[Federal Register Volume 59, Number 100 (Wednesday, May 25, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-12627]


[[Page Unknown]]

[Federal Register: May 25, 1994]


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FEDERAL EMERGENCY MANAGEMENT AGENCY

44 CFR Part 62

RIN 3067-AC25

 

National Flood Insurance Program; Assistance to Private Sector 
Property Insurers

AGENCY: Federal Insurance Administration, FEMA.

ACTION: Interim rule.

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SUMMARY: This interim rule amends the National Flood Insurance Program 
(NFIP) regulations for the ``Write Your Own'' (WYO) Program relating to 
the marketing of flood insurance policies. This interim rule modifies 
the Arrangement to encourage increases in the policyholder base and to 
increase the financial stability of the NFIP.

DATES: Effective date: This interim rule and the offer are effective 
May 25, 1994. The Financial Assistance/Subsidy Arrangement is 
applicable with respect to flood insurance policies written under the 
Arrangement with an effective date of October 1, 1994, and later.
    Comment Date: July 25, 1994.

ADDRESSES: Comments are requested and should be sent to the Rules 
Docket Clerk, Office of the General Counsel, Federal Emergency 
Management Agency, 500 C Street, SW., room 840, Washington, DC 20472, 
(fax) (202) 646-4536.

FOR FURTHER INFORMATION CONTACT: Charles M. Plaxico, Jr., Federal 
Emergency Management Agency, Federal Insurance Administration, 500 C 
Street, SW., Washington, DC 20742, (202) 646-3422.

SUPPLEMENTARY INFORMATION: The Write-Your-Own (WYO) Program 
(established in 1983) was authorized pursuant to Subpart C, part 62 of 
the National Flood Insurance Program (NFIP) regulations and section 
1345 of the National Flood Insurance Act of 1968, as amended (Pub. L. 
90-448, 42 U.S.C. 4001, et seq.).
    Under the WYO Program, the Standard Flood Insurance Policy (the 
form and substance of which is approved by the Federal Insurance 
Administrator (the Administrator)) may be issued in their own names by 
insurers signatory to Financial Assistance/Subsidy Arrangements. 
Insurers then are responsible for all aspects of service, including 
policy issuance to new policyholders and to policyholders insured by 
them under other lines of property insurance; endorsement and renewal 
of policies; and the adjustment of claims brought under the policies. 
The insurers retain a specified amount of the premium for their 
expenses, including the commissions of agents. Under the Arrangement, 
the Government provides such additional funds as may be required, over 
and above the net premium income, for the payment of claims.
    Once the Arrangement is signed by the authorized official of the 
private insurer and the Government, it is effective at the beginning of 
the Government's Fiscal Year on October 1 and runs through the 
following September 30. Also, in accordance with Article V--
Commencement and Termination of the Arrangement, the Federal Insurance 
Administration (FIA) is required, by June 1 of each year, to publish in 
the Federal Register the terms for the re-subscription of the 
Arrangement for the next Arrangement Year.
    This interim rule amends the National Flood Insurance Program 
(NFIP) regulations dealing with the marketing of flood insurance 
policies, at Article II--Undertakings of the Company, paragraph G. of 
the Arrangement, by requiring the WYO Company to follow marketing 
guidelines established by the Federal Insurance Administration (FIA). 
FIA is currently developing marketing guidelines which will then be 
established in consultation with representatives of the WYO Companies.
    As a result of the heavy flood losses which occurred in recent 
years (i.e., Hurricanes Andrew and Iniki in August and September 1992, 
the Northeaster storm in December 1992, the blizzard of March 1993, and 
the Midwest flooding in the summer of 1993), FEMA recently had to 
exercise its borrowing authority for the first time in eight years. 
While the Program has been growing modestly, greater increases in the 
policyholder base are needed to provide additional premium dollars to 
build up the reserves to meet future catastrophic flooding events. 
Further, large numbers of the victims of recent flood disasters were 
not protected by flood insurance. Therefore, FEMA has determined that 
sufficient cause exists for making this rule effective immediately so 
the revised Arrangement can be the basis of the Offer required by June 
1 and that delaying the effective date until after a comment period 
would be impracticable and contrary to the public interest. However, 
comments are requested and will be considered before further 
regulations are issued.
    Publication of the Arrangement in this interim rule also 
constitutes, for the WYO Program Arrangement year of October 1, 1994--
September 30, 1995, the Administrator's ``Offer to Assist Insurers in 
Underwriting Flood Insurance Using the Standard Flood Insurance 
Policy.''

