[Federal Register Volume 67, Number 238 (Wednesday, December 11, 2002)]
[Notices]
[Pages 76206-76208]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31256]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY


Departmental Offices; Interim Guidance Concerning New Statutory 
Disclosure and Mandatory Availability Requirements of the Terrorism 
Risk Insurance Act of 2002

AGENCY: Department of the Treasury, Departmental Offices.

ACTION: Notice.

-----------------------------------------------------------------------

SUMMARY: This notice provides interim guidance to insurers concerning 
certain statutory disclosure and mandatory availability requirements 
contained in the Terrorism Risk Insurance Act of 2002 (Pub. L. 107-
297). In addition, this notice provides interim guidance to insurers 
concerning the types of commercial property and casualty insurance 
covered by the Act and concerning the term ``direct earned premium'' as 
used in the Act.

DATES: This notice is effective immediately and will remain in effect 
until superceded by regulations or by subsequent notice.

FOR FURTHER INFORMATION CONTACT: Mario Ugoletti, Deputy Director, 
Office of Financial Institutions and GSE Policy 202-622-2730; Martha 
Ellett, Attorney-Advisor, Office of Assistant General Counsel (Banking 
and Finance) 202-622-0480.

SUPPLEMENTARY INFORMATION: This notice provides interim guidance to 
assist insurers in meeting certain requirements of the Terrorism Risk 
Insurance Act of 2002 pending the issuance of regulations by the 
Department of the Treasury. The interim guidance contained in this 
notice may be relied upon by insurers in complying with these statutory 
requirements prior to the issuance of regulations, but is not the 
exclusive means of compliance. This interim guidance remains in effect 
until superceded by regulations or subsequent notice.

I. Background

    On November 26, 2002, the President signed into law the Terrorism 
Risk Insurance Act of 2002 (the Act). The Act became effective 
immediately. It establishes a temporary federal program of shared 
public and private compensation for insured commercial property and 
casualty losses resulting from an act of terrorism, as defined in the 
Act. The Terrorism Risk Insurance Program is administered and 
implemented by the Department of the Treasury (Treasury) and will 
sunset on December 31, 2005.

II. Interim Guidance

    Treasury will be issuing regulations to administer and implement 
the Program. This notice is issued to assist insurers in complying with 
certain statutory requirements prior to the issuance of regulations. 
This notice contains interim guidance on disclosures required by 
sections 103 and 105 of the Act and concerning compliance with the 
mandatory availability requirements in section 103(c) of the Act. In 
addition, this notice provides interim guidance concerning commercial 
lines of property and casualty insurance covered by section 102(12) and 
concerning the statutory term ``direct earned premium.'' Treasury also 
may issue additional interim guidance as necessary prior to the 
issuance of regulations.

[[Page 76207]]

