[Federal Register Volume 74, Number 238 (Monday, December 14, 2009)]
[Rules and Regulations]
[Pages 66051-66061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-29613]


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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505-AB10


Terrorism Risk Insurance Program; Recoupment Provisions

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 (``TRIA'' or ``the Act''), as amended by the 
Terrorism Risk Insurance Extension Act of 2005 (``Extension Act'') and 
the Terrorism Risk Insurance Program Reauthorization Act of 2007 
(``Reauthorization Act''). The Act established a temporary Terrorism 
Risk Insurance Program (``TRIP'' or ``Program'') under which the 
Federal Government would share the risk of insured losses from 
certified acts of terrorism with commercial property and casualty 
insurers. The Reauthorization Act has now extended the Program until 
December 31, 2014. This rule was published in proposed form on 
September 17, 2008, for public comment. The final rule contains minor 
clarifications in response to comments. The rule incorporates and 
implements statutory requirements in section 103(e) of the Act, as 
amended by the Reauthorization Act, for the recoupment of the Federal 
share of compensation for insured losses. In particular, the rule 
describes how Treasury will determine the amounts to be recouped and 
establishes procedures insurers are to use for collecting Federal 
Terrorism Policy Surcharges and remitting them to Treasury. The rule 
generally builds upon previous rules issued by Treasury.

DATES: This rule is effective January 13, 2010.

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

SUPPLEMENTARY INFORMATION: 

I. Background

    The Terrorism Risk Insurance Act of 2002 (Pub. L. 107-297, 116 
Stat. 2322) was enacted on November 26, 2002. 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. The Act 
authorizes Treasury to administer and implement the Terrorism Risk 
Insurance Program, including the issuance of regulations and 
procedures. The Program provides a Federal backstop for insured losses 
from an act of terrorism. Section 103(e) of the Act directs and gives 
Treasury authority to recoup Federal payments made under the Program 
through policyholder surcharges.
    The Program was originally set to expire on December 31, 2005. On 
December 22, 2005, the Terrorism Risk Insurance Extension Act of 2005 
(Pub. L. 109-144, 119 Stat. 2660) was enacted, which extended the 
Program through December 31, 2007. On December 26, 2007, the Terrorism 
Risk Insurance Program Reauthorization Act of 2007 (Pub. L. 110-160, 
121 Stat. 1839) was enacted, which extends the Program through December 
31, 2014.
    The Reauthorization Act, among other changes, revised the 
recoupment provisions of the Act. These changes are explained below in 
the context of discussion of other provisions.

II. Previous Rulemaking

    To assist insurers, policyholders, and other interested parties in 
complying with immediately applicable requirements of the Act, Treasury 
has issued interim guidance to be relied upon by insurers until 
superseded by regulations. Rules establishing general provisions 
implementing the Program, including key definitions, and requirements 
for policy disclosures and mandatory availability, can be found in 
Subparts A, B, and C of 31 CFR Part 50. Treasury's rules applying 
provisions of the Act to State residual market insurance entities and 
State workers'

[[Page 66052]]

compensation funds are at Subpart D of 31 CFR Part 50. Rules setting 
forth procedures for filing claims for payment of the Federal share of 
compensation for insured losses are at Subpart F of 31 CFR Part 50. 
Subpart G of 31 CFR Part 50 contains rules on audit and recordkeeping 
requirements for insurers, while Subpart I of 31 CFR Part 50 contains 
Treasury's rules implementing the litigation management provisions of 
section 107 of the Act.

III. The Proposed Rule

    The proposed rule on which this final rule is based was published 
in the Federal Register at 73 FR 53798 on September 17, 2008. The 
proposed rule proposed to add a Subpart H on Recoupment and Surcharge 
Procedures to part 50, which comprises Treasury's regulations 
implementing the Act. It also proposed to add definitions in Sec.  50.5 
of Subpart A and amend Sec. Sec.  50.60 and 50.61 of Subpart G. The 
proposed rule described how Treasury would determine the amounts to be 
recouped, the factors and considerations that would be the basis for 
establishing the specific surcharge amount, the procedures for 
Treasury's notification to insurers regarding the surcharges to be 
imposed, and the requirements for insurers to collect, report, and 
remit surcharges to the Treasury.

IV. Summary of Comments and Final Rule

    Treasury is now issuing this final rule after careful consideration 
of all comments received on the proposed rule. While this final rule 
largely reflects the proposed rule, Treasury has made several 
clarifications based on the comments. These changes appear in 
Sec. Sec.  50.70(c), 50.74(c), and 50.74(e).
    Treasury received comments on the proposed rule from two national 
insurance industry trade associations, a national insurance rating and 
data collection bureau, and one insurance company. As described further 
below, commenters generally agreed with the proposed rule and the 
approach as being compatible with business operations. There were no 
negative comments on the approach. In response to comments, Treasury is 
providing additional clarification and some modifications of provisions 
in the proposed rule that pertain to notification to insurers, meeting 
certain deadlines for the collection of surcharges, describing the 
policies and premium subject to surcharges, and closing out insurer 
reporting to Treasury. The comments received and Treasury's revisions 
to the proposed rule are summarized below.

A. Determination of Recoupment Amount

    The final rule describes how and when Treasury will determine 
recoupment amounts. Definitions of insurance marketplace aggregate 
retention amount, aggregate Federal share of compensation, mandatory 
and discretionary recoupment amounts, and uncompensated insured losses, 
which reflect requirements in the Act, are added to Sec.  50.5.
    The mandatory recoupment amount is the difference between the 
insurance marketplace aggregate retention amount for a Program Year and 
the aggregate amount, for all insurers, of uncompensated insured losses 
during such Program Year (unless the aggregate amount of uncompensated 
insured losses is greater than the insurance marketplace aggregate 
retention, in which case the mandatory recoupment amount is zero). For 
any Program Year beginning with 2008 through 2014, the insurance 
marketplace aggregate retention amount is the lesser of $27.5 billion 
and the aggregate amount, for all insurers, of insured losses from 
Program Trigger Events during the Program Year. For example, if the 
aggregate amount of insured losses from Program Trigger Events during 
the Program Year were $10 billion, the insurance marketplace aggregate 
retention amount would be $10 billion. The mandatory recoupment amount 
would be the difference between $10 billion and the aggregate amount of 
uncompensated insured losses. ``Uncompensated insured losses'' is 
generally the aggregate amount of insured losses from Program Trigger 
Events not compensated by the Federal Government because the losses are 
within insurer deductibles or the 15 percent insurer share, or are 
within the portion of the insured losses that exceed the insurer 
deductible but are otherwise not paid pursuant to section 103(e)(1) of 
TRIA. The amount of uncompensated insured losses depends on the 
distribution of those losses among insurers. So continuing with the 
above example, if uncompensated insured losses amounted to $8 billion 
and Federal payments amounted to $2 billion, the mandatory recoupment 
amount would be $2 billion (the difference between $10 billion and the 
aggregate amount of uncompensated insured losses of $8 billion). The 
amount the Secretary would be required to collect under section 
103(e)(7)(C) of the Act would be 133 percent of $2 billion, or $2.67 
billion.
    Section 103(e)(7)(D) of the Act also provides the Secretary with 
discretionary authority to recoup additional amounts to the extent that 
the amount of Federal financial assistance exceeds the mandatory 
recoupment amount. The Secretary may recoup such additional amounts the 
Secretary believes can be recouped based on: the ultimate costs to 
taxpayers of no additional recoupment; the economic conditions in the 
commercial marketplace; the affordability of commercial insurance for 
small- and medium-sized businesses; and such other factors that the 
Secretary considers appropriate. The final rule refers to these 
considerations in Sec.  50.70(b). Because of the great uncertainty as 
to economic conditions after the occurrence of an act of terrorism, 
Treasury believes it is prudent to retain maximum flexibility to 
address these considerations at a future time. In exercising this 
discretionary authority, however, Treasury generally intends to 
consider these various factors on a broad-scale basis.
    The Reauthorization Act added section 103(e)(7)(E), which 
establishes deadlines by which the collection of terrorism loss risk-
spreading premiums, which are required for mandatory recoupment, must 
be accomplished. The amounts and deadlines vary depending on when an 
act of terrorism occurs:
     For any act of terrorism that occurs on or before December 
31, 2010, the Secretary shall collect all required premiums by 
September 30, 2012;
     For any act of terrorism that occurs between January 1 and 
December 31, 2011, the Secretary shall collect 35 percent of any 
required premiums by September 30, 2012, and the remainder by September 
30, 2017; and
     For any act of terrorism that occurs on or after January 
1, 2012, the Secretary shall collect all required premiums by September 
30, 2017.
    Because of these deadlines, one commenter raised a concern over the 
potential that recoupment could far outpace the payment of claims and 
therefore recommended the use of present value calculations and excess 
fund accounts to earn interest on funds provided in advance to the 
Federal Government. In the preamble to the proposed rule, Treasury had 
stated that the timing requirements for collecting ``required 
premiums'' means that surcharges must be sufficient to recoup Federal 
funds actually outlaid as of the target dates for recouping any Federal 
share of compensation for insured losses. Treasury ascertained that the 
commenter's concern was based on the potential for recouping ultimate 
Federal share amounts that would not actually be expended by Treasury 
until after the recoupment period. For clarification,