Method of Acceptance of Offer

    1. Acceptance of this offer shall be by mailed notice of acceptance 
or signed Arrangement to the Administrator `prior to midnight EDT 
September 30, 1994. The notice may be preceded by facsimile 
transmission (202) 646-3445 which must be received by midnight EDT 
September 30, 1994.
    2. The facsimile transmission or mailed notice of acceptance to the 
Administrator must be authorized by an official of the insurance 
company who has the authority to enter into such arrangements.
    3. A duly signed original copy of the Notice of Acceptance (see No. 
6 below) must be on file with the Administrator by November 16, 1994.
    4. If 1., 2., or 3. above are not satisfied, the acceptance will be 
considered by the Administrator as conditional and the commitment of 
NFIP resources to fulfill the ``Undertaking of the Government'' under 
Article IV of the Arrangement will take a lower priority than those 
needed to fulfill the requirement of the other participating insurance 
companies.
    5. Send all acceptances of this offer to: Federal Emergency 
Management Agency, Attn: Federal Insurance Administrator, WYO Program, 
Washington, DC 20472.
    6. In accepting this offer, use the Notice of Acceptance Form set 
forth below:

Notice of Acceptance Form 1994-1995; Federal Emergency Management 
Agency; Federal Insurance Administration; Financial Assistance/Subsidy 
Arrangement (Arrangement)

    Whereas, in 1994, there was published a Notice of Offer by the 
Federal Emergency Management Agency to enter into a Financial 
Assistance/Subsidy Arrangement (hereafter the Arrangement).
    Whereas, the above cited Arrangement, as published in and reprinted 
from the Federal Register, does not provide sufficient space to type in 
the name of the Company.
    Whereas, the Arrangement may include several individual companies 
within a Company Group and the Arrangement as published in and 
reprinted from the Federal Register does not provide sufficient space 
to type in a list of companies.
    Therefore, the parties hereby agree that this Notice of Acceptance 
form is incorporated into and is an integral part of the entire 
Arrangement and is substituted in place of the signature block 
contained in the Federal Register under Article XVI of the Arrangement. 
The above mentioned Arrangement is effective in the States in which the 
insurance company (ies) listed below is (are) duly licensed to engage 
in the business of property insurance:
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    In witness whereof, the parties hereto have accepted this 
Arrangement on this__________ day of__________, ______.
By:__________________
Title:________________
The United States of America
Federal Emergency Management Agency
By:__________________
Title: Federal Insurance Administrator

National Environmental Policy Act

    This rule is categorically excluded from the requirements of 44 CFR 
part 10, Environmental Consideration. No environmental impact 
assessment has been prepared.

Executive Order 12898, Environmental Justice

    The socioeconomic conditions relating to this interim rule have 
been reviewed and it has been found that no disproportionately high and 
adverse effect on minority or low income populations result from this 
interim rule.

Executive Order 12866, Regulatory Planning and Review

    This interim rule is not a significant regulatory action within the 
meaning of section 2(f) of E.O. 12866 of September 30, 1993, 58 FR 
51735. Nevertheless, this interim rule adheres to the regulatory 
principles set forth in E.O. 12866.

Paperwork Reduction Act

    This rule does not contain a collection of information requirement 
as described in section 3504(h) of the Paperwork Reduction Act.

Executive Order 12612, Federalism.

    This rule involves no policies that have federalism implications 
under Executive Order 12612, Federalism, dated October 26, 1987.

Executive Order 12778, Civil Justice Reform

    This rule meets the applicable standards of section 2(b)(2) of 
Executive Order 12778.

List of Subjects in 44 CFR Part 62

    Flood insurance.
    Accordingly, 44 CFR part 62 is amended as follows:

PART 62--SALE OF INSURANCE AND ADJUSTMENT OF CLAIMS

Subpart C--Write Your Own (WYO) Companies

    1. The authority citation for part 62 continues to read as follows:

    Authority: 42 U.S.C. 4001 et seq.; Reorganization Plan No. 3 of 
1978, 43 FR 41943, 3 CFR, 1978 Comp., p. 329; E.O. 12127 of Mar. 31, 
1979, 44 FR 19367, 3 CFR, 1979 Comp., p. 376.

    2. Appendix A is revised to read as follows:

Appendix A to Part 62

Federal Emergency Management Agency, Federal Insurance 
Administration, Financial Assistance/Subsidy Arrangement.

