;
(4) The annual 3 percent limitation on terrorism loss risk-
spreading premiums collected on a discretionary basis as provided in
section 103(e)(8)(C) of the Act;
(5) A preferred minimum initial assessment period of one full year
and subsequent extension periods in full year increments;
(6) The collection timing requirements of section 103(e)(8)(E) of
the Act;
(7) The likelihood that the amount of the Federal terrorism policy
surcharge may result in the collection of an aggregate recoupment
amount in excess of the planned recoupment amount; and
(8) Such other factors as the Secretary considers appropriate to
take into account.
(b) The Federal terrorism policy surcharge shall be the obligation
of the policyholder and is payable to the insurer with the premium for
a property and casualty insurance policy in effect during the
assessment period established by Treasury. See Sec. 50.94(c).
Sec. 50.93 Notification of recoupment.
(a) Treasury will provide notifications of recoupment through
publication of notices in the Federal Register or in another manner
Treasury deems appropriate, based upon the circumstances of the
certified act(s) of terrorism under consideration.
(b) Treasury will provide reasonable advance notice to insurers of
any initial Federal terrorism policy surcharge effective date. This
effective date shall be January 1 of the calendar year following
publication of the notice, unless such date would not provide for
sufficient notice of implementation while meeting the collection timing
requirements of section 103(e)(8)(E) of the Act.
(c) Treasury will provide reasonable advance notice to insurers of
any modification or cessation of the Federal terrorism policy
surcharge.
(d) Treasury will provide notification to insurers annually as to
the continuation of the Federal terrorism policy surcharge.
Sec. 50.94 Collecting the surcharge.
(a) Insurers shall collect a Federal terrorism policy surcharge
from policyholders as required by Treasury.
(b) Policies subject to the Federal terrorism policy surcharge are
those for which direct written premium is reported on commercial lines
of business on the NAIC's Exhibit of Premiums and Losses of the NAIC
Annual Statement (commonly known as Statutory Page 14) as provided in
Sec. 50.4(w)(1), or equivalently reported.
(c) For policies subject to the Federal terrorism policy surcharge,
the surcharge shall be imposed and
[[Page 18974]]
collected on a written premium basis for policies that become effective
or renew during the assessment period. All new, renewal, mid-term, and
audit premiums for a policy term are subject to the surcharge in effect
on the policy term effective date. Notwithstanding this paragraph, if
the premium for a policy term that would otherwise be subject to the
surcharge is revised after the end of the reporting period described in
Sec. 50.95(e), then any additional premium attributable to such
revision is not subject to the Surcharge. For purposes of this Subpart:
(1) Written premium basis means the premium amount charged a
policyholder by an insurer for property and casualty insurance,
including all premiums, policy expense constants and fees defined as
premium pursuant to the Statements of Statutory Accounting Principles
established by the NAIC, as adopted by the state for which the premium
will be reported.
(2) In the case of a policy providing multiple insurance coverages,
if an insurer cannot identify the premium amount charged a policyholder
specifically for property and casualty insurance under the policy,
then:
(i) If the insurer estimates that the portion of the premium amount
charged for coverage other than property and casualty insurance is de
minimis to the total premium for the policy, the insurer may impose and
collect from the policyholder a surcharge amount based on the total
premium for the policy, but
(ii) If the insurer estimates that the portion of the premium
amount charged for coverage other than property and casualty insurance
is not de minimis, the insurer shall impose and collect from the
policyholder a Surcharge amount based on a reasonable estimate of the
premium amount for the property and casualty insurance coverage under
the policy.
(3) The Federal terrorism policy surcharge is not considered
premium.
(d) A policyholder must pay the applicable Federal terrorism policy
surcharge when due. The insurer shall have such rights and remedies to
enforce the collection of the surcharge that are the equivalent to
those that exist under applicable state or other law for nonpayment of
premium.