A. Disclosures to Policyholders

What Disclosures Are Required by the Act in Section 103(b)(2)?
    The Act requires that disclosures be made to policyholders as part 
of the conditions for Federal payments under the Terrorism Risk 
Insurance Program. Section 103(b)(2) requires an insurer to provide 
clear and conspicuous disclosure to the policyholder of the premium 
charged for insured losses covered by the Terrorism Risk Insurance 
Program and the Federal share of compensation for insured losses under 
the Program.
    [sbull] For existing (in-force) policies issued before the date of 
enactment (November 26, 2002), the Act requires that disclosure to the 
policyholder be made not later than 90 days after November 26, 2002;
    [sbull] For policies issued within 90 days of November 26, 2002, 
the Act requires the disclosure to the policyholder be made at the time 
of offer, purchase and renewal of the policy; and
    [sbull] For policies issued more than 90 days after November 26, 
2002, the Act requires disclosure on a separate line item in the policy 
at the time of offer, purchase and renewal of the policy.
What Disclosures (or Statements) Are Required by the Reinstatement 
Provisions in Section 105(c) of the Act?
    Section 105(c) of the Act allows an insurer to reinstate 
preexisting exclusions of coverage for an act of terrorism in a 
contract for property and casualty insurance that is in force on the 
date of enactment, notwithstanding the general nullification and 
general preemption of terrorism exclusions in force on the date of 
enactment of the Act in section 105(a) and (b), but only if (1) the 
insurer has received a written statement from the insured that 
affirmatively authorizes such reinstatement or (2) if (A) the insured 
fails to pay any increased premium charged by the insurer for providing 
such terrorism coverage and (B) the insurer provided notice, at least 
30 days before any such reinstatement of (i) the increased premium for 
such terrorism coverage and (ii) the rights of the insured with respect 
to such coverage, including the date upon which the exclusion would be 
reinstated if no payment is received.
How May an Insurer Comply With the Disclosure Requirements of Section 
103(b) (2)(A) if There Is No Change in the Premium?
    Prior to the issuance of regulations or further guidance by 
Treasury, any insurer that uses the Model Form No. 2 attached to the 
model bulletin on Terrorism Risk Insurance dated November 26, 2002, of 
the National Association of Insurance Commissioners (NAIC), and posted 
on the NAIC Web site at http://www.naic.org/pressroom/releases/disclose_two_final.pdf, as a policyholder disclosure form for in-
force policies, if the insurer makes no change in the existing premium, 
will be deemed by Treasury to be in compliance with section 
103(b)(2)(A).
How May an Insurer Comply With the Disclosure Requirements of Section 
103(b)(2)(B) for Policies Issued Within 90 Days of Enactment?
    Either NAIC Model Disclosure Form No. 1 which is posted on the NAIC 
Web site at http://www.naic.org/pressroom/releases/disclose_one_final.pdf, or NAIC Model Disclosure Form No. 2 which is posted on the 
NAIC Web site at http://www.naic.org/pressroom/releases/disclose_two_final.pdf, may be modified as appropriate by insurers for the 
particular policy and used for policies issued within 90 days of 
enactment. Prior to the issuance of regulations or further guidance by 
Treasury, any insurer that modifies as appropriate and uses either of 
these model disclosure forms as its disclosure for policies issued 
within 90 days of enactment of the Act will be deemed by Treasury to be 
in compliance with the section 103(b)(2)(B) disclosure requirements.
May an Insurer Use the Same Form To Comply With the Reinstatement 
Requirements of Section 105(c) and the Disclosure Requirements of 
Section 103(b)(2)(A) if Applicable?
    Yes. Prior to the issuance of regulations or further guidance by 
Treasury, if applicable to an existing policyholder, e.g. for in-force 
policies where there is a change of premium, Treasury will deem 
disclosure by an insurer to an existing policyholder using NAIC Model 
Disclosure Form 1, posted on the NAIC Web site at http://www.naic.org/pressroom/releases/disclose_one_final.pdf, to comply with the 
disclosure requirements of section 105(c) of the Act, as well as with 
the requirements of section 103(b)(2)(A).
Is This Interim Guidance the Exclusive Means by Which an Insurer May 
Comply With Disclosure or Reinstatement Requirements of the Act?
    No. This interim guidance concerning certain disclosures as 
specified above may be relied upon by insurers as a safe harbor in 
complying with these requirements of the Act until regulations or 
further guidance is issued by Treasury, but it is not the exclusive 
means by which an insurer may comply with these requirements of the 
Act.
How May an Insurer Comply With the ``Separate Line Item'' Requirement 
in Section 103(b)(2)(C) for Policies Issued More Than 90 Days After the 
Date of Enactment?
    Treasury will be issuing additional interim guidance as 
appropriate, and will be issuing regulations concerning other 
disclosure requirements, such as the separate line item disclosure 
requirement.
May an Insurer Comply With the Disclosure Requirements of the Act 
Through a Broker or Other Agent?
    Yes. In many situations, commercial property and casualty insurance 
is procured for policyholders through an insurance broker or other 
intermediary acting as agent for the insurer. Prior to the issuance of 
regulations or further guidance by Treasury, if the normal form of 
communication between an insurer and the policyholder is through an 
insurance broker (or other intermediary acting as agent for the 
insurer), an insurer may provide the Act's required disclosures through 
such agents. While this interim guidance permits an insurer to provide 
disclosures to its policyholders through an insurance broker or other 
agent, the responsibility for ensuring that such disclosures are 
provided to policyholders still rests with the insurer.

B. Mandatory Availability

What Does ``Make Available'' Mean?
    From enactment through the end of Program Year 2 (December 31, 
2004), section 103(c)(1) of the Act requires that an insurer:

    (A) Shall make available, in all of its property and casualty 
insurance policies, coverage for insured losses; and
    (B) Shall 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.

