[Federal Register Volume 68, Number 40 (Friday, February 28, 2003)]
[Proposed Rules]
[Pages 9815-9816]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-4832]



  Federal Register / Vol. 68, No. 40 / Friday, February 28, 2003 / 
Proposed Rules  

[[Page 9815]]


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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505-AA96


Departmental Offices; Terrorism Risk Insurance Program

AGENCY: Departmental Offices, Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
proposed rule as part of its implementation of Title I of the Terrorism 
Risk Insurance Act of 2002. That Act established a temporary Terrorism 
Risk Insurance Program (Program) under which the Federal Government 
will share the risk of insured loss from certified acts of terrorism 
with commercial property and casualty insurers until the Program 
sunsets on December 31, 2005. This proposed rule sets forth the purpose 
and scope of the Program and key definitions that Treasury will use in 
implementing the Program. In general, the proposed rule incorporates 
interim guidance previously issued by Treasury concerning these 
definitions, but with some modifications. This proposed rule, together 
with the interim final rule published elsewhere in this separate part 
of the Federal Register, are the first in a series of regulations 
Treasury will issue to implement the Act.

DATES: Written comments may be submitted on or before March 31, 2003.

ADDRESSES: Submit comments (if hard copy, preferably an original and 
two copies) to Office of Financial Institutions Policy, Attention: 
Terrorism Risk Insurance Program Public Comment Record, Room 3160 
Annex, Department of the Treasury, 1500 Pennsylvania Ave., NW., 
Washington, DC 20220. Because paper mail in the Washington, DC area may 
be subject to delay, it is recommended that comments be submitted by 
electronic mail to: [email protected]. All comments should be 
captioned with ``February 28, 2003 TRIA Comments.'' Please include your 
name, affiliation, address, e-mail address and telephone number in your 
comment. Comments will be available for public inspection by 
appointment only at the Reading Room of the Treasury Library. To make 
appointments, call (202) 622-0990 (not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Mario Ugoletti, Deputy Director, 
Office of Financial Institutions Policy (202) 622-2730, or Martha 
Ellett, Attorney-Advisor, Office of the Assistant General Counsel 
(Banking & Finance), (202) 622-0480 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