(e) When an insurer returns an unearned premium, or otherwise
refunds premium to a policyholder, it shall also return any Federal
terrorism policy surcharge collected that is attributable to the
refunded unearned premium. Notwithstanding this paragraph, if the
written premium for a policy is revised and refunded after the end of
the reporting period described in Sec. 50.95(e), then the insurer is
not required to refund any Surcharge that is attributable to the
refunded premium.
(f) Notwithstanding paragraphs (a), (b), and (c) of this section,
if the expense of collecting the Federal terrorism policy surcharge
from all policyholders of an insurer during an assessment period
exceeds the amount of the Surcharges anticipated to be collected, such
insurer may satisfy its obligation to collect by omitting actual
collection and instead remitting to Treasury the amount otherwise due.
(g) The Federal terrorism policy surcharge is repayment of Federal
financial assistance in an amount required by law. No fee or commission
shall be charged on the Federal terrorism policy surcharge.
Sec. 50.95 Remitting the surcharge.
(a) Each insurer shall report direct written premium and Federal
terrorism policy surcharges to Treasury on a monthly and annual basis
during the assessment period. Reporting will be on a form prescribed by
Treasury and will be due according to the following schedule:
(1) Monthly: From the beginning of the assessment period through
November, on the last business day of the calendar month following the
month for which premium is reported, and
(2) Annually: March 1 for the prior calendar year.
(b) The monthly statements provided to Treasury will include the
following:
(1) Cumulative calendar year direct written premium adjusted for
premium not subject to the Federal terrorism policy surcharge,
summarized by policy year.
(2) The aggregate Federal terrorism policy surcharge amount
calculated by applying the established surcharge percentage to the
insurer's adjusted direct written premium by policy year.
(3) Insurer certification of the submission.
(c) The annual statements to be provided to Treasury will include
the following:
(1) Direct written premium, adjusted for premium not subject to the
Federal terrorism policy surcharge, summarized by policy year and by
commercial line of insurance as specified in Sec. 50.4(w).
(2) The aggregate Federal terrorism policy surcharge amount
calculated by applying the established surcharge percentage to the
insurer's adjusted direct written premium by policy year.
(3) In the case of an insurer that has chosen not to collect the
Federal terrorism policy surcharge from its policyholders as provided
in Sec. 50.94(f), a certification that the expense of collecting the
Surcharge during the assessment period would have exceeded the amount
of the surcharges collected over the assessment period.
(4) Insurer certification of the submission.
(d) The calculated aggregate Federal terrorism policy surcharge
amount, as described in paragraphs (b)(2) and (c)(2) of this section,
shall be remitted to Treasury upon submission of each monthly and
annual statement. Through its submitted statements, an insurer obtains
credit for a refund of any Federal terrorism policy surcharge
previously remitted to Treasury that was subsequently returned by the
insurer to a policyholder as attributable to refunded premium under
Sec. 50.94(e). A negative calculated amount in a monthly or annual
statement indicates payment from Treasury is due to the insurer.
(e) Reporting shall continue for the one-year period following the
end of the assessment period established by Treasury, unless otherwise
permitted by Treasury.
Sec. 50.96 Insurer responsibility.
Notwithstanding Sec. 50.4(o), for purposes of the collection,
reporting and remittance of Federal terrorism policy surcharges to
Treasury, the definition of insurer shall not include any affiliate of
the insurer.
Subpart K--Federal Cause of Action; Approval of Settlements
Sec. 50.100 Federal cause of action and remedy.
(a) General. If the Secretary certifies an act as an act of
terrorism pursuant to Subpart G of this Part, there shall exist a
Federal cause of action for property damage, personal injury, or death
arising out of or resulting from such act of terrorism, pursuant to
section 107 of the Act, which shall be the exclusive cause of action
and remedy for claims for property damage, personal injury, or death
arising out of or relating to such act of terrorism, except as provided
in paragraph (d) of this section.
(b) Jurisdiction. For each determination described in paragraph (a)
of this section, not later than 90 days after the Secretary certifies
an act as an act of terrorism, the Judicial Panel on Multidistrict
Litigation shall designate a single district court or, if necessary,
multiple district courts of the United States that shall have original
and exclusive jurisdiction over all actions for any claim (including
any claim for loss of property, personal injury, or death) relating to
or arising out of an act of terrorism subject to section 107 of the
Act.