    Purpose: To assist the company in underwriting flood insurance 
using the Standard Flood Insurance Policy.
    Accounting Data: Pursuant to Section 1310 of the Act, a Letter 
of Credit shall be issued for payment as provided for herein from 
the National Flood Insurance Fund.
    Effective Date: October 1, 1994.
    Issued By: Federal Emergency Management Agency, Federal 
Insurance Administration, Washington, DC 20472.

Article I--Findings, Purpose, and Authority

    Whereas, the Congress in its ``Finding and Declaration of 
Purpose'' in the National Flood Insurance Act of 1968, as amended, 
(``the Act'') recognized the benefit of having the National Flood 
Insurance Program (the Program) ``carried out to the maximum extent 
practicable by the private insurance industry''; and
    Whereas, the Federal Insurance Administration (FIA) recognizes 
this Arrangement as coming under the provisions of Section 1345 of 
the Act; and
    Whereas, the goal of the FIA is to develop a program with the 
insurance industry where, over time, some risk-bearing role for the 
industry will evolve as intended by the Congress (Section 1304 of 
the Act); and
    Whereas, the Program, as presently constituted and implemented, 
is subsidized, and the insurer (hereinafter the ``Company'') under 
this Arrangement shall charge rates established by the FIA; and
    Whereas, this Arrangement will subsidize all flood policy losses 
by the Company; and
    Whereas, this Financial Assistance/Subsidy Arrangement has been 
developed to involve individual Companies in the Program, the 
initial step of which is to explore ways in which any interested 
insurer may be able to write flood insurance under its own name; and
    Whereas, one of the primary objectives of the Program is to 
provide coverage to the maximum number of structures at risk and 
because the insurance industry has marketing access through its 
existing facilities not directly available to the FIA, it has been 
concluded that coverage will be extended to those who would not 
otherwise be insured under the Program; and
    Whereas, flood insurance policies issued subject to this 
Arrangement shall be only that insurance written by the Company in 
its own name pursuant to the Act; and
    Whereas, over time, the Program is designed to increase industry 
participation, and, accordingly, reduce or eliminate Government as 
the principal vehicle for delivering flood insurance to the public; 
and
    Whereas, the direct beneficiaries of this Arrangement will be 
those Company policyholders and applicants for flood insurance who 
otherwise would not be covered against the peril of flood.
    Now, therefore, the parties hereto mutually undertake the 
following:

Article II--Undertakings of the Company

    A. In order to be eligible for assistance under this Arrangement 
the Company shall be responsible for:

1.0 Policy Administration, including
1.1 Community Eligibility/Rating Criteria
1.2 Policyholder Eligibility Determination
1.3 Policy Issuance
1.4 Policy Endorsements
1.5 Policy Cancellations
1.6 Policy Correspondence
1.7 Payment of Agents Commissions

    The receipt, recording, control, timely deposit and disbursement 
of funds in connection with all the foregoing, and correspondence 
relating to the above in accordance with the Financial Control Plan 
requirements.
    2.0 Claims processing in accordance with general Company 
standards and the Financial Control Plan. The Write Your Own Claims 
Manual, the Federal Emergency Management Agency Adjuster Manual, the 
FIA National Flood Insurance Program Policy Issuance Handbook, the 
Write Your Own Operational Overview, and other instructional 
material also provide guidance to the Company.