[[Page 66053]]

Treasury has revised Sec.  50.70 to state that required amounts will be 
collected ``based on the extent to which payments for the Federal share 
of compensation have been made by the collection deadlines.'' As 
illustrated in the example above, the required amounts include the 
additional 33 percent of the outlays. Continuing with the above example 
in which the Federal Government expects that Federal payments will 
reach $2 billion for an act of terrorism occurring prior to December 
31, 2010, if as of September 30, 2012, $1 billion has actually been 
paid, recoupment should result in the collection of $1.33 billion by 
that date. The remaining amount of Federal payments plus 33 percent 
would be recouped after September 30, 2012.
    Another commenter suggested additional language for the rule that 
would address Treasury's intention to not exceed required amounts in 
its establishment of surcharges, the avoidance of collecting de minimis 
amounts, and the handling of excess amounts collected. Treasury 
believes that the concerns raised were for the most part already 
addressed in the proposed rule Sec.  50.72 which, in providing for the 
establishment of the surcharge, lists a number of factors and 
considerations including the collection timing requirements of section 
103(e)(7)(E) of the Act, and the likelihood that the amount of the 
Federal Terrorism Policy Surcharge may result in the collection of an 
aggregate recoupment amount in excess of the planned recoupment amount. 
In addition, under the rule the Secretary may consider such other 
factors as the Secretary considers important, which could include the 
costs of collecting de minimis recoupment amounts.
    Section 50.71(a) provides that if payments for the Federal share of 
compensation have been made for a Program Year, and Treasury determines 
that insured loss information is sufficiently developed and credible to 
serve as a basis for calculating recoupment amounts, then Treasury will 
make an initial determination of any mandatory or discretionary 
recoupment amounts for that Program Year. Ideally, Treasury will use 
loss information obtained from the submissions by insurers for the 
Federal share of compensation, as well as other industry sources, to 
determine the appropriate time to make an initial determination of 
recoupment amounts. Thereafter, as described under Sec.  50.71(c), 
Treasury will at least annually examine the latest available 
information on insured losses to recalculate any recoupment amounts 
until such time as Treasury determines that the calculation is 
considered final. The final rule, in Sec.  50.71(d), also provides that 
Treasury may issue a data call to insurers for the submission of 
information on insured losses from Program Trigger Events and for 
insurer deductible information.
    Treasury must be prepared to initiate mandatory recoupment based on 
estimates, prospectively, of insured losses, the Federal share of 
compensation for insured losses, and the resulting Federal outlays. The 
Reauthorization Act added a provision (Section 103(e)(7)(F)) requiring 
the Secretary to publish, within 90 days of the date of an act of 
terrorism, an estimate of aggregate insured losses which shall be used 
as the basis for determining whether mandatory recoupment will be 
required. Proposed Sec.  50.71(b) provided that Treasury would meet 
this requirement within 90 days after certification of an act of 
terrorism. Two commenters stated that this proposal should be revised 
because the statute requires that the estimate be published within 90 
days after the occurrence of the act of terrorism.
    ``Act of terrorism'' is a defined statutory term. Under Section 
102(1)(A), an ``act of terrorism'' is any act which is certified by the 
Secretary, in concurrence with the Secretary of State and the Attorney 
General of the United States, and meets certain specified elements. 
Without certification, an act does not meet the definition of an ``act 
of terrorism.''
    Treasury believes that the most reasonable interpretation of 
Section 103(e)(7)(F) is that such an estimate of aggregate insured 
losses must be published 90 days after the certification of an act of 
terrorism. There is no limitation under Section 102(1) on the time the 
Secretary may take to certify, or determine not to certify, an act as 
an act of terrorism. Moreover, the purpose of this estimate is for use 
in determining whether mandatory recoupment will be required. Until 
there is a certification of an act of terrorism, there would be no 
basis to make Federal payments for insured losses and no need to 
consider whether mandatory recoupment would be required.
    This interpretation is also consistent with the Procedural Order 
entered by the Judicial Panel on Multidistrict Litigation concerning 
the 90-day period in Section 107(a)(4) of the Act, which requires a 
designation by the Panel ``not later than 90 days after the occurrence 
of an act of terrorism.'' The order notes the definition of an ``act of 
terrorism,'' and accordingly provides that ``the 90-day period for the 
Panel to designate the court or courts for litigation covered by the 
Act begins on the date that the Treasury Secretary certifies an act of 
terrorism.'' Procedural Order filed June 1, 2004, available at http://www.treas.gov/offices/domestic-finance/financial-institution/terrorism-insurance/pdf/order.pdf. For the above reasons, Sec.  50.71(b)(1) is 
being adopted as proposed.
2. Establishment of Federal Terrorism Policy Surcharge
    Once Treasury has determined an amount to be recouped, an 
assessment period and Surcharge amount will be established. The final 
rule includes new definitions for ``Federal Terrorism Policy 
Surcharge'' and '' Surcharge'', ``assessment period'' and ``Surcharge 
effective date'', which are added to Sec.  50.5 of the regulations. 
Sec.  50.72(b) provides that the Surcharge is the obligation of the 
policyholder and payable to the insurer with the premium for a property 
and casualty insurance policy in effect during the assessment period.
    An ``assessment period'' is defined as a period during which 
policyholders must pay, and insurers must collect, the Federal 
Terrorism Policy Surcharge for remittance to Treasury. Treasury's 
intention is that, to the extent possible, assessment periods will be 
in full-year increments in order to equitably impose the Surcharge on 
policyholders who have policy term effective dates throughout the year. 
Due to the collection deadlines, however, this may not always be 
feasible.
    The definition for ``Federal Terrorism Policy Surcharge'' is the 
amount established by Treasury as a policy surcharge on policies of 
``property and casualty insurance'' as that term is defined in Sec.  
50.5(u). The Surcharge is to be expressed as a percentage of the amount 
charged as written premium for commercial property and casualty 
coverage in such policies.
    The factors and considerations Treasury will consider in 
establishing the amount of the Federal Terrorism Policy Surcharge are 
set out in Sec.  50.72(a). They include requirements of the Act as well 
as other factors. In particular, Section 103(e)(7)(C) of TRIA as 
amended by the Reauthorization Act, requires that once a mandatory 
recoupment amount is determined, collections are to equal 133 percent 
of that amount. Section 103(e)(8)(D) of the Act requires Treasury, in 
determining the method and manner of imposing the Surcharge, to take 
into consideration the economic impact on commercial centers of urban 
areas, risk factors related to rural areas and smaller commercial