[[Page 18975]]
(c) Effective period. The exclusive Federal cause of action and
remedy described in paragraph (a) of this section shall exist only for
causes of action for property damage, personal injury, or death that
arise out of or result from acts of terrorism during the effective
period of the Program.
(d) Rights not affected. Nothing in section 107 of the Act or this
Subpart shall in any way:
(1) Limit the liability of any government, organization, or person
who knowingly participates in, conspires to commit, aids and abets, or
commits any act of terrorism;
(2) Affect any party's contractual right to arbitrate a dispute; or
(3) Affect any provision of the Air Transportation Safety and
System Stabilization Act (Pub. L. 107-42; 49 U.S.C. 40101 note).
Sec. 50.101 State causes of action preempted.
All State causes of action of any kind for property damage,
personal injury, or death arising out of or resulting from an act of
terrorism that are otherwise available under state law are preempted,
except that, pursuant to section 107(b) of the Act, nothing in this
section shall limit in any way the liability of any government,
organization, or person who knowingly participates in, conspires to
commit, aids and abets, or commits the act of terrorism certified by
the Secretary.
Sec. 50.102 Advance approval of settlements.
(a) Mandatory submission of settlements for advance approval.
Pursuant to section 107(a)(6) of the Act, an insurer shall submit to
Treasury for advance approval any proposed agreement to settle or
compromise any Federal cause of action for property damage, personal
injury, or death, asserted by a third-party or parties against an
insured, involving an insured loss, all or part of the payment of which
the insurer intends to include in its aggregate insured losses for
purposes of calculating the insurer deductible or the Federal share of
compensation of its insured losses under the Program, when:
(1) Any portion of the proposed settlement amount that is
attributable to an insured loss or losses involving personal injury or
death in the aggregate is $2 million or more per third-party claimant,
regardless of the number of causes of action or insured losses being
settled; or
(2) Any portion of the proposed settlement amount that is
attributable to an insured loss or losses involving property damage
(including loss of use) in the aggregate is $10 million or more per
third-party claimant, regardless of the number of causes of action or
insured losses being settled.
(b) Discretionary review of other settlements. Notwithstanding
paragraph (a) of this section, Treasury may require that an insurer
submit for review and advance approval any proposed agreement to settle
or compromise any Federal cause of action for property damage, personal
injury, or death, asserted by a third-party or parties against an
insured, involving an insured loss, all or part of the payment of which
the insurer intends to include in its aggregate insured losses for
purposes of calculating the insurer deductible or the Federal share of
compensation of its insured losses where the settlement amounts are
below the applicable monetary thresholds identified in paragraphs
(a)(1) and (2) of this section.
(c) Factors. In determining whether to approve a proposed
settlement, Treasury will consider the nature of the loss, the facts
and circumstances surrounding the loss, and other factors such as
whether:
(1) The proposed settlement compensates for a third-party's loss,
the liability for which is an insured loss under the terms and
conditions of the underlying commercial property and casualty insurance
policy, as certified by the insurer pursuant to Sec. 50.103(d)(2);
(2) Any amount of the proposed settlement is attributable to
punitive or exemplary damages intended to punish or deter (whether or
not specifically so described as such damages);
(3) The settlement amount offsets amounts received from the United
States pursuant to any other Federal program;
(4) The settlement amount does not include any items such as fees
and expenses of attorneys, experts, and other professionals that have
caused the insured losses under the underlying commercial property and
casualty insurance policy to be overstated; and
(5) Any other criteria that Treasury may consider appropriate,
depending on the facts and circumstances surrounding the settlement,
including the information contained in Sec. 50.103.
