[Federal Register Volume 70, Number 29 (Monday, February 14, 2005)]
[Rules and Regulations]
[Pages 7403-7405]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-2810]


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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505-ZA01


Terrorism Risk Insurance Program; Technical Amendments to ``Make 
Available'' Provision and ``Insurer Deductible'' Definition

AGENCY: Departmental Offices, Treasury.

ACTION: Final rule.

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SUMMARY: The Department of the Treasury (Treasury) is issuing this 
final rule as part of its implementation of Title I of the Terrorism 
Risk Insurance Act of 2002 (Act). The Act established a temporary 
Terrorism 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 ends on December 31, 2005. This final rule makes minor 
technical changes to Subpart A of Part 50 of Title 31. One change 
conforms existing regulations to the June 18, 2004 determination by the 
Secretary of the Treasury to extend the ``make available'' provisions 
of section 103(c) of the Act through the third year of the Program 
(calendar year 2005). A second change clarifies the definition of the 
insurer deductible for Program Year 3 for certain newly formed insurers 
to more closely parallel the language of the Act.

DATES: This final rule is effective February 14, 2005.

FOR FURTHER INFORMATION CONTACT: David Brummond, Legal Counsel, or 
Howard Leikin, Senior Insurance Advisor, Terrorism Risk Insurance 
Program, (202) 622-6770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

I. Background

    On November 26, 2002, the President signed into law the Terrorism 
Risk Insurance Act of 2002 (Pub. L. 107-297, 116 Stat. 2322). The Act 
was effective immediately. The Act's purposes are to address market 
disruptions, ensure the continued widespread availability and 
affordability of commercial property and casualty insurance for 
terrorism risk, and to allow for a transition period for the private 
markets to stabilize and build capacity while preserving state 
insurance regulation and consumer protections.
    Title I of the Act establishes a temporary Federal program of 
shared public and private compensation for insured commercial property 
and casualty losses resulting from an act of terrorism, which as 
defined in the Act is certified by the Secretary of the Treasury, in 
concurrence with the Secretary of State and the Attorney General. The 
Act authorizes Treasury to administer and implement the Terrorism Risk 
Insurance Program, and to issue regulations and procedures. The Program 
provides a Federal reinsurance backstop for three years. The Program 
ends on December 31, 2005. Thereafter, the Act provides Treasury with 
certain continuing authority to take actions as necessary to ensure 
payment, recoupment, adjustments of compensation, and reimbursement for 
insured losses arising out of any act of terrorism (as defined under 
the Act) occurring during the period between November 26, 2002, and 
December 31, 2005.
    Each entity that meets the definition of ``insurer'' (well over 
2000 firms) must participate in the Program. The amount of the Federal 
share of an insured loss resulting from an act of terrorism is to be 
determined based upon insurance company deductibles and excess loss 
sharing with the Federal Government, as specified by the Act and the 
implementing regulations. An insurer's deductible increases each year 
of the

[[Page 7404]]

Program, thereby reducing the Federal Government's share prior to 
expiration of the Program. An insurer's deductible is calculated based 
on a percentage of the value of direct earned premiums collected over 
certain statutory periods. Once an insurer has met its deductible, the 
Federal payments cover 90 percent of insured losses above the 
deductible, subject to an annual industry-aggregate limit of $100 
billion.

II. The ``Make Available'' Provision

    The mandatory availability or ``make available'' provisions in 
section 103(c) of the Act require that, for Program Year 1, Program 
Year 2, and, if so determined by the Secretary, for Program Year 3, all 
entities that meet the definition of insurer under the Program must 
make available in all of their commercial property and casualty 
insurance policies coverage for insured losses resulting from an act of 
terrorism. This coverage cannot differ materially from the terms, 
amounts and other coverage limitations applicable to losses arising 
from events other than acts of terrorism.

A. Secretary Determination

    The Act requires the Secretary of the Treasury to determine, not 
later than September 1, 2004, whether to extend the make available 
requirements through Program Year 3, based on factors referenced in 
section 108(d)(1) of the Act. The factors referred to in section 
108(d)(1) of the Act are:
     The ``effectiveness of the Program;''
     The ``likely capacity of the property and casualty 
insurance industry to offer insurance for terrorism risk after 
termination of the Program;'' and
     The ``availability and affordability of such insurance for 
various policyholders, including railroads, trucking, and public 
transit.''
    On May 5, 2004, Treasury published a request for comments in the 
Federal Register and solicited comments and information concerning the 
statutory factors in section 108(d)(1) of the Act to assist the 
Secretary with the ``make available'' determination. See 69 FR 25168 
(May 5, 2004). The comment period closed on June 4, 2004, and nearly 
200 comments were received.
    On June 18, 2004, the Secretary announced his decision to extend 
the ``make available'' requirements through Program Year 3. (See http://www.treas.gov/press/releases/js1734.htm; http://www.treas.gov/press/releases/js1735.htm). This final rule conforms the Act's implementing 
regulations to reflect the Secretary's determination.

B. The Final Rule

    This final rule amends section 50.20(b), which was previously 
reserved, and section 50.21 to reflect the Secretary's determination to 
extend the ``make available'' provisions of section 103(c) of the Act 
through Program Year 3 (calendar year 2005). The amendment to section 
50.20(b) also specifically clarifies that insurers are not required to 
provide coverage for insured losses resulting from acts of terrorism 
beyond the date the Program expires and the Federal backstop no longer 
exists.

