[Federal Register Volume 81, Number 235 (Wednesday, December 7, 2016)]
[Rules and Regulations]
[Pages 88592-88598]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29313]
[[Page 88591]]
Vol. 81
Wednesday,
No. 235
December 7, 2016
Part VII
Department of the Treasury
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31 CFR Part 50
Terrorism Risk Insurance Program; Certification; Final Rule
Federal Register / Vol. 81 , No. 235 / Wednesday, December 7, 2016 /
Rules and Regulations
[[Page 88592]]
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DEPARTMENT OF THE TREASURY
31 CFR Part 50
RIN 1505-AC53
Terrorism Risk Insurance Program; Certification
AGENCY: Departmental Offices, Department of the Treasury.
ACTION: Interim final rule with request for comment.
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SUMMARY: The Department of the Treasury (Treasury) is issuing this
interim final rule as part of its implementation of changes to the
Terrorism Risk Insurance Program (Program) required by the Terrorism
Risk Insurance Program Reauthorization Act of 2015 (2015
Reauthorization Act). This interim final rule only addresses the
process for certification of an act of terrorism, as published in
proposed form on April 1, 2016, for public comment. Some clarifying
changes have been made in this interim final rule in response to
comments, and certain wording changes have also been made which are not
intended to change the meaning of the rule as originally proposed.
The proposed rule includes a more general revision to and
renumbering of the Program rules which will be issued in full at a
later date. Accordingly, for now, the new subpart is renumbered to
avoid duplication with the existing rule numbers. Upon issuance of the
final rules for the Program, the final rules will reflect the numbering
sequence in the notice of proposed rulemaking published on April 1,
2016.
DATES: Effective date: January 6, 2017. Written comments on this
interim final rule must be received on or before January 6, 2017.
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 ``Terrorism Risk Insurance Program Certification 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, Senior Insurance Regulatory Policy
Analyst, 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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The Program has been reauthorized three times.\3\ Most recently, on
January 12, 2015, the President signed into law the Terrorism Risk
Insurance Program Reauthorization Act of 2015 (2015 Reauthorization
Act),\4\ reauthorizing the Program until December 31, 2020. The 2015
Reauthorization Act changed various operational matters respecting the
Program. Among other changes, the 2015 Reauthorization Act mandates
that Treasury issue final rules governing the certification process,\5\
following the submission of a mandated report on improving the
process.\6\
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\3\ Terrorism Risk Insurance Extension Act of 2005, Public Law
109-444, 119 Stat. 2660; Terrorism Risk Insurance Program
Reauthorization Act of 2007, Public Law 110-160, 121 Stat. 1839;
Terrorism Risk Insurance Program Reauthorization Act of 2015, Public
Law 114-1, 129 Stat. 3.
\4\ Public Law 114-1, 129 Stat. 3.
\5\ TRIA, section 102(1)(D).
\6\ 2015 Reauthorization Act, section 107. See 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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II. Previous Rulemaking
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.\7\ 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.\8\
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.\9\ Subpart G of 31 CFR part 50 currently contains
rules on audit and recordkeeping requirements for insurers,\10\ while
subpart H of 31 CFR part 50 currently addresses recoupment and
surcharge procedures.\11\ Finally, subpart I of 31 CFR part 50
currently contains rules implementing the litigation management
provisions of
[[Page 88593]]
TRIA,\12\ and subpart J of 31 CFR part 50 currently addresses rules
concerning the cap on annual liability established under TRIA.\13\ To
assist insurers, policyholders, and other interested parties in
complying with immediately applicable requirements of the Act, Treasury
has also at times issued interim guidance to be relied upon by insurers
until superseded by regulations.
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\7\ 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)).
\8\ 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)).
\9\ 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)).
\10\ See 68 FR 67100 (Dec. 1, 2003) (audit and investigative
procedures (Notice of Proposed Rulemaking)); 69 FR 39296 (audit and
investigative procedures (Final Rule)).
\11\ 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)).
\12\ 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)).
\13\ 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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No rules concerning the certification process have previously been
proposed or issued by Treasury.\14\
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\14\ Although, and as noted below, Treasury has previously
responded to comments provided in response to proposed rules
concerning applicable definitional provisions for the Program that
Treasury ``establish a time frame within which the Secretary would
be required to make a determination or certification that an `act of
terrorism' had occurred. . . .'' See 68 FR 41250, 41252 (July 11,
2003).