(d) Settlement without seeking advance approval or despite
disapproval. If an insurer settles a cause of action or agrees to the
settlement of a cause of action without submitting the proposed
settlement for Treasury's advance approval in accordance with paragraph
(a) or (b) of this section, and in accordance with Sec. 50.103 or
despite Treasury's disapproval of the proposed settlement, the insurer
will not be entitled to include the paid settlement amount (or portion
of the settlement amount, to the extent partially disapproved) in its
aggregate insured losses for purposes of calculating the Federal share
of compensation of its insured losses, unless the insurer can
demonstrate, to the satisfaction of Treasury, extenuating
circumstances.
Sec. 50.103 Procedure for requesting approval of proposed
settlements.
(a) Submission of notice. Insurers must request advance approval of
a proposed settlement by submitting a notice of the proposed settlement
and other required information in writing to the Terrorism Risk
Insurance Program Office or its designated representative. The address
where notices are to be submitted will be available at https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx following
any certification of an act of terrorism pursuant to section 102(1) of
the Act.
(b) Complete notice. Treasury will review requests for advance
approval and determine whether additional information is needed to
complete the notice.
(c) Treasury response or deemed approval. Within 30 days after
Treasury's receipt of a complete notice, or as extended in writing by
Treasury, Treasury may issue a written response and indicate its
partial or full approval or rejection of the proposed settlement. If
Treasury does not issue a response within 30 days after Treasury's
receipt of a complete notice, unless extended in writing by Treasury,
the request for advance approval is deemed approved by Treasury. Any
settlement is still subject to review under the claim procedures
pursuant to Sec. 50.80.
(d) Notice format. A notice of a proposed settlement should be
entitled, ``Notice of Proposed Settlement--Request for Approval,'' and
should provide the full name and address of the submitting insurer and
the name, title, address, and telephone number of the designated
contact person. An insurer must provide all relevant information,
including the following, as applicable:
(1) A brief description of the claim against the insured, the
amount of the claim, the operative policy terms, and defenses to
coverage;
(2) A certification by the insurer that the settlement is for a
third-party's loss, the liability for which is an insured loss under
the terms and conditions of the underlying commercial property and
casualty insurance policy;
(3) A brief description of all damages allegedly sustained and an
itemized statement of all damages by category (i.e., actual, economic
and non-economic loss, punitive damages, etc.);
[[Page 18976]]
(4) A statement from the insurer or its attorney in support of the
settlement;
(5) The total dollar amount of the proposed settlement and the
amount of the proposed settlement which is an insured loss;
(6) Indication as to whether the settlement was negotiated by
counsel;
(7) The amount to be paid that will compensate for any items such
as fees and expenses of attorneys, experts, and other professionals for
their services and expenses related to the insured loss and/or
settlement and the net amount to be received by the third-party after
such payment;
(8) The amount(s) received from the United States pursuant to any
other Federal program(s) for compensation of insured losses related to
an act of terrorism;
(9) The proposed terms of the written settlement agreement,
including release language and subrogation terms;
(10) Other relevant agreements, including:
(i) Admissions of liability or insurance coverage;
(ii) Determinations of the number of occurrences under a commercial
property and casualty insurance policy;
(iii) The allocation of paid amounts or amounts to be paid to
certain policies, or to a specific policy, coverage and/or aggregate
limits;
(iv) Any other agreement that may affect the payment or amount of
the Federal share of compensation to be paid to the insurer; and
(v) Any other relevant agreement requested by Treasury.
(11) A statement indicating whether the proposed settlement has
been approved by the Federal court or is subject to such approval and
whether such approval is expected or likely; and
(12) Such other information that is related to the insured loss as
may be requested by Treasury that it deems necessary to evaluate the
proposed settlement.
Sec. 50.104 Subrogation.
An insurer shall not waive its rights of subrogation under its
property and casualty insurance policy with respect to any losses the
payment of which the insurer intends to include in its insurer
deductible or the aggregate insured losses for purposes of calculating
the Federal share of compensation of its insured losses and shall,
unless upon request the United States agrees in writing to forbear from
exercising such right, preserve the subrogation right of the United
States as provided by section 107(c) of the Act by not taking any
action that would prejudice the subrogation right of the United States.