3.0 Reports

    3.1 Monthly Financial Reporting and Statistical Transaction 
Reporting shall be in accordance with the requirements of National 
Flood Insurance Program Transaction Record Reporting and Processing 
Plan for the Write Your Own (WYO) Program and the Financial Control 
Plan for business written under the WYO Program. These data shall be 
validated/ edited/audited in detail and shall be compared and 
balanced against Company financial reports.
    3.2 Monthly financial reporting shall be prepared in accordance 
with the WYO Accounting Procedures.
    3.3 The Company shall establish a program of self audit 
acceptable to the FIA or comply with the self audit program 
contained in the Financial Control Plan for business written under 
the WYO Program. The Company shall report the results of this self-
audit to the FIA annually.
    B. The Company shall use the following time standards of 
performance as a guide:
    1.0 Application Processing--15 days (Note: If the policy cannot 
be mailed due to insufficient or erroneous information or 
insufficient funds, a request for correction or added monies shall 
be mailed within 10 days);
    1.1 Renewal Processing--7 days;
    1.2 Endorsement Processing--7 days;
    1.3 Cancellation Processing--15 days;
    1.4 Correspondence, Simple and/or Status Inquiries--7 days;
    1.5 Correspondence, Complex Inquiries--20 days;
    1.6 Supply, Materials, and Manual Requests--7 days;
    1.7 Claims Draft Processing--7 days from completion of file 
examination;
    1.8 Claims Adjustment--45 days average from receipt of Notice of 
Loss (or equivalent) through completion of examination.
    1.9 For the elements of work enumerated above, the elapsed time 
shown is from date of receipt through date of mail out. Days means 
working, not calendar days.
    In addition to the standards for timely performance set forth 
above, all functions performed by the Company shall be in accordance 
with the highest reasonably attainable quality standards generally 
utilized in the insurance and data processing industries.
    These standards are for guidance. Although no immediate remedy 
for failure to meet them is provided under this Arrangement, 
nevertheless, performance under these standards can be a factor 
considered by the Federal Insurance Administrator (the 
Administrator) in determining the continuing participation of the 
Company in the Program or other action, e.g., limiting the Company's 
authority to write new business.
    C. The Company shall coordinate activities and provide 
information to the FIA or its designee on those occasions when a 
Flood Insurance Catastrophe Office is established.

D. Policy Issuance

    1.0 The flood insurance subject to this Arrangement shall be 
only that insurance written by the Company in its own name pursuant 
to the Act.
    2.0 The Company shall issue policies under the regulations 
prescribed by the Administrator in accordance with the Act;
    3.0 All such policies of insurance shall conform to the 
regulations prescribed by the Administrator pursuant to the Act, and 
be issued on a form approved by the Administrator;
    4.0 All policies shall be issued in consideration of such 
premiums and upon such terms and conditions and in such States or 
areas or subdivisions thereof as may be designated by the 
Administrator and only where the Company is licensed by State law to 
engage in the property insurance business;
    5.0 The Administrator may require the Company to immediately 
discontinue issuing policies subject to this Arrangement in the 
event Congressional authorization or appropriation for the National 
Flood Insurance Program is withdrawn.
    E. The Company shall establish a bank account, separate and 
apart from all other Company accounts, at a bank of its choosing for 
the collection, retention and disbursement of funds relating to its 
obligation under this Arrangement, less the Company's expenses as 
set forth in Article III, and the operation of the Letter of Credit 
established pursuant to Article IV. All funds not required to meet 
current expenditures shall be remitted to the United States 
Treasury, in accordance with the provisions of the WYO Accounting 
Procedures Manual.
    F. The Company shall investigate, adjust, settle and defend all 
claims or losses arising from policies issued under this 
Arrangement. Payment of flood insurance claims by the Company shall 
be binding upon the FIA.
    G. The Company shall market flood insurance policies in a manner 
consistent with the marketing guidelines established by the Federal 
Insurance Administration.

