[Federal Register Volume 81, Number 63 (Friday, April 1, 2016)]
[Proposed Rules]
[Pages 18950-18977]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06920]



[[Page 18949]]

Vol. 81

Friday,

No. 63

April 1, 2016

Part II





Department of the Treasury





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31 CFR Part 50





Terrorism Risk Insurance Program; Proposed Rules

  Federal Register / Vol. 81 , No. 63 / Friday, April 1, 2016 / 
Proposed Rules  

[[Page 18950]]


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DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505-AC53


Terrorism Risk Insurance Program

AGENCY: Departmental Offices, Department of the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Department of the Treasury (Treasury) is issuing these 
proposed rules to implement changes to the Terrorism Risk Insurance 
Program (TRIP or Program) required by the Terrorism Risk Insurance 
Program Reauthorization Act of 2015 (2015 Reauthorization Act). In 
addition, Treasury proposes for the first time a Civil Penalties rule 
under TRIP, pursuant to authority granted by Congress in the Terrorism 
Risk Insurance Act of 2002 (TRIA). Treasury also proposes adoption, 
with certain minor changes, of a previously proposed rule addressing 
the Final Netting of Payments. Finally, certain other changes are 
proposed to various sections of the prior rules in order to clarify 
certain matters, make technical and conforming changes, and to address 
changes required by the passage of time and other legislation.

DATES: Written comments must be submitted on or before May 31, 2016. 
Early submissions are encouraged.

ADDRESSES: Submit comments electronically through the Federal 
eRulemaking Portal: http://www.regulations.gov, or by mail (if hard 
copy, preferably an original and two copies) to the Federal Insurance 
Office, Attention: Richard Ifft, Room 1410 MT, Department of the 
Treasury, 1500 Pennsylvania Avenue NW., Washington, DC 20220. Because 
postal mail may be subject to processing delay, it is recommended that 
comments be submitted electronically. All comments should be captioned 
with ``2015 TRIA Reauthorization Proposed Rules Comments.'' Please 
include your name, group affiliation, address, email address, and 
telephone number(s) in your comment. Where appropriate, a comment 
should include a short Executive Summary (no more than five single-
spaced pages).
    In general, comments received will be posted on http://www.regulations.gov without change, including any business or personal 
information provided. Comments received, including attachments and 
other supporting materials, will be part of the public record and 
subject to public disclosure. Do not enclose any information in your 
comment or supporting materials that you consider confidential or 
inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: Richard Ifft, Senior Insurance 
Regulatory Policy Analyst, Federal Insurance Office, 202-622-2922 (not 
a toll free number) or Kevin Meehan, Policy Advisor, Federal Insurance 
Office, 202-622-7009 (not a toll free number).

SUPPLEMENTARY INFORMATION:

I. Background

    The Terrorism Risk Insurance Act of 2002 (the Act or TRIA) \1\ was 
enacted on November 26, 2002, following the attacks of September 11, 
2001, to address disruptions in the market for terrorism risk 
insurance, to help ensure the continued availability and affordability 
of commercial property and casualty insurance for terrorism risk, and 
to allow for the private markets to stabilize and build insurance 
capacity to absorb any future losses for terrorism events. TRIA 
requires insurers to ``make available'' terrorism risk insurance for 
commercial property and casualty losses resulting from certified acts 
of terrorism (insured losses), and provides for shared public and 
private compensation for such insured losses. The Secretary of the 
Treasury (Secretary) administers the Program, including the issuance of 
regulations and procedures. Pursuant to the Dodd-Frank Wall Street 
Reform and Consumer Protection Act, the Federal Insurance Office 
assists the Secretary in administering the Program.\2\
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    \1\ Public Law 107-297, 116 Stat. 2322, codified at 15 U.S.C. 
6701, note. Because the provisions of TRIA (as amended) appear in a 
note, instead of particular sections, of the United States Code, the 
provisions of TRIA are identified by the sections of the law.
    \2\ 31 U.S.C. 313(c)(1)(D).
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    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. To date, rules establishing general 
provisions implementing the Program, including key definitions, and 
requirements for policy disclosures and mandatory availability, are 
found in Subparts A, B, and C of 31 CFR part 50.\3\ Treasury's rules 
applying provisions of the Act to state residual market insurance 
entities and state workers' compensation funds are set forth in Subpart 
D of 31 CFR part 50.\4\ Rules concerning claims procedures governing 
payment of the Federal share of compensation for insured losses are 
currently found at subpart F of 31 CFR part 50.\5\ Subpart G of 31 CFR 
part 50 currently contains rules on audit and recordkeeping 
requirements for insurers,\6\ while Subpart H of 31 CFR part 50 
currently addresses recoupment and surcharge procedures.\7\ Finally, 
Subpart I of 31 CFR part 50 currently contains rules implementing the 
litigation management provisions of TRIA,\8\ and Subpart J of 31 CFR 
part 50 currently addresses rules concerning the cap on annual 
liability established under TRIA.\9\
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    \3\ See 68 FR 9804 (Feb. 28, 2003) (Program definitions (Interim 
Final Rule)); 68 FR 19302 (April 18, 2003) (disclosure and mandatory 
availability requirements (Interim Final Rule)); 68 FR 41250 (July 
11, 2003) (Program definitions (Final Rule)); 68 FR 48280 (Aug. 13, 
2003) (``direct earned premium'' definition (Final Rule)).
    \4\ See 68 FR 19309 (Apr. 18, 2003) (residual market entities 
and state compensation funds (Notice of Proposed Rulemaking)); 68 FR 
59715 (Oct. 17, 2003) (residual market entities and state 
compensation funds (Final Rule)).
    \5\ See 68 FR 67100 (Dec. 1, 2003) (claims procedures (Notice of 
Proposed Rulemaking)); 69 FR 39296 (June 29, 2004) (claims 
procedures (Final Rule)); 70 FR 2830 (Jan. 18, 2005 (timing of 
affiliation for purposes of claims payments (Notice of Proposed 
Rulemaking)); 70 FR 34348 (June 14, 2005) (timing of affiliation for 
purposes of claims payments (Final Rule)).
    \6\ See 68 FR 67100 (Dec. 1, 2003) (audit and investigative 
procedures (Notice of Proposed Rulemaking)); 69 FR 39296 (audit and 
investigative procedures (Final Rule)).
    \7\ See 73 FR 53798 (Sept. 17, 2008) (recoupment and surcharge 
procedures (Notice of Proposed Rulemaking)); 74 FR 66051 (Dec. 14, 
2009) (recoupment and surcharge procedures (Final Rule)).
    \8\ See 69 FR 25341 (May 6, 2004) (Federal cause of action and 
settlement approval provisions (Notice of Proposed Rulemaking)); 69 
FR 44932 (July 28, 2004) (Federal cause of action and settlement 
approval provisions (Final Rule)).
    \9\ See 73 FR 56767 (Sept. 30, 2008) (cap on annual liability 
(Notice of Proposed Rulemaking)); 74 FR 66061 (Dec. 14, 2009) (cap 
on annual liability (Final Rule)).
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    The Program has been reauthorized three times. On December 22, 
2005, the Terrorism Risk Insurance Extension Act of 2005 (Pub. L. 109-
444, 119 Stat. 2660) (2005 Extension Act) was enacted, which extended 
the Program through December 31, 2007. In addition to extending the 
duration of the Program, the 2005 Extension Act also eliminated certain 
lines of insurance from the Program, revised the insurer deductible, 
Federal share, and recoupment provisions of the Program, and introduced 
the ``Program Trigger'' as a threshold that must be met before any 
Federal payments can be made. Rules implementing these changes were 
issued by Treasury.\10\
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    \10\ See 71 FR 648 (Jan. 5, 2006) (Notice providing Interim 
Guidance regarding 2005 Extension Act revisions to TRIA); 71 FR 
27564 (May 11, 2006) (Interim Final Rule concerning 2005 Extension 
Act revisions); 71 FR 50341 (Aug. 25, 2006) (Final Rule concerning 
2005 Extension Act revisions).
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    On December 26, 2007, the Terrorism Risk Insurance Program 
Reauthorization

[[Page 18951]]

Act of 2007 (Pub. L. 110-160, 121 Stat. 1839) (2007 Reauthorization 
Act) was enacted, extending the Program through December 31, 2014. In 
addition to extending the duration of the Program, the 2007 
Reauthorization Act modified the ``act of terrorism'' definition to 
eliminate the requirement that the act of terrorism be committed by an 
individual acting on behalf of any foreign person or interest, revised 
the insurer deductible, Program Trigger, and Federal share provisions 
of the Program, modified the recoupment provisions, and established 
various reporting requirements. Again, rules implementing these changes 
were issued by Treasury.\11\
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    \11\ See 73 FR 5264 (Jan. 29, 2008) (Notice providing Interim 
Guidance regarding 2007 Reauthorization Act revisions); 73 FR 53359 
(Sept. 16, 2008) (Interim Final Rule regarding 2007 Reauthorization 
Act revisions); 74 FR 18135 (Apr. 21, 2009) (Final Rule regarding 
2007 Reauthorization Act revisions).
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    Most recently, on January 12, 2015, the President signed into law 
the Terrorism Risk Insurance Program Reauthorization Act of 2015 (2015 
Reauthorization Act),\12\ reauthorizing the Program until December 31, 
2020. The 2015 Reauthorization Act reformed various operational matters 
respecting the Program. These reforms include technical changes to the 
disclosure requirements, certain definitional changes, and 
modifications involving the amount and application of the Program 
Trigger, the Federal share of compensation, the recoupment percentage 
amount, and the insurance marketplace aggregate retention amount--all 
of which require modifications to the existing Program regulations.\13\ 
In addition, the 2015 Reauthorization Act mandates other actions by 
Treasury and changes to TRIP that in turn necessitate changes to the 
existing Program regulations, requiring Treasury: (1) To issue final 
rules following the submission of a mandated report on improving the 
certification process; \14\ (2) to collect certain information from 
insurers participating in the Program so that Treasury can complete 
periodic reports concerning the effectiveness of the Program and trends 
over time; and (3) to define small insurers by regulation, conduct 
periodic studies concerning any competitive challenges small insurers 
face in the terrorism risk insurance marketplace, and submit periodic 
reports on the findings.
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    \12\ Public Law 114-1, 129 Stat. 3.
    \13\ Treasury issued a Notice providing interim guidance 
concerning application of disclosure requirements in light of the 
enactment of the 2015 Reauthorization Act. 80 FR 6656 (Feb. 6, 
2015).
    \14\ U.S. Department of the Treasury, The Process for Certifying 
an ``Act of Terrorism'' under the Terrorism Risk Insurance Act of 
2002 (October 2015) (Certification Report), available at http://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/2015%20Report%20on%20the%20Certification%20Process%20under%20the%20Terrorism%20-%20Production%20Version.pdf.
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    Additionally, Treasury proposes new regulations respecting civil 
penalties (as provided for in TRIA) and the final netting of claims for 
a calendar year,\15\ and implements certain other changes to eliminate 
provisions that are redundant in light of the passage of time, and/or 
to clarify the intent of the regulation.
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    \15\ The regulations relating to final netting of claims are a 
modification of a Final Netting of Payments rule proposed and 
subject to comment in 2010 but not adopted by Treasury. See 75 FR 
45563 (Aug. 3, 2010).
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    Finally, Treasury poses several questions regarding the role of 
self-insurance arrangements and captive insurers in the Program, to 
which we seek comments to use in formulating a proposed rule in the 
near future concerning the participation of such arrangements in the 
Program.
    The changes are explained in further detail below in the context of 
the proposed rules. For the convenience of the reader, Treasury is 
restating Part 50 in its entirety. However, this preamble addresses 
only those portions of Part 50 that are being amended. For discussion 
of Part 50 as previously codified, see the relevant Federal Register 
notices mentioned above.

 II. The Proposed Rules

    This proposed rule would strike and replace existing 31 CFR part 50 
in its entirety, with the principal changes being to: (1) Generally 
revise 31 CFR part 50 to incorporate new financial and operational 
provisions for the Program contained in the 2015 Reauthorization Act; 
(2) add a new Subpart F to Part 50, which comprises Treasury's 
regulations concerning data collection; and (3) add a new Subpart G to 
Part 50, which comprises Treasury's regulations concerning the 
certification process. The proposed rules also add certain definitions 
in Sec.  50.4 of Subpart A, a new Sec.  50.76 addressing the previously 
proposed Final Netting rule, and a new Sec.  50.82 addressing Civil 
Penalties. Other changes providing further clarification and 
eliminating redundancies are identified and discussed further below.

A. Overview

    The Program was established in 2002, and has been reauthorized and 
extended on three occasions since then--in 2005, 2007, and most 
recently in January 2015. Each reauthorization and extension changed 
the operational provisions of the Program. In prior rulemakings, 
Treasury has sought to address such changes by incorporating provisions 
in the rules reflecting the different approaches depending upon the 
timing of any particular certified act of terrorism. While this 
approach has captured the relevant changes over time, it has resulted 
in a set of rules that incorporated numerous exceptions and 
qualifications. As a result, many existing provisions in the rules have 
been rendered effectively obsolete given the passage of time. 
Accordingly, Treasury is taking the opportunity during this rulemaking 
to propose a more general revision to Part 50, which describes the 
Program as it currently operates and will operate through 2020, without 
cumbersome reference to differences that were in effect prior to the 
effective date of the proposed rules. The revised rules remain subject 
to the existing savings provision (proposed Sec.  50.6, current Sec.  
50.7) which confirms that, to the extent prior applicable regulations 
or guidance remain relevant for any reason at some point in the future, 
such provisions will continue to provide the rule of decision, and to 
provide a safe harbor, for insurers participating in the Program.
    In addition to instituting changes to the basic financial terms 
that define the operation of the Program, the 2015 Reauthorization Act 
also requires Treasury to prepare certain reports concerning the 
operation of the Program, based upon data which Treasury shall collect, 
and to generate rules concerning improvements to the certification 
process. The proposed rules define a data collection process that will 
allow Treasury to collect the information necessary to satisfy the 
reporting requirements contained in the 2015 Reauthorization Act, in a 
format consistent with the manner in which insurers presently collect 
and report financial data, including data concerning terrorism risk 
insurance. These rules, and the specific data collection elements, 
which remain under development and subject to further refinement, are 
the result of extensive and ongoing interaction among Treasury, 
industry stakeholders, and state regulators.
    The proposed rules concerning the certification process follow 
Treasury's October 2015 Certification Report. As set forth in the 
Certification Report, Treasury has determined that it is not practical 
to establish detailed rules--and particularly a timeline--governing a 
process that will necessarily vary from case to case, although 
Treasury's proposed rules do identify the relevant timing 
considerations as to when an act is eligible for certification by the

[[Page 18952]]

Secretary as an act of terrorism. In addition, the certification 
process can and generally should incorporate improved notification and 
communication by Treasury to the public once an act is under 
consideration for certification by the Secretary as an ``act of 
terrorism.'' The proposed rules provide for public notifications and 
updates, as may be necessary, concerning the existence, continuation, 
and conclusion of the certification process.
    Finally, the proposed rules also include a modified version of a 
previously proposed Final Netting Rule, which was subject to comment in 
2010 but never adopted as a final rule by Treasury, and a rule 
respecting civil penalties--authorized by TRIA as originally enacted in 
2002, but never previously proposed by Treasury.
    Treasury seeks comment on all aspects of the proposed rules from 
interested persons and entities.

B. Description of the Proposed Rules

    The changes to the existing rules as provided for in these proposed 
rules, on a section by section basis, are as follows:
Subpart A--General Provisions
    The proposed change to Sec.  50.1 adds the statutory authority 
extended under the 2015 Reauthorization Act. The proposed change in 
Sec.  50.2 implements the provision of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act authorizing the Federal Insurance 
Office to assist the Secretary of the Treasury in the administration of 
TRIP.\16\
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    \16\ 31 U.S.C. 313(c)(1)(D).
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    There are a number of changes to Program definitions. The proposed 
change in Sec.  50.4(b) implements Section 105 of the 2015 
Reauthorization Act, providing that the Secretary will consult with the 
Attorney General of the United States and Secretary of Homeland 
Security prior to certifying an act as an act of terrorism, rather than 
reaching a certification decision in concurrence with the Secretary of 
State and the Attorney General.
    The proposed change in Sec.  50.4(c)(2) implements the rule of 
construction in Section 106 of the 2015 Reauthorization Act, which 
provides that control for purposes of determining if an insurer is an 
``affiliate'' under TRIA is not established solely because an entity 
acts as an attorney-in-fact for a another entity that is a reciprocal 
insurer.
    The proposed changes in Sec.  50.4(f) (defining ``attorney-in-
fact'') and Sec.  50.4(x) (defining ``reciprocal insurer'') are 
required in light of the new rule of construction in Sec.  50.4(c)(2) 
required by Section 106 of the 2015 Reauthorization Act, discussed 
above. In both cases, Treasury has relied upon state law in developing 
these definitions.
    The proposed change in Sec.  50.4(g) defines ``captive insurer'' 
for purposes of implementing TRIA. This definition is being adopted now 
in order to give effect to the proposed exclusion in Sec.  50.4(z) of 
captive insurers from the definition of ``small insurer,'' and because 
captive insurers might be subject to different data collection 
protocols than other insurers, both discussed further below. Treasury 
continues to reserve subpart E of 31 CFR part 50 for further 
regulations concerning the participation of captive insurers in the 
Program.
    The proposed change in Sec.  50.4(m) incorporates the changes to 
the insurance marketplace aggregate retention amount over the period 
from 2015 to 2020, as provided for in Section 104 of the 2015 
Reauthorization Act. This section sets the insurance marketplace 
aggregate retention amount at $27.5 billion, and requires it to 
increase by $2 billion every calendar year beginning with the year of 
enactment of the 2015 Reauthorization Act, until the amount reaches 
$37.5 billion, which will occur in 2019. Section 50.4(m) also specifies 
the manner in which Treasury proposes to determine the insurance 
marketplace aggregate retention amount for any calendar year beginning 
with 2020 and publicize such determinations, in accordance with 
requirement in Section 104 of the 2015 Reauthorization Act to issue 
rules for determining and publicizing this amount. The approach follows 
the direction in the 2015 Reauthorization Act that the insurance 
marketplace aggregate retention amount for any calendar year after the 
Program Trigger reaches $37.5 billion should be based upon the average 
of insurer deductibles during the three prior calendar years. It 
calculates this figure by reference to the data that Treasury will be 
collecting concerning insurer participation in the Program under 
proposed Sec.  50.51.
    The proposed change in Sec.  50.4(n) is for clarification purposes 
only and is not intended to change the prior approach, which was to 
confirm that outside the United States (as distinguished from inside 
the United States) insured losses under TRIP involving an air carrier 
(as defined in 49 U.S.C. 40102) or a United States flag vessel (or a 
vessel based principally in the United States, on which United States 
income tax is paid and whose insurance coverage is subject to 
regulation in the United States) are limited to the insurance coverage 
provided to the air carrier or vessel.
    The proposed change in Sec.  50.4(v) incorporates the changes to 
the amount of the Program Trigger over the period from 2015 to 2020, 
and specifies that the Program Trigger is based on all acts of 
terrorism certified by the Secretary in a particular calendar year (as 
distinguished from each ``Program Year''), as provided for in Section 
103 of the 2015 Reauthorization Act.
    The proposed change in Sec.  50.4(z) defines ``small insurer'' as 
required under Section 112 of the 2015 Reauthorization Act for purposes 
of a study of small insurers participating in the Program that Treasury 
must conduct. The purpose of the study is to identify any competitive 
challenges small insurers face in the terrorism risk insurance 
marketplace--including whether the increase in amount of the Program 
Trigger has affected small insurers. Treasury proposes a sliding scale 
definition of a ``small insurer''--which tracks the increasing amount 
of the Program Trigger in the years from 2015 to 2020--by reference to 
both the insurer's direct earned premium (for TRIA-eligible lines) and 
policyholder surplus. Treasury has selected this proposed definition of 
``small insurer'' for purposes of TRIP in light of the manner in which 
the Program operates.
    An insurer's deductible under TRIP is 20 percent of the insurer's 
direct earned premium in the prior calendar year. Assuming the Program 
Trigger has been met--an amount of aggregate insured losses in excess 
of a defined amount in a particular calendar year (starting with $100 
million in 2015 and ultimately increasing to $200 million by 2020)--
Treasury will make payment of the Federal share for amounts in excess 
of any particular insurer's deductible.
    The Program Trigger is based upon the insured losses of all 
participants in the Program and, therefore, a particular insurer with 
losses below the Program Trigger but above its deductible may still be 
entitled to payments of the Federal share, so long as insured losses of 
all participating insurers are sufficient to satisfy the Program 
Trigger. A different situation, however, could be presented if losses 
arising from a certified act of terrorism are largely or entirely 
sustained by a single insurer whose deductible is below the Program 
Trigger. In this situation, an insurer with a deductible of (for 
example) $20 million, and total losses of $50 million would not be 
entitled to payments under the Program (notwithstanding satisfaction of 
its deductible) if total insured losses across all Program