Subpart L--Cap on Annual Liability
Sec. 50.110 Cap on annual liability.
Pursuant to section 103 of the Act, if the aggregate insured losses
exceed $100,000,000,000 during a calendar 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) An insurer that has met its insurer deductible shall not 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. 50.111 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 calendar year in which the event occurs. Such initial estimate
may be based on insured loss amounts as compiled by insurance industry
statistical organizations, data previously collected by the Secretary,
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 calendar year.
Sec. 50.112 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 calendar year, then Treasury will determine a
PRLP. The PRLP applies to insured loss payments by insurers for insured
losses incurred in the subject calendar year, as specified in Sec.
50.113, 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. 50.114);
(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 calendar 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, after
consulting with the relevant state authorities, may initiate the action
described in either paragraph (e)(1) or (2) of this section.
(1) Hiatus in payments. Call 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.
(2) Determine an interim PRLP. (i) An interim PRLP is an amount
determined without the availability of information necessary for
consideration of all factors listed in Sec. 50.112(b). It is a
conservatively low percentage amount determined in order to facilitate
initial partial claim payments by insurers after an act of terrorism
and prior to the time that information becomes available to determine a
PRLP based on consideration of the factors listed in Sec. 50.112(b).
(ii) In such a circumstance, Treasury will determine a PRLP to
replace the interim PRLP as quickly as possible. The PRLP, as later
determined, will be
[[Page 18977]]
effective retroactively as of the effective date of the interim PRLP.
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 interim PRLP, or as later replaced by the PRLP as appropriate.
Sec. 50.113 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 in
the absence of an agreement on a complete and final settlement as
evidenced by a signed settlement agreement or other means reviewable by
a third party 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 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.
(b) All policies. 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 as of the effective date of
the PRLP or the amount computed by applying the PRLP to the estimated
or actual final claim settlement amount that would otherwise be paid.
(c) Certain workers' compensation insurance policies. If an
insurer's payments under a workers' compensation policy cumulatively
exceed the amount computed by applying the PRLP to the estimated or
actual final claim settlement amount that would otherwise be paid
because such estimated or actual final settlement amount is reduced
from a previous estimate, then the insurer may request a review and
adjustment by Treasury in the calculation of the Federal share of
compensation. In requesting such a review, the insurer must submit
information to supplement its Certification of Loss demonstrating a
reasonable estimate invalidated by unexpected conditions differing from
prior assumptions including, but not limited to, an explanation and the
basis for the prior assumptions.
(d) If an insurer has not yet made payments in excess of its
insurer deductible, the rules in this paragraph apply.
(1) If the insurer 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. 50.112(b).
(2)(i) If the insurer 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. The insurer may also make
payments on the basis of applying some other pro rata amount it
determines that is greater than the PRLP, where the insurer estimates
that application of such other pro rata amount will result in it not
exceeding its insurer deductible. The insurer remains liable for losses
in accordance with Sec. 50.115(c).
(ii) If an insurer estimates that it will not exceed its insurer
deductible and has made payments on the basis provided in paragraph
(d)(2)(i) of this section, but thereafter reaches its insurer
deductible, then the insurer shall apply the PRLP to any 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. 50.114 Data call authority.
For the purpose of determining initial or recalculated PRLPs,
Treasury may issue a data call to insurers for insured loss
information, seeking information in addition to any information
provided to Treasury under subparts F and H of this part.
Sec. 50.115 Final amount.
(a) Treasury shall determine if, as a final proration, remaining
insured loss payments, as well as adjustments to previous insured loss
payments, can be made by insurers based on an adjusted PLRP, 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, a supplementary explanation regarding how
additional payments will be provided on previously settled insured
losses.
(c) An insurer that has prorated 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.
Dated: March 21, 2016.
Amias Moore Gerety,
Acting Assistant Secretary for Financial Institutions.
[FR Doc. 2016-06920 Filed 3-31-16; 8:45 am]
BILLING CODE 4810-25-P