Article III--Loss Costs, Expenses, Expense Reimbursement, and 
Premium Refunds

    A. The Company shall be liable for operating, administrative and 
production expenses, including any taxes, dividends, agent's 
commissions or any board, exchange or bureau assessments, or any 
other expense of whatever nature incurred by the Company in the 
performance of its obligations under this Arrangement.
    B. The Company shall be entitled to withhold as operating and 
administrative expenses, other than agents or brokers commissions, 
an amount from the Company's written premium on the policies covered 
by this Arrangement in reimbursement of all of the Company's 
marketing, operating and administrative expenses, except for 
allocated and unallocated loss adjustment expenses described in C. 
of this Article, which amount shall equal the average of industry 
expense ratios for ``Other Acq.'' ``Gen. Exp.'' and ``Taxes'' as 
published in the latest available (as of March 15 of the prior 
Arrangement year) ``Best's'' Aggregates and Averages Property 
Casualty, Industry Underwriting--by Lines for Fire, Allied Lines, 
Farmowners Multiple Peril, Homeowners Multiple Peril, and Commercial 
Multiple Peril combined (weighted average using premiums earned as 
weights) calculated and promulgated by the Administrator. Premium 
income net of reimbursement (net premium income) shall be deposited 
in a special account for the payment of losses and loss adjustment 
expenses (see Article II, Section E).
    The Company shall be entitled to 15% of the Company's written 
premium on the policies covered by this Arrangement as the 
commission allowance to meet commissions and/or salaries of their 
insurance agents, brokers, or other entities producing qualified 
flood insurance applications and other related expenses.
    The Company, with the consent of the Administrator as to terms 
and costs, shall be entitled to utilize the services of a national 
rating organization, licensed under state law, to assist the FIA in 
undertaking and carrying out such studies and investigations on a 
community or individual risk basis, and in determining more 
equitable and accurate estimates of flood insurance risk premium 
rates as authorized under the National Flood Insurance Act of 1968, 
as amended. The Company shall be reimbursed in accordance with the 
provisions of the WYO Accounting Procedures Manual for the charges 
or fees for such services.
    C. Loss Adjustment Expenses shall be reimbursed as follows:
    1. Unallocated loss adjustment shall be an expense reimbursement 
of 3.3% of the incurred loss (except that it does not include 
``incurred but not reported'').
    2. Allocated loss adjustment expense shall be reimbursed to the 
Company pursuant to Exhibit A, entitled ``Fee Schedule.''
    3. Special allocated loss expenses shall be reimbursed to the 
Company for only those expenses the Company has obtained prior 
approval of the Administrator to incur.
    D.1. Loss payments under policies of flood insurance shall be 
made by the Company from funds retained in the bank account 
established under Article II, Section E and, if such funds are 
depleted, from funds derived by drawing against the Letter of Credit 
established pursuant to Article IV.
    2. Loss payments will include payments as a result of awards or 
judgments for damages arising under the scope of this Arrangement, 
policies of flood insurance issued pursuant to this Arrangement, and 
the claims processing standards and guides set forth at Article II, 
Section A, 2.0 of this Arrangement. Prompt notice of any claim for 
damages as to claims processing or other matters arising outside the 
scope of this section (D)(2) shall be sent to the Assistant 
Administrator of the FIA's Office of Insurance Policy Analysis and 
Technical Services (OIPATS), along with a copy of any material 
pertinent to the claim for damages arising outside of the scope of 
the matters set forth in this section (D)(2).
    Following receipt of notice of such claim, the General Counsel 
(OGC), FEMA, shall review the cause and make a recommendation to FIA 
as to whether the claim is grounded in actions by the Company which 
are significantly outside the provisions of this section (D)(2). 
After reviewing the General Counsel's recommendation, the 
Administrator will make her decision and the Company will be 
notified, in writing, within thirty (30) days of the General 
Counsel's recommendation, if the decision is that any award or 
judgment for damages arising out of such actions will not be 
recognized under Article III of this Arrangement as a reimbursable 
loss cost, expense or expense reimbursement. In the event that the 
Company wishes to petition for reconsideration of the notification 
that it will not be reimbursed for the award or judgment made under 
the above circumstances, it may do so by mailing, within thirty days 
of the notice declining to recognize any such award or judgment as 
reimbursable under Article III, a written petition to the Chairman 
of the WYO Standards Committee established under the Financial 
Control Plan. The WYO Standards Committee will, then, consider the 
petition at its next regularly scheduled meeting or at a special 
meeting called for that purpose by the Chairman and issue a written 
recommendation to the Administrator, within thirty days of the 
meeting. The Administrator's final determination will be made, in 
writing, to the Company within thirty days of the recommendation 
made by the WYO Standards Committee.
    E. Premium refunds to applicants and policyholders required 
pursuant to rules contained in the National Flood Insurance Program 
(NFIP) ``Flood Insurance Manual'' shall be made by the Company from 
funds retained in the bank account established under Article II, 
Section E and, if such funds are depleted, from funds derived by 
drawing against the Letter of Credit established pursuant to Article 
IV.

Article IV--Undertakings of the Government

    A. Letter(s) of Credit shall be established by the Federal 
Emergency Management Agency (FEMA) against which the Company may 
withdraw funds daily, if needed, pursuant to prescribed procedures 
as implemented by FEMA. The amounts of the authorizations will be 
increased as necessary to meet the obligations of the Company under 
Article III, Sections (C), (D), and (E). Request for funds shall be 
made only when net premium income has been depleted. The timing and 
amount of cash advances shall be as close as is administratively 
feasible to the actual disbursements by the recipient organization 
for allowable Letter of Credit expenses.
    Request for payment on Letters of Credit shall not ordinarily be 
drawn more frequently than daily nor in amounts less than $5,000, 
and in no case more than $5,000,000 unless so stated on the Letter 
of Credit. This Letter of Credit may be drawn by the Company for any 
of the following reasons:
    1. Payment of claim as described in Article III, Section D; and
    2. Refunds to applicants and policyholders for insurance premium 
overpayment, or if the application for insurance is rejected or when 
cancellation or endorsement of a policy results in a premium refund 
as described in Article III, Section E; and
    3. Allocated and unallocated Loss Adjustment Expenses as 
described in Article III, Section C.
    B. The FIA shall provide technical assistance to the Company as 
follows:
    1. The FIA's policy and history concerning underwriting and 
claims handling.
    2. A mechanism to assist in clarification of coverage and claims 
questions.
    3. Other assistance as needed.