[[Page 66054]]

centers, and various exposures to terrorism risk for different lines of 
insurance. In the preamble to the proposed rule, Treasury explained 
that while it will consider these factors at the time it becomes 
necessary to establish the amount of a Surcharge, for several reasons 
it is likely that the same Federal Terrorism Policy Surcharge would 
apply to all commercial property and casualty lines of insurance, as 
defined by the Act, and all rating classifications. Treasury explained 
that after discussions with industry experts, it was understood that 
variations in underlying premium amounts for commercial lines insurance 
policies already appear to substantially operate in a way that 
addresses the adjustment factors described in the Act. Treasury also 
stated its concern over the time and resources needed to perform the 
complex analyses and to construct and implement a detailed risk 
classification scheme reflecting these factors, as well as needing to 
meet collection deadlines based on estimates of future Federal outlays. 
However, based on a review of economic conditions at the time a 
Surcharge amount is established, Treasury stated that it might, if 
necessary, and within the collection timing constraints, mitigate 
economic impacts by imposing a lesser Surcharge over a longer period of 
time. In the proposed rulemaking, Treasury specifically solicited 
public comment on this approach. No comments were submitted on this 
issue.
3. Notification of Recoupment
    Section 50.73 of the final rule states that Treasury will provide 
reasonable advance notice of any initial Surcharge effective date. This 
effective date shall be January 1, unless such date would not provide 
for sufficient notice of implementation while meeting the collection 
timing requirements of section 103(e)(7)(E) of the Act.
    The purpose of a January 1 effective date is to coordinate with the 
National Association of Insurance Commissioners (NAIC) Annual Statement 
reporting period. In the preamble to the proposed rule, Treasury stated 
its belief that there is a clear advantage to coordinating an 
assessment period and the written premium and remitted Surcharge 
amounts with the calendar year basis for the NAIC Annual Statements. 
However, insurers also would ideally have 180 days' notice to implement 
the Surcharge. The timing of an act of terrorism, the emerging 
estimates of insured losses and resulting Federal outlays, and the 
requirement to collect the Surcharges by certain deadlines could 
impinge on Treasury's ability to provide the desired 180 days' notice 
to insurers of a Surcharge implementation as of January 1. Two possible 
alternatives for managing this circumstance were suggested for which 
Treasury specifically sought public comment.
    The first alternative was a possible bifurcated notification to 
insurers. Treasury would notify insurers 180 days in advance of January 
1, that an assessment period will commence, but the actual Surcharge 
amount would not yet be provided. This would allow insurers time to 
develop systems changes to implement a Surcharge. The actual Surcharge 
amount would be provided at a later date, perhaps at least 60 days in 
advance of January 1.
    The second alternative was to relax the standard of a January 1 
implementation date. The assessment period could start as of the first 
day of a later month, but continue through that calendar year. The 
result of this would be a more complicated reconciliation of written 
premium and Surcharge amounts with NAIC Annual Statement data, but 
would yet be substantially consistent with the NAIC Annual Statement 
reporting period.
    Two commenters provided comments on the alternative approaches. 
Both supported the first (bifurcated) approach to notification. One 
commenter stated that Treasury should allow at least 90 days advance 
notice of the actual surcharge amount while the other commenter stated 
that Treasury should provide notice of the actual surcharge amount at 
least 60 days in advance of January 1. In considering how to proceed 
based on these comments, Treasury is mindful of the generally 
recognized downside of using an effective date other than January 1. We 
acknowledge that 90 days advance notice of the actual surcharge amount 
would be preferable. However, we believe that most insurers could make 
the final system changes with at least 60 days' notice. To have to 
implement surcharges and reconciliations with a later implementation 
date than January 1, just because a 90 day notice was not possible, 
would be more disruptive to more insurers. Therefore, in implementing 
the final rule in circumstances where all necessary information cannot 
be provided at least 180 days in advance, Treasury intends to use the 
bifurcated approach. This would include 180 days' notice of the 
commencement of an assessment period, and, at least 60 days notice and, 
if possible, as much as 90 days notice of the actual surcharge amount.
    Treasury will provide notification annually as to continuation of 
the Surcharge. Treasury will also provide reasonable advance notice of 
any modification or cessation of the Surcharge. In such cases, Treasury 
anticipates providing at least 90 days' notice. Notifications will be 
accomplished through publications in the Federal Register or in another 
manner Treasury deems appropriate, based upon the circumstances of the 
particular act of terrorism.
    Despite the strong preference for the bifurcated approach, Treasury 
must have the flexibility to meet the statutory collection deadlines 
even if that approach cannot be accomplished. The final rule retains 
the language of Sec.  50.73(b) of the proposed rule, which allows the 
effective date to be other than January 1 if that date would not 
provide for sufficient notice of implementation while meeting the 
statutory collection deadlines. The second alternative described above 
would only be implemented as a fallback position.
4. Collecting the Surcharge
    Section 50.74 of the proposed rule specified that the Surcharge 
shall be imposed and collected on a written premium basis for policies 
that are in force during the assessment period. The proposed rule 
further provided that all new, renewal, mid-term, and audit additional 
premiums for a policy term would be subject to the Surcharge in effect 
on the policy term effective date. The preamble to the proposed rule 
noted that policies placed in force prior to the assessment period 
would not be subject to the Surcharge until renewal, regardless of mid-
term endorsements. Two commenters suggested a clarification in the 
rule, referring to policies that ``incept or renew'' during the 
assessment period rather than policies that are ``in force'' during the 
assessment period. Treasury agrees that this is consistent with the 
intent and has made this change in the final rule.
    One commenter noted that since return premium on audit would also 
be subject to the return of the Surcharge, the term ``audit additional 
premiums'' noted above should merely read ``audit premiums.'' Again, 
this is consistent with the intent and for the sake of clarity Treasury 
has made the suggested change in the final rule. For additional 
clarity, Treasury has modified the proposed rule Sec.  50.74(e), which 
provided for the return of Surcharge amounts attributable to unearned 
premiums which are returned to policyholders, to state that Surcharge 
amounts are to be returned when attributable to any refunded premium.
    As noted in the preamble of the proposed rule, the definition of 
property

