[Federal Register Volume 74, Number 75 (Tuesday, April 21, 2009)]
[Rules and Regulations]
[Pages 18135-18138]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-9007]



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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505-AB93


Terrorism Risk Insurance Program; Terrorism Risk Insurance 
Program Reauthorization Act Implementation

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 amendments made by the 
Terrorism Risk Insurance Program Reauthorization Act of 2007 
(Reauthorization Act) to Title I of the Terrorism Risk Insurance Act of 
2002 (TRIA, or Act), as previously amended by the Terrorism Risk 
Insurance Extension Act of 2005 (Extension Act). The Act established a 
temporary Terrorism Risk Insurance Program (Program) that was scheduled 
to expire on December 31, 2005, under which the Federal Government 
shared the risk of insured losses from certified acts of terrorism with 
commercial property and casualty insurers. The Extension Act extended 
the Program through December 31, 2007, and made other changes. The 
Reauthorization Act extended the Program through December 31, 2014, 
revised the definition of an ``act of terrorism,'' and made other 
changes. This final rule contains regulations that Treasury is issuing 
to implement certain aspects of the Reauthorization Act. In particular, 
the rule addresses mandatory availability (``make available'') and 
disclosure requirements. An interim final rule with request for 
comments was published in the Federal Register on September 16, 2008, 
and generally incorporated the substance of interim guidance previously 
issued by Treasury and published in the Federal Register. Since no 
comments were received regarding the interim final rule, this final 
rule adopts the text of the interim final rule without revision.

DATES: This final rule is effective May 21, 2009.

FOR FURTHER INFORMATION CONTACT: Howard Leikin, Deputy Director, 
Terrorism Risk Insurance Program (202) 622-6770 (not a toll-free 
number).

SUPPLEMENTARY INFORMATION:

I. Background

A. Terrorism Risk Insurance Act of 2002

    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 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 by 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 (the Program), including the issuance of regulations 
and procedures.
    Each entity that meets the Act's definition of insurer must 
participate in the Program. The amount of Federal payment for an 
insured loss resulting from an act of terrorism is determined by 
insurance company deductibles and excess loss sharing with the Federal 
Government as specified in the Act and Treasury's implementing 
regulations. An insurer's deductible is calculated based on the value 
of direct earned premiums collected over certain prescribed calendar 
periods. Once an insurer has met its individual deductible, the Federal 
payments cover a percentage of the insured losses above the deductible, 
all subject to an annual industry aggregate limit of $100 billion.
    The Act gives Treasury authority to recoup Federal payments made 
under the Program through policyholder surcharges. The Act reduces the 
Federal share of compensation for insured losses that have been covered 
under any other Federal program. The Act also contains provisions 
designed to manage certain litigation arising from or relating to a 
certified act of terrorism. Section 107 of the Act creates an exclusive 
Federal cause of action, provides for claims consolidation in Federal 
court, and contains a prohibition on Federal payments for punitive 
damages under the Program. The Act provides the United States with the 
right of subrogation with respect to any payment or claim paid by the 
United States under the Program.
    The Program was originally set to expire on December 31, 2005. On 
December 22, 2005, the President signed into law the Terrorism Risk 
Insurance Extension Act of 2005 (Pub. L. 109-144, 119 Stat. 2660), 
which extended the Program through December 31, 2007, and made other 
significant changes to TRIA that included a revised definition of 
property and casualty insurance and creation of a new Program trigger 
that prohibits payment of Federal compensation by Treasury unless the 
aggregate industry insured losses resulting from a certified act of 
terrorism exceed a certain amount ($100 million in 2007 and any Program 
Year thereafter).

B. Terrorism Risk Insurance Program Reauthorization Act of 2007

    Under the Extension Act, the Program was set to expire on December 
31, 2007. On December 26, 2007, the President signed into law the 
Terrorism Risk Insurance Program Reauthorization Act of 2007 (Pub. L. 
110-160, 121 Stat. 1839), which extended the Program through December 
31, 2014 (i.e., added additional Program Years to the Program). 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 premiums 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 $100,000,000 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 
$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

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amount'' for all additional Program Years is the lesser of 
$27,500,000,000 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.

C. The Interim Final Rule

    The interim final rule was published in the Federal Register at 73 
FR 53359 (September 16, 2008). It incorporated certain changes to 31 
CFR Part 50 required by the amendments to TRIA in the Reauthorization 
Act. The rule included various conforming changes, such as a change to 
the definition of ``act of terrorism,'' and extension of applicable 
insurer deductible amounts and the Federal share of compensation for 
insured losses for additional Program Years.
    This final rule, and the preceding interim final rule, reflect 
interim guidance previously issued by Treasury in a notice published in 
the Federal Register on January 29, 2008 (73 FR 5264), in order to 
assist insurers, policyholders, and other interested parties in 
complying with immediately applicable requirements of the 
Reauthorization Act. Treasury consulted with the National Association 
of Insurance Commissioners (NAIC) in developing the interim final rule. 
No comments were submitted on the interim final rule and therefore, 
Treasury is finalizing that rule by adopting the text without change.

