[Federal Register Volume 73, Number 19 (Tuesday, January 29, 2008)]
[Notices]
[Pages 5264-5267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-1467]


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DEPARTMENT OF THE TREASURY


Departmental Offices; Interim Guidance Concerning the Terrorism 
Risk Insurance Reauthorization Act of 2007

AGENCY: Department of the Treasury.

ACTION: Notice.

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SUMMARY: This notice provides interim guidance to insurers, 
policyholders, state insurance regulators and the public concerning 
recent statutory amendments to the Terrorism Risk Insurance Act of 2002 
(Pub. L. 107-297,

[[Page 5265]]

116 Stat. 2322) (the ``Act''). Those amendments revise the definition 
of an ``act of terrorism'' covered by the Act, and make certain other 
changes. This notice addresses the changes to mandatory availability 
(''make available'') and disclosure requirements.

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until superseded by regulations or by subsequent notice.

FOR FURTHER INFORMATION CONTACT: Howard Leikin, Deputy Director, 
Terrorism Risk Insurance Program (202-622-6770).

SUPPLEMENTARY INFORMATION: This notice provides interim guidance to 
assist insurers, policyholders, state insurance regulators and the 
public in understanding certain requirements of the Terrorism Risk 
Insurance Act of 2002 as amended by the Terrorism Risk Insurance 
Program Reauthorization Act of 2007, 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remains in effect until superseded by regulations or subsequent notice.

I. Background

    On November 26, 2002, the President signed into law the Terrorism 
Risk Insurance Act of 2002 (Pub. L. 107-297) (``TRIA'' or the ``Act''). 
The Act became effective immediately. It established a temporary 
Terrorism Risk Insurance Program (``TRIP'' or the ``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 Act was scheduled to expire on December 31, 2005. The 
Terrorism Risk Insurance Extension Act of 2005 (Pub. L. 109-144) 
(Extension Act) extended TRIA through December 31, 2007. On December 
26, 2007, the President signed into law the Terrorism Risk Insurance 
Program Reauthorization Act of 2007 (``Reauthorization Act''). The 
Reauthorization Act extends the Program through December 31, 2014 (with 
calendar years 2008-2014 being called the ``Additional Program 
Years''). Other provisions of the Reauthorization Act:
     Revise the definition of ``Act of Terrorism'' to remove 
the requirement that the act of terrorism be committed by an individual 
acting on behalf of any foreign person or foreign interest in order to 
be certified as an ``act of terrorism'' for purposes of the Act.
     Define ``Insurer Deductible'' for all Additional Program 
Years as the value of an insurer's direct earned premium for commercial 
property and casualty insurance for the immediately preceding calendar 
year multiplied by 20 percent.
     Set the Federal share of compensation for insured losses 
(subject to a $100 million Program Trigger) for all Additional Program 
Years at 85 percent of that portion of the amount of insured losses 
that exceeds the applicable insurer deductible.
     Require Treasury to submit a report to Congress and issue 
final regulations for determining the pro rata share of insured losses 
to be paid under the Program when aggregate insured losses exceed the 
annual liability cap of $100,000,000,000.
     Require the Secretary of the Treasury to notify Congress 
not later than 15 days after the date of an act of terrorism as to 
whether aggregate insured losses are estimated to exceed 
$100,000,000,000.
     Require for policies issued after the date of enactment, 
that insurers provide clear and conspicuous disclosure to the 
policyholder of the existence of the $100,000,000,000 cap at the time 
of offer, purchase, and renewal of a policy (in addition to current 
disclosure requirements).
     Revise the recoupment provisions of the Act. For purposes 
of recouping the Federal share of compensation under the Act, the 
``insurance marketplace aggregate retention amount'' for all Additional 
Program Years is the lesser of $27.5 billion and the aggregate amount, 
for all insurers, of insured losses during each Program Year. With 
regard to mandatory recoupment of the Federal share of compensation 
through policyholder surcharges, collection is required within a 
certain schedule specified in the Reauthorization Act. The limitation 
that surcharges not exceed 3 percent of the premium charged for 
property and casualty insurance coverage under the policy is eliminated 
(but remains in the case of discretionary recoupment).
     Require Treasury to issue recoupment regulations within 
180 days of enactment, and publish an estimate of aggregate insured 
losses within 90 days after an act of terrorism.
     Require the President's Working Group on Financial Markets 
to perform an ongoing analysis regarding the long-term availability and 
affordability of terrorism risk insurance and submit reports in 2010 
and 2013.
     Require the Comptroller General to examine and report on 
the availability and affordability of insurance coverage for nuclear, 
biological, chemical, and radiological terrorist events; the future 
outlook for such coverage; and the capacity of insurers and State 
workers compensation funds to manage the risk associated with nuclear, 
biological, chemical, and radiological terrorist events.
     Require the Comptroller General to study and report on the 
question of whether there are specific markets in the United States 
where there are unique capacity constraints on the amount of terrorism 
risk insurance available.