[[Page 66055]]

and casualty insurance was the result of extensive consultation, which 
produced a regulatory definition crafted in terms of specific lines of 
business employed in the NAIC's Exhibit of Premium and Losses of the 
NAIC Annual Statement, modified by the exceptions for certain types of 
insurance excluded by the Act.
    Insurers will be obligated to implement the Federal Terrorism 
Policy Surcharge on a policyholder transaction level. There is a 
complicating factor in the definition of commercial property and 
casualty insurance in that certain exclusions in the definition create 
a possibility of individual policies providing types of insurance that 
are considered to fall both within and outside the Act's definition of 
property and casualty insurance. The authorities under the Act (at 
subsections 103(e)(8)(A) and (C) \1\) limit the application of the 
Surcharge to the policy premium amount charged for property and 
casualty insurance coverage under the policy.
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    \1\ Under the Reauthorization Act, Section 103(e)(8)(C) now 
applies only to discretionary recoupment.
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    In the proposed rule, as a basic starting point, Treasury proposed 
that the Surcharge apply to the full premium for any policy falling 
within the definition of property and casualty insurance in proposed 
Sec.  50.5(u), i.e., the premium for the policy is reported on the 
insurer's NAIC Annual Statement, or equivalent reporting document, in a 
specified commercial line of business as defined by Treasury's 
regulations. However, a portion of a policy's premium would not be 
subject to the Surcharge if, despite the line of business premium 
reporting to the NAIC, that portion of the premium is for coverage 
under the policy that is a type of insurance not considered to be 
commercial property and casualty insurance as specified in Treasury's 
regulations.
    In the case of a policy providing multiple insurance coverages, 
where an insurer cannot identify the premium amount charged 
specifically for property and casualty coverage under the policy, the 
proposed rule provided for two circumstances. If the insurer estimates 
that the portion of the premium amount charged for coverage other than 
property and casualty insurance is de minimis to the total premium for 
the policy, the insurer may impose and collect from the policyholder a 
Surcharge amount based on the total premium for the policy. If the 
insurer estimates that the portion of the premium amount charged for 
coverage other than property and casualty insurance is not de minimis, 
the insurer shall impose and collect from the policyholder a Surcharge 
amount based on a reasonable estimate of the premium amount for the 
property and casualty insurance coverage under the policy.
    One comment on the proposed rule was that it provides no guidance 
as to what is and what is not de minimis. Treasury intended for there 
to be some flexibility in applying this provision of the rule where 
there is a very small, but not specifically calculable portion of the 
premium that can be attributed to coverage that is not within the 
definition of property and casualty insurance.
    The commenter urged Treasury to review analogous provisions of 
earlier TRIA regulations, such as those addressing insurer deductibles 
and direct earned premium calculations. It was unclear from this 
comment whether this was from the standpoint of concept or, more 
specifically, the 25 percent threshold for considering commercial 
coverage to be incidental to a policy for purposes of the definition of 
direct earned premium. If it is the latter, Treasury is satisfied that 
25 percent of a premium is not a de minimis amount. However, in 
considering further guidance, because of the variety of insurer and 
policy premium circumstances, Treasury is reluctant to further define 
what is de minimis. As noted in the proposed rule preamble, Treasury 
will be developing reporting forms for the insurer submission of 
surcharges and will consider additional guidance in connection with 
that forms development. For the final rule, the relevant provision, 
Sec.  50.74(c)(2), is unchanged.
    As part of this rule, Treasury is adding a definition to Sec.  50.5 
for direct written premium, which is the premium information for 
commercial property and casualty insurance, as defined in the 
regulations, that is included by an insurer in column 1 of the Exhibit 
of Premiums and Losses of the NAIC Annual Statement or in an equivalent 
reporting requirement. Consistent with the discussion above, an insurer 
would subtract the premium that is not subject to the Surcharge. 
Otherwise, the full premium for the policy is included for Surcharge 
computation. Minor adjustments to the definition of direct earned 
premium to eliminate some inconsistencies between that definition and 
the new definition of direct written premium are included in the final 
rule as had been proposed. The definition of direct written premium has 
been crafted to be consistent with premium billing and collection 
practices on a transactional level, as well as consistent with state 
regulatory requirements for reporting written premiums. The Surcharge 
itself is not considered premium.
    The proposed rule, in Sec.  50.74(c)(1), stated that for purposes 
of applying the Surcharge, written premium basis means the premium 
amount charged a policyholder by an insurer for property and casualty 
insurance as defined in Sec.  50.5(u), including all premiums, policy 
expense constants and fees defined as premium pursuant to the 
Statements of Statutory Accounting Principles (SSAP) established by the 
NAIC. One commenter asserted that since states can modify the SSAP, 
this section should allow for premium pursuant to the SSAP as adopted 
by the jurisdiction for which the premium is reported. Treasury has 
made this change in the final rule.
    Section 50.74(f) provides that an insurer may satisfy its 
obligation to collect the Federal Terrorism Policy Surcharge by 
remitting the calculated Surcharge amount to Treasury, without actual 
collection, in circumstances where the expense of collecting the 
Surcharge from all policyholders during an assessment period exceeds 
the amount of the Surcharges anticipated to be collected.
    The Federal Terrorism Policy Surcharge is a repayment of Federal 
financial assistance in an amount required by law. It is not a premium 
paid by a policyholder to an insurer. Proposed Sec.  50.74(g) stated 
that no fee or commission shall be charged on the Federal Terrorism 
Policy Surcharge. Two commenters said that the provision should be 
expanded to provide that the surcharge is not subject to taxes or 
assessments. Section 106 of the Act generally preserves the 
jurisdiction or regulatory authority of the insurance commissioner (or 
any agency or office performing like functions) of any state over any 
insurer or other person except as specifically provided in the Act. 
Whether the surcharge is subject to taxes or assessments concerns state 
law as well as the issue of Federal preemption. Treasury has concluded 
that taxes and assessments should not be addressed in the regulation.
    The proposed rule provided that if an insurer returns any unearned 
premium to a policyholder, it shall also return any Federal Terrorism 
Policy Surcharge collected that is attributable to the unearned 
premium. As noted earlier in the discussion of comments associated with 
treatment of audit premiums, Sec.  50.74(e) of the final rule has been 
modified to address the refund of any premiums.

[[Page 66056]]