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participants in this hypothetical were, say, only $60 million in total.
    If an insurer's direct earned premium is five times the Program 
Trigger amount (for example, at $500 million in 2015) that insurer's 
deductible would at least exceed the Program Trigger, even if all of 
the insured losses in question (a theoretical if unlikely possibility) 
resulting from a certified act of terrorism were sustained only by that 
insurer. Such an insurer would be paid any Federal share above its 
deductible, since that insurer's deductible would be equal to the 
Program Trigger for the calendar year in question. If an insurer's 
direct earned premium is less than five times the Program Trigger 
amount, however, the possibility remains that an insurer might exceed 
its deductible but not be entitled to payments of the Federal share 
because the Program Trigger has not been met. The impact upon such an 
insurer in this situation, however, would be lessened to the extent the 
insurer's policyholder surplus was sufficient to satisfy any amounts 
that would not be reimbursed in such a scenario under the Program.
    Since the purpose of studying small insurers under TRIP is to 
assess competitive challenges small insurers face in the terrorism risk 
insurance marketplace, the definition should be with reference to the 
insurer's deductible and policyholder surplus as compared with the 
Program Trigger threshold. Accordingly, Treasury's proposed definition 
specifies that a ``small insurer'' is an insurer with prior-year direct 
earned premium of less than five times the Program Trigger amount, and 
with policyholder surplus at the end of the prior calendar year that is 
also less than five times the Program Trigger amount. Insurers larger 
than this--whose losses alone could trigger the Program, or whose 
surplus is well above the Program Trigger threshold--cannot be 
considered ``small'' for these purposes.
    Finally, captive insurers (as defined in this proposed rule) are 
exempted from the small insurer definition. Captive insurers typically 
insure only the exposures of corporate parents or of other related 
policyholders, and thus while these captives might otherwise meet the 
proposed definition of ``small insurer'' the establishment of a captive 
insurer is a risk management decision that is not compelled by TRIP, 
and the corporate parent or other source of strength of the captive 
insurer is ultimately positioned to manage any potential risk presented 
to the captive by its participation in TRIP. Any issue relating to the 
size of captive insurers as it relates to TRIP should be assessed in 
the context of regulations specifically applicable to such captives.
    The balance of the proposed changes to Subpart A would delete 
provisions that are redundant or unnecessary on account of the passage 
of time, would substitute language to clarify Treasury's intent, or 
would implement other changes required by the 2015 Reauthorization Act 
(e.g., the movement from the term ``Program Year'' to the term 
``calendar year'' to describe the operation of TRIP).
Subpart B--Disclosures as Conditions for Federal Payment
    The proposed change to Sec.  50.12 clarifies the manner in which 
the portion or percentage of the annual premium attributable to 
terrorism risk insurance should be disclosed to policyholders or 
potential policyholders, to ensure that the actual dollar value of the 
premium is evident.
    The proposed changes to Sec.  50.13 implement Section 106(2)(A) of 
the 2015 Reauthorization Act, which deleted the previous requirement 
that the general disclosure requirements respecting insured losses (as 
found in Sec.  50.10) apply at the time of policy purchase, as well as 
at the time of offer and renewal.
    The proposed change to Sec.  50.15 provides expanded guidance for 
ensuring compliance with the requirement that the cap disclosure be 
provided at the time of offer, purchase, and renewal. It clarifies that 
a cap disclosure at the time of purchase needs only to be provided in 
the event that terrorism risk coverage is actually purchased, and 
establishes that the disclosure at that time may refer back to the 
disclosure made at the time of offer or renewal. This guidance is 
otherwise consistent with the general approach of the 2015 
Reauthorization Act to notification requirements.
    The balance of the proposed changes to Subpart B would delete 
provisions that are redundant or unnecessary on account of the passage 
of time, substitute language to clarify Treasury's intent, or implement 
other minor changes that conform the existing regulations to the 
requirements of the 2015 Reauthorization Act.
Subpart C--Mandatory Availability
    The proposed changes to Subpart C would delete provisions that are 
redundant or unnecessary on account of the passage of time, substitute 
language to clarify Treasury's intent, or implement other minor changes 
that conform the existing regulations to the requirements of the 2015 
Reauthorization Act, and do not seek to establish any further 
substantive changes.
Subpart D--State Residual Market Insurance Entities; Workers' 
Compensation Funds
    No substantive changes have been proposed to Subpart D.
Subpart E--Self-Insurance Arrangements; Captives [Reserved]
    Treasury continues to reserve Subpart E for future additional rules 
addressing the participation in TRIP of self-insurance arrangements and 
captive insurers. Comments concerning the participation in the Program 
of self-insurance arrangements and captive insurers are sought in 
Section III, below.
Subpart F--Data Collection
    Subpart F is new. The proposed rules establish procedures for 
collection of data as mandated by Section 111 of the 2015 
Reauthorization Act, and also address the collection of data by 
Treasury in connection with the claims process, in the event that an 
act of terrorism has been certified. A general explanation of each 
section of new Subpart F follows.
    Proposed Sec.  50.50 states that Treasury may generally request 
information from insurers in connection with the Program, as part of 
its administration and implementation of the program.
    Proposed Sec.  50.51 establishes rules concerning the annual 
collection of data by Treasury concerning the effectiveness of the 
Program, as mandated by Section 111 of the 2015 Reauthorization Act. A 
reporting deadline each year of March 1 is proposed. Treasury has 
proposed this reporting deadline to provide insurers with sufficient 
time to compile and provide the necessary information and ensure it is 
true and correct. A March 1 deadline is also consistent with other 
annual reporting requirements insurers must meet. The subject matter of 
the data to be collected is identified consistent with the requirements 
of Section 111 of the 2015 Reauthorization Act. The rule further 
specifies that the data will be collected electronically by Treasury, 
through various forms and web portals identified on Treasury's Web 
site. The reporting forms and portals, which will identify the specific 
data elements that insurers will be required to provide on an annual 
basis, are under development and will be published for comment 
separately. Given that insurers collect and report data in a variety of 
ways, the precise data elements, instructions, and methods of reporting 
may vary by industry segment. Treasury will publish

[[Page 18954]]

multiple forms if it identifies a need and will provide clear guidance 
for insurers to determine the appropriate forms to submit. The proposed 
rule also provides for periodic reevaluation of and revisions to the 
data elements to be collected, so that ongoing refinements to the 
process can be implemented. Treasury has proposed a 90 day notice 
period for any refinements, to provide insurers with sufficient time to 
update any systems they will need to change to facilitate collection of 
the new data.
    The proposed rule also permits Treasury to issue supplemental data 
requests to participating insurers to the extent Treasury determines it 
requires additional or clarifying information in order to analyze the 
effectiveness of the Program. Like the potential revision to the annual 
data element requirements, this is an additional tool for Treasury to 
manage the information it is collecting to ensure that it is able to 
evaluate the effectiveness of the Program, as required by the 2015 
Reauthorization Act. The timeframe and manner of response to any such 
supplemental data request will be specified by Treasury in the request.
    The proposed rule permits--but does not require--Treasury to 
exclude small insurers, as defined in proposed Sec.  50.4(z), from the 
annual data request. Section 111 of the 2015 Reauthorization Act 
requires the Secretary to collect from insurers participating in the 
Program such information as the Secretary considers appropriate to 
analyze the overall effectiveness of the Program. Treasury may gather 
all of the information appropriate for analyzing the effectiveness of 
the Program without requiring collection of information from every 
single participating insurer. The statutory text does not require the 
Secretary to require all insurers participating in the Program to 
submit information, nor does it require that all insurers be required 
to submit the same information. Rather, the statute requires the 
Secretary to require insurers to submit such information as the 
Secretary considers appropriate. Therefore, the Secretary may sometimes 
exempt a small insurer or class of small insurers if such exemption 
would not interfere with Treasury's ability to analyze the 
effectiveness of the Program. It would not be appropriate to extend 
such an exemption to insurers that do not qualify as small insurers, as 
such an exemption would be more likely to have a negative impact on 
Treasury's ability to analyze the effectiveness of the program.
    Proposed Sec.  50.52 addresses the collection of data relating to 
small insurers, as defined in proposed Sec.  50.4(z), in support of the 
studies of small insurers mandated by the 2015 Reauthorization Act. The 
data elements specified in the proposed Sec.  50.52 are those specified 
in Section 112 of the 2015 Reauthorization Act.
    Proposed Sec.  50.53 establishes rules for the collection of data 
by Treasury once an act has been certified as an act of terrorism, 
under Treasury's general authority to under Section 104(a) of the Act 
to investigate claims under the Program and prescribe regulations to 
effectively administer the Program and ensure that all insurers that 
participate in the Program are treated equally. In order to effectively 
administer the Program, Treasury requires information regarding losses 
resulting from a certified act of terrorism and has accordingly 
previously adopted rules requiring the submission of such information. 
The current rules (Sec.  50.52) do not require insurers to begin 
reporting information to Treasury concerning losses resulting from a 
certified act of terrorism until a particular insurer's paid and 
incurred losses reach 50 percent of the insurer's TRIA deductible. 
However, given the size of the deductibles of some participating 
insurers, this could result in losses being paid and reserved by 
industry as a whole in an amount far in excess of the $100 million 
Program Trigger before Treasury has obtained any specific information 
respecting losses resulting from the act of terrorism as they are 
incurred. This new section provides for periodic reporting of claims 
and loss information associated with the act of terrorism in question, 
so that Treasury may evaluate on a continuing basis the amount of loss 
associated with the certified act of terrorism, and be prepared in 
advance to respond to claims for payment of the Federal share of 
compensation in a timely fashion. The data elements sought under this 
rule are consistent with those that each participating insurer will be 
generating in connection with its own establishment, review, and 
resolution of claims as they are processed. As in other situations 
involving data collection, the rule specifies that Treasury may also 
seek loss figures and estimates from other sources in order to inform 
its analysis and projections.
    Finally, proposed Sec.  50.54 implements the requirements found in 
Section 111 of the 2015 Reauthorization Act, which recognize that the 
data that Treasury will need to collect from participating insurers may 
constitute proprietary information that is highly sensitive to the 
individual companies (and, potentially, underlying policyholders and 
claimants) from which it is obtained. The proposed rule provides for 
protection of such data from disclosure, although it does permit--
pursuant to appropriate agreements--for the sharing of such information 
with other Federal agencies or state insurance regulatory authorities.
Subpart G--Certification
    Subpart G is new. The proposed rules establish procedures 
applicable when Treasury is considering whether an act constitutes an 
``act of terrorism'' within the meaning of TRIA.
    The 2015 Reauthorization Act includes a requirement for Treasury to 
conduct and complete a study on the certification process, including 
examination of whether a timeline governing the certification process 
could be established, information that the Secretary would evaluate 
during the certification process, and the ability of the Secretary to 
provide guidance and updates to the public during the certification 
process. In the Certification Report, Treasury concluded that it would 
be impractical to establish very specific rules to define a process 
that will likely vary greatly in material respects depending upon the 
act and its consequences. Treasury determined, however, that the 
certification process could be improved by periodic reporting to the 
public during the pendency of that process, which Treasury concluded 
should permit relevant stakeholders and the public at large to assess 
their positions as they might be affected by the Secretary's decision 
whether to certify an act as an act of terrorism. Treasury also 
addressed in the Certification Report the types of information that it 
might need to evaluate during the certification process. Under the 2015 
Reauthorization Act, Treasury must issue final rules governing the 
certification process within 9 months after the Certification Report, 
including a timeline for when an act is eligible for certification by 
the Secretary as an act of terrorism. These proposed rules implement 
Treasury's recommendations in its Certification Report and the 
requirements of the 2015 Reauthorization Act.
    Proposed Sec.  50.60 sets forth the general parameters of the 
certification process, as required under TRIA, and as modified by the 
2015 Reauthorization Act, including the requirement in paragraph (b) 
that from a timing standpoint an act is eligible for certification once 
the Secretary has consulted with the Attorney General of the United 
States and the Secretary of Homeland Security.
    Proposed Sec.  50.61 addresses the commencement of the 
certification

[[Page 18955]]

process and public communication concerning the process. After the 
Secretary commences consideration of whether an act may be an act of 
terrorism under TRIA, Treasury will publish a statement and a notice in 
the Federal Register advising that the act is under consideration for 
certification. Such notice could also reflect that it has been 
determined that a particular act is not under consideration as an act 
of terrorism. The proposed rule provides that such notice will be 
updated periodically by Treasury as long as the act is still under 
review for certification. In addition to indicating whether the act 
remains under consideration for certification, the proposed rule 
provides that Treasury may publish further information in connection 
with such notifications. Nothing in the proposed notification 
provisions, however, precludes the Secretary from certifying an act as 
an act of terrorism before any notification to the public.
    Proposed Sec.  50.62 establishes rules for the collection of data 
by Treasury in aid of the certification process. As explained in the 
Certification Report, Treasury may need to collect data from insurers, 
as well as from other entities in the insurance industry, in connection 
with its analysis of whether the insurance losses resulting from an act 
under consideration for certification as an act of terrorism meet the 
$5 million loss threshold under TRIA, which must be met before any act 
is eligible for certification as an act of terrorism.\17\ This 
information may therefore be crucial for informing a certification 
decision. Accordingly, Treasury proposes this section under its general 
authority to promulgate rules for effective administration of the 
Program and its authority to issue rules governing the certification 
process pursuant to Section 107(e) of the 2015 Reauthorization Act. 
Treasury may need to rely upon insurers who have or project losses from 
the act in question in order to confirm whether the relevant loss 
threshold is or will be satisfied. An insurer that has such information 
may also self-report to Treasury, as further provided in the rule, and 
Treasury may also review other industry sources for such loss 
information.
---------------------------------------------------------------------------

    \17\ TRIA, Section 102(1)(B)(ii).
---------------------------------------------------------------------------

    Proposed Sec.  50.63 provides for Federal Register notification and 
other communication of any certification decision, as well separate 
notifications to Congress and specified insurance supervisory 
authorities.
Subpart H--Claims Procedures
    The proposed changes to Sec.  50.70 (formerly Sec.  50.50) 
implement the changes to the Federal share of compensation and Program 
Trigger amounts in the years from 2015 through 2020, as provided for in 
the 2015 Reauthorization Act.
    Proposed Sec.  50.76 addresses final netting. This rule was 
originally proposed by Treasury in 2010 and subject to comment but was 
not adopted by Treasury. See generally 75 FR 45563 (August 3, 2010). 
The intent of the proposed rule is to provide a process by which 
Treasury would close out its claims operation for insured losses from a 
particular calendar year. The proposed rule provides for some 
flexibility in how and when steps are taken to accomplish this in order 
to be able to effectively address future circumstances. Treasury has 
addressed certain of the comments that were received during the prior 
comment period by modifications to the proposed rule, and responds to 
certain of the comments that are not addressed by revisions to the 
proposed rule. Interested parties are invited to provide further 
comments respecting the proposed final netting rule during the current 
comment period.
    Section 103(e)(4) of TRIA provides the Secretary with the sole 
discretion to determine the time at which claims relating to any 
insured loss or act of terrorism shall be accomplished. Based on that 
authority, the final netting rule provides the mechanism for final 
payments to be made by Treasury to insurers, or by insurers to 
Treasury, such that Treasury can close out its claims operation for 
insured losses for a given calendar year, once the Secretary has 
determined that claims for the Federal share of compensation shall be 
considered final.
    The substantive modifications to the proposed rule as originally 
proposed in 2010 are to paragraph (b)(1)(v) (identifying the manner in 
which the Federal courts have been applying tort and contract statute 
of limitations as such decisions may be relevant to the final netting 
analysis) and paragraph (b)(1)(ix) (expressly requiring that if it is 
projected that the cap on annual liability will be reached, 
consideration shall be given as to whether any Final Netting Date 
should be set) are based on the comments that were previously received. 
Treasury concurs with the commenters that these are appropriate 
considerations for Final Netting. Treasury has not, however, revised 
the proposed rule in response to comments recommending that Treasury 
should not impose a commutation over the objection of the relevant 
insurer, or that Treasury should expressly obligate itself to reopen 
and/or extend the insurer's claim for the Federal share of compensation 
if the 20 percent exception threshold of increased compensation is met. 
Treasury makes payment of the Federal share of compensation pursuant to 
the terms of TRIA and not as a matter of contract, and TRIA leaves to 
the sole discretion of the Secretary--who must consider the impact of 
the Program upon taxpayers as well as upon the participating insurers--
when claims shall become final. The considerations identified in the 
proposed rule as to whether and when a Final Netting Date should be set 
are appropriate and sufficiently identify the relevant considerations.
    The balance of the proposed changes to the previously proposed 
Final Netting Rule text revise certain terminology previously used in 
the regulations, in order to distinguish the provisions from the new 
proposed rule, or to implement other technical changes that conform the 
existing regulations to the requirements of the 2015 Reauthorization 
Act, and do not seek to establish any substantive changes.
Subpart I--Audit and Investigative Procedures
    The only substantive change to Subpart I (formerly Subpart G) is 
new Sec.  50.82, addressing civil penalties in connection with TRIA. 
The authority for Treasury to impose civil penalties against an insurer 
in connection with the administration of TRIA is provided under Section 
104(e) of the Act. The proposed rule tracks the statutory language as 
to the situations in which a civil penalty may be assessed, and 
provides (as required by the Act) for any penalty to be assessed only 
after proceedings on the record and after an opportunity is extended to 
the insurer in question for a hearing. Treasury previously considered a 
different penalty rule, addressing only certain conduct in connection 
with the Program; that proposed rule was withdrawn in light of comments 
that the authority generally available under Section 104(e) of the Act 
``cover[s] the landscape of potential offenses.'' 69 FR 39296, 39299-
300 (June 29, 2004). This proposed rule is consistent with the 
statutory authority provided to Treasury under the Act.
    The only substantive change from the civil penalty authority as 
identified in Section 104(e) of TRIA is with respect to the amount, 
which has been increased from not more than $1,000,000 as provided for 
in TRIA to not more than $1,325,000. This increase