II. Interim Guidance

    Treasury will be issuing regulations to administer and implement 
TRIA, as amended by the Reauthorization Act. This notice is issued to 
assist insurers in complying with certain new statutory requirements 
pending the issuance of such regulations. This notice contains interim 
guidance concerning compliance with the mandatory availability or 
``make available'' requirements in section 103(c) of the Act, and the 
disclosure notice requirements in section 103(b) of the Act. Other 
requirements in current regulations remain in effect.

Given the change in the definition of an ``Act of Terrorism,'' will 
Treasury be issuing specific guidance concerning the language in 
property and casualty insurance policies?

    As noted above, the Reauthorization Act revises the definition of 
an ``act of terrorism'' in section 102(1)(A)(iv) of TRIA and removes 
the requirement that the act be committed by an individual or 
individuals ``acting on behalf of any foreign person or foreign 
interest'' to be certified as an ``act of terrorism''.
    Treasury understands that the language in property and casualty 
insurance policies describing a ``certified'' act of terrorism covered 
by TRIA and other (or ``non-certified'') acts of terrorism has varied. 
In addition, insurers have designed their insurance contracts and 
notifications to policyholders concerning potential changes to the 
certification criteria for ``acts of terrorism'' differently. Insurers 
must determine how their policy language and particular circumstances 
are affected by the revised definition of an act of terrorism.
    It is Treasury's intent with this guidance and in subsequent 
regulations to address the statutory requirements and regulations of 
TRIA, as amended by the Reauthorization Act. The decision whether to 
certify an act of terrorism will be governed by the criteria in TRIA,

[[Page 5266]]

as amended by the Reauthorization Act. Treasury will consider losses 
resulting from an act of terrorism (as now defined in TRIA) that are 
covered by an insurer under a policy for property and casualty 
insurance to be insured losses covered by the Program, provided the 
insurer makes payment to the policyholder in accordance with the terms 
and conditions of the policy, appropriate business practices, and other 
applicable requirements and conditions.

How do the ``make available'' and disclosure requirements apply to 
initial offers of coverage and offers of renewal?

    There is no change to the TRIA requirements in section 103(c) that 
insurers make available, in all property and casualty insurance 
policies, 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. However, 
because the ``make available'' requirements apply to ``insured 
losses,'' and an ``insured loss'' is defined, in part, as a loss 
resulting from an ``act of terrorism,'' the revision of the definition 
of an act of terrorism in the Reauthorization Act to eliminate the 
``foreign person or interest'' element (i.e., to add what is often 
referred to as ``domestic terrorism'') may have an impact on an 
insurer's compliance with the ``make available'' requirements.
    The Reauthorization Act is effective immediately upon enactment, 
December 26, 2007. The TRIA regulations in 31 CFR 50.21(a) generally 
provide that the ``make available'' requirements apply at the time of 
the initial offer of coverage or offer of renewal of an existing 
policy. Thus, any initial offers of coverage, or offers of renewal of 
existing policies, made on or after the date of enactment, must be 
consistent with the revised definition of act of terrorism.
    The Reauthorization Act also made no change to the requirement in 
section 103(b) in TRIA that insurers provide clear and conspicuous 
disclosure to the policyholder of the premium charged for insured 
losses covered by the Program and the Federal share of compensation for 
insured losses under the Program. These disclosures must be made on a 
separate line item in the policy, at the time of offer, purchase, and 
renewal of the policy. However, disclosure of the premium must now 
reflect the premium charged for insured losses (as determined by the 
revised definition of an act of terrorism).
    As stated above, any initial offers of coverage, or offers of 
renewal of existing policies, made on or after the date of enactment 
must be consistent with the revised definition of ``act of terrorism.'' 
So too, the required disclosure must be made on a separate line item in 
the policy, at the time of offer, purchase, and renewal of the policy. 
Treasury realizes that as a practical matter, insurers may have to 
modify operations and may be subject to rate and policy form filing 
and/or prior approval processes, and therefore may need some time to 
meet these requirements.
    Treasury expects that all insurers will provide compliant initial 
and renewal offers and disclosures as quickly as possible. In this 
regard, Treasury considers March 31, 2008, to be the latest reasonable 
date for compliant offers of coverage and disclosures to policyholders 
(including reprocessing of policies, if necessary, where a compliant 
post-December 26, 2007 offer and/or disclosure was not possible), 
barring unforeseen or unusual circumstances. If the March 31 date is 
not met by an insurer, Treasury will expect the insurer to demonstrate, 
when submitting a claim for the Federal share of compensation under the 
Program, why it could not comply by that date.