    The final rule provides that the insurer shall have such rights and 
remedies to enforce the collection of the Surcharge that are equivalent 
to those that exist under applicable state or other law for nonpayment 
of premium. Insurers should follow the appropriate state law in such 
circumstances.
5. Remitting the Surcharge
    The effect of Sec.  50.76 of the final rule is that, 
notwithstanding the definition of an insurer in prior Sec.  50.5(f) 
(now redesignated as Sec.  50.5(l)), the collection, reporting and 
remittance of Federal Terrorism Policy Surcharges to Treasury shall be 
the responsibility of each individual insurer entity as otherwise 
defined in Sec.  50.5(f) without including affiliates. This is because 
affiliations of insurers that are relevant in determining insurer 
deductibles are not pertinent to the collection and remittance of the 
Surcharges.
    Consistent with the Act, Treasury's approach to the collection and 
remittance of the Federal Terrorism Policy Surcharge is to place an 
obligation on the policyholder to pay the Surcharge and require the 
insurer to collect the Surcharge from each policyholder. The final rule 
provides insurers the means to address non-payment of the Surcharge and 
provides for the reporting and remittance of the Surcharge to Treasury 
according to calculated amounts that are based on statutory financial 
reporting already required by the States. The description of premium 
subject to the Surcharge in Sec.  50.74(c) and the definition of 
``direct written premium'' in Sec.  50.5(g) and other provisions of the 
final rule on the treatment of the Surcharge at both the policy 
transaction and financial statement reporting levels have been crafted 
so that the Surcharge amounts calculated for remittance to Treasury 
will be equivalent to the actual collections. By relying on premium 
amounts that are reported to the States, and that are already subject 
to other audit requirements, Treasury expects that its own audit 
responsibilities can be accomplished with less focus on individual 
insurer compliance with the Surcharge collection than would otherwise 
be necessary. This will result in a more efficient mechanism for 
recoupment for Treasury, insurers, and policyholders.
    In developing reporting and remittance frequency requirements, 
Treasury considered the amount of time insurers may be holding the 
funds collected prior to remittance to Treasury, and the current Value 
of Federal Funds published by the Treasury's Financial Management 
Service. Treasury also recognizes that a monthly accounting period is 
standard within the insurance industry. The final rule allows insurers 
to retain the interest (and therefore not have to separately account 
and remit such amounts to Treasury) on funds collected on a ``written'' 
basis and remitted monthly to Treasury. Treasury believes that this is 
a reasonably efficient approach to administering the collection and 
remittance requirements of the Act. Should the Value of Federal Funds 
at the time of any actual imposition of the Federal Terrorism Policy 
Surcharge be significantly greater than current levels, Treasury will 
revisit this issue.
    Section 50.75 of the final rule calls for insurers to report and 
remit Federal Terrorism Policy Surcharges on a monthly basis, starting 
with the first month within the assessment period, through November of 
the calendar year and on an annual basis as of the last month. As 
discussed earlier, ideally and as intended, the first month within the 
assessment period would be January. The requirements are expected to 
ease the administrative burden by building upon reporting requirements 
already imposed by the States. The definition of ``direct written 
premium'' on which an insurer must report and the specific due dates 
for reporting in Sec.  50.75(a) have been coordinated with NAIC Annual 
Statement requirements. The main reconciliation of information reported 
to Treasury and to NAIC would be accomplished with the year-end NAIC 
Annual Statements.
    The collection timing requirements of section 103(e)(7)(E) of the 
Act generally require recoupment of certain amounts of Federal outlays 
through September 30, coinciding with the end of the Federal fiscal 
year. Treasury will estimate recoupment amounts and Surcharges so that 
these deadlines are met, while still keeping to an end of calendar year 
date for defining an assessment period. This end date will allow the 
reporting and reconciliation to be coordinated with Annual Statements.
    To accommodate possible changes in the Federal Terrorism Policy 
Surcharge amount from one year to another, direct written premium is to 
be broken down by policy year. This is similar to requirements imposed 
at the state-level with regard to other assessments.
    Since remittance is on a ``written'' basis, the proposed rule 
provided for a continued reporting requirement for one year following 
the end of the assessment period. One commenter noted that closing out 
reporting one year after the termination of the assessment period would 
be satisfactory for the vast majority of policies, but that some 
policies will have final audits that close after that time and that, in 
addition, the proposed rule was unclear with respect to policies with 
terms longer than one year. In developing the proposed rule and in 
considering this comment, Treasury has endeavored to strike a balance 
between the accounting of Surcharges and the costs of maintaining the 
systems for collecting, submitting, and reporting of Surcharges on the 
part of insurers and Treasury. After consulting with industry experts, 
Treasury believes that revisions to the written premium amounts that 
would occur more than one year after the termination of the assessment 
period, which would be associated with additional or returned premiums 
on policies that incepted or renewed in the assessment period, would be 
sufficiently small relative to the aggregate premium amounts to justify 
ending further adjustments to the Surcharge. Therefore in the final 
rule, clarifications have been added to Sec. Sec.  50.74(c) and (e) to 
provide that insurers are no longer required to collect or refund 
Surcharges once the reporting requirement to Treasury has ended. 
Section 50.75(d) has also been revised to clarify that an insurer 
obtains credit for a refund of any Federal Terrorism Policy Surcharges 
previously remitted to Treasury through its submission of monthly or 
annual statements.
    Treasury will be developing forms for the reporting and remittance 
of the Federal Terrorism Policy Surcharge and plans on implementing an 
electronic reporting and payment facility.
6. Audit Authority and Recordkeeping
    It is Treasury's intention that it's reporting requirements, 
coordinated and reconciled with other state-level reporting, will 
result in less of an audit burden than might otherwise be necessary. 
The final rule includes a revision of the current Sec.  50.60 and an 
addition to the current Sec.  50.61. The revision adds language to the 
effect that the Secretary of the Treasury, or an authorized 
representative, shall have, upon reasonable notice, access to all 
books, documents, papers and records of an insurer that are pertinent 
to the Federal Terrorism Policy Surcharge. The addition generally 
provides that records relating to premiums, Surcharges, collections and 
remittances to Treasury shall be retained by an insurer and kept 
available for review for not less than three (3) years following the 
conclusion of the assessment period or settlement of accounts with 
Treasury, whichever is later.

[[Page 66057]]

7. Enforcement
    Insurers will be responsible for collecting appropriate Surcharge 
amounts from their policyholders. Because Sec.  50.74(d) provides that 
insurers have rights and remedies to enforce collection that are 
equivalent to those that exist under state law for nonpayment of 
premium, Treasury believes insurers will have the requisite tools to 
collect the Surcharge. Treasury may rely on its authority to impose 
civil monetary penalties on an insurer pursuant to section 104(e)(1)(A) 
of the Act for the failure to charge, collect or timely remit proper 
Surcharge amounts to enforce the provisions of this final rule.
8. Other Technical Changes
    As noted under ``Collecting the Surcharge,'' the final rule 
includes some minor changes to the existing definition of ``direct 
earned premium.'' Although the complete definition is set out for 
information, no substantive changes were made to the existing Sec.  
50.5(d)(1)(iv), (d)(2), (d)(3), and (d)(4). Similarly, although the 
existing provision on recordkeeping is set out in Sec.  50.61(a), no 
substantive changes were made to that provision.

V. Procedural Requirements

    Executive Order 12866, ``Regulatory Planning and Review''. This 
rule is a significant regulatory action for purposes of Executive Order 
12866, ``Regulatory Planning and Review,'' and has been reviewed by the 
Office of Management and Budget (OMB).
    Regulatory Flexibility Act. Pursuant to the Regulatory Flexibility 
Act, 5 U.S.C. 601 et seq., it is hereby certified that this rule will 
not have a significant economic impact on a substantial number of small 
entities. TRIA requires all insurers that receive direct earned 
premiums for commercial property and casualty insurance, to participate 
in the Program. Treasury is required to recoup all or a portion of the 
Federal share of compensation paid to insurers for insured losses in 
accordance with the Act. Insurers that are affected by these 
regulations tend to be large businesses, therefore Treasury has 
determined that the rule will not affect a substantial number of small 
entities. In addition, Treasury has determined that the economic impact 
of the rule is not significant. The Act requires that a policyholder 
surcharge be imposed on all policies of property and casualty 
insurance, as defined in the Act. The Act requires Treasury to provide 
for insurers to collect the surcharges and remit them to Treasury. 
Unless there is an act of terrorism, and a Federal sharing of 
compensation for insured losses requiring recoupment, there is no 
economic impact at all. The ability to collect surcharges is routine 
within the insurance industry. Should a surcharge be required, it would 
be collected and submitted by insurers based on existing normal 
business processes. The payment of a surcharge is the obligation of the 
policyholder. The insurer must collect the surcharge, but would do so 
through the normal payment by the policyholder of the insurance premium 
for property and casualty insurance. The economic impact on all 
commercial property and casualty insurers (including any that might be 
small entities) should thus be minimal. Treasury did not receive any 
comments at the proposed rule stage relating to the rule's impact on 
small entities. Accordingly, a regulatory flexibility analysis is not 
required.
    Paperwork Reduction Act. The collection of information contained in 
this final rule has been approved by the OMB under the requirements of 
the Paperwork Reduction Act, 44 U.S.C. 3507(d) and has been assigned 
control number 1505-0207.

List of Subjects in 31 CFR Part 50

    Terrorism risk insurance.

Authority and Issuance

0
For the reasons stated above, 31 CFR part 50 is amended as follows:

PART 50--TERRORISM RISK INSURANCE PROGRAM

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

    Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107-
297, 116 Stat. 2322, as amended by Pub. L. 109-144, 119 Stat. 2660 
and Pub. L. 110-160, 121 Stat. 1839 (15 U.S.C. 6701 note).