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III. The Proposed Rule
The proposed rule on which this interim final rule is based was
published in the Federal Register at 81 FR 18950 on April 1, 2016. The
proposed rule included Subpart G--Certification to 31 CFR part 50,
which comprises regulations addressing the certification process, as
required under the 2015 Reauthorization Act. Proposed subpart G, which
is new, is part of a general proposal published on April 1, 2016 to
strike existing 31 CFR part 50 in its entirety and to replace it with
revised Program rules that incorporate new financial and operational
provisions for the Program added in the 2015 Reauthorization Act. The
proposal also reorders the existing rules to incorporate the new
subparts, and makes other changes to further clarify existing rules and
to eliminate redundancies.
Pursuant to the 2015 Reauthorization Act, Treasury submitted a
report to Congress in October 2015 entitled The Process for Certifying
an ``Act of Terrorism'' under the Terrorism Risk Insurance Act of 2002
(Certification Report). The proposed rules concerning the certification
process are consistent with Treasury's findings in the Certification
Report. For example, Treasury determined that a rule governing the
certification process that required the Secretary to render a
certification decision within a given time following an act could
adversely affect the Secretary's ability to collect information
necessary to that decision.\15\ Furthermore, the 2015 Reauthorization
Act specifically requires the establishment of a timeline for which an
act is eligible for certification. Treasury's proposed rules identified
the required timing considerations as to when an act is eligible for
certification and Treasury believes that additional issues concerning
milestones and certainty respecting the certification process are best
addressed by procedures providing for improved notification and
communication to the public once an act is under review for
certification. Treasury's observation in 2003 concerning how an ``act
of terrorism'' may occur in various and unpredictable ways, that render
imposition of a timeline subject to rigid deadlines impracticable,
remains true today as well:
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\15\ Certification Report at 9.
[T]here is no way to predict future events and ascertain a time
frame that would be appropriate for all potential situations. Facts
could be immediately available and, after consultation, present a
clear basis for a quick determination by the Secretary; conversely,
a determination could require more time to gather information and
conduct an analysis of the act.\16\
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\16\ 68 FR 41250, 41252 (July 11, 2003).
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IV. Summary of Comments and Interim Final Rule
Treasury is now issuing this interim final rule concerning the
certification process after careful consideration of all comments
received on the proposed rule. While this interim final rule largely
reflects the proposed rule, Treasury has made several revisions based
on the comments received, and Treasury solicits comment on the changes
to the timeline for eligibility for certification adopted in this
interim final rule. Treasury expects to issue final rules based on this
interim final rule and the rules proposed in the Notice of Proposed
Rulemaking published on April 1, 2016 in the near future.
Ten commenters responded to the proposed rule concerning the
certification process. The ten commenters included insurance industry
trade associations; a trade association representing consumers of
terrorism risk insurance; an insurance company; Lloyd's (an insurance
and reinsurance market); a captive insurance manager; and an
individual.\17\ The comments received and Treasury's revisions to the
proposed rule are summarized below.
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\17\ Comments addressing the certification process in some
fashion were submitted by the American Insurance Association (AIA
Comments); The Council of Insurance Agents & Brokers (CIAB
Comments); the National Association of Mutual Insurance Companies
(NAMIC Comments); the Property Casualty Insurers Association of
America (PCIAA Comments); the Reinsurance Association of America
(RAA Comments); The Coalition to Insure Against Terrorism (CIAT
Comments); Exchange Indemnity Company (Exchange Indemnity Comments);
Lloyd's of London (Lloyd's Comments); Marsh Captive Solutions (Marsh
Captive Solutions Comments); and Jason M. Schupp (Jason Schupp
Comments). All of the comments received in connection with the
proposed rules published for comment on April 1, 2016, are available
at https://www.regulations.gov/docketBrowser?rpp=25&so=DESC&sb=commentDueDate&po=0&dct=PS&D=TREAS-TRIP-2016-0005.