[[Page 18956]]

is based on the Federal Civil Penalties Inflation Adjustment Act of 
1990, 28 U.S.C. 2461 note, which requires (in Section 5 of that Act) 
that civil penalties be increased by the percentage difference in the 
Consumer Price Index (CPI) for June of the year in which the penalty 
was originally established (here, June 2002) versus June of year in 
which the penalty is readjusted, or June 2015. In June 2002, the CPI 
was 179.9, and in June 2015 the CPI was 238.638--an increase of 58.738, 
which is a percentage increase from June 2002 of 32.65%. This results 
in an increased penalty of $1,326,503 which, according to Section 4 of 
the Act, is to be rounded to the nearest $25,000 in the case of 
penalties in excess of $200,000. This results in the current figure of 
$1,325,000.
Subpart J--Recoupment and Surcharge Procedures
    The principal changes in Subpart J are in connection with proposed 
Sec.  50.90 (formerly Sec.  50.70), and are based upon changes to the 
Program adopted in the 2015 Reauthorization Act--i.e., the increase, 
from 133 percent to 140 percent, in the amount of terrorism loss risk-
spreading premiums to be applied to any mandatory recoupment amount, 
and the revised schedule for the collection of terrorism loss risk-
spreading premiums, depending upon the timing of any certified act of 
terrorism. The balance of the proposed changes to Subpart J make 
certain clarifying changes and otherwise conform the existing 
regulations to the requirements of the 2015 Reauthorization Act, and do 
not seek to establish any further substantive changes.
Subpart K--Federal Cause of Action; Approval of Settlements
    The proposed Rule incorporates certain changes and clarifications 
to Subpart K, involving the Federal Cause of Action and Approval of 
Settlements by Treasury. These changes are designed to enhance 
Treasury's ability to evaluate and manage significant claims that could 
have a material impact upon Treasury's payment of the Federal share of 
compensation.
    Proposed Sec.  50.100(b) is proposed for the sake of completeness 
and tracks the existing requirement identified in TRIA that once the 
Secretary certifies an act of terrorism the Judicial Panel on 
Multidistrict Litigation shall designate one or more district courts to 
exercise exclusive jurisdiction of claims arising out of the certified 
act of terrorism. See TRIA, Section 107(a)(4).
    Proposed Sec.  50.102 (formerly Sec.  50.82) includes certain 
clarifying language confirming that the advance settlement approval 
requirement extends to claims that may ultimately be determined to fall 
within an insurer's deductible. Insured losses are ultimately submitted 
to Treasury as the basis for payment of the Federal share on an 
aggregate basis and, therefore, Treasury has previously recognized that 
the advance settlement approval requirement logically extends to such 
cases. See 69 FR 44932, 44936 (July 29, 2004). This proposed change 
thus only clarifies existing guidance.
    Proposed Sec.  50.103 (formerly 50.83) contains certain clarifying 
language respecting the submission of information Treasury seeks in 
support of settlement approval.
    Proposed Sec.  50.104 (formerly Sec.  50.84) adds a provision 
recognizing that while the Government's subrogation rights arising from 
TRIP payments may not be waived by a participating insurer, those 
rights might not be enforced by the Government in an appropriate 
situation. While the general regulatory prohibition against impairing 
the subrogation rights of the United States remains in place, Treasury 
recognizes that there may be litigation situations--for example, when 
all parties involved may ultimately be seeking to have their losses 
reimbursed through claims for the Federal share of compensation--where 
a sensible resolution of the matter would be for the United States to 
forbear from exercising those rights as part of a prudent global 
settlement agreement that resolves the matter in question as to all 
parties. The proposed change provides the flexibility to consider such 
an approach in an appropriate case.
    The balance of the proposed changes to Subpart K make certain 
clarifying changes or delete material that is now redundant or 
unnecessary, and do not seek to establish any substantive changes.
Subpart L--Cap on Annual Liability
    The proposed changes in Subpart L incorporate language required by 
the 2015 Reauthorization Act, or conform the provisions to Treasury's 
other data collection authorities under Part 50.

III. Participation of Captive Insurers and Other Self-Insurance 
Arrangements in the Program: Request for Comments

    Under Section 103(f) of TRIA, the Secretary ``may apply the 
provisions of this title, as appropriate, to other classes or types of 
captive insurers and other self-insurance arrangements by 
municipalities and other entities. . . .'' Treasury has previously 
advised that state-licensed captive insurers participate in the Program 
by virtue of their status as licensed insurance entities, and has 
issued some guidance concerning that participation; however, Treasury 
has not issued any rules specifically concerning the participation of 
captive insurers in the Program. Treasury also has not issued any rules 
concerning the participation of ``other self-insurance arrangements by 
municipalities and other entities'' in the Program.
    In anticipation of the development of rules concerning the 
participation of captive insurers and, potentially, other self-
insurance arrangements in the Program, Treasury invites interested 
parties to provide comments concerning these issues. While interested 
parties are invited to address these matters generally, Treasury 
particularly invites responses to the following questions:
    (1) What is the current role of captive insurers (both state-
licensed entities and otherwise) in providing insurance in TRIP-
eligible lines?
    (2) Should captive arrangements that insure U.S.-based risks, other 
than those involving state-licensed insurers, participate in the 
Program? Upon what basis should such participation take place?
    (3) Should separate rules address the criteria for which captives, 
of any type, qualify for reimbursement under the Program? In response 
to this question, please address whether and/or how the relatively 
small TRIP-eligible premiums of such insurers should affect their 
insurer deductible.
    (4) Given the relatively small size of some captive insurers, 
should some assessment be made of their capital and claims paying 
ability in connection with their participation in the Program? If so, 
how should Treasury consider and address such issues?
    (5) To what extent are captives being relied upon to insure so-
called ``trophy risks'' that might be deemed to be subject to a 
heightened risk of terrorism?
    (6) What is the current role of self-insurance arrangements in 
providing workers' compensation reimbursement for losses that could be 
subject to the Program?
    (7) What is the current extent of self-insurance arrangements in 
other TRIA-eligible lines apart from workers' compensation insurance?
    (8) Should self-insurance arrangements, apart from state-licensed 
captives, qualify for participation in the Program? Do self-insurers 
wish to participate in the Program? If self-insurers were to 
participate in the Program, how would such participation be structured, 
including in terms of

[[Page 18957]]

deductibles and potential liability for the recoupment of surcharges?

IV. 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.
    Regulatory Flexibility Act. Under the Regulatory Flexibility Act, 5 
U.S.C. 601 et seq., Treasury must consider whether this rule, if 
promulgated, will have a ``significant economic impact on a substantial 
number of small entities.'' 5 U.S.C. 605(b). In this case, Treasury 
certifies that this Proposed Rule, if adopted, would likely not have a 
significant economic impact on a substantial number of small entities. 
Although the rule may affect a substantial number of small insurers, 
the economic impact is unlikely to be significant, for the reasons 
explained below.
    Treasury has previously determined that regulations issued in 
connection with the Program do not have a significant economic impact 
on a substantial number of small entities. As noted previously, TRIA 
requires all insurers, regardless of size or sophistication, which 
receive direct earned premiums for commercial property and casualty 
insurance, to participate in the Program. The Act also defines property 
and casualty insurance to mean commercial lines of insurance, with 
certain specific exclusions, without any reference to the size or scope 
of the insurer. Thus, the economic impacts associated with the Program 
regulations flow from TRIA, and not from the prior regulations. 
Furthermore, the regulations that have been proposed and adopted in the 
past have sought to be consistent with the manner in which insurers 
already conduct their business, in an effort to minimize the impact of 
the Program's operation upon participants. All of these considerations 
apply with equal force in connection with the Proposed Rule.
    This Proposed Rule may affect a substantial number of small 
entities. Existing Small Business Administration size regulations (see 
13 CFR 121.201) define small entities within the direct property and 
casualty insurance sector as those with 1500 employees or less; 
however, this Proposed Rule (see proposed 31 CFR 50.4(z)) contains a 
definition of ``small insurer'' for purposes of the Program that is 
based upon the size of the insurer's policyholder surplus and direct 
earned premiums. Based upon either measurement, some ``small entities'' 
or ``small insurers'' will be subject to the Proposed Rule--just as 
such insurers are subject to the requirements of TRIA as enacted. For 
purposes of its Paperwork Reduction Analysis, below, Treasury has 
estimated that perhaps about 500 insurers will have lesser reporting 
burdens because they are ``small insurers'' that, although they write 
some amount of TRIP-eligible lines premium, will likely have less 
information to report because of the reduced scope of their operations 
(either geographically or in terms of lines of business, or both), or 
may otherwise be excused from more detailed requirements under the 
Proposed Rule.
    Treasury has sought to tailor the Proposed Rule, including the 
aspects of the rule respecting data collection, to the manner in which 
insurance companies (including small insurers) typically operate, such 
that the Proposed Rule should not have a significant economic impact. 
This Proposed Rule would implement the reforms in the 2015 
Reauthorization Act. The aspects of the rule respecting data collection 
address data that the Secretary has been charged under the 2015 
Reauthorization Act to collect, including data that must be collected 
and analyzed to determine whether small insurers face competitive 
challenges in the terrorism risk insurance marketplace.
    As discussed in the preamble, the Proposed Rule imposes certain 
requirements respecting the production of data that could affect the 
manner in which insurers, including small insurers, presently collect 
and maintain information. The rule has been proposed in a way that most 
insurers, including small insurers, should already be collecting and 
maintaining the data in question as part of their ordinary course of 
business, such that any additional costs will be occasioned by some 
reprogramming costs to permit the more efficient reporting of the 
requested data. Given the character of the information that is sought, 
Treasury believes that any such costs should be nominal, in light of 
existing obligations all insurers have to record and retain the 
information sought by Treasury. Nonetheless, and recognizing that the 
provisions of the Proposed Rule respecting data collection may impose 
some additional costs and burdens on small insurers, the Proposed Rule 
provides Treasury with the authority to excuse or modify the data 
collection requirements as applicable to small insurers. Treasury seeks 
information and comments on any costs, compliance requirements, or 
changes in operating procedures arising from application of the 
Proposed Rule on small entities or insurers, the size and 
characteristics of any small entity or insurer that you believe may be 
subject to that impact, and any ways in which you believe--consistent 
with the requirements of the 2015 Reauthorization Act--these aspects of 
the Proposed Rule could be modified to avoid or mitigate the impact 
that you identify.
    Treasury seeks information and comments on the extent to which the 
Proposed Rule will affect small entities or insurers, the size and 
characteristics of any small entity or insurer that you believe may be 
subject to that impact, and any ways in which you believe--consistent 
with the requirements of the 2015 Reauthorization Act--these aspects of 
the Proposed Rule could be modified to avoid or mitigate the impact 
that you identify.
    After reviewing the comments received during the public comment 
period, Treasury will consider whether to conduct additional regulatory 
flexibility analysis.\18\
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    \18\ Treasury notes that the proposed final netting rule was 
previously analyzed for purposes of the Regulatory Flexibility Act. 
75 FR 45563, 45566 (August 3, 2010). As explained previously, the 
economic impact, if any, of the final netting rule would be most 
likely to fall upon large insurers which would be more likely to be 
subject to the termination of the claims process and the proposed 
commutation procedure. That economic impact on insurers would be if 
they were to receive less than a full Federal share of compensation 
that would be due in the absence of a Final Netting process. The 
Final Netting Date, as proposed, will be established long enough 
after the certified act of terrorism so that further significant 
loss development for reported losses is unlikely. The rule proposes 
to provide for commutation of remaining losses, and includes a 
provision that allows for a reopening of an insurer's claim for the 
Federal share of compensation if significant new claims are reported 
to the insurer subsequent to the Final Netting. The economic impact 
on all commercial property and casualty insurers (including any that 
might be small entities) should thus be minimal. Treasury invites 
any interested parties to comment, if they wish, as respects this 
prior analysis.
---------------------------------------------------------------------------

    Paperwork Reduction Act. The collection of information contained in 
this proposed rule has been submitted to the Office of Management and 
Budget (OMB) for review under the requirements of the Paperwork 
Reduction Act, 44 U.S.C. 3507(d). Organizations and individuals 
desiring to submit comments concerning the collection of information in 
the proposed rule should direct them to: Office of Management and 
Budget, Attn: Desk Officer for the Department of the Treasury, Office 
of Information and Regulatory Affairs, Washington, DC 20503. A copy of 
the comments should also be sent to Treasury at the addresses 
previously specified. Comments on the

[[Page 18958]]

collection of information should be received by May 31, 2016.
    Treasury specifically invites comments on:
    (a) Whether the proposed collection of information is necessary for 
the proper performance of the mission of Treasury, and whether the 
information will have practical utility;
    (b) the accuracy of the estimate of the burden of the collections 
of information, including the validity of the assumptions and the 
methods used (see below);
    (c) ways to enhance the quality, utility, and clarity of the 
information collection;
    (d) ways to minimize the burden of the information collection, 
including the use of automated collection techniques or other forms of 
information technology; and
    (e) estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to maintain the information.
    Comments are being sought with respect to new collection of 
information in connection with (1) annual data requests; (2) claims 
data; (3) certification; and (4) final netting. As respects civil 
penalties, there is no data collection that would be generally 
applicable to responding parties in general, given the individual 
nature of the inquiry as respects an insurer that might be in violation 
of some aspect of the Program.

Annual Data Requests

    Beginning in 2017, with respect to 2016 data, insurers would be 
required to submit annual data regarding their participation in the 
Program, pursuant to Section 111 of the 2015 Reauthorization Act and 
proposed 31 CFR 50.51. The proposed rule requires an annual data 
collection process which will continue from year to year as long as the 
Program remains in effect. The information sought by Treasury will 
comprise data elements that insurers currently collect or generate, 
although not necessarily grouped together the way in which insurers 
currently collect and evaluate the data. Annual data collections could 
involve as many as about 2,000 Program participants, although the data 
to be collected from at least some of the insurers could be more 
limited. For insurers reporting standard information, Treasury 
anticipates approximately 50 hours to collect, process and report the 
data, and approximately 25 hours for collection, processing and 
reporting data where more limited information is sought or available. 
The precise breakdown between these categories will likely vary 
depending upon the year in question and issues presented. For 
illustrative purposes, Treasury assumes that approximately 1,500 
insurers may be subject to the standard information request, with 
perhaps 500 subject to a more limited request. Assuming this breakdown, 
the estimated annual burden would be 87,500 hours (1,500 insurers x 50 
hours + 500 insurers x 25 hours).
    Description of recordkeepers: Insurers as defined in 31 CFR 50.4.
    Estimated number of recordkeepers: 2,000 insurers, potentially 
divided for illustrative purposes into 1,500 insurers with standard 
reporting obligations and 500 insurers with more limited reporting 
responsibilities.
    Estimated frequency: Annually.
    Average estimated recordkeeping burden: 50 hours per year per 
insurer, reducing to 25 hours per year per insurers with more limited 
reporting responsibility.
    Total estimated recordkeeping burden: 87,500 hours per year.
    This data collection burden is imposed by the 2015 Reauthorization 
Act which requires the Secretary to require insurers participating in 
the Program to submit information regarding insurance coverage for 
terrorism losses.

Claims Data

    The data collection rules also propose reporting of claims data by 
insurers as losses are sustained by insurers in the ordinary course 
once there has been a certified act of terrorism. The claims data 
sought is in a form that will be generated by insurers in the ordinary 
course of their operations. Accordingly, the burden associated with the 
requirement should consist of generating monthly reports of losses from 
existing data as generated and maintained by insurers. The number of 
insurers with insured losses in connection with any act of terrorism 
will vary depending upon the size and nature of the certified act of 
terrorism, as will the time period during which claims information will 
need to be reported to Treasury. Accordingly, Treasury can only make a 
``best estimate'' as to the burden presented, which is based upon the 
estimate that 100 insurers will have insured losses, and will need to 
report information on a monthly basis over, on average, a four-year 
period. It is anticipated that the reporting will require no more than 
2 hours per month per insurer to generate the required report from 
existing data and submit it to Treasury. This results in an estimated 
burden for each certified act of terrorism of 9,600 hours (100 insurers 
x 2 hours x 48 months).
    Description of recordkeepers: Insurers who have sustained insured 
losses, as defined in 31 CFR 50.4.
    Estimated number of recordkeepers: 100.
    Estimated Frequency: Monthly.
    Average estimated recordkeeping burden: 2 hours.
    Total estimated recordkeeping burden: 9,600 hours over a four-year 
period estimated to be necessary on average to report all insured 
losses.

Certification

    The proposed rules associated with the certification process 
contemplate that if the Secretary is considering an act for 
certification as an act of terrorism Treasury may need to collect loss 
information and estimates directly from insurers in order to confirm 
that losses are above relevant loss thresholds. It is uncertain that 
this process would ever require reporting from more than 10 entities, 
which is the threshold under the Paperwork Reduction Act. Depending 
upon the circumstances, however, Treasury estimates that it is possible 
that it could seek loss information from as many as 20 insurers in 
connection with any individual certification process. The information 
that Treasury would seek would be generated by insurers during the 
ordinary course of their operations, although given the time-sensitive 
nature of the certification process the information sought from 
individual insurers could impose additional burdens on account of the 
need to generate the information in a more expedited fashion. Treasury 
estimates that the burden upon each insurer from which data is sought 
could amount to 15 hours per insurer. This results in an estimated 
burden for each act under consideration for certification as an act of 
terrorism of 300 hours (20 insurers x 15 hours).
    Description of recordkeepers: Insurers who may have sustained 
insured losses as defined in 31 CFR 50.4.
    Estimated number of recordkeepers: Up to 20.
    Estimated Frequency: Once per certification process.
    Average estimated recordkeeping burden: 15 hours.
    Total estimated recordkeeping burden: Up to 300 hours.

Final Netting-Commutation

    Treasury previously analyzed the potential burdens associated with 
the proposed Final Netting Rule. See 75 FR 45563, 45566 (August 3, 
2010). As explained previously, the collection of

[[Page 18959]]

information associated with Final Netting would be in connection with 
the commutation procedure proposed in Sec.  50.76(d)(2). As in 
connection with the other matters addressed herein, the required 
information and process follows normal business procedures of 
insurers--here, in the fashion that they interact with their 
reinsurers. Information would include an insurer's justification for a 
final payment amount with necessary actuarial factors and methodology, 
and pertinent information regarding the insurer's business 
relationships and other reinsurance recoverables. Information must be 
supplied in enough detail to clearly show the expected future loss 
payments, how the present value amount has been determined, and 
reconciliation to the last Certification of Loss. Treasury will 
evaluate the submission in order to determine a final payment amount or 
(if applicable) an amount that must be repaid to Treasury. Utilizing, 
again, the estimate that perhaps 100 insurers might sustain insured 
losses in connection with any given act of terrorism, Treasury 
estimates that there might be 15 of those insurers who will be involved 
in a commutation after the determination of a Final Netting Date. 
Treasury estimates that an insurer would need 40 hours, on average, to 
assemble and analyze the relevant data (otherwise collected by the 
insurer in the ordinary course) and develop a submission to Treasury 
for commutation. The estimated total onetime burden would be 600 hours 
(15 insurers x 40 hours).
    Description of recordkeepers: Insurers part of a commutation 
procedures, as defined in 31 CFR 50.76(d)(2).
    Estimated number of recordkeepers: 15.
    Estimated Frequency: Once per event.
    Average estimated recordkeeping burden: 40 hours.
    Total estimated recordkeeping burden: 600 hours.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by OMB.

List of Subjects

    Insurance, Terrorism.