Article V--Commencement and Termination

    A. Upon signature of authorized officials for both the Company 
and the FIA, this Arrangement shall be effective for the period 
October 1 through September 30. The FIA shall provide financial 
assistance only for policy applications and endorsements accepted by 
the Company during this period pursuant to the Program's effective 
date, underwriting and eligibility rules.
    B. By June 1, of each year, the FIA shall publish in the Federal 
Register and make available to the Company the terms for the re-
subscription of this Financial Assistance/Subsidy Arrangement. In 
the event the Company chooses not to re-subscribe, it shall notify 
the FIA to that effect by the following July 1.
    C. In the event the Company elects not to participate in the 
Program in any subsequent fiscal year, or the FIA chooses not to 
renew the Company's participation, the FIA, at its option, may 
require (1) the continued performance of this entire Arrangement for 
one (1) year following the effective expiration date only for those 
policies issued during the original term of this Arrangement, or any 
renewal thereof, or (2) the transfer to the FIA of:
    a. All data received, produced, and maintained through the life 
of the Company's participation in the Program, including certain 
data, as determined by FIA, in a standard format and medium; and
    b. A plan for the orderly transfer to the FIA of any continuing 
responsibilities in administering the policies issued by the Company 
under the Program including provisions for coordination assistance; 
and
    c. All claims and policy files, including those pertaining to 
receipts and disbursements which have occurred during the life of 
each policy. In the event of a transfer of the services provided, 
the Company shall provide the FIA with a report showing, on a policy 
basis, any amounts due from or payable to insureds, agents, brokers, 
and others as of the transition date.
    D. Financial assistance under this Arrangement may be cancelled 
by the FIA in its entirety upon 30 days written notice to the 
Company by certified mail stating one of the following reasons for 
such cancellation: (1) Fraud or misrepresentation by the Company 
subsequent to the inception of the contract, or (2) nonpayment to 
the FIA of any amount due the FIA. Under these very specific 
conditions, the FIA may require the transfer of data as shown in 
Section C., above. If transfer is required, the unearned expenses 
retained by the Company shall be remitted to the FIA.
    E. In the event the Act is amended, or repealed, or expires, or 
if the FIA is otherwise without authority to continue the Program, 
financial assistance under this Arrangement may be cancelled for any 
new or renewal business, but the Arrangement shall continue for 
policies in force which shall be allowed to run their term under the 
Arrangement.
    F. In the event that the Company is unable to, or otherwise 
fails to, carry out its obligations under this Arrangement by reason 
of any order or directive duly issued by the Department of Insurance 
of any Jurisdiction to which the Company is subject, the Company 
agrees to transfer, and the Government will accept, any and all WYO 
policies issued by the Company and in force as of the date of such 
inability or failure to perform. In such event the Government will 
assume all obligations and liabilities owed to policyholders under 
such policies arising before and after the date of transfer and the 
Company will immediately transfer to the Government all funds in its 
possession with respect to all such policies transferred and the 
unearned portion of the Company expenses for operating, 
administrative and loss adjustment on all such policies.

Article VI--Information and Annual Statements

    The Company shall furnish to the FIA such summaries and analyses 
of information in its records as may be necessary to carry out the 
purposes of the National Flood Insurance Act of 1968, as amended, in 
such form as the FIA, in cooperation with the Company, shall 
prescribe. The Company shall be a property/casualty insurer 
domiciled in a State or territory of the United States. Upon 
request, the Company shall file with the FIA a true and correct copy 
of the Company's Fire and Casualty Annual Statement, and Insurance 
Expense Exhibit or amendments thereof, as filed with the State 
Insurance Authority of the Company's domiciliary State.