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1. Certification (Sec. 50.60)
Proposed Sec. 50.60 sets forth the general parameters of the
certification process, as required under TRIA, as amended by the 2015
Reauthorization Act. It establishes in paragraph (b) that, from a
timing standpoint, an act which satisfies the definition of an act of
terrorism is eligible for certification once the Secretary has
consulted with the Attorney General of the United States and the
Secretary of Homeland Security, in accordance with the requirements of
the Reauthorization Act. Most of the comments received by Treasury
concerning the certification process involve this provision. One
comment states that the proposed rule ``falls short of what was
required by Congress'' with respect to the certification process
because there is no ``clear timeline for certification decisions.''
\18\ Other comments also provide suggestions for specific deadlines to
be imposed upon the certification decision, although the other
commenters do not imply that such a specific timeline is a statutory
requirement.\19\
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\18\ CIAT Comments at 2.
\19\ PCIAA Comments at 4-5 (incorporating prior comment filed in
connection with Treasury's preparation of the Certification Report,
at 2) (preliminary certification decision within 15 days following
the potential act of terrorism, and a final decision 60 days after
the potential act of terrorism); CIAB Comments at 2 (proposing
certification timeframe of 90 days); CIAT Comments at 2 (proposing
as an ``appropriate limit'' 45 days after Treasury commences review
of an act, or receives a request from either an insurer or
policyholder that it commence such review).
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The 2015 Reauthorization Act, at Section 107(e), requires only that
a final rule concerning the certification process include ``a timeline
for which an act is eligible for certification by the Secretary on
whether an act is an act of terrorism under this paragraph.'' This
means that Section 107(e) requires that Treasury promulgate rules
establishing a timeline for when an act is eligible for certification
as an act of terrorism,
[[Page 88594]]
rather than for when that act will be certified.
The 2015 Reauthorization Act also does not include any requirements
for including specific deadlines in the eligibility timeline. Indeed,
the previously proposed version of the 2015 Reauthorization Act did
contain such specific deadline requirements, see H. Rept. 113-523, 45,
but the final version passed by Congress instead delegated authority to
establish a timeline to Treasury. Furthermore, Congress required
Treasury to conduct a study on the establishment of a reasonable
timeline by which the Secretary must make an accurate determination on
whether to certify an act before issuing this rule. This sequence
provides evidence that Congress intended for Treasury to adopt rules
governing the certification process that reflect the findings of the
study. The Senate Banking Committee report reflects this intent, noting
that ``[a]fter the conduction of the study, the Secretary would be
required to issue regulations under existing authorities governing the
certification process to address the finding of the study.'' S. Rept.
113-199, 9. Based on the statutory text and legislative history,
Treasury believes that it is not required to adopt a timeline that
includes a strict deadline for certification.
Treasury also believes that it would not be prudent to adopt such a
timeline that includes such strict deadlines. The principal problems
the study identified with imposing a time by which an act must be
certified are two-fold. First, certification may implicate complex
issues relating to the motivation of the actor(s) involved in a
particular situation or the actual facts of the situation, all of which
may be subject to ongoing criminal investigations (of unknown
duration), and Treasury may need to await the results of such
investigations before determining whether to certify an act of
terrorism.\20\ For example, the Secretary may not be able to determine
whether an airplane crashing in the ocean is an act of terrorism or a
mechanical failure until the black box is recovered. Such recovery may
take several months or years. A rule requiring that a certification
decision be made within any specified time period keyed to the
occurrence of an act could force the Secretary to make a decision
without all of the relevant information. Accordingly, it is important
that the Secretary's decision be made only after considering all of the
relevant information. Given the wide differences in circumstances
surrounding potential acts of terrorism, Treasury does not believe that
it would be reasonable to establish any specific deadlines for
certification, even where such deadlines could be extended when
necessary.
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\20\ Certification Report at 9 (``In order for the Secretary to
make an informed certification decision in accordance with the
statutory criteria, for example, Treasury might need to coordinate
with other government agencies conducting investigations concerning
the perpetrators of or motivations for the act. The Secretary will
also need to be respectful of activities of law enforcement and the
justice system concerning the investigation, apprehension, and
prosecution of the individual or individuals suspected or accused of
committing the act.'' (Footnote omitted.)).