    For the reasons stated in the preamble, the Department of the 
Treasury proposes to revise 31 CFR part 50 to read as follows:

PART 50--TERRORISM RISK INSURANCE PROGRAM

Subpart A--General Provisions
Sec.
50.1 Authority, purpose, and scope.
50.2 Responsible office.
50.3 Mandatory participation in program.
50.4 Definitions.
50.5 Rule of construction for dates.
50.6 Special rules for Interim Guidance safe harbors.
50.7 Procedure for requesting determinations of controlling 
influence.
50.8 Procedure for requesting general interpretations of statute.
Subpart B--Disclosures as Conditions for Federal Payment
50.10 General disclosure requirements.
50.11 Definition.
50.12 Clear and conspicuous disclosure.
50.13 Offer and renewal.
50.14 Separate line item.
50.15 Cap disclosure.
50.16 Use of model forms.
50.17 General disclosure requirements for State residual market 
insurance entities and State workers' compensation funds.
Subpart C--Mandatory Availability
50.20 General mandatory availability requirements.
50.21 Make available.
50.22 No material difference from other coverage.
50.23 Applicability of State law requirements.
Subpart D--State Residual Market Insurance Entities; Workers' 
Compensation Funds
50.30 General participation requirements.
50.31 Entities that do not share profits and losses with private 
sector insurers.
50.32 Entities that share profits and losses with private sector 
insurers.
50.33 Allocation of premium income associated with entities that do 
share profits and losses with private sector insurers.
Subpart E--Self-Insurance Arrangements; Captives [Reserved]
Subpart F--Data Collection
50.50 General.
50.51 Annual data reporting.
50.52 Small insurer data.
50.53 Collection of claims data.
50.54 Handling of data.
Subpart G--Certification
50.60 Certification.
50.61 Public communication.
50.62 Certification data collection.
50.63 Notification of certification determination.
Subpart H--Claims Procedures
50.70 Federal share of compensation.
50.71 Adjustments to the Federal share of compensation.
50.72 Notice of deductible erosion.
50.73 Loss certifications.
50.74 Payment of Federal share of compensation.
50.75 Determination of affiliations.
50.76 Final netting.
Subpart I--Audit and Investigative Procedures
50.80 Audit authority.
50.81 Recordkeeping.
50.82 Civil penalties.
Subpart J--Recoupment and Surcharge Procedures
50.90 Mandatory and discretionary recoupment.
50.91 Determination of recoupment amounts.
50.92 Establishment of Federal terrorism policy surcharge.
50.93 Notification of recoupment.
50.94 Collecting the surcharge.
50.95 Remitting the surcharge.
50.96 Insurer responsibility.
Subpart K--Federal Cause of Action; Approval of Settlements
50.100 Federal cause of action and remedy.
50.101 State causes of action preempted.
50.102 Advance approval of settlements.
50.103 Procedure for requesting approval of proposed settlements.
50.104 Subrogation.
Subpart L--Cap on Annual Liability
50.110 Cap on annual liability.
50.111 Notice to Congress.
50.112 Determination of pro rata share.
50.113 Application of pro rata share.
50.114 Data call authority.
50.115 Final amount.

    Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107-
297, 116 Stat. 2322, as amended by Public Law 109-144, 119 Stat. 
2660, Pub. L. 110-160, 121 Stat. 1839 and Public Law 114-1, 129 
Stat. 3 (15 U.S.C. 6701 note).

Subpart A--General Provisions


Sec.  50.1  Authority, purpose, and scope.

    (a) Authority. This part is issued pursuant to authority in Title I 
of the Terrorism Risk Insurance Act of 2002, Public Law 107-297, 116 
Stat. 2322, as amended by the Terrorism Risk Insurance Extension Act of 
2005, Public Law 109-144, 119 Stat. 2660, the Terrorism Risk Insurance 
Program Reauthorization Act of 2007, Public Law 110-160, 121 Stat. 
1839, and the Terrorism Risk Insurance Program Reauthorization Act of 
2015, Public Law 114-1, 129 Stat. 3.
    (b) Purpose. This part contains rules prescribed by the Department 
of the Treasury to implement and administer the Terrorism Risk 
Insurance Program.
    (c) Scope. This part applies to insurers subject to the Act and 
their policyholders.


Sec.  50.2  Responsible office.

    The office responsible for the administration of the Terrorism Risk 
Insurance Act in the Department of the Treasury is the Terrorism Risk 
Insurance Program Office within the Federal Insurance Office. The 
Treasury Assistant Secretary for Financial Institutions prescribes the 
regulations under the Act.

[[Page 18960]]

Sec.  50.3  Mandatory participation in program.

    Any entity that meets the definition of an insurer under the Act is 
required to participate in the Program.


Sec.  50.4  Definitions.

    For purposes of this part:
    (a) Act means the Terrorism Risk Insurance Act of 2002 (as 
amended).
    (b) Act of terrorism--(1) In general. The term act of terrorism 
means any act that is certified by the Secretary, in consultation with 
the Attorney General of the United States and the Secretary of Homeland 
Security:
    (i) To be an act of terrorism;
    (ii) To be a violent act or an act that is dangerous to human life, 
property, or infrastructure;
    (iii) To have resulted in damage within the United States, or 
outside of the United States in the case of:
    (A) An air carrier (as defined in 49 U.S.C. 40102) or a United 
States flag vessel (or a vessel based principally in the United States, 
on which United States income tax is paid and whose insurance coverage 
is subject to regulation in the United States); or
    (B) The premises of a United States mission; and
    (iv) To have been committed by an individual or individuals as part 
of an effort to coerce the civilian population of the United States or 
to influence the policy or affect the conduct of the United States 
Government by coercion.
    (2) Limitations. The Secretary is not authorized to certify an act 
as an act of terrorism if:
    (i) The act is committed as part of the course of a war declared by 
the Congress (except with respect to any coverage for workers' 
compensation); or
    (ii) Property and casualty insurance losses resulting from the act, 
in the aggregate, do not exceed $5,000,000.
    (3) Judicial review precluded. The Secretary's certification of an 
act of terrorism, or determination not to certify an act as an act of 
terrorism, is final and is not subject to judicial review.
    (c)(1) Affiliate means, with respect to an insurer, any entity that 
controls, is controlled by, or is under common control with the 
insurer. An affiliate must itself meet the definition of insurer to 
participate in the Program.
    (2)(i) For purposes of paragraph (c)(1) of this section, an insurer 
has control over another insurer for purposes of the Program if:
    (A) The insurer directly or indirectly or acting through one or 
more other persons owns, controls, or has power to vote 25 percent or 
more of any class of voting securities of the other insurer;
    (B) The insurer controls in any manner the election of a majority 
of the directors or trustees of the other insurer; or
    (C) The Secretary determines, after notice and opportunity for 
hearing, that an insurer directly or indirectly exercises a controlling 
influence over the management or policies of the other insurer, even if 
there is no control as defined in paragraph (c)(2)(i) or (ii) of this 
section.
    (ii) An entity, including any affiliate thereof, does not have 
control or exercise controlling influence over a reciprocal insurer 
under this section if, as of January 12, 2015, the entity was acting as 
an attorney-in-fact for the reciprocal insurer, provided that the 
entity does not, for reasons other than activities it may perform under 
the attorney-in-fact relationship, have control over the reciprocal 
insurer as otherwise defined under this section.
    (3) An insurer described in paragraph (c)(2)(i)(A) or (B) of this 
section is conclusively deemed to have control.
    (4) For purposes of a determination of controlling influence under 
paragraph (c)(2)(i)(C) of this section, if an insurer is not described 
in paragraph (c)(2)(i)(A) or (B) of this section, the following 
rebuttable presumptions will apply:
    (i) If an insurer controls another insurer under the laws of a 
state, and at least one of the factors listed in paragraph (c)(4)(iv) 
of this section applies, there is a rebuttable presumption that the 
insurer that has control under state law exercises a controlling 
influence over the management or policies of the other insurer for 
purposes of paragraph (c)(2)(i)(C) of this section.
    (ii) If an insurer provides 25 percent or more of another insurer's 
capital (in the case of a stock insurer), policyholder surplus (in the 
case of a mutual insurer), or corporate capital (in the case of other 
entities that qualify as insurers), and at least one of the factors 
listed in paragraph (c)(4)(iv) of this section applies, there is a 
rebuttable presumption that the insurer providing such capital, 
policyholder surplus, or corporate capital exercises a controlling 
influence over the management or policies of the receiving insurer for 
purposes of paragraph (c)(2)(i)(C) of this section.
    (iii) If an insurer, at any time during a calendar year, supplies 
25 percent or more of the underwriting capacity for that year to an 
insurer that is a syndicate consisting of one or more incorporated or 
individual unincorporated underwriters, and at least one of the factors 
in paragraph (c)(4)(iv) of this section applies, there is a rebuttable 
presumption that the insurer exercises a controlling influence over the 
syndicate for purposes of paragraph (c)(2)(i)(C) of this section.
    (iv) If paragraphs (c)(4)(i) through (iii) of this section are not 
applicable, but two or more of the following factors apply to an 
insurer, with respect to another insurer, there is a rebuttable 
presumption that the insurer exercises a controlling influence over the 
management or policies of the other insurer for purposes of paragraph 
(c)(2)(i)(C) of this section:
    (A) The insurer is one of the two largest shareholders of any class 
of voting stock;
    (B) The insurer holds more than 35 percent of the combined debt 
securities and equity of the other insurer;
    (C) The insurer is party to an agreement pursuant to which the 
insurer possesses a material economic stake in the other insurer 
resulting from a profit-sharing arrangement, use of common names, 
facilities or personnel, or the provision of essential services to the 
other insurer;
    (D) The insurer is party to an agreement that enables the insurer 
to influence a material aspect of the management or policies of the 
other insurer;
    (E) The insurer would have the ability, other than through the 
holding of revocable proxies, to direct the votes of more than 25 
percent of the other insurer's voting stock in the future upon the 
occurrence of an event;
    (F) The insurer has the power to direct the disposition of more 
than 25 percent of a class of voting stock of the other insurer in a 
manner other than a widely dispersed or public offering;
    (G) The insurer and/or the insurer's representative or nominee 
constitute more than one member of the other insurer's board of 
directors; or
    (H) The insurer or its nominee or an officer of the insurer serves 
as the chairman of the board, chairman of the executive committee, 
chief executive officer, chief operating officer, chief financial 
officer or in any position with similar policymaking authority in the 
other insurer.
    (5) An insurer that is not described in paragraph (c)(2)(i) or (ii) 
of this section may request a hearing in which the insurer may rebut a 
presumption of controlling influence under paragraph (c)(4)(i) through 
(iv) of this section or otherwise request a determination of 
controlling influence by presenting and supporting its position through 
written submissions to Treasury, and in Treasury's discretion, through 
informal oral presentations, in accordance with the procedure in Sec.  
50.7.
    (6) An insurer's affiliates for a calendar year, for purposes of 
subpart H

[[Page 18961]]

of this part, shall be determined in accordance with the timing 
requirements laid out in Sec.  50.75 of this part.
    (d) Aggregate Federal share of compensation means the aggregate 
amount paid by Treasury for the Federal share of compensation for 
insured losses in a calendar 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) Attorney-in-fact means a person or entity appointed by the 
subscribers or members of a reciprocal insurer to act for and bind the 
reciprocal insurer under relevant state law for the benefit of its 
subscribers or members.
    (g) Captive insurer means an insurer licensed under the captive 
insurance laws or regulations of any state.
    (h) Direct earned premium means direct earned premium for all 
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 property and casualty insurance reported by the 
insurer on column 2 of the Exhibit of Premiums and Losses of the NAIC 
Annual Statement (commonly known as Statutory Page 14).
    (i) Premium information as reported to state regulators through 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 
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 lines of 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 property and casualty 
insurance, should be excluded in the calculation of direct earned 
premiums for purposes of the Program.
    (iii) Personal property and casualty lines of insurance coverage 
that includes incidental coverage for commercial purposes are primarily 
personal coverage, and therefore premiums may be fully excluded by an 
insurer from the calculation of direct earned premium. For purposes of 
this section, commercial coverage is incidental if less than 25 percent 
of the total direct earned premium is attributable to commercial 
coverage. 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 property and casualty insurance, but that includes 
incidental coverage for commercial risk exposures at such locations, is 
primarily not commercial, 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, 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 
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 an insurance policy covers both commercial and personal 
property and casualty 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 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 (h)(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 
(h)(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 by pricing 
separately its 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.
    (4) Federally approved insurers. A federally approved insurer, 
defined 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 (h)(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 property and casualty insurance in 
connection with maritime, energy or aviation activities).
    (i) Direct written premium means the premium information for 
property and casualty insurance 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.
    (j) 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.
    (k) Federal Insurance Office means the Federal Insurance Office 
within the U.S. Department of the Treasury.
    (l) Federal terrorism policy surcharge means the amount established 
by Treasury under Subpart J of this Part that is imposed as a policy 
surcharge on property and casualty insurance policies, expressed as a 
percentage of the written premium.
    (m) Insurance marketplace aggregate retention amount means an 
amount for a calendar year as calculated under section 103(e)(6) of the 
Act.

[[Page 18962]]

    (1) For calendar years beginning with 2015 through 2019, such 
amount is the lesser of the aggregate amount, for all insurers, of 
insured losses once there has been a Program Trigger Event during the 
calendar year and:
    (i) For calendar year 2015: $29,500,000,000;
    (ii) For calendar year 2016: $31,500,000,000;
    (iii) For calendar year 2017: $33,500,000,000;
    (iv) For calendar year 2018: $35,500,000,000; and
    (v) For calendar year 2019: $37,500,000,000.
    (2) For calendar years beginning with 2020 and any calendar year 
thereafter as may be necessary, such amount is the lesser of the 
aggregate amount, for all insurers, of insured losses once there has 
been a Program Trigger Event during the calendar year and the annual 
average of the sum of insurer deductibles for all insurers for the 
prior 3 years, to be calculated by taking
    (i) the total amount of direct earned premium reported by insurers 
to Treasury pursuant to section 50.51 for the three calendar years 
prior to the calendar year in question, and then dividing that figure 
by three; and
    (ii) Multiplying the resulting three-year average figure by 20%.
    (3) Beginning in 2020, Treasury shall publish in the Federal 
Register the insurance marketplace aggregate retention amount for that 
calendar year no later than April 30, 2020, and by every April 30 
thereafter for any subsequent calendar years as necessary. To the 
extent the Secretary certifies an act as an act of terrorism prior to 
April 30 of any calendar year after 2019, Treasury will publish the 
relevant insurance marketplace aggregate retention amount as soon as 
practicable thereafter.
    (n) Insured loss. (1) The term insured loss means any loss 
resulting from an act of terrorism (including an act of war, in the 
case of workers' compensation) that is covered by primary or excess 
property and casualty insurance issued by an insurer if the loss:
    (i) Occurs within the United States;
    (ii) Occurs to an air carrier (as defined in 49 U.S.C. 40102), or 
to a United States flag vessel (or a vessel based principally in the 
United States, on which United States income tax is paid and whose 
insurance coverage is subject to regulation in the United States), 
regardless of where the loss occurs; however, to the extent a loss 
occurs to such an air carrier or vessel outside the United States, the 
insured loss does not include losses covered by third party insurance 
contracts that are separate from the insurance coverage provided to the 
air carrier or vessel; or
    (iii) Occurs at the premises of any United States mission.
    (2) The term insured loss includes reasonable loss adjustment 
expenses, incurred by an insurer in connection with insured losses, 
that are allocated and identified by claim file in insurer records, 
including expenses incurred in the investigation, adjustment, and 
defense of claims, but excluding staff salaries, overhead, and other 
insurer expenses that would have been incurred notwithstanding the 
insured loss.
    (3) The term insured loss does not include:
    (i) Punitive or exemplary damages awarded or paid in connection 
with the Federal cause of action specified in section 107(a)(1) of the 
Act. The term ``punitive or exemplary damages'' means damages that are 
not compensatory but are an award of money made to a claimant solely to 
punish or deter; or
    (ii) Extra-contractual damages awarded against, or paid by, an 
insurer; or
    (iii) Payments by an insurer in excess of policy limits.
    (o) Insurer means any entity, including any affiliate of the 
entity, that meets the following requirements:
    (1)(i) The entity must fall within at least one of the following 
categories:
    (A) It is licensed or admitted to engage in the business of 
providing primary or excess insurance in any state (including, but not 
limited to, state licensed captive insurance companies, state licensed 
or admitted risk retention groups, and state licensed or admitted farm 
and county mutuals) and, if a joint underwriting association, pooling 
arrangement, or other similar entity, then the entity must:
    (1) Have gone through a process of being licensed or admitted to 
engage in the business of providing primary or excess insurance that is 
administered by the state's insurance regulator, which process 
generally applies to insurance companies or is similar in scope and 
content to the process applicable to insurance companies;
    (2) Be generally subject to State insurance regulation, including 
financial reporting requirements, applicable to insurance companies 
within the State; and
    (3) Be managed independently from other insurers participating in 
the program;
    (B) It is not licensed or admitted to engage in the business of 
providing primary or excess insurance in any state, but is an eligible 
surplus line carrier listed on the NAIC Quarterly Listing of Alien 
Insurers;
    (C) It is approved or accepted for the purpose of offering property 
and casualty insurance by a Federal agency in connection with maritime, 
energy, or aviation activity, but only to the extent of such Federal 
approval of property and casualty insurance coverage offered by the 
insurer in connection with maritime, energy, or aviation activity;
    (D) It is a state residual market insurance entity or state 
workers' compensation fund; or
    (E) As determined by the Secretary, it falls within any of the 
classes or types of captive insurers or other self-insurance 
arrangements by municipalities and other entities.
    (ii) If an entity falls within more than one category described in 
paragraph (o)(1)(i) of this section, the entity is considered to fall 
within the first category within which it falls for purposes of the 
program.
    (2) The entity must receive direct earned premium, except in the 
case of:
    (i) State residual market insurance entities and state workers' 
compensation funds, to the extent provided in subpart D of this part; 
and
    (ii) Other classes or types of captive insurers and other self-
insurance arrangements by municipalities and other entities to the 
extent provided for in subpart E of this part.
    (3) The entity must meet any other criteria as prescribed by 
Treasury.
    (p) Insurer deductible means:
    (1) For an insurer that has had a full year of operations during 
the calendar year immediately preceding the applicable calendar year, 
the value of an insurer's direct earned premiums during the immediately 
preceding calendar year, multiplied by 20 percent; and
    (2) For an insurer that has not had a full year of operations 
during the immediately preceding calendar year, the insurer deductible 
will be based on data for direct earned premiums for the applicable 
calendar year multiplied by 20 percent. If the insurer does not have a 
full year of operations during the applicable calendar year, the direct 
earned premiums for the applicable calendar year will be annualized to 
determine the insurer deductible.
    (q) Mandatory recoupment amount means the difference between the 
insurance marketplace aggregate retention amount for a calendar year 
and the uncompensated insured losses during such calendar year.
    (r) NAIC means the National Association of Insurance Commissioners.
    (s) Person means any individual, business or nonprofit entity 
(including