Does an insurer have to provide a separate, new offer of terrorism risk 
insurance coverage for property and casualty insurance policies that 
are in mid-term as of January 1, 2008, if the insurer previously 
complied with the Act's ``make available'' requirement when the policy 
was issued or renewed prior to December 26, 2007?

    Because under TRIA regulations, the ``make available'' requirements 
apply at the time of the initial offer of coverage or offer of renewal 
of an existing policy, no new offer is required if coverage for the 
duration of the policy term was offered under the provisions of the Act 
at the time of the offer. This is the case whether the offer was 
accepted or rejected. If no new offer is made, then a new disclosure of 
the premium charged for insured losses covered by the Program and the 
Federal share of compensation for insured losses is also not required, 
because under TRIA the disclosure requirements apply at the time of 
offer, purchase and renewal of the policy.
    If existing coverage for an act of terrorism does not continue for 
the duration of the policy term beyond December 31, 2007, such as a 
case where an exclusion becomes effective upon some circumstance, then 
a new offer is required for the duration of the policy term.
    If for any reason an insurer makes a new offer mid-term, and that 
offer is after December 26, 2007, then the offer must be based on the 
Reauthorization Act's requirements. The associated disclosure of the 
premium must reflect the premium for insured losses in accordance with 
the revised definition of act of terrorism. Disclosure of the $100 
billion cap must also be provided, as explained below.

What if a policy renewal or application was processed in 2007 for 
coverage becoming effective in 2008 and the insurer did not ``make 
available'' terrorism coverage?

    The Reauthorization Act continues the ``make available'' 
requirement for insurers under TRIA. If an insurer wishes to receive 
Federal compensation under the Program for insured losses, the insurer 
must ``make available'' terrorism coverage for insured losses for all 
policies becoming effective in 2008, even if the policy was processed 
in late 2007 or early 2008. As noted in guidance above, Treasury 
expects that all insurers will provide policyholders an offer of 
terrorism coverage and appropriate disclosures as quickly as possible.

When must the new disclosure to policyholders of the $100 billion cap 
on liability be made?

    The Reauthorization Act requires a clear and conspicuous disclosure 
to the policyholder of the existence of the $100 billion cap under 
section 103(e)(2) of TRIA. The requirement applies to ``any policy that 
is issued after the date of enactment'' of the Reauthorization Act, or 
December 26, 2007. Under section 103(e)(2), if the aggregate insured 
losses exceed $100 billion during a Program Year, Treasury shall not 
make any payment for any portion of the amount of such losses that 
exceeds $100 billion, 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 billion. The disclosure must be made 
at the time of offer, purchase and renewal of the policy.
    For policies issued after December 26, 2007, this disclosure must 
be provided to the policyholder at the first occurrence thereafter of 
an offer, purchase or renewal.
    As noted above, Treasury realizes that as a practical matter, 
insurers may need some time to meet these requirements. Treasury 
expects that all insurers will provide compliant disclosures as quickly 
as possible. In this regard, Treasury considers March 31, 2008, to be 
the latest reasonable date for providing the cap disclosure (including 
reprocessing of policies, if necessary, where a compliant disclosure 
was not possible), barring unforeseen or unusual

[[Page 5267]]

circumstances. If the March 31 date is not met by an insurer, Treasury 
will expect the insurer to demonstrate, when submitting a claim for the 
Federal share of compensation under the Program, why it could not 
comply by that date.

May an insurer still use NAIC Model Disclosure Forms to meet the 
disclosure requirement for property and casualty insurance policies?

    Under 31 CFR 50.17(e) of the TRIA regulations, insurers are 
permitted to use NAIC Model Disclosure Forms No. 1 and 2 to satisfy the 
disclosure requirements of section 103(b)(2) of the Act, provided that 
the insurer uses the most current forms that are available at the time 
of disclosure and the current forms are deemed to satisfy the 
disclosure requirements of the Act. The National Association of 
Insurance Commissioners (NAIC) has recently modified the forms and 
Treasury has deemed the newly modified forms to satisfy the disclosure 
requirements, including the cap disclosure requirement. The new forms 
will be found on the Treasury Web site at http://www.treasury.gov/trip. 
Insurers are not required to use the NAIC forms, and may use other 
means to comply with the disclosure requirements.

    Dated: January 22, 2008.
Taiya Smith,
Executive Secretary.
 [FR Doc. E8-1467 Filed 1-28-08; 8:45 am]
BILLING CODE 4811-42-P