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The second problem identified in the report is that, in many cases,
insurance losses may take substantial periods of time to develop before
Treasury can determine whether an act is even eligible for
certification.\21\ For example, it could take years to fully evaluate
whether insurance losses related to certain events (e.g., the
introduction of a carcinogenic agent into a municipal water supply)
result in losses above the certification threshold. No commenters have
suggested that these issues are illusory, or offered for consideration
any mechanisms to avoid the problems that a timeline subject to
specific deadlines presents given these realities.
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\21\ Certification Report at 9-10 (``Loss development patterns--
i.e., the severity, timing, and distribution of losses as
information becomes available--are not always predictable from
preliminary information and will be affected by the magnitude and
type of act under consideration for certification. The time it may
take for claims to be submitted to one or more insurers by affected
policyholders after an act has occurred, for those claims to be
investigated and adjusted by the insurers, and (if appropriate) to
be reserved or paid by the insurers, might vary considerably.'').
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The renewed calls for a timeline subject to precise deadlines have
also been based upon arguments that insurers require a quick decision
respecting certification of an act of terrorism because of the effect
that this determination might have upon coverage issues, and their
obligations to respond promptly to claims under state law
provisions.\22\ In addition, some commenters have suggested that a
certification decision made within a defined time is necessary for
economic stability and for a proper functioning insurance market.\23\
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\22\ Lloyd's Comments at 1-2; PCIAA Comments at 4-5
(incorporating prior comments at 1).
\23\ CIAB Comments at 2; CIAT Comments at 2.
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Although Treasury appreciates insurers have obligations to respond
to claims in a timely fashion, the state law obligations that have been
invoked are subject to extensions when a greater period of time is
necessary to make a claims determination.\24\ None of the commenters
that have invoked these obligations have addressed this feature of
state law. Commenters also claimed that a rule with specific deadlines
may further ``economic stability'' and avoid ``market consequences,''
yet the commenters did not identify any specific economic or insurance
marketplace stability issue resulting from uncertainty about Treasury's
position with respect to a particular act. Furthermore, Treasury's
public communications under proposed Sec. 50.61 should provide
sufficient information to allow market participants to take appropriate
steps pending the finalization of a future certification process.
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\24\ Certification Report at 8 n.36 (observing that state model
regulations identified by insurers as imposing time deadlines upon
claims decisions, which have been adopted in some form by 47 states
and two territories, provide ``the opportunity to obtain further
time, upon notice to the policyholder, within which to make the
claims determination'') (citing NAIC, Unfair Property/Casualty
Claims Settlement Practices Model Regulation, 902-4, section 7.B,
available at http://www.naic.org/store/free/MDL-902.pdf).
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While Treasury believes, based on the statutory text and the
findings in the Certification Report, that adopting strict deadlines is
neither required by statute nor an appropriate policy decision, the
regulations as adopted in this interim final rule have been modified to
more clearly lay out a timeline for whether an act is eligible for
certification by the Secretary as an act of terrorism. Each of the
events outlined in this interim final rule were contemplated in the
proposed rule, but are now consolidated in a single schedule to provide
for greater clarity. The timeline in this interim final rule clarifies
that there will be (1) a commencement to this process, subject to
public notification, as discussed in proposed Sec. 50.61(a); (2)
regular public notification under the schedule set forth in proposed
Sec. 50.61(b); (3) a period of time during which the Secretary
evaluates the factors relevant to the certification decision, which is
subject to regular public notification of continued review, as
reflected in proposed Sec. 50.61(b); and (4) a consultation between
the Secretary and the Attorney General and Secretary of Homeland
Security, as required by TRIA, as reflected in proposed Sec. 50.60(a),
(b). Because the consultation required by TRIA will take place after
the Secretary has obtained relevant information and completed the
review identified in Step 3, the concerns militating against adoption
of specific deadlines do not apply to the timing of the consultation.
Therefore, Treasury can and has identified a time period of 30 days
during which this action can be expected to occur. Treasury
specifically
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solicits comment on whether there are any reasonable improvements to
the timeline set forth in this interim final rule that would provide
further clarity concerning the process, in a way that would materially
benefit interested parties and which would still be practical given the
nature of the process and the issues with a strict deadline identified
by Treasury.