Article VII--Cash Management and Accounting

    A. FEMA shall make available to the Company during the entire 
term of this Arrangement and any continuation period required by FIA 
pursuant to Article V, Section C., the Letter of Credit provided for 
in Article IV drawn on a repository bank within the Federal Reserve 
System upon which the Company may draw for reimbursement of its 
expenses as set forth in Article IV which exceed net written 
premiums collected by the Company from the effective date of this 
Arrangement or continuation period to the date of the draw.
    B. The Company shall remit all funds not required to meet 
current expenditures to the United States Treasury, in accordance 
with the provisions of the WYO Accounting Procedures Manual.
    C. In the event the Company elects not to participate in the 
Program in any subsequent fiscal year, the Company and FIA shall 
make a provisional settlement of all amounts due or owing within 
three months of the termination of this Arrangement. This settlement 
shall include net premiums collected, funds drawn on the Letter of 
Credit, and reserves for outstanding claims. The Company and FIA 
agree to make a final settlement of accounts for all obligations 
arising from this Arrangement within 18 months of its expiration or 
termination, except for contingent liabilities which shall be listed 
by the Company. At the time of final settlement, the balance, if 
any, due the FIA or the Company shall be remitted by the other 
immediately and the operating year under this Arrangement shall be 
closed.

Article VIII--Arbitration

    A. If any misunderstanding or dispute arises between the Company 
and the FIA with reference to any factual issue under any provisions 
of this Arrangement or with respect to the FIA's non-renewal of the 
Company's participation, other than as to legal liability under or 
interpretation of the standard flood insurance policy, such 
misunderstanding or dispute may be submitted to arbitration for a 
determination which shall be binding upon approval by the FIA. The 
Company and the FIA may agree on and appoint an arbitrator who shall 
investigate the subject of the misunderstanding or dispute and make 
a determination. If the Company and the FIA cannot agree on the 
appointment of an arbitrator, than two arbitrators shall be 
appointed, one to be chosen by the Company and one by the FIA.
    The two arbitrators so chosen, if they are unable to reach an 
agreement, shall select a third arbitrator who shall act as umpire, 
and such umpire's determination shall become final only upon 
approval by the FIA.
    The Company and the FIA shall bear in equal shares all expenses 
of the arbitration. Findings, proposed awards, and determinations 
resulting from arbitration proceedings carried out under this 
section, upon objection by FIA or the Company, shall be inadmissible 
as evidence in any subsequent proceedings in any court of competent 
jurisdiction.
    This Article shall indefinitely succeed the term of this 
Arrangement.

Article IX--Errors and Omissions

    The parties shall not be liable to each other for damages caused 
by ordinary negligence arising out of any transaction or other 
performance under this Arrangement, nor for any inadvertent delay, 
error, or omission made in connection with any transaction under 
this Arrangement, provided that such delay, error, or omission is 
rectified by the responsible party as soon as possible after 
discovery.
    However, in the event that the Company has made a claim payment 
to an insured without including a mortgagee (or trustee) of which 
the Company had actual notice prior to making payment, and 
subsequently determines that the mortgagee (or trustee) is also 
entitled to any part of said claim payment, any additional payment 
shall not be paid by the Company from any portion of the premium and 
any funds derived from any Federal Letter of Credit deposited in the 
bank account described in Article II, section E. In addition, the 
Company agrees to hold the Federal Government harmless against any 
claim asserted against the Federal Government by any such mortgagee 
(or trustee), as described in the preceding sentence, by reason of 
any claim payment made to any insured under the circumstances 
described above.

Article X--Officials Not to Benefit

    No Member or Delegate to Congress, or Resident Commissioner, 
shall be admitted to any share or part of this Arrangement, or to 
any benefit that may arise therefrom; but this provision shall not 
be construed to extend to this Arrangement if made with a 
corporation for its general benefit.

Article XI--Offset

    At the settlement of accounts the Company and the FIA shall 
have, and may exercise, the right to offset any balance or balances, 
whether on account of premiums, commissions, losses, loss adjustment 
expenses, salvage, or otherwise due one party to the other, its 
successors or assigns, hereunder or under any other Arrangements 
heretofore or hereafter entered into between the Company and the 
FIA. This right of offset shall not be affected or diminished 
because of insolvency of the Company.
    All debts or credits of the same class, whether liquidated or 
unliquidated, in favor of or against either party to this 
Arrangement on the date of entry, or any order of conservation, 
receivership, or liquidation, shall be deemed to be mutual debts and 
credits and shall be offset with the balance only to be allowed or 
paid. No offset shall be allowed where a conservator, receiver, or 
liquidator has been appointed and where an obligation was purchased 
by or transferred to a party hereunder to be used as an offset. 
Although a claim on the part of either party against the other may 
be unliquidated or undetermined in amount on the date of the entry 
of the order, such claim will be regarded as being in existence as 
of the date of such order and any credits or claims of the same 
class then in existence and held by the other party may be offset 
against it.