I. The Proposed Rule

    Published elsewhere in this separate part of the Federal Register 
is an interim final rule establishing 31 CFR Part 50, which will 
comprise Treasury's regulations implementing the Terrorism Risk 
Insurance Act of 2002 (the Act). The preamble to the interim final rule 
explains these provisions of the proposed rule in detail, and the text 
of the interim final rule serves as the text for this proposed rule.
    In addition, Treasury specifically solicits public comment on 
whether the Secretary should prescribe criteria for certain insurers 
pursuant to the authority provided to Treasury in section 102(6)(C) 
and, if so, what criteria Treasury should prescribe. First, Treasury 
solicits comment on appropriate criteria to prevent participation in 
the Program by newly formed insurance companies deemed by Treasury to 
be established for the purpose of evading the insurer deductible 
requirements of the Act and the Program. In this regard, Treasury's 
objectives are to encourage new sources of capital in the market for 
terrorism risk insurance, and at the same time, ensure the integrity of 
the Program and provide comparable treatment of Program participants. 
Accordingly, the intent of any additional criteria, if proposed under 
section 102(6)(C), is not to discourage Program participation by newly 
formed commercial property and casualty insurance companies in their 
normal course of business, but to administer the Program effectively 
and fairly, including preventing evasion of insurer deductible 
requirements by special purpose entities formed to provide terrorism 
risk only coverage.
    Second, Treasury solicits comment on appropriate additional 
criteria, including financial standards, that should be proposed for 
federally approved insurers under Treasury's authority in section 
102(6)(C) of the Act. One reason for imposing additional criteria on 
federally approved insurers is because there are no uniform 
requirements or standards for federal approval under various federal 
programs. Although some federal programs impose minimum financial 
standards, others do not. Therefore, Treasury is considering whether 
additional criteria for federally approved insurers should be proposed 
to promote the financial integrity of the Program and to otherwise 
effectively administer the Program. Third, Treasury solicits comment on 
appropriate additional criteria that should be proposed pursuant to 
section 102(6)(C) to ensure that federal payments made under the 
Program do not benefit entities with connections to terrorist 
organizations.
    In addition to comments concerning possible additional criteria 
under section 102(6)(C), Treasury is soliciting comments on whether the 
definition of control contained in the interim final rule should be 
supplemented by proposing a rule to address situations in which a 
corporate insurance structure may contain multiple insurers that own, 
control or have the power to vote more than 25 percent of the voting 
shares of another insurer. See Section 102(3)(A) of the Act. Based on 
available information, such control arrangements exist but they do not 
appear to be common. In particular, Treasury is considering and 
solicits comment on consolidating direct earned premiums for purposes 
of calculating the insurer deductible on a pro rata basis among the 
multiple controlling owners. For example, if Insurer Y owns 40 percent 
of the voting shares of Insurer Z and Insurer X owns 30 percent of the 
voting shares of Insurer Z, then a pro rata allocation of premium 
income and insured loss under the Program would be, respectively, 57 
percent and 43 percent.
    Treasury also is considering and solicits comment on a similar pro 
rata allocation method for control determinations under section 
102(3)(C) of the Act in situations in which multiple insurers each 
provide 25 percent or more of the capital of a stock insurer, 
policyholder surplus of a mutual insurer or corporate capital of other 
entities that meet the definition of insurer under the Act and in the 
interim final rule. If proposed as considered, this pro rata approach 
would treat each insurer on a standalone basis for purposes of section 
102(3)(C) of the Act if no insurer provides 25 percent or more of the 
capital of a stock insurer, policyholder surplus of a mutual insurer or 
corporate capital of other entities that meet the definition of insurer 
under the Act and the Program.
    In accordance with the consolidated treatment of direct earned 
premiums among insurer affiliates, Treasury anticipates that the 
controlling insurer will be the insurer that will be required to file 
any claim with Treasury for federal payment under the Program and that 
this insurer will receive the federal payment that is to be distributed 
within the consolidated insurer group in accordance with distribution 
of risk within the consolidated insurer group. Treasury solicits 
comments on various means to ensure the prompt and equitable 
distribution of the federal

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payment as appropriate to ensure that the purposes of the Program are 
not thwarted or evaded, and that the ultimate risk bearing entities are 
treated in an equitable manner, within the Act's requirements.

II. Procedural Requirements

    This proposed rule is a significant regulatory action and has been 
reviewed by the Office of Management and Budget under the terms of 
Executive Order 12866.
    It is hereby certified that this proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
The Act requires all licensed or admitted insurers to participate in 
the Program. This includes all insurers regardless of size or 
sophistication. The Act also defines property and casualty insurance to 
mean commercial lines without any reference to the size or scope of the 
commercial entity. Although the Act affects small insurers, the 
proposed rule also gives insurers flexibility in calculating their 
direct earned premium for policies that have both commercial and 
personal exposures, and it provides a safe harbor to exclude policies 
that have incidental coverage for commercial purposes. Accordingly, any 
economic impact associated with the proposed rule flows from the Act 
and not the proposed rule. However, the Act and the Program are 
intended to provide benefits to the U.S. economy and all businesses, 
including small businesses, by providing a federal reinsurance backstop 
to commercial property and casualty insurance policyholders and 
spreading the risk of insured loss resulting from an act of terrorism.

List of Subjects in 31 CFR Part 50

    Terrorism risk insurance.

Authority and Issuance

    For the reasons set forth above, the Department of the Treasury 
proposes to adopt as a final rule the interim final rule adding part 50 
to 31 CFR subtitle A, as follows:
    [The part title and text of proposed Part 50 is the same as the 
part title and text of Part 50 in the interim final rule published 
elsewhere in this separate part of this issue of the Federal Register.]

    Dated: February 25, 2003.
Wayne A. Abernathy,
Assistant Secretary of the Treasury.
[FR Doc. 03-4832 Filed 2-27-03; 8:45 am]
BILLING CODE 4810-25-P