III. Insurer Deductible--Newly Formed Insurers

    The Act defines ``Insurer Deductible'' in Section 102(7) for the 
various ``Program Years'' of the Program. Section 102(7)(E) provides 
that notwithstanding the general rules for each Program Year, if an 
insurer has not had a full year of operations during the calendar year 
immediately preceding the applicable Program Year, the ``insurer 
deductible'' is ``such portion of the direct earned premiums of the 
insurer as the Secretary determines appropriate, subject to appropriate 
methodologies established by the Secretary for measuring such direct 
earned premiums.''
    The current regulation at Section 50.5(g)(2) provides that for an 
insurer that came into existence after November 26, 2002, the insurer 
deductible will be based on data for direct earned premiums for the 
current Program Year, and that if the insurer has not had a full year 
of operations during the applicable Program Year, the direct earned 
premiums for the current Program Year will be annualized.
    Treasury proposed this rule recognizing that new companies would 
have limited business operations, that their premium income likely 
would be somewhat volatile, and that this volatility could persist 
throughout the life of the Program. 68 FR 9811 (Feb. 28, 2003). Two 
commenters generally supported Treasury's determination that premiums 
for new insurers would be annualized in the calculation of their 
insurer deductible. 68 FR 41263 (July 11, 2004). In revisiting this 
matter at this point in the Program, however, Treasury has concluded 
that while the concern about new company premium income volatility 
remains valid, the Act provides specific guidance in the case where an 
insurer was not in existence on November 26, 2002 but nevertheless has 
had a full year of operations in the year preceding Program Year 3, the 
last year of the Program. The final rule addresses such a circumstance 
by adding a new section 50.5(g)(3) for Program Year 3 with language 
that more closely parallels the statutory language of the Act.

Procedural Requirements

    The Act established a Program to provide for loss sharing payments 
by the Federal Government for insured losses resulting from certified 
acts of terrorism. The Act became effective immediately upon the date 
of enactment (November 26, 2002). Treasury has issued and will be 
issuing additional regulations to implement the Program. This final 
regulation makes two technical changes. First, it amends section 
50.20(b) (previously reserved) to reflect the Secretary's decision to 
extend the ``make available'' provisions of section 103(c) of the Act 
through Program Year 3 (calendar year 2005). Second, the regulation 
clarifies the definition of ``insurer deductible'' to more closely 
parallel the language in the Act. The first change reflects a 
determination already made and announced. The second change merely 
clarifies the regulation and conforms it to the language of the Act.
    For these reasons, Treasury has determined that notice and public 
comment are unnecessary and contrary to the public interest, pursuant 
to 5 U.S.C. 553(b)(B) and, pursuant to 5 U.S.C. 553(d)(3), that there 
is good cause for this final rule to become effective immediately upon 
publication.
    This final rule is not a significant regulatory action for purposes 
of Executive Order 12866. Because no notice of proposed rulemaking is 
required, the provisions of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) do not apply. 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.

PART 50--TERRORISM RISK INSURANCE PROGRAM

0
1. The authority citation for part 50 continues to read as follows:

    Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107-
297, 116 Stat. 2322 (15 U.S.C. 6701 note).


0
2. Subpart A of part 50 is amended by adding Sec.  50.5(g)(3) to read 
as follows:

[[Page 7405]]

Sec.  50.5  Definitions.

* * * * *
    (g) Insurer deductible means:
* * * * *
    (3) Notwithstanding paragraph (g)(2) of this section, the insurer 
deductible for Program Year 3 (January 1, 2005 through December 31, 
2005) for an insurer that has not had a full year of operations during 
calendar year 2004 will be based on annualized data for the insurer's 
direct earned premiums for Program Year 3, multiplied by 15 percent. 
For an insurer that came into existence after November 26, 2002 and has 
had a full year of operations during calendar year 2004, the insurer 
deductible for Program Year 3 is the value of an insurer's direct 
earned premiums over calendar year 2004, multiplied by 15 percent.

0
3. Subpart A of part 50 is amended by revising Sec.  50.20(b) to read 
as follows:


Sec.  50.20  General mandatory availability requirements.

* * * * *
    (b) Program Year 3--calendar year 2005. In accordance with the 
determination of the Secretary announced June 18, 2004, an insurer must 
comply with paragraphs (a)(1) and (a)(2) of this section during Program 
Year 3. Notwithstanding paragraph (a)(2) of this section and Sec.  
50.23(a), property and casualty insurance coverage for insured losses 
does not have to be made available beyond December 31, 2005 (the last 
day of Program Year 3) even if the policy period of insurance coverage 
for losses from events other than acts of terrorism extends beyond that 
date.

0
4. Subpart A of part 50 is amended by revising Sec.  50.21(a) to read 
as follows:


Sec.  50.21  Make available.

    (a) General. The requirement to make available coverage as provided 
in Sec.  50.20 applies to policies in existence on November 26, 2002, 
new policies issued and renewals of existing policies during the period 
beginning on November 26, 2002 and ending on December 31, 2004 (the 
last day of Program Year 2), and to new policies issued and renewals of 
existing policies in Program Year 3 (calendar year 2005). The 
requirement 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.
* * * * *

    Dated: February 1, 2005.
Gregory Zerzan,
Acting Assistant Secretary of the Treasury.
[FR Doc. 05-2810 Filed 2-11-05; 8:45 am]
BILLING CODE 4810-25-P