[[Page 18963]]

those organized in the form of a partnership, limited liability 
company, corporation, or association), trust or estate, or a State or 
political subdivision of a state or other governmental unit.
    (t) Professional liability insurance means insurance coverage for 
liability arising out of the performance of professional or business 
duties related to a specific occupation, with coverage being tailored 
to the needs of the specific occupation. Examples include abstracters, 
accountants, insurance adjusters, architects, engineers, insurance 
agents and brokers, lawyers, real estate agents, stockbrokers, and 
veterinarians. For purposes of this definition, professional liability 
insurance does not include directors and officers liability insurance.
    (u) Program means the Terrorism Risk Insurance Program established 
by the Act.
    (v) Program Trigger Event means a certified act of terrorism within 
a calendar year that results in aggregate industry insured losses, 
either on its own or in combination with any other certified act(s) of 
terrorism having previously taken place in the same calendar year, 
exceeding:
    (1) $100,000,000 with respect to calendar year 2015 insured losses;
    (2) $120,000,000 with respect to calendar year 2016 insured losses;
    (3) $140,000,000 with respect to calendar year 2017 insured losses;
    (4) $160,000,000 with respect to calendar year 2018 insured losses;
    (5) $180,000,000 with respect to calendar year 2019 insured losses; 
or
    (6) $200,000,000 with respect to calendar year 2020 insured losses 
and with respect to any calendar year thereafter.
    (w) Property and casualty insurance means commercial lines of 
property and casualty insurance, including excess insurance, workers' 
compensation insurance, and directors and officers liability insurance, 
and:
    (1) Means commercial lines within only the following lines of 
insurance from the NAIC's Exhibit of Premiums and Losses (commonly 
known as Statutory Page 14): Line 1--Fire; Line 2.1--Allied Lines; Line 
5.1--Commercial Multiple Peril (non-liability portion); Line 5.2--
Commercial Multiple Peril (liability portion); Line 8--Ocean Marine; 
Line 9--Inland Marine; Line 16--Workers' Compensation; Line 17--Other 
Liability; Line 18--Products Liability; Line 22--Aircraft (all perils); 
and Line 27--Boiler and Machinery; and
    (2) Does not include:
    (i) Federal crop insurance issued or reinsured under the Federal 
Crop Insurance Act (7 U.S.C. 1501 et seq.), or any other type of crop 
or livestock insurance that is privately issued or reinsured (including 
crop insurance reported under either Line 2.1--Allied Lines or Line 
2.2--Multiple Peril (Crop) of the NAIC's Exhibit of Premiums and Losses 
(commonly known as Statutory Page 14);
    (ii) Private mortgage insurance (as defined in section 2 of the 
Homeowners Protection Act of 1998) (12 U.S.C. 4901) or title insurance;
    (iii) Financial guaranty insurance issued by monoline financial 
guaranty insurance corporations;
    (iv) Insurance for medical malpractice;
    (v) Health or life insurance, including group life insurance;
    (vi) Flood insurance provided under the National Flood Insurance 
Act of 1968 (42 U.S.C. 4001 et seq.) or earthquake insurance reported 
under Line 12 of the NAIC's Exhibit of Premiums and Losses (commonly 
known as Statutory Page 14);
    (vii) Reinsurance or retrocessional reinsurance;
    (viii) Commercial automobile insurance, including insurance 
reported under Lines 19.3 (Commercial Auto No-Fault (personal injury 
protection)), 19.4 (Other Commercial Auto Liability) and 21.2 
(Commercial Auto Physical Damage) of the NAIC's Exhibit of Premiums and 
Losses (commonly known as Statutory Page 14);
    (ix) Burglary and theft insurance, including insurance reported 
under Line 26 (Burglary and Theft) of the NAIC's Exhibit of Premiums 
and Losses (commonly known as Statutory Page 14);
    (x) Surety insurance, including insurance reported under Line 24 
(Surety) of the NAIC's Exhibit of Premiums and Losses (commonly known 
as Statutory Page 14);
    (xi) Professional liability insurance as defined in paragraph (t) 
of this section; or
    (xii) Farm owners multiple peril insurance, including insurance 
reported under Line 3 (Farmowners Multiple Peril) of the NAIC's Exhibit 
of Premiums and Losses (commonly known as Statutory Page 14).
    (x) Reciprocal insurer means an insurer organized under relevant 
state law as a reciprocal or interinsurance exchange.
    (y) Secretary means the Secretary of the U.S. Department of the 
Treasury.
    (z) Small insurer means an insurer (or an affiliated group of 
insurers in the case of affiliates within the meaning of paragraph (c) 
of this section) whose policyholder surplus for the immediately 
preceding year is less than five times the Program Trigger amount for 
the current year and whose direct earned premium for the preceding year 
is also less than five times the Program Trigger amount for the current 
year. An insurer that has not had a full year of operations during the 
immediately preceding calendar year is a small insurer if its 
policyholder surplus in the current year is less than five times the 
Program Trigger amount for the current year. A captive insurer is not a 
small insurer, regardless of the size of its policyholder surplus or 
direct earned premium.
    (aa) State means any state of the United States, the District of 
Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the 
Northern Mariana Islands, American Samoa, Guam, each of the United 
States Virgin Islands, and any territory or possession of the United 
States.
    (bb) Surcharge means the Federal terrorism policy surcharge as 
defined in paragraph (l) of this section.
    (cc) Surcharge effective date means the date established by 
Treasury that begins the assessment period.
    (dd) Treasury means the U.S. Department of the Treasury.
    (ee) Uncompensated insured losses means the aggregate amount of 
insured losses of all insurers in a calendar year, once there has been 
a Program Trigger Event, 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.
    (ff) United States means the several states, and includes the 
territorial sea and the continental shelf of the United States, as 
those terms are defined in the Violent Crime Control and Law 
Enforcement Act of 1994 (18 U.S.C. 2280 and 2281).


Sec.  50.5  Rule of construction for dates.

    Unless otherwise expressly provided in the regulation, any date in 
these regulations is intended to be applied so that the day begins at 
12:01 a.m. and ends at midnight on that date.


Sec.  50.6  Special rules for Interim Guidance safe harbors.

    (a) An insurer will be deemed to be in compliance with the 
requirements of the Act to the extent the insurer reasonably relied on 
Interim Guidance prior to the effective date of applicable regulations.

[[Page 18964]]

    (b) For purposes of this section, Interim Guidance means the 
following documents, which are also available from Treasury at https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx:
    (1) Interim Guidance I issued by Treasury on December 3, 2002, and 
published at 67 FR 76206 (December 11, 2002);
    (2) Interim Guidance II issued by Treasury on December 18, 2002, 
and published at 67 FR 78864 (December 26, 2002);
    (3) Interim Guidance III issued by Treasury on January 22, 2003, 
and published at 68 FR 4544 (January 29, 2003);
    (4) Interim Guidance IV issued by Treasury on December 29, 2005, 
and published at 71 FR 648 (January 5, 2006);
    (5) Interim Guidance V issued by Treasury on December 31, 2007, and 
published at 73 FR 5264 (Jan. 29, 2008).
    (6) Interim Guidance VI issued by Treasury on February 4, 2015, and 
published at 80 FR 6656 (February 6, 2015).


Sec.  50.7  Procedure for requesting determinations of controlling 
influence.

    (a) An insurer or insurers not having control over another insurer 
under Sec.  50.4(c)(2)(i) or (ii) may make a written submission to 
Treasury to rebut a presumption of controlling influence under Sec.  
50.4(c)(4)(i) through (iv) or otherwise to request a determination of 
controlling influence. Such submissions shall be made to the Terrorism 
Risk Insurance Program Office, Department of the Treasury, Room 1410, 
1500 Pennsylvania Ave. NW., Washington, DC 20220. The submission should 
be entitled, ``Controlling Influence Submission,'' and should provide 
the full name and address of the submitting insurer(s) and the name, 
title, address and telephone number of the designated contact person(s) 
for such insurer(s).
    (b) Treasury will review submissions and determine whether Treasury 
needs additional written or orally presented information. In its 
discretion, Treasury may schedule a date, time, and place for an oral 
presentation by the insurer(s).
    (c) An insurer or insurers must provide all relevant facts and 
circumstances concerning the relationship(s) between or among the 
affected insurers and the control factors in Sec.  50.4(c)(4)(i) 
through (iv); and must explain in detail any basis for why the insurer 
believes that no controlling influence exists (if a presumption is 
being rebutted) in light of the particular facts and circumstances, as 
well as the Act's language, structure and purpose. Any confidential 
business or trade secret information submitted to Treasury should be 
clearly marked. Treasury will handle any subsequent request for 
information designated by an insurer as confidential business or trade 
secret information in accordance with Treasury's Freedom of Information 
Act regulations at 31 CFR part 1.
    (d) Treasury will review and consider the insurer submission and 
other relevant facts and circumstances. Unless otherwise extended by 
Treasury, within 60 days after receipt of a complete submission, 
including any additional information requested by Treasury, and 
including any oral presentation, Treasury will issue a final 
determination of whether one insurer has a controlling influence over 
another insurer for purposes of the Program. The determination shall 
set forth Treasury's basis for its determination.
    (Approved by the Office of Management & Budget under control number 
1505-0190.)


Sec.  50.8  Procedure for requesting general interpretations of 
statute.

    Persons actually or potentially affected by the Act or regulations 
in this Part may request an interpretation of the Act or regulations by 
writing to the Terrorism Risk Insurance Program Office, Room 1410, 
Department of the Treasury, 1500 Pennsylvania Ave. NW., Washington, DC 
20220, giving a detailed explanation of the facts and circumstances and 
the reason why an interpretation is needed. A requester should 
segregate and mark any confidential business or trade secret 
information clearly. Treasury in its discretion will provide written 
responses to requests for interpretation. Treasury reserves the right 
to decline to provide a response in any case. Except in the case of any 
confidential business or trade secret information, Treasury will make 
written requests for interpretations and responses publicly available 
at the Treasury Department Library, on the Treasury Web site, or 
through other means as soon as practicable after the response has been 
provided. Treasury will handle any subsequent request for information 
that had been designated by a requester as confidential business or 
trade secret information in accordance with Treasury's Freedom of 
Information Act regulations at 31 CFR part 1.

Subpart B--Disclosures as Conditions for Federal Payment


Sec.  50.10  General disclosure requirements.

    (a) Content of disclosure. As a condition for Federal payments 
under section 103(b) of the Act, the Act requires that an insurer 
provide clear and conspicuous disclosure to the policyholder of:
    (1) The premium charged for insured losses covered by the Program; 
and
    (2) The Federal share of compensation for insured losses under the 
Program.
    (b) Form and timing of disclosure. The disclosure required by the 
Act must be made on a separate line item in the policy, at the time of 
offer and of renewal of the policy.


Sec.  50.11  Definition.

    For purposes of this Subpart, unless the context indicates 
otherwise, the term ``disclosure'' or ``disclosures'' refers to the 
disclosure described in section 103(b)(2) of the Act and Sec.  50.10. 
The term ``cap disclosure'' refers to the disclosure required by 
section 103(b)(3) of the Act and Sec.  50.15.


Sec.  50.12  Clear and conspicuous disclosure.

    (a) General. Whether a disclosure is clear and conspicuous depends 
on the totality of the facts and circumstances of the disclosure. See 
Sec.  50.16 for model forms.
    (b) Description of premium. An insurer may describe the premium 
charged for insured losses covered by the Program as a portion or 
percentage of an annual premium, if consistent with standard business 
practice and provided that the amount of annual premium or the method 
of determining the annual premium is also stated. An insurer may not 
describe the premium in a manner that is misleading in the context of 
the Program, such as by characterizing the premium as a ``surcharge.''
    (c) Method of disclosure. Subject to Sec.  50.10(b), an insurer may 
provide disclosures using normal business practices, including forms 
and methods of communication used to communicate similar policyholder 
information to policyholders.
    (d) Use of producer. If an insurer normally communicates with a 
policyholder through an insurance producer or other intermediary, an 
insurer may provide disclosures through such producer or other 
intermediary. If an insurer elects to make the disclosures through an 
insurance producer or other intermediary, the insurer remains 
responsible for ensuring that the disclosures are provided by the 
insurance producer or other intermediary to policyholders in accordance 
with the Act.
    (e) Demonstration of compliance. An insurer may demonstrate that it 
has satisfied the requirement to provide clear and conspicuous 
disclosure as

[[Page 18965]]

described in Sec.  50.10 through use of appropriate systems and normal 
business practices that demonstrate a practice of compliance.
    (f) Certification of compliance. An insurer must certify that it 
has complied with the requirement to provide disclosure to the 
policyholder on all policies that form the basis for any claim that is 
submitted by an insurer for Federal payment under the Program.


Sec.  50.13  Offer and renewal.

    An insurer is deemed to be in compliance with the requirement of 
providing disclosure ``at the time of offer and of renewal of the 
policy'' under Sec.  50.10(b) if the insurer makes the disclosure no 
later than the time the insurer first formally offers to provide 
insurance coverage or renew a policy for a current policyholder.


Sec.  50.14  Separate line item.

    An insurer is deemed to be in compliance with the requirement of 
providing disclosure on a ``separate line item in the policy'' under 
Sec.  50.10(b) if the insurer makes the disclosure:
    (a) On the declarations page of the policy;
    (b) Elsewhere within the policy itself; or
    (c) In any rider or endorsement, or other document that is made a 
part of the policy.


Sec.  50.15  Cap disclosure.

    (a) General. Under section 103(e)(2) of the Act, if the aggregate 
insured losses exceed $100,000,000,000 during any calendar year, the 
Secretary 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.
    (b) Other requirements. As a condition for Federal payments under 
section 103(b) of the Act, an insurer must provide clear and 
conspicuous disclosure to the policyholder of the existence of the 
$100,000,000,000 cap under section 103(e)(2). The cap disclosure must 
be made at the time of offer, purchase, and renewal of the policy.
    (c) Offer, purchase, and renewal. An insurer is deemed to be in 
compliance with the requirement of providing disclosure ``at the time 
of offer, purchase, and renewal of the policy'' under Sec.  50.15(b) if 
the insurer:
    (1) Makes the disclosure no later than the time the insurer first 
formally offers to provide insurance coverage or renew a policy for a 
current policyholder; and
    (2) If terrorism risk coverage is purchased, the insurer makes 
clear and conspicuous reference back to that disclosure, as well as the 
final terms of terrorism insurance coverage, at the time the 
transaction is completed.
    (d) Other applicable rules. The cap disclosure is covered by the 
rules in Sec.  50.12(a), (c), (d), (e), and (f) (relating to clear and 
conspicuous disclosure).


Sec.  50.16  Use of model forms.

    (a) General. An insurer that is required to make the disclosure 
under Sec.  50.10(b) or Sec.  50.15(b) is deemed to be in compliance 
with the disclosure requirements if the insurer uses NAIC Model 
Disclosure Form No. 1 or NAIC Model Disclosure Form No. 2, as 
appropriate.
    (b) Not exclusive means of compliance. An insurer is not required 
to use NAIC Model Disclosure Form No. 1 or NAIC Model Disclosure Form 
No. 2 to satisfy the disclosure requirements. An insurer may use other 
means to comply with the disclosure requirements, as long as the 
disclosures comport with the requirements of the Act.
    (c) Definitions. For purposes of this section, references to NAIC 
Model Disclosure Form No. 1 and NAIC Model Disclosure Form No. 2 refer 
to such forms as revised in January 2015, or as subsequently modified 
by the NAIC, provided Treasury has stated that usage by insurers of the 
subsequently modified forms is deemed to satisfy the disclosure 
requirements of the Act and the insurer uses the most current forms, so 
approved by Treasury, that are available at the time of disclosure. 
These forms may be found on the Treasury Web site at https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx.


Sec.  50.17  General disclosure requirements for State residual market 
insurance entities and State workers' compensation funds.

    (a) Residual market mechanism disclosure. A state residual market 
insurance entity or state workers' compensation fund may provide the 
disclosures required by this subpart B to policyholders using normal 
business practices, including forms and methods of communication used 
to communicate similar information to policyholders. The disclosures 
may be made by the state residual market insurance entity or state 
workers' compensation fund itself, the individual insurers that 
participate in the state residual market insurance entity or state 
workers' compensation fund, or its servicing carriers. The ultimate 
responsibility for ensuring that the disclosure requirements have been 
met rests with the insurer filing a claim under the Program.
    (b) Other requirements. Except as provided in this section, all 
other disclosure requirements set out in this subpart B apply to state 
residual insurance market entities and state workers' compensation 
funds.

Subpart C--Mandatory Availability


Sec.  50.20  General mandatory availability requirements.

    (a) General requirements. Under section 103(c) of the Act, an 
insurer must:
    (1) Make available, in all of its property and casualty insurance 
policies, coverage for insured losses; and
    (2) Make available property and casualty insurance coverage for 
insured losses that does not differ materially from the terms, amounts, 
and other coverage limitations applicable to losses arising from events 
other than acts of terrorism.
    (b) Compliance through 2020. Under section 108(a) of the Act, an 
insurer must comply with paragraphs (a)(1) and (2) of this section 
through calendar year 2020.
    (c) Beyond 2020. Notwithstanding paragraph (a)(2) of this section 
and Sec.  50.22(a), property and casualty insurance coverage for 
insured losses does not have to be made available beyond December 31, 
2020, even if the policy period of insurance coverage for losses from 
events other than acts of terrorism extends beyond that date.


Sec.  50.21  Make available.

    (a) General. The requirement to make available coverage as provided 
in Sec.  50.20 applies at the time an insurer makes the initial offer 
of coverage as well as at the time an insurer makes an initial offer of 
renewal of an existing policy.
    (b) Offer consistent with definition of act of terrorism. An 
insurer must make available coverage for insured losses in a policy of 
property and casualty insurance consistent with the definition of an 
act of terrorism as defined in Sec.  50.4(b).
    (c) Changes negotiated subsequent to initial offer. If an insurer 
satisfies the requirement to make available coverage as described in 
Sec.  50.20 by first making an offer with coverage for insured losses 
that does not differ materially from the terms, amounts, and other 
coverage limitations applicable to losses arising from events other 
than acts of terrorism, which the policyholder or prospective 
policyholder declines, the insurer may negotiate with the policyholder 
or

[[Page 18966]]

prospective policyholder an option of partial coverage for insured 
losses at a lower amount of coverage if permitted by any applicable 
state law. An insurer is not required by the Act to offer partial 
coverage if the policyholder or prospective policyholder declines full 
coverage. See Sec.  50.23.
    (d) Demonstrations of compliance. If an insurer makes an offer of 
insurance but no contract of insurance is concluded, the insurer may 
demonstrate that it has satisfied the requirement to make available 
coverage as described in Sec.  50.20 through use of appropriate systems 
and normal business practices that demonstrate a practice of 
compliance.


Sec.  50.22  No Material difference from other coverage.

    (a) Terms, amounts, and other coverage limitations. As provided in 
Sec.  50.20(a)(2), an insurer must offer coverage for insured losses 
arising from an act of terrorism that does not differ materially from 
the terms, amounts, and other coverage limitations (including 
deductibles) applicable to losses arising from events other than acts 
of terrorism. For purposes of this requirement, ``terms'' excludes 
price.
    (b) Limitations on types of risk. An insurer is not required to 
cover risks that it typically excludes or does not write to satisfy the 
requirement to make available coverage for losses resulting from an act 
of terrorism that does not differ materially from the terms, amounts, 
and other coverage limitations applicable to losses arising from events 
other than acts of terrorism. For example, if an insurer does not cover 
all types of risks, either because the insurer is outside of direct 
state regulatory oversight, or because a state permits certain 
exclusions for certain types of losses, such as nuclear, biological, or 
chemical events, then the insurer is not required to make such coverage 
available.


Sec.  50.23  Applicability of State law requirements.

    (a) General. After satisfying the requirement to make available 
coverage for insured losses that does not differ materially from the 
terms, amounts, and other coverage limitations applicable to losses 
arising from events other than acts of terrorism, if coverage is 
rejected an insurer may then offer coverage that is on different terms, 
amounts, or coverage limitations, as long as such an offer does not 
violate any applicable state law requirements.
    (b) Examples. (1) If an insurer subject to state regulation first 
makes available coverage in accordance with Sec.  50.20 and the state 
has a requirement that an insurer offer full coverage without any 
exclusion, then the requirement would continue to apply and the insurer 
may not subsequently offer less than full coverage or coverage with 
exclusions.
    (2) If an insurer subject to state regulation first makes available 
coverage in accordance with Sec.  50.20 and the state permits certain 
exclusions or allows for other limitations, or an insurance policy is 
not governed by state law requirements, then the insurer may 
subsequently offer limited coverage or coverage with exclusions.