Two commenters suggested the inclusion of a provision that would
permit an interested party (identified as either an insurer or a
policyholder) to request that Treasury make a certification
determination regarding a particular act.\25\ Another commenter
proposed a ``dispute resolution and/or notice and comment procedure to
ensure that all impacted parties are given the opportunity to address
concerns surrounding certification or non-certification of an event.''
\26\ Such comments fail to appreciate the nature of the certification
determination entrusted to the Secretary under TRIA.
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\25\ Lloyd's Comments at 2; CIAT Comments at 2.
\26\ CIAB Comment at 3.
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Initially, the certification decision is entrusted to the
Secretary, who is empowered with non-delegable authority under TRIA to
determine whether to certify an act as an act of terrorism, once there
has been the required consultation between the Secretary, the Attorney
General, and the Secretary of Homeland Security. TRIA recognizes the
high levels of sensitivity embodied in this determination by making
this decision final and not subject to judicial review. The Secretary,
in consultation with the Attorney General and the Secretary of Homeland
Security, may, for instance, conclude that law enforcement priorities
require waiting to make the certification decision. Permitting an
insurer or policyholder to trigger a certification determination, or to
be able to dispute the certification or non-certification of an event
would be inconsistent with TRIA's delegation of authority to the
Secretary to make the determination on a non-reviewable basis.
Moreover, nothing in TRIA or Treasury's proposed rules prohibits a
stakeholder from contacting Treasury to bring to its attention an event
that the stakeholder believes might be subject to certification under
TRIA, or other information relevant to that event. Treasury's adoption
of proposed Sec. 50.62(b) specifically recognizes the value that
stakeholder input has to the certification process. Furthermore, a
dispute resolution or notice and comment procedure would only operate
to delay a certification determination, which is inconsistent with
comments otherwise offered that a timeline is necessary to insure that
a timely certification decision is made.
Two additional comments concerning proposed Sec. 50.60 warrant
attention. First, two commenters note that proposed Sec. 50.60(a), as
currently proposed, could be read to require that the Secretary consult
with the Attorney General and the Secretary of Homeland Security even
when ultimately deciding not to certify an act as an act of
terrorism.\27\ It was not Treasury's intent to impose a consultation
requirement where the Secretary determines not to certify, and in this
context the word ``whether'' in proposed Sec. 50.60(a) should not be
read to impose any obligation on the Secretary that would be
inconsistent with the Secretary's discretion under TRIA. Accordingly,
this interim final rule adopts Sec. 50.60(a) as originally proposed,
subject to this understanding.
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\27\ Jason Schupp Comments at 8; AIA Comments at 7.
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Second, another comment observes that there is circularity in the
provisions of proposed Sec. 50.60(b), respecting the timing of when a
certification decision can take place, in that the cross-reference in
proposed Sec. 50.60(b) to proposed Sec. 50.4(b) (the ``act of
terrorism'' definition) incorporates the consultation process which
then would have to take place before the consultation process
identified in proposed Sec. 50.60(b). Thus, the commenter observes,
proposed Sec. 50.60(b) could be read to suggest ``that no act could
ever be certified because only previously certified acts are eligible
for certification,'' and that the provision should just be deleted.\28\
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\28\ Jason Schupp Comments at 8-9.
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Proposed Sec. 50.60(b) cannot be eliminated, as it is a necessary
provision setting forth the timeline for when an act is eligible for
certification by the Secretary as an act of terrorism. Treasury's
modification of proposed Sec. 50.60(b) to better reflect the timeline
contemplated in the proposed rule resolves this ambiguity. As noted,
this formulation is already contemplated by the proposed rules, and as
expressed in this fashion provides for a clearer ordering of the
relevant milestones that avoids the potential circularity issue
identified in the comments.
For the reasons set forth above, Treasury will modify proposed
Sec. 50.60 as described above, and adopt in this interim final rule
Sec. 50.100 as so amended. As noted at the outset, this section of the
interim final rule is for now adopted as Sec. 50.100 to avoid
duplication with existing rule numbers, and we anticipate it will be
renumbered to Sec. 50.60 in the final rule.
2. Public Communication (Sec. 50.61)
Proposed Sec. 50.61 addresses the commencement of the
certification process and public communication concerning the process.