Article XII--Equal Opportunity

    The Company shall not discriminate against any applicant for 
insurance because of race, color, religion, sex, age, handicap, 
marital status, or national origin.

Article XIII--Restriction on Other Flood Insurance

    As a condition of entering into this Arrangement, the Company 
agrees that in any area in which the Administrator authorizes the 
purchase of flood insurance pursuant to the Program, all flood 
insurance offered and sold by the Company to persons eligible to buy 
pursuant to the Program for coverages available under the Program 
shall be written pursuant to this Arrangement.
    However, this restriction applies solely to policies providing 
only flood insurance. It does not apply to policies provided by the 
Company of which flood is one of the several perils covered, or 
where the flood insurance coverage amount is over and above the 
limits of liability available to the insured under the Program.

Article XIV--Access to Books and Records

    The FIA and the Comptroller General of The United States, or 
their duly authorized representatives, for the purpose of 
investigation, audit, and examination shall have access to any 
books, documents, papers and records of the Company that are 
pertinent to this Arrangement. The Company shall keep records which 
fully disclose all matters pertinent to this Arrangement, including 
premiums and claims paid or payable under policies issued pursuant 
to this Arrangement. Records of accounts and records relating to 
financial assistance shall be retained and available for three (3) 
years after final settlement of accounts, and to financial 
assistance, three (3) years after final adjustment of such claims. 
The FIA shall have access to policyholder and claim records at all 
times for purposes of the review, defense, examination, adjustment, 
or investigation of any claim under a flood insurance policy subject 
to this Arrangement.

Article XV--Compliance with Act and Regulations

    This Arrangement and all policies of insurance issued pursuant 
thereto shall be subject to the provisions of the National Flood 
Insurance Act of 1968, as amended, the Flood Disaster Protection Act 
of 1973, as amended, and Regulations issued pursuant thereto and all 
Regulations affecting the work that are issued pursuant thereto, 
during the term hereof.

Article XVI--Relationship Between the Parties (Federal Government 
and Company) and the Insured

    Inasmuch as the Federal Government is a guarantor hereunder, the 
primary relationship between the Company and the Federal Government 
is one of a fiduciary nature, i.e., to assure that any taxpayer 
funds are accounted for and appropriately expended.
    The Company is not the agent of the Federal Government. The 
Company is solely responsible for its obligations to its insured 
under any flood policy issued pursuant hereto.
    In witness whereof, the parties hereto have accepted this 
Arrangement on this __________ day of __________, 1993.

----------------------------------------------------------------------
    Company

by--------------------------------------------------------------------
(Title)---------------------------------------------------------------
The United States of America
Federal Emergency Management Agency

by--------------------------------------------------------------------
(Title)---------------------------------------------------------------

Exhibit A 

                              Fee Schedule                              
------------------------------------------------------------------------
                    Range (by covered loss)                        Fee  
------------------------------------------------------------------------
Erroneous Assignment...........................................      $40
Closed Without Payment.........................................      125
Minimum for Upton-Jones Claims.................................      800
$0.01 to $600..................................................      150
$600.01 to $1,000..............................................      175
$1,000.01 to $2,000............................................      225
$2,000.01 to $3,500............................................      275
$3,500.01 to $5,000............................................      350
$5,000.01 to $7,000............................................      425
$7,000.01 to $10,000...........................................      500
$10,000.01 to $15,000..........................................      550
$15,000.01 to $25,000..........................................      600
$25,000.01 to $35,000..........................................      675
$35,000.01 to $50,000..........................................      750
$50,000.01 to $100,000.........................................    1,000
$100,000.01 to $150,000........................................    1,300
$150,000.01 to $200,000........................................    1,600
$200,000.01 to limits..........................................   2,000 
------------------------------------------------------------------------
Allocated fee schedule entry value is the covered loss under the policy 
  based on the standard deductibles ($500 and $500) and limited to the  
  amount of insurance purchased.                                        

(Catalog of Federal Domestic Assistance No. 83.100, ``Flood 
Insurance'')

    Dated: May 17, 1994.
Elaine A. McReynolds,
Administrator, Federal Insurance Administration.
[FR Doc. 94-12627 Filed 5-20-94; 8:45 am]
BILLING CODE 6718-05-P