Subpart D--State Residual Market Insurance Entities; State Workers' 
Compensation Funds


Sec.  50.30  General participation requirements.

    (a) Insurers. As defined in Sec.  50.4(o), all state residual 
market insurance entities and state workers' compensation funds are 
insurers under the Program even if such entities do not receive direct 
earned premiums.
    (b) Mandatory participation. State residual market insurance 
entities and State workers' compensation funds are mandatory 
participants in the Program subject to the rules issued in this 
Subpart.
    (c) Identification. Treasury maintains a list of state residual 
market insurance entities and state workers' compensation funds at 
https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx. 
Procedures for providing comments and updates to that list are posted 
with the list.


Sec.  50.31  Entities that do not share profits and losses with private 
sector insurers.

    (a) Treatment. A state residual market insurance entity or a state 
workers' compensation fund that does not share profits and losses with 
a private sector insurer is deemed to be a separate insurer under the 
Program.
    (b) Premium calculation. A state residual market insurance entity 
or a state workers' compensation fund that is deemed to be a separate 
insurer should follow the guidelines specified in Sec.  50.4(h)(1) or 
(2) for the purposes of calculating the appropriate measure of direct 
earned premium.


Sec.  50.32  Entities that share profits and losses with private sector 
insurers.

    (a) Treatment. A State residual market insurance entity or a State 
workers' compensation fund that shares profits and losses with a 
private sector insurer is deemed not to be a separate insurer under the 
Program.
    (b) Premium and loss calculation. A state residual market insurance 
entity or a State workers' compensation fund that is deemed not to be a 
separate insurer should continue to report, in accordance with normal 
business practices, to each participant insurer its share of premium 
income and insured losses, which shall then be included respectively in 
the participant insurer's direct earned premium or insured loss 
calculations.


Sec.  50.33  Allocation of premium income associated with entities that 
do share profits and losses with private sector insurers.

    (a) Servicing carriers. For purposes of this subpart, a servicing 
carrier is an insurer that enters into an agreement to place and 
service insurance contracts for a state residual market insurance 
entity or a state workers' compensation fund and to cede premiums 
associated with such insurance contracts to the State residual market 
insurance entity or State workers' compensation fund. Premiums written 
by a servicing carrier on behalf of a state residual market insurance 
entity or State workers' compensation fund that are ceded to such an 
entity or fund shall not be included as direct earned premium (as 
described in Sec.  50.4(h)(1) or (2)) of the servicing carrier.
    (b) Participant insurers. For purposes of this Subpart, a 
participant insurer is an insurer that shares in the profits and losses 
of a state residual market insurance entity or a state workers' 
compensation fund. Premium income that is distributed to or assumed by 
participant insurers in a state residual market insurance entity or 
state workers' compensation fund (whether directly or as quota share 
insurers of risks written by servicing carriers), shall be included in 
direct earned premium (as described in Sec.  50.4(h)(1) or (2)) of the 
participant insurer.

Subpart E--Self-Insurance Arrangements; Captives [Reserved].

Subpart F--Data Collection


Sec.  50.50  General.

    Treasury may request from insurers such data and information as may 
be reasonably required in support of Treasury's administration of the 
Program.


Sec.  50.51  Annual data reporting.

    (a) General. No later than March 1 of each calendar year, all 
insurers shall provide specified data and information respecting their 
Program participation.
    (b) Scope. The information to be provided shall address: The lines 
of property and casualty insurance subject to the Program, the premiums 
earned for terrorism risk insurance within those

[[Page 18967]]

lines and for those lines generally, the geographical location of 
exposures covered under terrorism risk insurance, the pricing of 
terrorism risk insurance, the take-up rate for terrorism risk 
insurance, the amount of private reinsurance obtained by participating 
insurers in connection with such policies, and other matters concerning 
the Program as may be identified by Treasury.
    (c) Method of reporting. (1) Treasury will promulgate forms 
defining the specific data and information that each insurer must 
submit and make these forms available on its Web site. Each insurer 
shall submit the required data and information by electronic submission 
through the forms and data portal(s) identified on Treasury's Web site. 
All data and information provided as part of such electronic submission 
shall be certified by the insurer as a full and true statement of the 
information provided to the best of its knowledge, information and 
belief.
    (2) The data and information required to be provided under this 
subsection may be modified annually by Treasury. Any modification shall 
be made during the prior calendar year, and Treasury shall provide 
insurers at least 90 days before requiring collection of any newly 
specified data or information.
    (d) Supplemental requests. Treasury may issue supplemental 
requests, to some or all participating insurers, in connection with the 
annual data request provided for under this section, to the extent 
Treasury determines that it requires additional or clarifying 
information in order to analyze the effectiveness of the Program. 
Insurers shall respond to any such supplemental requests as may be made 
within the timeframe and in the manner specified by Treasury.
    (e) Small insurer exception. The Secretary may exempt a small 
insurer that meets the definition in Sec.  50.4(z) from any or all data 
calls under this section, or may modify the requests as applicable to 
such small insurer.


Sec.  50.52  Small insurer data.

    (a) General. The Secretary may collect information relating to 
small insurers, as defined in Sec.  50.4(z), in order to conduct a 
study of small insurers participating in the Program, and identify any 
competitive challenges small insurers face in the terrorism risk 
insurance marketplace.
    (b) Scope. Information collected concerning small insurers may 
include information necessary for Treasury to identify:
    (1) Changes to the market share, premium volume, and policyholder 
surplus of small insurers relative to large insurers;
    (2) How the property and casualty insurance market for terrorism 
risk differs between small and large insurers, and whether such a 
difference exists within other perils;
    (3) The impact on small insurers of the Program's mandatory 
availability requirement under section 103(c) of the Act;
    (4) The effect on small insurers of increasing the trigger amount 
for the Program under section 103(e)(1)(B) of the Act;
    (5) The availability and cost of private reinsurance for small 
insurers; and
    (6) The impact that state workers compensation laws have on small 
insurers and workers compensation carriers in the terrorism risk 
insurance marketplace.


Sec.  50.53  Collection of claims data.

    (a) General. Subsequent to any certification by the Secretary of an 
act of terrorism, insurers shall report to Treasury information 
respecting insured losses arising from the act of terrorism.
    (b) Contents of periodic reporting. Reporting under this subsection 
shall be by a form prescribed by Treasury and made available on the 
Treasury Web site, which provides basic information about each claim 
established by an insurer that involves or potentially involves an 
insured loss. Information to be reported for any claims by or against a 
policyholder shall identify paid and reserved amounts associated with 
the claim. In the case of an affiliated group of insurers, the form 
required by this subsection shall be submitted by a single insurer 
designated within the affiliated group, which shall report on a 
consolidated basis. Data and information reported under this subsection 
will include:
    (1) A listing of each claim by name of insured, catastrophe code, 
line of business, and in the case of an affiliated group of insurers, 
the particular insurer or insurers within the group associated with 
each claim;
    (2) Amounts paid, both loss and loss adjustment expenses, in 
connection with the claim as of the effective date of the report; and
    (3) Amounts reserved, both loss and loss adjustment expenses, in 
connection with the claim as of the effective date of the report.
    (c) Timing of reporting. To the extent that an insurer has 
established one or more claims that it believes involve insured losses 
arising from an act of terrorism, the insurer shall submit its first 
report within 60 days of establishing the first of such claims. An 
updated report shall be submitted each month thereafter, reporting data 
as of the prior month, until all claims arising from the act of 
terrorism have been resolved.
    (d) Interrelationship with other reporting requirements. The 
reporting requirements under this subsection are independent of the 
Initial Notice of Deductible Erosion, Initial Certification of Loss, 
and Supplementary Certifications of Loss requirements in subpart H.
    (e) Other sources of information. Subsequent to any certification 
of an act of terrorism, Treasury may also seek information respecting 
loss estimates and projections from one or more organizations that are 
not participants in the Program, such as state insurance regulators, 
insurance modeling organizations, rating agencies, insurance brokers 
and producers, and insurance data aggregators. A data request may also 
be directed to insurers identified in connection with such inquiries. 
An insurer subject to such a data call shall respond to this request 
within the time frame specified in the request.


Sec.  50.54  Handling of data.

    (a) General. All nonpublic information submitted to the Secretary 
under subparts F and G of this part shall be considered proprietary 
information and shall:
    (1) Be handled and stored by Treasury in an appropriately secure 
manner;
    (2) Be considered, where appropriate, to be trade secrets or 
commercial or financial information obtained from a person and 
privileged or confidential; and
    (3) Not be publicly released in any unaggregated form in which a 
consumer, policyholder, or insurer is identifiable.
    (b) Confidentiality. (1) The submission of any non-publicly 
available data and information to the Secretary under subparts F and G 
of this part, and the sharing of any non-publicly available data with 
or by the Secretary among other Federal agencies, the state insurance 
regulatory authorities, or any other entities shall not constitute a 
waiver of, or otherwise affect, any privilege or immunity arising under 
Federal or state law (including the rules of any Federal or state 
court) to which the data or information is otherwise subject.
    (2) Any requirement under Federal or state law to the extent 
otherwise applicable, or any requirement pursuant to a written 
agreement in effect between the original source of any non-publicly 
available data or information and the source of such data or 
information to the

[[Page 18968]]

Secretary, regarding privacy or confidentiality of any data or 
information in the possession of the source to the Secretary, shall 
continue to apply to such data or information after the data or 
information has been provided pursuant to this Subpart.
    (3) Any data or information obtained by the Secretary under 
subparts F or G of this part may be made available to state insurance 
regulatory authorities, individually or collectively through an 
information-sharing agreement that:
    (i) Shall comply with applicable Federal law; and
    (ii) Shall not constitute a waiver of, or otherwise affect, any 
privilege or immunity under Federal or state law (including any 
privilege referred to in paragraph (b)(1) of this section and the rules 
of any Federal or State court) to which the data or information is 
otherwise subject.
    (4) Section 552 of title 5, United States Code, including any 
exceptions thereunder, shall apply to any data or information submitted 
under this Subpart by an insurer or affiliate of an insurer.

Subpart G--Certification


Sec.  50.60  Certification.

    (a) Certification decision. The Secretary, in consultation with the 
United States Attorney General and the Secretary of Homeland Security, 
is responsible for determining whether to certify an act as an act of 
terrorism.
    (b) Eligibility; timing. An act which satisfies the definition in 
Sec.  50.4(b) is eligible for certification by the Secretary as an act 
of terrorism after consultation by the Secretary with the United States 
Attorney General and the Secretary of Homeland Security.
    (c) Finality. Any decision by the Secretary to certify, or 
determination not to certify, an act as an act of terrorism shall be 
final, and shall not be subject to judicial review.
    (d) Nondelegation. The Secretary may not delegate or designate to 
any other officer, employee, or person, the determination of whether to 
certify an act as an act of terrorism.


Sec.  50.61  Public communication.

    (a) Initial notification. After the Secretary commences 
consideration of whether an act may satisfy the definition in Sec.  
50.4(b), and if circumstances allow, Treasury shall publish a document 
in the Federal Register notifying the public that the act is under 
review for certification as an act of terrorism. Treasury may also 
announce that an act is not under consideration for certification.
    (b) Update notification. Not later than 30 days following the 
publication of a notice under paragraph (a) of this section that an act 
is under consideration for certification, and not later than every 60 
days thereafter, Treasury shall publish a document in the Federal 
Register notifying the public whether the act is still under review for 
certification as an act of terrorism.
    (c) Contents of notification. Nothing in this section shall require 
Treasury to provide any information other than whether the act is under 
review for certification as an act of terrorism (or is no longer under 
such review) or shall limit Treasury from providing further information 
of relevance.
    (d) Rules of construction. Nothing in this section precludes the 
Secretary from certifying or determining not to certify an act as an 
act of terrorism before notifying the public that the act is under 
review for certification. If, in the discretion of the Secretary, 
circumstances relating to an act render timely notification under this 
section by Treasury impracticable, Treasury shall provide the 
notification as soon as practicable, in a manner the Secretary 
determines is appropriate.
    (e) Nonbinding decision. A notification made under this section 
shall not be construed to be a final determination by the Secretary of 
whether to certify an act as an act of terrorism.


Sec.  50.62  Certification data collection.

    (a) General. (1) The Secretary, when evaluating an act for 
certification as an act of terrorism, may at any time direct one or 
more insurers to submit information regarding projected and actual 
losses in connection with an act and any other information the 
Secretary determines appropriate. The information sought by the 
Secretary shall be specified in the data request, and any insurer 
subject to the data request shall respond to the request within the 
time frame specified by the Secretary at the time of the request. The 
data requested may include actual loss reserves established by insurers 
in connection with the act under consideration, loss estimates 
generated by insurers in connection with the act under consideration 
which have not yet been established as actual loss reserves, and 
information respecting an insurer's property and casualty exposures in 
a particular geographic area associated with the act under 
consideration.
    (2) An insurer not required by Treasury to submit information under 
paragraph (a)(1) of this section may voluntarily submit information to 
the Secretary as specified in public notifications issued by Treasury.
    (b) Other sources of information. The Secretary may request 
information with respect to loss estimates and likely affected insurers 
from organizations, including state insurance regulators, insurance 
modeling organizations, rating agencies, insurance brokers and 
producers, and insurance data aggregators.


Sec.  50.63  Notification of certification determination.

    (a) Public notification. Not later than 5 business days after the 
Secretary determines whether to certify an act as an act of terrorism, 
Treasury shall publish a statement and submit a document to the Federal 
Register notifying the public of the Secretary's decision.
    (b) Insurance supervisor notification. Not later than 5 business 
days after the Secretary determines whether to certify an act as an act 
of terrorism, Treasury shall notify in writing any relevant supervisory 
officials of the Secretary's decision.
    (c) Congressional notification. Not later than 5 business days 
after the Secretary determines whether to certify an act as an act of 
terrorism, Treasury shall notify in writing the President of the U.S. 
Senate and the Speaker of the U.S. House of Representatives of the 
Secretary's decision.
    (d) Rule of construction. If, in the discretion of the Secretary, 
circumstances relating to an act render timely notification by Treasury 
under this section impracticable, Treasury shall provide the 
notification as soon as practicable, in a manner the Secretary 
determines is appropriate.

Subpart H--Claims Procedures


Sec.  50.70  Federal share of compensation.

    (a) General. (1) Treasury will pay the Federal share of 
compensation for insured losses as provided in section 103 of the Act 
once a Certification of Loss required by Sec.  50.73 is deemed 
sufficient. The Federal share of compensation under the Program shall 
be:
    (i) 85 percent of that portion of the insurer's aggregate insured 
losses that exceeds its insurer deductible during calendar year 2015;
    (ii) 84 percent of that portion of the insurer's aggregate insured 
losses that exceeds its insurer deductible during calendar year 2016;
    (iii) 83 percent of that portion of the insurer's aggregate insured 
losses that exceeds its insurer deductible during calendar year 2017;

[[Page 18969]]

    (iv) 82 percent of that portion of the insurer's aggregate insured 
losses that exceeds its insurer deductible during calendar year 2018;
    (v) 81 percent of that portion of the insurer's aggregate insured 
losses that exceeds its insurer deductible during calendar year 2019; 
and
    (vi) 80 percent of that portion of the insurer's aggregate insured 
losses that exceeds its insurer deductible during calendar year 2020 
and any calendar year thereafter.
    (2) The percentages in paragraph (a)(1) of this section are subject 
to any adjustments described in Sec.  50.71 and to the cap of $100 
billion as provided in section 103(e)(2) of the Act.
    (b) Program Trigger amounts. Notwithstanding paragraph (a) of this 
section or anything in this subpart to the contrary, Federal 
compensation will not be paid by Treasury unless the aggregate industry 
insured losses resulting from one or more certified acts of terrorism 
exceed the following amounts:
    (1) For insured losses resulting from acts of terrorism taking 
place in calendar year 2015: $100 million;
    (2) For insured losses resulting from acts of terrorism taking 
place in calendar year 2016: $120 million;
    (3) For insured losses resulting from acts of terrorism taking 
place in calendar year 2017: $140 million;
    (4) For insured losses resulting from acts of terrorism taking 
place in calendar year 2018: $160 million;
    (5) For insured losses resulting from acts of terrorism taking 
place in calendar year 2019: $180 million;
    (6) For insured losses resulting from acts of terrorism taking 
place in calendar year 2020 and any calendar year thereafter: $200 
million.
    (c) Conditions for payment of Federal share. Subject to paragraph 
(d) of this section, Treasury shall pay the appropriate amount of the 
Federal share of compensation for an insured loss to an insurer upon a 
determination that:
    (1) The insurer is an entity, including an affiliate thereof, that 
meets the requirements of Sec.  50.4(o);
    (2) The insurer's insured losses, as defined in Sec.  50.4(n) and 
limited by paragraph (d) of this section (including the allocated 
dollar value of the insurer's proportionate share of insured losses 
from a state residual market insurance entity or a state workers' 
compensation fund as described in Sec.  50.33), have exceeded its 
insurer deductible as defined in Sec.  50.4(p);
    (3) The insurer has paid or is prepared to pay an insured loss, 
based on a filed claim for the insured loss;
    (4) Neither the insurer's claim for Federal payment nor any 
underlying claim for an insured loss is fraudulent, collusive, made in 
bad faith, dishonest or otherwise designed to circumvent the purposes 
of the Act and regulations;
    (5) The insurer has provided a clear and conspicuous disclosure as 
required by Sec. Sec.  50.10 through 50.14 and a cap disclosure as 
required by Sec.  50.15;
    (6) The insurer offered coverage for insured losses and the offer 
was accepted by the insured prior to the act which results in the 
insured loss;
    (7) The insurer took all steps reasonably necessary to properly and 
carefully investigate the insured loss and otherwise processed the 
insured loss using practices appropriate for the business of insurance;
    (8) The insured loss is within the scope of coverage issued by the 
insurer under the terms and conditions of one or more policies for 
commercial property and casualty insurance as defined in Sec.  50.4(w); 
and
    (9) The procedures specified in this Subpart have been followed and 
all conditions for payment have been met.
    (d) Adjustments. Treasury may subsequently adjust, including 
requiring repayment of, any payment made under paragraph (c) of this 
section in accordance with its authority under the Act.
    (e) Suspension of payment for other insured losses. Upon a 
determination by Treasury that an insurer has failed to meet any of the 
requirements for payment specified in paragraph (c) of this section for 
a particular insured loss, Treasury may suspend payment of the Federal 
share of compensation for all other insured losses of the insurer 
pending investigation and audit of the insurer's insured losses.
    (f) Aggregate industry losses. Treasury will determine the amount 
of aggregate industry insured losses resulting from a certified act of 
terrorism. If aggregate industry insured losses in a calendar year 
resulting from one or more certified acts of terrorism exceed the 
applicable Program Trigger amounts specified in paragraph (b) of this 
section, Treasury will publish a document in the Federal Register of a 
Program Trigger Event.


Sec.  50.71  Adjustments to the Federal share of compensation.