0
2. Section 50.5 is amended as follows:
0
a. Paragraphs (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n), 
(o), (p), (q), and (r) are redesignated as paragraphs (f), (k), (l), 
(m), (o), (p), (q), (r), (s), (t), (u), (v), (w), (z) and (bb), 
respectively.
0
b. New paragraphs (d), (e), (g), (h), (i), (j), (n), (x), (y), and (aa) 
are added.
0
c. Newly designated paragraph (f) is revised.
    The revisions read as follows:


Sec.  50.5  Definitions.

* * * * *
    (d) Aggregate Federal share of compensation means the aggregate 
amount paid by Treasury for the Federal share of compensation for 
insured losses in a Program Year.
    (e) Assessment period means a period, established by Treasury, 
during which policyholders of property and casualty insurance policies 
must pay, and insurers must collect, the Federal Terrorism Policy 
Surcharge for remittance to Treasury.
    (f) Direct earned premium means direct earned premium for all 
commercial property and casualty insurance issued by any insurer for 
insurance against all losses, including losses from an act of 
terrorism, occurring at the locations described in section 102(5)(A) 
and (B) of the Act.
    (1) State licensed or admitted insurers. For a State licensed or 
admitted insurer that reports to the NAIC, direct earned premium is the 
premium information for commercial property and casualty insurance 
reported by the insurer on column 2 of the NAIC Exhibit of Premiums and 
Losses of the NAIC Annual Statement (commonly known as Statutory Page 
14). (See definition of property and casualty insurance.)
    (i) Premium information as reported to the NAIC should be included 
in the calculation of direct earned premiums for purposes of the 
Program only to the extent it reflects premiums for commercial property 
and casualty insurance issued by the insurer against losses occurring 
at the locations described in section 102(5)(A) and (B) of the Act.
    (ii) Premiums for personal property and casualty insurance 
(insurance primarily designed to cover personal, family or household 
risk exposures, with the exception of insurance written to insure 1 to 
4 family rental dwellings owned for the business purpose of generating 
income for the property owner), or premiums for any other insurance 
coverage that does not meet the definition of commercial property and 
casualty insurance, should be excluded in the calculation of direct 
earned premiums for purposes of the Program.
    (iii) Personal property and casualty insurance coverage that 
includes incidental coverage for commercial purposes is primarily 
personal coverage, and therefore premiums may be fully excluded by an 
insurer from the calculation of direct earned premium. For purposes of 
the Program, commercial coverage is incidental if less than 25 percent 
of the total direct earned premium is attributable to commercial 
coverage. Commercial property and casualty insurance against losses 
occurring at locations other than the locations described in section 
102(5)(A) and (B) of the Act, or other insurance coverage that does not 
meet the definition of commercial property and casualty insurance, but 
that

[[Page 66058]]

includes incidental coverage for commercial risk exposures at such 
locations, is primarily not commercial property and casualty insurance, 
and therefore premiums for such insurance may also be fully excluded by 
an insurer from the calculation of direct earned premium. For purposes 
of this section, commercial property and casualty insurance for losses 
occurring at the locations described in section 102(5)(A) and (B) of 
the Act is incidental if less than 25 percent of the total direct 
earned premium for the insurance policy is attributable to coverage at 
such locations. Also for purposes of this section, coverage for 
commercial risk exposures is incidental if it is combined with 
coverages that otherwise do not meet the definition of commercial 
property and casualty insurance and less than 25 percent of the total 
direct earned premium for the insurance policy is attributable to the 
coverage for commercial risk exposures.
    (iv) If a property and casualty insurance policy covers both 
commercial and personal risk exposures, insurers may allocate the 
premiums in accordance with the proportion of risk between commercial 
and personal components in order to ascertain direct earned premium. If 
a policy includes insurance coverage that meets the definition of 
commercial property and casualty insurance for losses occurring at the 
locations described in section 102(5)(A) and (B) of the Act, but also 
includes other coverage, insurers may allocate the premiums in 
accordance with the proportion of risk attributable to the components 
in order to ascertain direct earned premium.
    (2) Insurers that do not report to NAIC. An insurer that does not 
report to the NAIC, but that is licensed or admitted by any State (such 
as certain farm or county mutual insurers), should use the guidance 
provided in paragraph (f)(1) of this section to assist in ascertaining 
its direct earned premium.
    (i) Direct earned premium may be ascertained by adjusting data 
maintained by such insurer or reported by such insurer to its State 
regulator to reflect a breakdown of premiums for commercial and 
personal property and casualty exposure risk as described in paragraph 
(f)(1) of this section and, if necessary, re-stated to reflect the 
accrual method of determining direct earned premium versus direct 
premium.
    (ii) Such an insurer should consider other types of payments that 
compensate the insurer for risk of loss (contributions, assessments, 
etc.) as part of its direct earned premium.
    (3) Certain eligible surplus line carrier insurers. An eligible 
surplus line carrier insurer listed on the NAIC Quarterly Listing of 
Alien Insurers must ascertain its direct earned premium as follows:
    (i) For policies that were in-force as of November 26, 2002, or 
entered into prior to January 1, 2003, direct earned premiums are to be 
determined with reference to the definition of property and casualty 
insurance and the locations described in section 102(5)(A) and (B) of 
the Act by allocating the appropriate portion of premium income for 
losses for property and casualty insurance at such locations. The same 
allocation methodologies contained within the NAIC's ``Allocation of 
Surplus Lines and Independently Procured Insurance Premium Tax on 
Multi-State Risks Model Regulation'' for allocating premium between 
coverage for property and casualty insurance for losses occurring at 
the locations described in section 102(5)(A) and (B) of the Act and all 
other coverage, to ascertain the appropriate percentage of premium 
income to be included in direct earned premium, may be used.
    (ii) For policies issued after January 1, 2003, premium for 
insurance that meets the definition of property and casualty insurance 
for losses occurring at the locations described in section 102(5)(A) 
and (B) of the Act, must be priced separately by such eligible surplus 
line carriers.
    (4) Federally approved insurers. A federally approved insurer under 
section 102(6)(A)(iii) of the Act should use a methodology similar to 
that specified for eligible surplus line carrier insurers in paragraph 
(f)(3) of this section to calculate its direct earned premium. Such 
calculation should be adjusted to reflect the limitations on scope of 
insurance coverage under the Program (i.e., to the extent of federal 
approval of commercial property and casualty insurance in connection 
with maritime, energy or aviation activities).
    (g) Direct written premium means the premium information for 
commercial property and casualty insurance as defined in paragraph (u) 
of this section that is included by an insurer in column 1 of the 
Exhibit of Premiums and Losses of the NAIC Annual Statement or in an 
equivalent reporting requirement. The Federal Terrorism Policy 
Surcharge is not included in amounts reported as direct written 
premium.
    (h) Discretionary recoupment amount means such amount of the 
aggregate Federal share of compensation in excess of the mandatory 
recoupment amount that the Secretary has determined will be recouped 
pursuant to section 103(e)(7)(D) of the Act.
    (i) Federal Terrorism Policy Surcharge means the amount established 
by Treasury under section 103(e)(8) of the Act which is imposed as a 
policy surcharge on property and casualty insurance policies, expressed 
as a percentage of the written premium.
    (j) Insurance marketplace aggregate retention amount means an 
amount for a Program Year as set forth in section 103(e)(6) of the Act. 
For any Program Year beginning with 2008 through 2014, such amount is 
the lesser of $27,500,000,000 and the aggregate amount, for all 
insurers, of insured losses from Program Trigger Events during the 
Program Year.
* * * * *
    (n) Mandatory recoupment amount means the difference between the 
insurance marketplace aggregate retention amount for a Program Year and 
the uncompensated insured losses during such Program Year. The 
mandatory recoupment amount shall be zero, however, if the amount of 
such uncompensated insured losses is greater than the insurance 
marketplace aggregate retention amount.
* * * * *
    (x) Surcharge means the Federal Terrorism Policy Surcharge as 
defined in paragraph (i) of this section.
    (y) Surcharge effective date means the date established by Treasury 
that begins the assessment period.
* * * * *
    (aa) Uncompensated insured losses--means the aggregate amount of 
insured losses, from Program Trigger Events, of all insurers in a 
Program Year that is not compensated by the Federal Government because 
such losses:
    (1) Are within the insurer deductibles of insurers, or
    (2) Are within the portions of losses in excess of insurer 
deductibles that are not compensated through payments made as a result 
of claims for the Federal share of compensation.
* * * * *