As Treasury explained in the Certification Report, public communication
respecting the certification process provides the public with necessary
information concerning the certification process in a way that is not
subject to the problems inherent with a strict timeline, as addressed
above.\29\ No commenters disagreed with Treasury's proposal to provide
such public communication of the certification process. Three
commenters suggested that the proposed rule should incorporate a
deadline or milestones to govern when Treasury must notify the public
that an act is being considered for certification, and even to provide
``preliminary indications'' respecting certification at that point of
initial notification.\30\ One commenter suggested a change to proposed
Sec. 50.61(a) to confirm that Treasury will only provide public
notification where an act is actually under review for certification as
an act of terrorism, ``to avoid any suggestion [Treasury's] routine
monitoring of events should trigger expectations of public
notification.'' \31\
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\29\ Certification Report at 10-11.
\30\ Lloyd's Comments at 2; CIAT Comments at 2; see NAMIC
Comments at 4 (initial notification that certification is under
review ``should also contain a preliminary indication as to whether
Treasury expects that the act will be certified as an act of
terrorism'').
\31\ Jason Schupp Comments at 9.
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In response to the comments, Treasury has modified proposed Sec.
50.61(a) to provide that once the Secretary commences review, Treasury
shall publish a document in the Federal Register within 30 days
notifying the public of this fact. Although this provision remains
subject to the rule of construction that would permit the modification
of this date by the Secretary in the event that timely notification is
impracticable, the modification to the proposed rule reflects
Treasury's intention to provide notification of the commencement of a
certification process within 30 days.
As respects the comment that a revision to proposed Sec. 50.61(a)
may be in order to confirm that public notification should not be
expected simply on account of the ``routine monitoring of events'' by
Treasury, the proposed rule should not engender any such expectations.
Notice will be
[[Page 88596]]
provided when the Secretary determines that an act should be considered
for certification as an act of terrorism under TRIA. Nothing in the
proposed rule suggests, or is meant to suggest, that consideration of
current events by Treasury short of the Secretary's determination to
commence the certification process will trigger any sort of public
notification by Treasury.
For the above reasons, Treasury will modify proposed Sec. 50.61 as
described above, and adopt in this interim final rule Sec. 50.101 as
so amended. As noted at the outset, this section of the interim final
rule is for now adopted as Sec. 50.101 to avoid duplication with
existing rule numbers, and we anticipate it will be renumbered to Sec.
50.61 in the final rule.
3. Certification Data Collection (Sec. 50.62)
A few comments were received concerning proposed Sec. 50.62, which
establishes rules for the collection of data by Treasury in aid of the
certification process. Under TRIA, the Secretary may not certify an act
as an act of terrorism unless property and casualty insurance losses
resulting from the act, in the aggregate, exceed $5 million. 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 review for
certification satisfy the loss threshold.
No comments were received asserting that the proposed rule was
unnecessary.\32\ Two comments suggested that some restrictions upon the
data collection provision should be incorporated, to allow insurers to
challenge a request on the grounds that an insufficient period to
respond has been provided, or that the request is unduly broad,
burdensome, or involves confidential information.\33\ Because these
requests involve the certification process, Treasury may need to obtain
information on an accelerated basis. However, in setting the reporting
deadline, Treasury will take into account the amount and the complexity
of the information requested. Regarding the scope of any requests, the
act under review will define the scope of the needed information, and
Treasury expects that any requests will be narrowly tailored to the act
in question which should prevent any requests from being unduly broad
or burdensome. As respects confidentiality, proposed Sec. 50.54
(concerning Handling of Data) already sufficiently addresses the
treatment of any confidential information that might be obtained
pursuant to proposed Sec. 50.62. Accordingly, no changes to proposed
Sec. 50.62 for the reasons identified are warranted.
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\32\ One comment did take the opportunity to criticize the
statutory greater than $5 million aggregate loss threshold aspect of
the ``act of terrorism'' definition, asserting that ``the threshold
has been more of an impediment to practical application of TRIA than
a worthwhile definitional component,'' and observed that ``[a] more
useful way of looking at the threshold would be to view it in the
context of the TRIA aggregate loss program trigger.'' AIA Comment at
7. Treasury notes that this threshold is prescribed by statute and
may not be modified via regulation.
\33\ Exchange Indemnity Comments at 2; Marsh Captive Solutions
Comments at 2.