    (a) Aggregate amount of insured losses. The aggregate amount of 
insured losses of an insurer in a calendar year used to calculate the 
Federal share of compensation shall be reduced by any amounts recovered 
by the insurer as salvage or subrogation for its insured losses in the 
calendar year.
    (b) Amount of Federal share of compensation. The Federal share of 
compensation shall be adjusted as follows:
    (1) No excess recoveries. For any calendar year, the sum of the 
Federal share of compensation paid by Treasury to an insurer and the 
insurer's recoveries for insured losses from other sources shall not be 
greater than the insurer's aggregate amount of insured losses for acts 
of terrorism in that calendar year. Amounts recovered for insured 
losses in excess of an insurer's aggregate amount of insured losses for 
acts of terrorism in a calendar year shall be repaid to Treasury within 
45 days after the end of the month in which total recoveries of the 
insurer, from all sources, become excess. For purposes of this 
paragraph, amounts recovered from a reinsurer pursuant to an agreement 
whereby the reinsurer's right to any excess recovery has priority over 
the rights of Treasury shall not be considered a recovery subject to 
repayment to Treasury.
    (2) Reduction of amount payable. The Federal share of compensation 
for insured losses under the Program shall be reduced by the amount of 
other compensation provided by other Federal programs to an insured or 
a third party to the extent such other compensation duplicates the 
insurance indemnification for those insured losses.
    (i) Other Federal program compensation. For purposes of this 
section, compensation provided by other Federal programs for insured 
losses means compensation that is provided by Federal programs 
established for the purpose of compensating persons for losses in the 
event of emergencies, disasters, acts of terrorism, or similar events. 
Compensation provided by Federal programs for insured losses excludes 
benefit or entitlement payments, such as those made under the Social 
Security Act, under laws administered by the Secretary of Veteran 
Affairs, railroad retirement benefit payments, and other similar types 
of benefit payments.
    (ii) Insurer due diligence. With respect to any underlying claim 
for insured losses, each insurer shall inquire of all involved 
policyholders, insureds, and claimants whether the person receiving 
insurance proceeds for an insured loss has received, expects to 
receive, or is entitled to receive compensation from another Federal 
program for the insured loss, and if so, the source and the amount of 
the compensation received or expected. The response, source, and such 
amounts shall be reported with each underlying claim on the form 
specified in Sec.  50.73(b)(1).

[[Page 18970]]

Sec.  50.72  Notice of deductible erosion.

    Each insurer shall submit to Treasury a Notice on a form prescribed 
by Treasury whenever the insurer's aggregate insured losses (including 
reserves for ``incurred but not reported'' losses) within a calendar 
year exceed an amount equal to 50 percent of the insurer's deductible 
as specified in Sec.  50.4(p). Insurers are advised that the form for 
the Notice of Deductible Erosion will include an initial estimate of 
aggregate insured losses for the calendar year, the amount of the 
insurer deductible, and an estimate of the Federal share of 
compensation for the insurer's aggregate insured losses. In the case of 
an affiliated group of insurers, the Notice will include the name and 
address of a single designated insurer within the affiliated group that 
will serve as the single point of contact for the purpose of providing 
loss and compliance certifications as required in Sec.  50.73 and for 
receiving, disbursing, and distributing payments of the Federal share 
of compensation in accordance with Sec.  50.74. An insurer, at its 
option, may elect to include with its Notice of Deductible Erosion the 
certification of direct earned premium required by Sec.  50.73(b)(3).


Sec.  50.73  Loss certifications.

    (a) General. When an insurer has paid aggregate insured losses that 
exceed its insurer deductible for a calendar year, the insurer may make 
claim upon Treasury for the payment of the Federal share of 
compensation for its insured losses. The insurer shall file an Initial 
Certification of Loss, on a form prescribed by Treasury, and thereafter 
such Supplementary Certifications of Loss, on a form prescribed by 
Treasury, as may be necessary to receive payment for the Federal share 
of compensation for its insured losses.
    (b) Initial certification of loss. An insurer shall use its best 
efforts to file with the Program the Initial Certification of Loss 
within 45 days following the last calendar day of the month when an 
insurer has paid aggregate insured losses that exceed its insurer 
deductible. The Initial Certification of Loss will include the 
following:
    (1) Basic information, on a form prescribed by Treasury, about each 
insured loss paid (or to be paid pursuant to Sec.  50.73(b)(2)(i)) by 
the insurer. The form will include:
    (i) A listing of each insured loss paid (or to be paid pursuant to 
Sec.  50.73(b)(2)(i)) by the insurer by catastrophe code and line of 
business;
    (ii) The total amount of reinsurance recovered from other sources;
    (iii) A calculation of the aggregate insured losses sustained by 
the insurer above its insurer deductible for the calendar year; and
    (iv) The amount the insurer claims as the Federal share of 
compensation for its aggregate insured losses.
    (2) A certification that the insurer is in compliance with the 
provisions of section 103(b) of the Act and this part, including 
certifications that:
    (i) The underlying insured losses reported pursuant to Sec.  
50.73(b)(1) either: Have been paid by the insurer; or will be paid by 
the insurer upon receipt of an advance payment of the Federal share of 
compensation as soon as possible, consistent with the insurer's normal 
business practices, but not longer than five business days after 
receipt of the Federal share of compensation;
    (ii) The underlying claims for insured losses were filed by persons 
who suffered an insured loss, or by persons acting on behalf of such 
persons;
    (iii) The underlying claims for insured losses were processed in 
accordance with appropriate business practices and the procedures 
specified in this subpart;
    (iv) The insurer has complied with the disclosure requirements of 
Sec. Sec.  50.10 through 50.14, and the cap disclosure requirement of 
Sec.  50.15, for each underlying insured loss that is included in the 
amount of the insurer's aggregate insured losses; and
    (v) The insurer has complied with the mandatory availability 
requirements of subpart C of this part.
    (3) A certification of the amount of the insurer's direct earned 
premium, together with the calculation of its insurer deductible 
(provided this certification was not submitted previously with the 
Notice of Deductible Erosion).
    (4) A certification that the insurer will disburse payment of the 
Federal share of compensation in accordance with this Subpart.
    (5) A certification that if Treasury has determined a Pro Rata Loss 
Percentage (PRLP) (see Sec.  50.112), the insurer has complied with 
applying the PRLP to insured loss payments, where required.
    (c) Supplementary certifications of loss. If the total amount of 
the Federal share of compensation due an insurer for insured losses 
under the Act has not been determined at the time an Initial 
Certification of Loss has been filed, the insurer shall file monthly, 
or on a schedule otherwise determined by Treasury, Supplementary 
Certifications of Loss updating the amount of the Federal share of 
compensation due for the insurer's insured losses. Supplementary 
Certifications of Loss will include the following:
    (1) A form as described in Sec.  50.73(b)(1); and
    (2) A certification as described in Sec.  50.73(b)(2).
    (d) Supplementary information. In addition to the information 
required in paragraphs (b) and (c) of this section, Treasury may 
require such additional supporting documentation as required to 
ascertain the Federal share of compensation for the insured losses of 
any insurer.
    (e) State Residual Market Insurance Entities and State Workers' 
Compensation Funds. A state residual market insurance entity or a state 
workers' compensation fund described in Sec.  50.32 shall provide the 
Certifications of Loss described in Sec.  50.73(b) and (c) for all of 
its insured losses to each participating insurer at the time it 
provides the allocated dollar value of the participating insurer's 
proportionate share of insured losses. In addition, at such time the 
state residual market insurance entity or state workers' compensation 
fund shall provide the certification described in Sec.  50.73(b)(2) to 
Treasury. Participating insurers shall treat the allocated dollar value 
of their proportionate share of insured losses from a state residual 
market insurance entity or state workers' compensation fund as an 
insured loss for the purpose of their own reporting to Treasury in 
seeking the Federal share of compensation.


Sec.  50.74  Payment of Federal share of compensation.

    (a) Timing. Treasury will promptly pay to an insurer the Federal 
share of compensation due the insurer for its insured losses. Payment 
shall be made in such installments and on such conditions as determined 
by the Treasury to be appropriate. Any overpayments by Treasury of the 
Federal share of compensation will be offset from future payments to 
the insurer or returned to Treasury within 45 days.
    (b) Payment process. Payment of the Federal share of compensation 
for insured losses will be made to the insurer designated on the Notice 
of Deductible Erosion required by Sec.  50.72. An insurer that requests 
payment of the Federal share of compensation for insured losses must 
receive payment through electronic funds transfer. The insurer must 
establish either an account for reimbursement as described in paragraph 
(c) of this section (if the insurer only seeks reimbursement) or a 
segregated account as described in paragraph (d) of this section (if 
the

[[Page 18971]]

insurer seeks advance payments or a combination of advance payments and 
reimbursement). Applicable procedures will be posted at https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx or 
otherwise will be made publicly available.
    (c) Account for reimbursement. An insurer shall designate an 
account for the receipt of reimbursement of the Federal share of 
compensation at an institution eligible to receive payments through the 
Automated Clearing House (ACH) network.
    (d) Segregated account for advance payments. An insurer that seeks 
advance payments of the Federal share of compensation as certified 
according to Sec.  50.73(b)(2)(i) shall establish a segregated account 
into which Treasury will make advance payments as well as 
reimbursements to the insurer.
    (1) Definition of segregated account. For purposes of this section, 
a segregated account is an interest-bearing separate account 
established by an insurer at a financial institution eligible to 
receive payments through the ACH network. Such an account is limited to 
the purposes of:
    (i) Receiving payments of the Federal share of compensation;
    (ii) Disbursing payments to insureds and claimants; and
    (iii) Transferring payments to the insurer or affiliated insurers 
for insured losses reported as already paid.
    (2) Remittance of interest. All interest earned on advance payments 
in the segregated account must be remitted at least quarterly to 
Treasury's Bureau of the Fiscal Service or as otherwise prescribed in 
applicable procedures.
    (e) Denial or withholding of advance payment. Treasury may deny or 
withhold advance payments of the Federal share of compensation to an 
insurer if Treasury determines that the insurer has not properly 
disbursed previous advances of the Federal share of compensation or 
otherwise has not complied with the requirements for advance payment as 
provided in this Subpart.
    (f) Affiliated group. In the case of an affiliated group of 
insurers, Treasury will make payment of the Federal share of 
compensation for the insured losses of the affiliated group to the 
insurer designated in the Notice of Deductible Erosion to receive 
payment on behalf of the affiliated group. The designated insurer 
receiving payment from Treasury must distribute payment to affiliated 
insurers in a manner that ensures that each insurer in the affiliated 
group is compensated for its share of insured losses, taking into 
account a reasonable and fair allocation of the group deductible among 
affiliated insurers. Upon payment of the Federal share of compensation 
to the designated insurer, Treasury's payment obligation to the 
insurers in the affiliated group with respect to any insured losses 
covered is discharged to the extent of the payment.


Sec.  50.75  Determination of affiliations.

    For the purposes of this subpart, an insurer's affiliates for any 
calendar year shall be determined by the circumstances existing on the 
date of the act which is the Program Trigger Event for that calendar 
year.


Sec.  50.76  Final netting.

    (a) General. Pursuant to section 103(e)(4) of the Act, the 
Secretary shall have sole discretion to determine the time at which 
claims relating to any insured loss or act of terrorism shall become 
final.
    (b) Final Netting Date. The Secretary may determine a Final Netting 
Date for a calendar year, which for purposes of this Part is the date 
on or before which an insurer must report to Treasury on the insurer's 
Certifications of Loss (both Initial Certification of Loss and any 
Supplemental Certifications of Loss) all insured losses that have been 
reported by its policyholders for the calendar year.
    (1) Criteria for Final Netting Date. The establishment of a Final 
Netting Date will be based on factors and considerations including:
    (i) Amounts of case reserves reported by insurers to Treasury for 
open underlying insured losses;
    (ii) The rate at which claims for the Federal share of compensation 
for insured losses are being made by insurers to Treasury;
    (iii) The rate at which new underlying insured losses are being 
added by insurers to their Supplementary Certifications of Loss and 
reported;
    (iv) The predominant lines of business for which underlying insured 
losses are being reported;
    (v) Tort and contract statutes of limitations relevant to insured 
losses and the manner in which they are being applied by the Federal 
courts;
    (vi) Common business practices;
    (vii) Issues that are delaying final resolution of insured losses;
    (viii) The application of the liability limitations and procedures 
under the Support Anti-terrorism by Fostering Effective Technologies 
Act of 2002 (6 U.S.C. 441 et seq.) that may affect final resolution of 
insured losses;
    (ix) Issues related to the cap on annual liability for insurer 
losses, including whether a projection that the cap on annual liability 
will be reached in connection with any calendar year indicates that no 
Final Netting Date should be set for that calendar year;
    (x) Treasury's claims administration costs; and
    (xii) Such other factors as the Secretary considers appropriate to 
take into account.
    (2) Notice of Final Netting Date. Treasury shall announce and 
publish in the Federal Register notice of a proposed Final Netting Date 
and its application to a specific calendar year, and will solicit 
comments from the public regarding the appropriateness of the proposed 
Final Netting Date. After receipt and evaluation of comments respecting 
its proposed Final Netting Date, Treasury will publish in the Federal 
Register a Final Netting Date, which is at least 180 days after the 
date of publication. The Secretary's determination of a Final Netting 
Date is final and not subject to judicial review.
    (c) Post-Final Netting Date claims. After the Final Netting Date, 
insurers may only make further claims for the Federal share of 
compensation for insured losses by submission of Supplemental 
Certifications of Loss with updated information on underlying insured 
losses previously reported to Treasury. Such updated information may 
reflect a decision by a court of competent jurisdiction concerning a 
limitation of liability under the Support Anti-terrorism by Fostering 
Effective Technologies Act of 2002. In the case of workers' 
compensation losses, the insurer may provide updated information based 
on the number of workers' compensation claimants previously reported. 
An insurer may not report any new underlying insured losses, or 
increased workers' compensation loss amounts based on an increase in 
the number of workers' compensation claimants, to Treasury after a 
Final Netting Date, except as provided in this section.
    (d) Commutation. A commutation is the payment by Treasury of a lump 
sum present value of future payments to an insurer in lieu of making 
payments in the future, as provided in this section.
    (1) In lieu of continued submission of Supplemental Certifications 
of Loss after the Final Netting Date as provided in paragraph (c) of 
this section, Treasury may require, or consider an insurer's request 
for, a commutation of an insurer's future claims for the Federal share 
of compensation based on estimates for the underlying insured losses 
reported to Treasury on or before the Final Netting Date. The payment 
by Treasury of a final commuted amount to an insurer will discharge 
Treasury from

[[Page 18972]]

all future liabilities to the insurer for the Federal share of 
compensation for insured losses for the applicable calendar year. In 
the case of an affiliated group of insurers, the requirements of Sec.  
50.74(f) apply, and payment of the final commuted amount to the 
designated insurer of the affiliated group discharges Treasury's 
payment obligation to the insurers in the affiliated group for insured 
losses for the applicable calendar year.
    (2) If future claims are to be commuted, Treasury may require 
additional information from the insurer, including an insurer's 
justification for a final payment amount with necessary actuarial 
factors and methodology, and pertinent information regarding the 
insurer's business relationships and other reinsurance recoverables. 
Insurers will be required to justify discount and other factors from 
which final payment amounts are derived. If Treasury notifies an 
insurer of a requirement to submit additional information to inform its 
commutation decision, the insurer will be provided (depending upon the 
complexity of the material sought) no less than 90 days from the date 
of notification to submit material required in the notice. If the 
insurer fails to provide the requested information, it will forfeit the 
right to future payments from Treasury. Treasury will evaluate such 
information in order to determine a final payment amount or (if 
applicable) an amount to be repaid to Treasury. Treasury may determine 
that it will not consider commutation until it has completed an audit 
of an insurer's insured losses pursuant to the authority set forth in 
Subpart I of these regulations.
    (3) Payments of commuted amounts are not considered to be advance 
payments requiring a segregated account as described in Sec.  50.74(d).
    (4) Notwithstanding Sec.  50.70(d), a payment by Treasury of a 
final commuted amount to an insurer is final unless:
    (i) Treasury is put on notice that an insurer's claim was 
fraudulent or that other conditions for Federal payment were not met, 
in which case the insurer will be required to repay amounts that were 
not due; or
    (ii) The exception in paragraph (e) of this section applies, in 
which case Treasury may make additional payments for insured losses, 
but only under the conditions described in paragraph (e).
    (e) Exception. If within one year after the Final Netting Date, and 
regardless of commutation, an insurer has additional underlying 
reported insured losses that, in the absence of a Final Netting Date, 
would result in an increase of the Federal share of compensation to 
that insurer by 20% of the total amount already paid to that insurer, 
the insurer may request Treasury to allow those underlying insured 
losses to be submitted as part of a certification of loss. Under such 
circumstances and provided that all other conditions for payment have 
been met, Treasury may reopen or extend the insurer's claim for the 
Federal share of compensation for insured losses for the pertinent 
calendar year.

Subpart I--Audit and Investigative Procedures


Sec.  50.80  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 J of this part, for the purposes of investigation, 
confirmation, audit, and examination.


Sec.  50.81  Recordkeeping.

    (a) Each insurer that seeks payment of a Federal share of 
compensation under subpart H 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 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 J 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.


Sec.  50.82  Civil penalties.

    (a) General. The Secretary may assess a civil monetary penalty in 
an amount not exceeding the amount under paragraph (b) of this section 
against any insurer that the Secretary determines, on the record after 
opportunity for a hearing:
    (1) Has failed to charge, collect, or remit the Federal terrorism 
policy surcharge under Subpart J;
    (2) Has intentionally provided to Treasury erroneous information 
regarding premium or loss amounts;
    (3) Submits to Treasury fraudulent claims under the Program for 
insured losses;
    (4) Has failed to provide any disclosures or other information 
required by Treasury; or
    (5) Has otherwise failed to comply with provisions of the Act or 
these regulations.
    (b) Amount. The amount under this section is the greater of 
$1,325,000 and, in the case of any failure to pay, charge, collect, or 
remit amounts in accordance with the Act or these regulations, such 
amount in dispute.
    (c) Recovery of amount in dispute. A penalty under this section for 
any failure to pay, charge, collect, or remit amounts in accordance 
with the Act or under these regulations shall be in addition to any 
such amounts recovered by Treasury.
    (d) Procedure. Treasury shall notify in writing any insurer that it 
believes has committed one or more of the acts identified in paragraph 
(a) of this section. In that notification, Treasury shall identify the 
act or acts that it believes has been violated, and its basis for that 
belief, and shall set a schedule for further proceedings which shall 
include:
    (1) The opportunity for a written submission by the insurer that 
provides all relevant facts and circumstances concerning the alleged 
conduct, including any information that the insurer wishes Treasury to 
consider in connection with the alleged conduct; and
    (2) A hearing on the record, unless waived by the insurer, during 
which Treasury and the insurer may present

[[Page 18973]]

further information respecting the conduct in question.
    (e) Other remedies preserved. Treasury's assessment and collection 
of a civil monetary penalty under this section shall be in addition and 
without prejudice to any other civil remedies or criminal penalties 
that may arise on account of the conduct in question under any other 
laws or regulations of the United States.

Subpart J--Recoupment and Surcharge Procedures


Sec.  50.90  Mandatory and discretionary recoupment.

    (a) Pursuant to section 103(e) of the Act, the Secretary shall 
impose, and insurers shall collect, such Federal terrorism policy 
surcharges as needed to recover 140 percent of the mandatory recoupment 
amount for any calendar 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 imposes 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, 
2017, the Secretary shall collect all required amounts by September 30, 
2019;
    (2) For any act of terrorism that occurs between January 1 and 
December 31, 2018, the Secretary shall collect 35 percent of any 
required amounts by September 30, 2019, and the remainder by September 
30, 2024; and
    (3) For any act of terrorism that occurs on or after January 1, 
2019, the Secretary shall collect all required amounts by September 30, 
2024.


Sec.  50.91  Determination of recoupment amounts.