    Until Treasury issues regulations or provides further guidance on 
the requirements of section 103(c), ``make available'' means an insurer 
is required to offer coverage to a policyholder for acts of terrorism 
(as defined in the Act) that does not differ materially from the terms, 
amounts, and other coverage limitations offered to the policyholder for 
losses from events other than acts of terrorism. For example, 
compliance with ``make available'' means that insurers offer coverage 
for acts of

[[Page 76208]]

terrorism (as defined in the Act) at deductibles and limits that do not 
differ materially from the coverage provided for other perils.
    For the purposes of this interim guidance, the ``make available'' 
requirement does not mean that insurers must make available coverage 
for all types of risks. For example, if an insurer does not cover all 
types of risks, either because the insurer is outside of direct State 
regulatory oversight or a State permits exclusions for certain types of 
losses (e.g., nuclear, biological, or chemical events) an insurer would 
not be required to make such coverage available.
    This interim guidance is consistent with the Act's stated purpose 
of ensuring widespread availability of terrorism risk insurance while 
preserving State insurance regulation. During the course of 
implementing the Program, Treasury will be monitoring the pricing and 
availability of terrorism risk insurance coverage as part of the Act's 
requirements that Treasury study the effectiveness of the Program 
(section 108(d)(1)) and compile information on the premium rates of 
insurers (section 104(f)).
How May Insurers Comply With the ``Make Available'' Provision?
    For purposes of this interim guidance, an insurer that makes a 
formal offer of coverage to a policyholder that does not differ 
materially from the terms (other than price), amounts and other 
coverage limitations offered to the policyholder will be deemed in 
compliance with the ``make available'' requirement.
May an Insurer Offer Coverage for Acts of Terrorism (as Defined in the 
Act) That Differs Materially From the Terms, Amounts, and Other 
Coverage Limitations for Losses Arising From Events Other Than Acts of 
Terrorism?
    For the purposes of this interim guidance, an insurer may offer 
coverage that is on different terms, amounts, or coverage limitations 
as long as the insurer satisfies the ``make available'' requirements 
(as described in the previous question and answer) and as long as such 
offers do not violate any State laws or regulations. For example, in a 
State that requires the provision of full coverage without any 
exclusion, the Act would not preempt that State's preexisting 
requirements. In contrast, if a State permits certain exclusions or 
allows for other limitations, or if an insurance policy is not directly 
governed by State requirements, then after first satisfying the ``make 
available'' requirement (as described in the previous question and 
answer), an insurer could offer limited coverage or coverage with 
exclusions.

C. Property and Casualty Insurance and Direct Earned Premium

What Types of Property and Casualty Insurance Are Covered by the 
Program?
    Section 102(12) of the Act defines property and casualty insurance 
to mean commercial lines of property and casualty insurance, including 
excess insurance, workers' compensation insurance, and surety 
insurance.
    As interim guidance prior to the issuance of regulations, Treasury 
deems the following lines of insurance from the NAIC's Exhibit of 
Premiums and Losses (commonly known as Statutory Page 14) to be 
included in the Program: Line 1--Fire; Line 2.1--Allied Lines; Line 3--
Farmowners Multiple Peril; 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 19.3--Commercial Auto No-Fault (personal injury 
protection); Line 19.4--Other Commercial Auto Liability; Line 21.2--
Commercial Auto Physical Damage; Line 22--Aircraft (all perils); Line 
24--Surety; Line 26--Burglary and Theft; and Line 27--Boiler and 
Machinery.
    Section 102(12) (B) of the Act lists types of insurance coverage 
that are excluded from the Program. These are private mortgage or title 
insurance; financial guaranty insurance issued by monoline financial 
guaranty insurance corporations; insurance for medical malpractice; 
health or life insurance, including group life insurance; flood 
insurance provided under the National Flood Insurance Act of 1968; and 
reinsurance or retrocessional reinsurance.
    In addition, the Act excludes, ``Federal crop insurance issued or 
reinsured under the Federal Crop Insurance Act, or any other type of 
crop or livestock insurance that is privately issued or reinsured.'' As 
interim guidance to facilitate implementation, Treasury deems the 
phrase ``any other type of crop or livestock insurance that is 
privately issued or reinsured'' to mean Multiple Peril Crop insurance 
reported on Line 2.2 of the NAIC's Exhibit of Premiums and Losses 
(commonly known as Statutory Page 14).
How Is Direct Earned Premium Measured?
    The Act contains the term ``direct earned premium.'' The Act 
specifies an insurer's direct earned premiums over a given calendar 
year as the deductible base for purposes of calculating an ``insurer 
deductible'' as defined in section 102(7) of the Act. For purposes of 
interim guidance to enable insurers that report to the NAIC to 
calculate their ``insurer deductible'' and to facilitate immediate 
implementation of the Program, the term ``direct earned premium'' means 
the direct premiums earned as reported to the NAIC in the Annual 
Statement in column 2 of the Exhibit of Premiums and Losses (commonly 
known as Statutory Page 14). Treasury will be issuing additional 
guidance for entities covered under the Program that do not report to 
the NAIC.

    Dated: December 3, 2002.
Peter R. Fisher,
Under Secretary of the Treasury.
[FR Doc. 02-31256 Filed 12-10-02; 8:45 am]
BILLING CODE 4810-25-P