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Another comment observed that any certification data collection
process should be ``a streamlined, orderly method for collecting and
organizing data from carriers and their affiliates, as well as a
federal consolidation point for claims data (perhaps FIO),'' and
encourages that any final rules ``include a centralized data collection
process for purposes of the certification determination.'' \34\ No
specific language or revisions to achieve this goal, however, were
suggested.
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\34\ CIAB Comments at 3.
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Although Treasury is in agreement with the sentiments of this
comment, proposed Sec. 50.62 sets forth the sort of process identified
by the commenter. The certification process is one that is solely
within the responsibility of the Secretary, who is assisted by FIO in
the administration of the Program. Proposed Sec. 50.62 sets forth a
process under which Treasury will collect insurance-related information
relevant to the certification decision, and does not contemplate that
this will be accomplished through any other federal agencies or
processes. While requests are likely to be tailored to address a
particular situation, such that different requests may be made from
case to case, nothing in the rule contemplates any sort of process that
would subject responding entities to conflicting, disparate requests
for information.
For the above reasons, Treasury is adopting Sec. 50.102 as it was
proposed. As noted at the outset, this section of the interim final
rule is for now adopted as Sec. 50.102 to avoid duplication with
existing rule numbers, and we anticipate it will be renumbered to Sec.
50.62 in the final rule.
4. Notification of Certification Determination (Sec. 50.63)
Proposed Sec. 50.63 provides for Federal Register notification and
other communication of any certification decision, as well as separate
notifications to Congress and specified insurance supervisory
authorities. One commenter observed that proposed Sec. 50.63 should
only require notification of ``actual certification decisions,'' and
not for ``acts that clearly will not meet the definition outlined in
TRIA.'' \35\ Another commenter suggested that the rule could be
modified to provide that notice under proposed Sec. 50.63 will be
provided only for those situations where Treasury has provided notice
under proposed Sec. 50.61(a) that an act is under review for
certification as an act of terrorism.\36\
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\35\ AIA Comment at 8.
\36\ Jason Schupp Comments at 9.
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Treasury acknowledges that it monitors events and situations that,
given their circumstances, could potentially involve the Program. The
proposed certification rules address and contemplate situations in
which the Secretary (1) determines that an act will or will not be
certified as an act of terrorism without any prior advance notification
to the public (see proposed Sec. 50.61(d), as adopted below); or (2)
commences review of whether to certify an act as an act of terrorism,
as provided for in proposed Sec. 50.61(a). The notification procedures
under proposed Sec. 50.63 govern these situations, once a decision
whether to certify has been made by the Secretary.
For the above reasons, Treasury is adopting Sec. 50.63 as it was
proposed. As noted at the outset, this section of the interim final
rule is for now adopted as Sec. 50.103 to avoid duplication with
existing rule numbers, and we anticipate it will be renumbered to Sec.
50.63 in the final rule.
V. Procedural Requirements
Executive Order 12866, ``Regulatory Planning and Review.''
Executive Order 12866, as supplemented by Executive Order 13563,
establishes a program to reform and make more efficient the regulatory
process of the Federal Government. In accordance with such Executive
Orders, this rule is a significant regulatory action, and has been
reviewed by the Office of Management and Budget.
Regulatory Flexibility Act. In general, the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.), which applies to any rule subject to notice
and comment rulemaking under the Administrative Procedure Act or any
other law, requires a federal agency to conduct a full regulatory
flexibility analysis unless the agency certifies that the rule will not
have a significant economic impact on a substantial number of small
entities. (5 U.S.C. 605(b)). In the preamble to the proposed rule,
Treasury certified that the rule, if promulgated, would not have
[[Page 88597]]
a significant economic impact on a substantial number of small
entities. Treasury did not receive any comments in response to Subpart
G of the proposed rule on the impact to small entities or insurers, and
the interim final rule has not been revised in any way that warrants a
change to this certification. As discussed in the preamble to the
proposed rule, some small entities--as defined by the regulations of
the SBA (see 13 CFR 121. 201)--and small insurers--as defined by the
proposed rules--will be impacted by the rule, but the costs that may be
incurred arise from requirements in TRIA and not Treasury regulations.