II. Analysis of the Final Rule

    The following briefly describes the content of the final rule. For 
a more detailed discussion, please refer to the interim final rule 
publication of September 16, 2008.

A. Definitions (Sec.  50.5)

    The final rule incorporates revised definitions for the terms ``act 
of terrorism,'' ``Program Years,'' ``insurer deductible,'' and 
``Program Trigger event.''
    To conform to the Reauthorization Act, the definition of ``act of 
terrorism'' in Sec.  50.5(b)(1)(iv) is revised to remove the 
requirement that the act 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 TRIA.
    The revisions to the definitions of ``Program Years,'' ``insurer 
deductible,'' and ``Program Trigger event'' merely conform these 
definitions to the changes in the Reauthorization Act.

B. Interim Guidance Safe Harbors (Sec.  50.7)

    Section 50.7 of the final rule adds the Interim Guidance issued by 
Treasury on January 22, 2008, and published at 73 FR 5264 (January 29, 
2008) to the list of Interim Guidance documents Treasury has issued.

C. Disclosure (Sec.  50.12)

    The Reauthorization Act made no change to the requirement in 
section 103(b) of 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. However, because 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 to eliminate the 
``foreign person or interest'' element (i.e., to add what is often 
referred to as ``domestic terrorism'') may affect the premium charged 
for insured losses and an insurer's compliance with the disclosure 
requirements.
    Section 50.12(b)(2) of the final rule states that if an insurer 
makes an initial offer of coverage, or offers to renew an existing 
policy on or after December 26, 2007, the disclosure provided to the 
policyholder must reflect the premium charged for insured losses 
covered by the Program consistent with the definition of an act of 
terrorism as amended by the Reauthorization Act. As a general matter, 
the requirement to make available coverage for insured losses must be 
met according to the provisions of the Act in effect at the time the 
offer is made. The disclosure must be consistent with the offer that is 
made.
    Section 50.12(e)(3) of the final rule provides that if an insurer 
made available coverage for insured losses in a new policy or policy 
renewal in 2007 or in the first three months of 2008 for coverage 
becoming effective in 2008, but did not provide a disclosure at the 
time of offer, purchase or renewal of the policy, then the insurer must 
be able to demonstrate to Treasury's satisfaction that it has provided 
a disclosure as soon as possible following January 1, 2008. Treasury 
considers March 31, 2008, to be the latest reasonable date for 
compliant disclosures to policyholders, barring unforeseen or unusual 
circumstances. If the March 31, 2008, date was 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.

D. Cap Disclosure (Sec. Sec.  50.15 and 50.11)

    Section 103(e)(2) of TRIA provides that if aggregate insured losses 
exceed $100,000,000,000 during any Program Year, Treasury shall not 
make any payment for any portion of the amount of such losses that 
exceeds $100,000,000,000, 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 $100,000,000,000. Section 103(b)(3) of 
TRIA, as amended by the Reauthorization Act, requires an insurer to 
provide a clear and conspicuous disclosure to the policyholder of the 
existence of the $100,000,000,000 cap under section 103(e)(2). The 
requirement applies to ``any policy that is issued after the date of 
enactment'' of the Reauthorization Act, or December 26, 2007. The 
disclosure must be made at the time of offer, purchase, and renewal of 
the policy.
    New section 50.15 in the final rule addresses these requirements. 
Section 50.11 also includes a minor change to clarify that the term 
``cap disclosure'' in the regulations refers to this disclosure 
required by section 103(b)(3) of the Act.
    For policies issued after December 26, 2007, this cap disclosure 
must initially be provided to the policyholder at the

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first occurrence thereafter of an offer, purchase or renewal. The final 
rule provides that, for policies issued after December 26, 2007, if an 
insurer does not provide a cap disclosure by the time of the first 
offer, purchase or renewal of the policy after December 26, 2007, then 
the insurer must be able to demonstrate to Treasury's satisfaction that 
it has provided the disclosure as soon as possible following December 
26, 2007. 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 circumstances. If the 
March 31, 2008, date was 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.

E. Use of Model Forms (Sec.  50.17)

    Section 50.17(e) of the final rule adds a provision specifically 
addressing the cap disclosure. In addition, a minor refinement of 
section 50.17(a)(2) has been made in order to more accurately reflect 
section 105(c) of the Act.
    On December 19, 2007, the NAIC modified Model Disclosure Forms No. 
1 and 2 to satisfy the disclosure requirements of section 103(b) of the 
Act, including the cap disclosure requirement under section 103(b)(3). 
The new forms are found on the Treasury Web site at http://www.treasury.gov/trip. However, insurers are not required to use the 
NAIC forms, and may use other means to comply with the disclosure 
requirements.