0
3. Revise Sec. Sec.  50.60 and 50.61 of Subpart G to read as follows:


Sec.  50.60  Audit authority.

    The Secretary of the Treasury, or an authorized representative, 
shall have, upon reasonable notice, access to all books, documents, 
papers and records of an insurer that are pertinent to amounts paid to 
the insurer as the Federal share of compensation for insured losses, or 
pertinent to any Federal Terrorism Policy Surcharge that is imposed 
pursuant to subpart H of this part, for the purpose of investigation, 
confirmation, audit and examination.

[[Page 66059]]

Sec.  50.61  Recordkeeping.

    (a) Each insurer that seeks payment of a Federal share of 
compensation under subpart F of this part shall retain such records as 
are necessary to fully disclose all material matters pertinent to 
insured losses and the Federal share of compensation sought under the 
Program, including, but not limited to, records regarding premiums and 
insured losses for all commercial property and casualty insurance 
issued by the insurer and information relating to any adjustment in the 
amount of the Federal share of compensation payable. Insurers shall 
maintain detailed records for not less than five (5) years from the 
termination dates of all reinsurance agreements involving commercial 
property and casualty insurance subject to the Act. Records relating to 
premiums shall be retained and available for review for not less than 
three (3) years following the conclusion of the policy year. Records 
relating to underlying claims shall be retained for not less than five 
(5) years following the final adjustment of the claim.
    (b) Each insurer that collects a Federal Terrorism Policy Surcharge 
as required by subpart H of this part shall retain records related to 
such Surcharge, including records of the property and casualty 
insurance premiums subject to the Surcharge, the amount of the 
Surcharge imposed on each policy, aggregate Federal Terrorism Policy 
Surcharges collected, and aggregate Federal Terrorism Policy Surcharges 
remitted to Treasury during each assessment period. Such records shall 
be retained and kept available for review for not less than three (3) 
years following the conclusion of the assessment period or settlement 
of accounts with Treasury, whichever is later.


0
4. Subpart H of part 50 is added to read as follows:

 Subpart H--Recoupment and Surcharge Procedures

Sec.
50.70 Mandatory and discretionary recoupment.
50.71 Determination of recoupment amounts.
50.72 Establishment of Federal Terrorism Policy Surcharge.
50.73 Notification of recoupment.
50.74 Collecting the surcharge.
50.75 Remitting the surcharge.
50.76 Insurer responsibility.

Subpart H--Recoupment and Surcharge Procedures


Sec.  50.70  Mandatory and discretionary recoupment.

    (a) Pursuant to section 103 of the Act, the Secretary shall impose, 
and insurers shall collect, such Federal Terrorism Policy Surcharges as 
needed to recover 133 percent of the mandatory recoupment amount for 
any Program Year.
    (b) In the Secretary's discretion, the Secretary may recover any 
portion of the aggregate Federal share of compensation that exceeds the 
mandatory recoupment amount through a Federal Terrorism Policy 
Surcharge based on the factors set forth in section 103(e)(7)(D) of the 
Act.
    (c) If the Secretary is required to impose a Federal Terrorism 
Policy Surcharge as provided in paragraph (a) of this section, then the 
required amounts, based on the extent to which payments for the Federal 
share of compensation have been made by the collection deadlines in 
section 103(e)(7)(E) of the Act, shall be collected in accordance with 
such deadlines:
    (1) For any act of terrorism that occurs on or before December 31, 
2010, the Secretary shall collect all required amounts by September 30, 
2012;
    (2) For any act of terrorism that occurs between January 1 and 
December 31, 2011, the Secretary shall collect 35 percent of any 
required amounts by September 30, 2012, and the remainder by September 
30, 2017; and
    (3) For any act of terrorism that occurs on or after January 1, 
2012, the Secretary shall collect all required amounts by September 30, 
2017.


Sec.  50.71  Determination of recoupment amounts.

    (a) If payments for the Federal share of compensation have been 
made for a Program Year, and Treasury determines that insured loss 
information is sufficiently developed and credible to serve as a basis 
for calculating recoupment amounts, Treasury will make an initial 
determination of any mandatory or discretionary recoupment amounts for 
that Program Year.
    (b)(1) Within 90 days after certification of an act of terrorism, 
the Secretary shall publish in the Federal Register an estimate of 
aggregate insured losses which shall be used as the basis for initially 
determining whether mandatory recoupment will be required.
    (2) If at any time Treasury projects that payments for the Federal 
share of compensation will be made for a Program Year, and that in 
order to meet the collection timing requirements of section 
103(e)(7)(E) of the Act it is necessary to use an estimate of such 
payments as a basis for calculating recoupment amounts, Treasury will 
make an initial determination of any mandatory recoupment amounts for 
that Program Year.
    (c) Following the initial determination of recoupment amounts for a 
Program Year, Treasury will recalculate any mandatory or discretionary 
recoupment amount as necessary and appropriate, and at least annually, 
until a final recoupment amount for the Program Year is determined. 
Treasury will compare any recalculated recoupment amount to amounts 
already remitted and/or to be remitted to Treasury for a Federal 
Terrorism Policy Surcharge previously established to determine whether 
any additional amount will be recouped by Treasury.
    (d) For the purpose of determining initial or recalculated 
recoupment amounts, Treasury may issue a data call to insurers for 
insurer deductible and insured loss information by Program Year. 
Treasury's determination of the aggregate amount of insured losses from 
Program Trigger Events of all insurers for a Program Year will be based 
on the amounts reported in response to a data call and any other 
information Treasury in its discretion considers appropriate. 
Submission of data in response to a data call shall be on a form 
promulgated by Treasury.


Sec.  50.72  Establishment of Federal Terrorism Policy Surcharge.

    (a) Treasury will establish the Federal Terrorism Policy Surcharge 
based on the following factors and considerations:
    (1) In the case of a mandatory recoupment amount, the requirement 
to collect 133 percent of that amount;
    (2) The total dollar amount to be recouped as a percentage of the 
latest available annual aggregate industry direct written premium 
information;
    (3) The adjustment factors for terrorism loss risk-spreading 
premiums described in section 103(e)(8)(D) of the Act;
    (4) The annual 3 percent limitation on terrorism loss risk-
spreading premiums collected on a discretionary basis as provided in 
section 103(e)(8)(C) of the Act;
    (5) A preferred minimum initial assessment period of one full year 
and subsequent extension periods in full year increments;
    (6) The collection timing requirements of section 103(e)(7)(E) of 
the Act;
    (7) The likelihood that the amount of the Federal Terrorism Policy 
Surcharge

[[Page 66060]]

may result in the collection of an aggregate recoupment amount in 
excess of the planned recoupment amount; and
    (8) Such other factors as the Secretary considers important.
    (b) The Federal Terrorism Policy Surcharge shall be the obligation 
of the policyholder and is payable to the insurer with the premium for 
a property and casualty insurance policy in effect during the 
assessment period established by Treasury. See Sec.  50.74(c).