    (a) If payments for the Federal share of compensation have been 
made for a calendar 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 calendar 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 calendar 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 calendar year.
    (c) Following the initial determination of recoupment amounts for a 
calendar 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 calendar 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 calendar year. 
Treasury's determination of the aggregate amount of insured losses from 
Program Trigger Events of all insurers for a calendar 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.  50.92  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 140 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)(8)(E) of 
the Act;
    (7) 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; and
    (8) Such other factors as the Secretary considers appropriate to 
take into account.
    (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.  50.94(c).


Sec.  50.93  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 
certified act(s) 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 of the calendar year following 
publication of the notice, unless such date would not provide for 
sufficient notice of implementation while meeting the collection timing 
requirements of section 103(e)(8)(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.  50.94  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.  50.4(w)(1), or equivalently reported.
    (c) For policies subject to the Federal terrorism policy surcharge, 
the surcharge shall be imposed and

[[Page 18974]]

collected on a written premium basis for policies that become effective 
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.  50.95(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, 
including all premiums, policy expense constants and fees defined as 
premium pursuant to the Statements of Statutory Accounting Principles 
established by the NAIC, 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 unearned 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.  50.95(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.  50.95  Remitting the surcharge.

    (a) Each insurer shall report direct written premium and Federal 
terrorism policy surcharges to Treasury on a monthly and annual basis 
during the assessment period. Reporting will be on a form prescribed by 
Treasury and will be due according to the following schedule:
    (1) Monthly: From the beginning of the assessment period through 
November, on the last business day of the calendar month following the 
month for which premium is reported, and
    (2) Annually: March 1 for the prior 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, 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.  50.4(w).
    (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.  50.94(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 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.  50.94(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.  50.96  Insurer responsibility.

    Notwithstanding Sec.  50.4(o), for purposes of the collection, 
reporting and remittance of Federal terrorism policy surcharges to 
Treasury, the definition of insurer shall not include any affiliate of 
the insurer.

Subpart K--Federal Cause of Action; Approval of Settlements


Sec.  50.100  Federal cause of action and remedy.

    (a) General. If the Secretary certifies an act as an act of 
terrorism pursuant to Subpart G of this Part, there shall exist a 
Federal cause of action for property damage, personal injury, or death 
arising out of or resulting from such act of terrorism, pursuant to 
section 107 of the Act, which shall be the exclusive cause of action 
and remedy for claims for property damage, personal injury, or death 
arising out of or relating to such act of terrorism, except as provided 
in paragraph (d) of this section.
    (b) Jurisdiction. For each determination described in paragraph (a) 
of this section, not later than 90 days after the Secretary certifies 
an act as an act of terrorism, the Judicial Panel on Multidistrict 
Litigation shall designate a single district court or, if necessary, 
multiple district courts of the United States that shall have original 
and exclusive jurisdiction over all actions for any claim (including 
any claim for loss of property, personal injury, or death) relating to 
or arising out of an act of terrorism subject to section 107 of the 
Act.

[[Page 18975]]

    (c) Effective period. The exclusive Federal cause of action and 
remedy described in paragraph (a) of this section shall exist only for 
causes of action for property damage, personal injury, or death that 
arise out of or result from acts of terrorism during the effective 
period of the Program.
    (d) Rights not affected. Nothing in section 107 of the Act or this 
Subpart shall in any way:
    (1) Limit the liability of any government, organization, or person 
who knowingly participates in, conspires to commit, aids and abets, or 
commits any act of terrorism;
    (2) Affect any party's contractual right to arbitrate a dispute; or
    (3) Affect any provision of the Air Transportation Safety and 
System Stabilization Act (Pub. L. 107-42; 49 U.S.C. 40101 note).


Sec.  50.101  State causes of action preempted.

    All State causes of action of any kind for property damage, 
personal injury, or death arising out of or resulting from an act of 
terrorism that are otherwise available under state law are preempted, 
except that, pursuant to section 107(b) of the Act, nothing in this 
section shall limit in any way the liability of any government, 
organization, or person who knowingly participates in, conspires to 
commit, aids and abets, or commits the act of terrorism certified by 
the Secretary.


Sec.  50.102  Advance approval of settlements.

    (a) Mandatory submission of settlements for advance approval. 
Pursuant to section 107(a)(6) of the Act, an insurer shall submit to 
Treasury for advance approval any proposed agreement to settle or 
compromise any Federal cause of action for property damage, personal 
injury, or death, asserted by a third-party or parties against an 
insured, involving an insured loss, all or part of the payment of which 
the insurer intends to include in its aggregate insured losses for 
purposes of calculating the insurer deductible or the Federal share of 
compensation of its insured losses under the Program, when:
    (1) Any portion of the proposed settlement amount that is 
attributable to an insured loss or losses involving personal injury or 
death in the aggregate is $2 million or more per third-party claimant, 
regardless of the number of causes of action or insured losses being 
settled; or
    (2) Any portion of the proposed settlement amount that is 
attributable to an insured loss or losses involving property damage 
(including loss of use) in the aggregate is $10 million or more per 
third-party claimant, regardless of the number of causes of action or 
insured losses being settled.
    (b) Discretionary review of other settlements. Notwithstanding 
paragraph (a) of this section, Treasury may require that an insurer 
submit for review and advance approval any proposed agreement to settle 
or compromise any Federal cause of action for property damage, personal 
injury, or death, asserted by a third-party or parties against an 
insured, involving an insured loss, all or part of the payment of which 
the insurer intends to include in its aggregate insured losses for 
purposes of calculating the insurer deductible or the Federal share of 
compensation of its insured losses where the settlement amounts are 
below the applicable monetary thresholds identified in paragraphs 
(a)(1) and (2) of this section.
    (c) Factors. In determining whether to approve a proposed 
settlement, Treasury will consider the nature of the loss, the facts 
and circumstances surrounding the loss, and other factors such as 
whether:
    (1) The proposed settlement compensates for a third-party's loss, 
the liability for which is an insured loss under the terms and 
conditions of the underlying commercial property and casualty insurance 
policy, as certified by the insurer pursuant to Sec.  50.103(d)(2);
    (2) Any amount of the proposed settlement is attributable to 
punitive or exemplary damages intended to punish or deter (whether or 
not specifically so described as such damages);
    (3) The settlement amount offsets amounts received from the United 
States pursuant to any other Federal program;
    (4) The settlement amount does not include any items such as fees 
and expenses of attorneys, experts, and other professionals that have 
caused the insured losses under the underlying commercial property and 
casualty insurance policy to be overstated; and
    (5) Any other criteria that Treasury may consider appropriate, 
depending on the facts and circumstances surrounding the settlement, 
including the information contained in Sec.  50.103.
    (d) Settlement without seeking advance approval or despite 
disapproval. If an insurer settles a cause of action or agrees to the 
settlement of a cause of action without submitting the proposed 
settlement for Treasury's advance approval in accordance with paragraph 
(a) or (b) of this section, and in accordance with Sec.  50.103 or 
despite Treasury's disapproval of the proposed settlement, the insurer 
will not be entitled to include the paid settlement amount (or portion 
of the settlement amount, to the extent partially disapproved) in its 
aggregate insured losses for purposes of calculating the Federal share 
of compensation of its insured losses, unless the insurer can 
demonstrate, to the satisfaction of Treasury, extenuating 
circumstances.


Sec.  50.103  Procedure for requesting approval of proposed 
settlements.

    (a) Submission of notice. Insurers must request advance approval of 
a proposed settlement by submitting a notice of the proposed settlement 
and other required information in writing to the Terrorism Risk 
Insurance Program Office or its designated representative. The address 
where notices are to be submitted will be available at https://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx following 
any certification of an act of terrorism pursuant to section 102(1) of 
the Act.
    (b) Complete notice. Treasury will review requests for advance 
approval and determine whether additional information is needed to 
complete the notice.
    (c) Treasury response or deemed approval. Within 30 days after 
Treasury's receipt of a complete notice, or as extended in writing by 
Treasury, Treasury may issue a written response and indicate its 
partial or full approval or rejection of the proposed settlement. If 
Treasury does not issue a response within 30 days after Treasury's 
receipt of a complete notice, unless extended in writing by Treasury, 
the request for advance approval is deemed approved by Treasury. Any 
settlement is still subject to review under the claim procedures 
pursuant to Sec.  50.80.
    (d) Notice format. A notice of a proposed settlement should be 
entitled, ``Notice of Proposed Settlement--Request for Approval,'' and 
should provide the full name and address of the submitting insurer and 
the name, title, address, and telephone number of the designated 
contact person. An insurer must provide all relevant information, 
including the following, as applicable:
    (1) A brief description of the claim against the insured, the 
amount of the claim, the operative policy terms, and defenses to 
coverage;
    (2) A certification by the insurer that the settlement is for a 
third-party's loss, the liability for which is an insured loss under 
the terms and conditions of the underlying commercial property and 
casualty insurance policy;
    (3) A brief description of all damages allegedly sustained and an 
itemized statement of all damages by category (i.e., actual, economic 
and non-economic loss, punitive damages, etc.);

[[Page 18976]]

    (4) A statement from the insurer or its attorney in support of the 
settlement;
    (5) The total dollar amount of the proposed settlement and the 
amount of the proposed settlement which is an insured loss;
    (6) Indication as to whether the settlement was negotiated by 
counsel;
    (7) The amount to be paid that will compensate for any items such 
as fees and expenses of attorneys, experts, and other professionals for 
their services and expenses related to the insured loss and/or 
settlement and the net amount to be received by the third-party after 
such payment;
    (8) The amount(s) received from the United States pursuant to any 
other Federal program(s) for compensation of insured losses related to 
an act of terrorism;
    (9) The proposed terms of the written settlement agreement, 
including release language and subrogation terms;
    (10) Other relevant agreements, including:
    (i) Admissions of liability or insurance coverage;
    (ii) Determinations of the number of occurrences under a commercial 
property and casualty insurance policy;
    (iii) The allocation of paid amounts or amounts to be paid to 
certain policies, or to a specific policy, coverage and/or aggregate 
limits;
    (iv) Any other agreement that may affect the payment or amount of 
the Federal share of compensation to be paid to the insurer; and
    (v) Any other relevant agreement requested by Treasury.
    (11) A statement indicating whether the proposed settlement has 
been approved by the Federal court or is subject to such approval and 
whether such approval is expected or likely; and
    (12) Such other information that is related to the insured loss as 
may be requested by Treasury that it deems necessary to evaluate the 
proposed settlement.


Sec.  50.104  Subrogation.

    An insurer shall not waive its rights of subrogation under its 
property and casualty insurance policy with respect to any losses the 
payment of which the insurer intends to include in its insurer 
deductible or the aggregate insured losses for purposes of calculating 
the Federal share of compensation of its insured losses and shall, 
unless upon request the United States agrees in writing to forbear from 
exercising such right, preserve the subrogation right of the United 
States as provided by section 107(c) of the Act by not taking any 
action that would prejudice the subrogation right of the United States.

Subpart L--Cap on Annual Liability


Sec.  50.110  Cap on annual liability.

    Pursuant to section 103 of the Act, if the aggregate insured losses 
exceed $100,000,000,000 during a calendar year:
    (a) The Secretary shall not make any payment for any portion of the 
amount of such losses that exceeds $100,000,000,000;
    (b) An insurer that has met its insurer deductible shall not be 
liable for the payment of any portion of the amount of such losses that 
exceeds $100,000,000,000; and
    (c) The Secretary shall determine the pro rata share of insured 
losses to be paid by each insurer that incurs insured losses under the 
Program.


Sec.  50.111  Notice to Congress.

    Pursuant to section 103(e)(3) of the Act, the Secretary shall 
provide an initial notice to Congress within 15 days of the 
certification of an act of terrorism, stating whether the Secretary 
estimates that aggregate insured losses will exceed $100,000,000,000 
for the calendar year in which the event occurs. Such initial estimate 
may be based on insured loss amounts as compiled by insurance industry 
statistical organizations, data previously collected by the Secretary, 
and any other information the Secretary in his or her discretion 
considers appropriate. The Secretary shall also notify Congress if 
estimated or actual aggregate insured losses exceed $100,000,000,000 
during any calendar year.


Sec.  50.112  Determination of pro rata share.

    (a) Pro rata loss percentage (PRLP) is the percentage determined by 
the Secretary to be applied by an insurer against the amount that would 
otherwise be paid by the insurer under the terms and conditions of an 
insurance policy providing property and casualty insurance under the 
Program if there were no cap on annual liability under section 
103(e)(2)(A) of the Act.
    (b) Except as provided in paragraph (e) of this section, if 
Treasury estimates that aggregate insured losses may exceed the cap on 
annual liability for a calendar year, then Treasury will determine a 
PRLP. The PRLP applies to insured loss payments by insurers for insured 
losses incurred in the subject calendar year, as specified in Sec.  
50.113, from the effective date of the PRLP, as established by 
Treasury, until such time as Treasury provides notice that the PRLP is 
revised. Treasury will determine the PRLP based on the following 
considerations:
    (1) Estimates of insured losses from insurance industry statistical 
organizations;
    (2) Any data calls issued by Treasury (see Sec.  50.114);
    (3) Expected reliability and accuracy of insured loss estimates and 
likelihood that insured loss estimates could increase;
    (4) Estimates of insured losses and expenses not included in 
available statistical reporting;
    (5) Such other factors as the Secretary considers important.
    (c) Treasury shall provide notice of the determination of the PRLP 
through publication in the Federal Register, or in another manner 
Treasury deems appropriate, based upon the circumstances of the act of 
terrorism under consideration.
    (d) As appropriate, Treasury will determine any revision to a PRLP 
based on the same considerations listed in paragraph (b) of this 
section, and will provide notice for its application to insured loss 
payments.
    (e) If Treasury estimates based on an initial act of terrorism or 
subsequent act of terrorism within a calendar year that aggregate 
insured losses may exceed the cap on annual liability, but an 
appropriate PRLP cannot yet be determined, Treasury will provide 
notification advising insurers of this circumstance and, after 
consulting with the relevant state authorities, may initiate the action 
described in either paragraph (e)(1) or (2) of this section.
    (1) Hiatus in payments. Call a hiatus in insurer loss payments for 
insured losses of up to two weeks. In such a circumstance, Treasury 
will determine a PRLP as quickly as possible. The PRLP, as later 
determined, will be effective retroactively as of the start of the 
hiatus. Any insured losses submitted in support of an insurer's claim 
for the Federal share of compensation will be reviewed for the 
insurer's compliance with pro rata payments in accordance with the 
effective date of the PRLP.
    (2) Determine an interim PRLP. (i) An interim PRLP is an amount 
determined without the availability of information necessary for 
consideration of all factors listed in Sec.  50.112(b). It is a 
conservatively low percentage amount determined in order to facilitate 
initial partial claim payments by insurers after an act of terrorism 
and prior to the time that information becomes available to determine a 
PRLP based on consideration of the factors listed in Sec.  50.112(b).
    (ii) In such a circumstance, Treasury will determine a PRLP to 
replace the interim PRLP as quickly as possible. The PRLP, as later 
determined, will be

[[Page 18977]]

effective retroactively as of the effective date of the interim PRLP. 
Any insured losses submitted in support of an insurer's claim for the 
Federal share of compensation will be reviewed for the insurer's 
compliance with pro rata payments in accordance with the effective date 
of the interim PRLP, or as later replaced by the PRLP as appropriate.


Sec.  50.113  Application of pro rata share.

    An insurer shall apply the PRLP to determine the pro rata share of 
each insured loss to be paid by the insurer on all insured losses in 
the absence of an agreement on a complete and final settlement as 
evidenced by a signed settlement agreement or other means reviewable by 
a third party as of the effective date established by Treasury. 
Payments based on the application of the PRLP and determination of the 
pro rata share satisfy the insurer's liability for payment under the 
Program. Application of the PRLP and the determination of the pro rata 
share are the exclusive means for calculating the amount of insured 
losses for Program purposes. The pro rata share is subject to the 
following:
    (a) The pro rata share is determined based on the estimated or 
actual final claim settlement amount that would otherwise be paid.
    (b) All policies. If partial payments have already been made as of 
the effective date of the PRLP, then the pro rata share for that loss 
is the greater of the amount already paid as of the effective date of 
the PRLP or the amount computed by applying the PRLP to the estimated 
or actual final claim settlement amount that would otherwise be paid.
    (c) Certain workers' compensation insurance policies. If an 
insurer's payments under a workers' compensation policy cumulatively 
exceed the amount computed by applying the PRLP to the estimated or 
actual final claim settlement amount that would otherwise be paid 
because such estimated or actual final settlement amount is reduced 
from a previous estimate, then the insurer may request a review and 
adjustment by Treasury in the calculation of the Federal share of 
compensation. In requesting such a review, the insurer must submit 
information to supplement its Certification of Loss demonstrating a 
reasonable estimate invalidated by unexpected conditions differing from 
prior assumptions including, but not limited to, an explanation and the 
basis for the prior assumptions.
    (d) If an insurer has not yet made payments in excess of its 
insurer deductible, the rules in this paragraph apply.
    (1) If the insurer estimates that it will exceed its insurer 
deductible making payments based on the application of the PRLP to its 
insured losses, then the insurer shall apply the PRLP as of the 
effective date specified in Sec.  50.112(b).
    (2)(i) If the insurer estimates that it will not exceed its insurer 
deductible making payments based on the application of the PRLP to its 
insured losses, then the insurer may make payments on the same basis as 
prior to the effective date of the PRLP. The insurer may also make 
payments on the basis of applying some other pro rata amount it 
determines that is greater than the PRLP, where the insurer estimates 
that application of such other pro rata amount will result in it not 
exceeding its insurer deductible. The insurer remains liable for losses 
in accordance with Sec.  50.115(c).
    (ii) If an insurer estimates that it will not exceed its insurer 
deductible and has made payments on the basis provided in paragraph 
(d)(2)(i) of this section, but thereafter reaches its insurer 
deductible, then the insurer shall apply the PRLP to any remaining 
insured losses. When such an insurer submits a claim for the Federal 
share of compensation, the amount of the insurer's losses will be 
deemed to be the amount it would have paid if it had applied the PRLP 
as of the effective date, and the Federal share of compensation will be 
calculated on that amount. However, an insurer may request an exception 
if it can demonstrate that its estimate was invalidated as a result of 
insured losses from a subsequent act of terrorism.


Sec.  50.114  Data call authority.

    For the purpose of determining initial or recalculated PRLPs, 
Treasury may issue a data call to insurers for insured loss 
information, seeking information in addition to any information 
provided to Treasury under subparts F and H of this part.


Sec.  50.115  Final amount.

    (a) Treasury shall determine if, as a final proration, remaining 
insured loss payments, as well as adjustments to previous insured loss 
payments, can be made by insurers based on an adjusted PLRP, and 
aggregate insured losses still remain within the cap on annual 
liability. In such a circumstance, Treasury will notify insurers as to 
the final PRLP and its application to insured losses.
    (b) If paragraph (a) of this section applies, Treasury may require, 
as part of the insurer submission for the Federal share of compensation 
for insured losses, a supplementary explanation regarding how 
additional payments will be provided on previously settled insured 
losses.
    (c) An insurer that has prorated its insured losses, but that has 
not met its insurer deductible, remains liable for loss payments that 
in the aggregate bring the insurer's total insured loss payments up to 
an amount equal to the lesser of its insured losses without proration 
or its insurer deductible.

    Dated: March 21, 2016.
Amias Moore Gerety,
Acting Assistant Secretary for Financial Institutions.
[FR Doc. 2016-06920 Filed 3-31-16; 8:45 am]
 BILLING CODE 4810-25-P