F. Make Available (Sec. Sec.  50.20 and 50.21)

    The Reauthorization Act made no change to the TRIA ``make 
available'' requirements in section 103(c). 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 add domestic terrorism may have an impact on an 
insurer's compliance with the ``make available'' requirements.
    The Reauthorization Act was 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. In 
addition, if an insurer makes an offer of coverage on or after December 
26, 2007 on a policy that is in mid term, then the insurer must make 
available coverage for insured losses consistent with the revised 
definition of an act of terrorism. These general rules are included in 
revised section 50.21(b) of the final rule.
    Section 50.21 addresses in detail insurer implementation of the 
``make available'' requirements under various circumstances as a result 
of enactment of the Reauthorization Act. Treasury considers March 31, 
2008, to be the latest reasonable date for compliant offers of coverage 
(including reprocessing of policies, if necessary, where a compliant 
post-December 26, 2007 offer was not possible), barring unforeseen or 
unusual circumstances. If the March 31, 2008, date was 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.
    Section 50.21(c)(2) addresses policies where the coverage for 
insured losses expired as of December 31, 2007, but other coverage 
under the policy continued in force in 2008. An insurer must make 
coverage for insured losses available for the remaining portion of the 
policy term and, under section 50.21(e)(4), an insurer must be able to 
demonstrate to Treasury's satisfaction that it has offered such 
coverage as soon as possible following January 1, 2008. However, if a 
policyholder had declined an offer made by an insurer for coverage for 
insured losses expiring as of December 31, 2007, then the insurer is 
not required to make a new offer of coverage before the policy is due 
to be renewed.
    Section 50.21(e)(5) addresses situations where coverage became 
effective in 2008. Section 50.21(e)(5)(i) requires that if an insurer 
processed a new policy or policy renewal in 2007, or in the first three 
months of 2008, for coverage becoming effective in 2008, but did not 
make available coverage for insured losses, then the insurer must be 
able to demonstrate to Treasury's satisfaction that it has provided an 
offer of coverage for insured losses as soon as possible following 
January 1, 2008.
    Under section 50.21(e)(5)(ii), if an insurer made an initial offer 
or offer of renewal of coverage for insured losses on or after December 
26, 2007, for a policy term becoming effective in 2008, but the scope 
of the insured losses in the offer was inconsistent with the 
Reauthorization Act's revised definition of an act of terrorism, then 
an insurer must make a new offer of coverage as soon as possible 
following January 1, 2008. If an insurer made an initial offer of 
coverage or offer of renewal before December 26, 2007, for a policy 
term becoming effective in 2008, and coverage for insured losses was in 
compliance with the Act and the definition of an act of terrorism at 
the time of the offer, then the insurer is not required to make a new 
offer of coverage before the policy is due to be renewed.

G. Federal Share of Compensation (Sec. Sec.  50.50 and 50.53)

    These sections of the final rule include other minor and conforming 
changes to reflect the extension of the Program and the inclusion of 
the cap disclosure.

III. Procedural Requirements

    This final rule is not a significant regulatory action under the 
terms of Executive Order 12866.
    Regulatory Flexibility Act. Pursuant to the Regulatory Flexibility 
Act (5 U.S.C. chapter 6), it is hereby certified that this final rule 
will not have a significant economic impact on a substantial number of 
small entities. The final rule implements changes prescribed or 
authorized by the Reauthorization Act. TRIA requires all insurers, 
regardless of size or sophistication, that receive direct earned 
premiums for any type of commercial property and casualty insurance, to 
participate in the Program. The Act also defines ``property and 
casualty insurance'' to mean commercial lines without any reference to 
the size or scope of the commercial entity. The rule allows all 
insurers, whether large or small, to use existing systems and business 
practices to demonstrate compliance. The disclosure and ``make 
available'' requirements are required by the Act. In addition, the Act 
now defines an ``act of terrorism'' to include domestic terrorism. Any 
economic impact associated with the final rule flows from the Act and 
not the final 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-type backstop to 
commercial property and casualty insurers and spreading the risk of 
insured losses resulting from an act of terrorism. Accordingly, a 
regulatory flexibility analysis is not required.

List of Subjects in 31 CFR Part 50

    Terrorism risk insurance.

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Authority and Issuance

0
For the reasons set forth above, the interim final rule amending 31 CFR 
Part 50, which was published at 73 FR 53359 on September 16, 2008, is 
adopted as a final rule without change.

Kenneth E. Carfine,
Acting Under Secretary for Domestic Finance.
[FR Doc. E9-9007 Filed 4-20-09; 8:45 am]
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