Sec.  50.73  Notification of recoupment.

    (a) Treasury will provide notifications of recoupment through 
publication of notices in the Federal Register or in another manner 
Treasury deems appropriate, based upon the circumstances of the act of 
terrorism under consideration.
    (b) Treasury will provide reasonable advance notice to insurers of 
any initial Federal Terrorism Policy Surcharge effective date. This 
effective date shall be January 1, unless such date would not provide 
for sufficient notice of implementation while meeting the collection 
timing requirements of section 103(e)(7)(E) of the Act.
    (c) Treasury will provide reasonable advance notice to insurers of 
any modification or cessation of the Federal Terrorism Policy 
Surcharge.
    (d) Treasury will provide notification to insurers annually as to 
the continuation of the Federal Terrorism Policy Surcharge.


Sec.  50.74  Collecting the Surcharge.

    (a) Insurers shall collect a Federal Terrorism Policy Surcharge 
from policyholders as required by Treasury.
    (b) Policies subject to the Federal Terrorism Policy Surcharge are 
those for which direct written premium is reported on commercial lines 
of business on the NAIC's Exhibit of Premiums and Losses of the NAIC 
Annual Statement (commonly known as Statutory Page 14) as provided in 
Sec.  50.5(u)(1), or equivalently reported.
    (c) For policies subject to the Federal Terrorism Policy Surcharge, 
the Surcharge shall be imposed and collected on a written premium basis 
for policies that incept or renew during the assessment period. All 
new, renewal, mid-term, and audit premiums for a policy term are 
subject to the Surcharge in effect on the policy term effective date. 
Notwithstanding this paragraph, if the premium for a policy term that 
would otherwise be subject to the Surcharge is revised after the end of 
the reporting period described in Sec.  50.75(e), then any additional 
premium attributable to such revision is not subject to the Surcharge. 
For purposes of this subpart:
    (1) Written premium basis means the premium amount charged a 
policyholder by an insurer for property and casualty insurance as 
defined in Sec.  50.5(u), including all premiums, policy expense 
constants and fees defined as premium pursuant to the Statements of 
Statutory Accounting Principles established by the National Association 
of Insurance Commissioners, as adopted by the state for which the 
premium will be reported.
    (2) In the case of a policy providing multiple insurance coverages, 
if an insurer cannot identify the premium amount charged a policyholder 
specifically for property and casualty insurance under the policy, 
then:
    (i) If the insurer estimates that the portion of the premium amount 
charged for coverage other than property and casualty insurance is de 
minimis to the total premium for the policy, the insurer may impose and 
collect from the policyholder a Surcharge amount based on the total 
premium for the policy, but
    (ii) If the insurer estimates that the portion of the premium 
amount charged for coverage other than property and casualty insurance 
is not de minimis, the insurer shall impose and collect from the 
policyholder a Surcharge amount based on a reasonable estimate of the 
premium amount for the property and casualty insurance coverage under 
the policy.
    (3) The Federal Terrorism Policy Surcharge is not considered 
premium.
    (d) A policyholder must pay the applicable Federal Terrorism Policy 
Surcharge when due. The insurer shall have such rights and remedies to 
enforce the collection of the Surcharge that are the equivalent to 
those that exist under applicable state or other law for nonpayment of 
premium.
    (e) When an insurer returns an unearned premium, or otherwise 
refunds premium to a policyholder, it shall also return any Federal 
Terrorism Policy Surcharge collected that is attributable to the 
refunded premium. Notwithstanding this paragraph, if the written 
premium for a policy is revised and refunded after the end of the 
reporting period described in Sec.  50.75(e), then the insurer is not 
required to refund any Surcharge that is attributable to the refunded 
premium.
    (f) Notwithstanding paragraphs (a), (b), and (c) of this section, 
if the expense of collecting the Federal Terrorism Policy Surcharge 
from all policyholders of an insurer during an assessment period 
exceeds the amount of the Surcharges anticipated to be collected, such 
insurer may satisfy its obligation to collect by omitting actual 
collection and instead remitting to Treasury the amount otherwise due.
    (g) The Federal Terrorism Policy Surcharge is repayment of Federal 
financial assistance in an amount required by law. No fee or commission 
shall be charged on the Federal Terrorism Policy Surcharge.


Sec.  50.75  Remitting the surcharge.

    (a) Each insurer shall provide a statement of direct written 
premium and Federal Terrorism Policy Surcharge to Treasury on a monthly 
basis, starting with the first month within the assessment period, 
through November of the calendar year and on an annual basis as of the 
last month of the calendar year. Reporting will be on a form prescribed 
by Treasury and will be due according to the following schedule:
    (1) For each month beginning in the first month of the assessment 
period through November, the last business day of the calendar month 
following the month for which premium is reported, and
    (2) March 1 for the calendar year.
    (b) The monthly statements provided to Treasury will include the 
following:
    (1) Cumulative calendar year direct written premium adjusted for 
premium not subject to the Federal Terrorism Policy Surcharge, 
summarized by policy year.
    (2) The aggregate Federal Terrorism Policy Surcharge amount 
calculated by applying the established Surcharge percentage to the 
insurer's adjusted direct written premium by policy year.
    (3) Insurer certification of the submission.
    (c) The annual statements to be provided to Treasury will include 
the following:
    (1) Direct written premium as defined in Sec.  50.5(g), adjusted 
for premium not subject to the Federal Terrorism Policy Surcharge, 
summarized by policy year and by commercial line of insurance as 
specified in Sec.  50.5(u).
    (2) The aggregate Federal Terrorism Policy Surcharge amount 
calculated by applying the established Surcharge percentage to the 
insurer's adjusted direct written premium by policy year.
    (3) In the case of an insurer that has chosen not to collect the 
Federal Terrorism Policy Surcharge from its policyholders as provided 
in Sec.  50.74(f), a certification that the expense of collecting the 
Surcharge during the assessment period would have exceeded the amount 
of the Surcharges collected over the assessment period.
    (4) Insurer certification of the submission.
    (d) The calculated aggregate Federal Terrorism Policy Surcharge 
amount, as

[[Page 66061]]

described in paragraphs (b)(2) and (c)(2) of this section, shall be 
remitted to Treasury upon submission of each monthly and annual 
statement. Through its submitted statements, an insurer obtains credit 
for a refund of any Federal Terrorism Policy Surcharge previously 
remitted to Treasury that was subsequently returned by the insurer to a 
policyholder as attributable to refunded premium under Sec.  50.74(e). 
A negative calculated amount in a monthly or annual statement indicates 
payment from Treasury is due to the insurer.
    (e) Reporting shall continue for the one-year period following the 
end of the assessment period established by Treasury, unless otherwise 
permitted by Treasury.


Sec.  50.76  Insurer responsibility.

    For purposes of the collection, reporting and remittance of Federal 
Terrorism Policy Surcharges to Treasury, an ``insurer,'' as defined in 
Sec.  50.5(l), shall not include any affiliate of the insurer.

    Dated: December 3, 2009.
Michael S. Barr,
Assistant Secretary (Financial Institutions).
[FR Doc. E9-29613 Filed 12-11-09; 8:45 am]
BILLING CODE 4810-25-P