Paperwork Reduction Act. The proposed collection of information
concerning the certification process as contained in the proposed rule
was 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). Although solicited, Treasury did not receive any comments from
the public concerning (1) the necessity of the collection of
information in aid of the certification process; (2) the accuracy of
Treasury's burden estimates; (3) suggestions for enhancement of the
quality, utility, and clarity of the information collection; (4)
suggestions for minimization of the burden of the information
collection; \37\ or (5) estimates of capital or start-up costs that
would be necessary for compliance with the information collection. The
interim final rule does not contain any new collections of information.
Under the Paperwork Reduction Act, 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 OMB Control number. Treasury
will obtain final OMB approval for the collection of information in aid
of the certification process prior to any collection of such
information.
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\37\ As noted above, Treasury did receive one comment suggesting
that any certification data collection process should be established
to provide for ``a streamlined, orderly method for collecting and
organizing data from carriers and their affiliates, as well as a
federal consolidation point for claims data (perhaps FIO),'' and
encourages that any final rules ``include a centralized data
collection process for purposes of the certification
determination.'' CIAB Comments at 3. As explained above, Treasury
believes that the proposed collection of information, which will be
managed through the Federal Insurance Office at Treasury, satisfies
the concern identified in this comment. In addition, Treasury also
received two comments suggesting the adoption of procedures allowing
for various challenges to data as requested by Treasury; however, as
explained above, the timing and scope of data required by Treasury
will be driven by the nature of the act under review for
certification, such that changes to the proposed collection would
not be warranted.
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Administrative Procedure Act. The Administrative Procedure Act (5
U.S.C. 551 et seq.) (APA) generally requires public notice before
promulgation of regulations. See 5 U.S.C. 553(b). The Department
published a notice of proposed rulemaking requesting comment on the
proposed rule on April 1, 2016 (81 FR 18949). The Department has
considered the comments received in developing this interim final rule
but also wishes to provide the public another opportunity to comment on
the provisions described in this document.
List of Subjects in 31 CFR Part 50
Insurance, Terrorism.
Authority and Issuance
For the reasons stated in the preamble, 31 CFR part 50 is amended
as follows:
PART 50--TERRORISM RISK INSURANCE PROGRAM
0
1. The authority citation for part 50 is revised to read as follows:
Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107-
297, 116 Stat. 2322, as amended by Pub. L. 109-144, 119 Stat. 2660,
Pub. L. 110-160, 121 Stat. 1839 and Pub. L. 114-1, 129 Stat. 3 (15
U.S.C. 6701 note).
0
2. Subpart K is added to read as follows:
Subpart K--Certification
Sec.
50.100 Certification.
50.101 Public communication.
50.102 Certification data collection.
50.103 Notification of certification determination.
Subpart K--Certification
Sec. 50.100 Certification.
(a) Certification decision. The Secretary, in consultation with the
Attorney General of the United States and the Secretary of Homeland
Security, is responsible for determining whether to certify an act as
an act of terrorism.
(b) Timeline for eligibility. An act is eligible for certification
as an act of terrorism at the end of the following timeline:
(1) The Secretary commences review of whether an act satisfies the
definition in Sec. 50.5(b);
(2) Within 30 days of the Secretary commencing review, Treasury
publishes the notice required by Sec. 50.101(a). During such review,
the schedule of public notifications in Sec. 50.101(b) shall apply, as
appropriate;
(3) The Secretary's review finds that the act satisfies the
elements for certification under Sec. 50.5(b)(1)(i) through (iv), and
that it is not otherwise precluded from certification by Sec.
50.5(b)(2); and
(4) Within 30 days or as soon as otherwise practicable after the
review identified in paragraph (b)(3) of this section concludes that
the act satisfies the necessary criteria, the Secretary consults with
the Attorney General of the United States and the Secretary of Homeland
Security pursuant to section 102(1)(A) of the Act.
(c) Other consultation. Nothing in this section shall prevent the
Secretary from consulting and coordinating with the Attorney General of
the United States, the Secretary of Homeland Security, or any other
government official prior to the consultation identified in paragraph
(b)(4) of this section.
(d) Finality. Any decision by the Secretary to certify, or
determination not to certify, an act as an act of terrorism under this
Subpart shall be final, and shall not be subject to judicial review.
(e) 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. 50.101 Public communication.
(a) Initial notification. After the Secretary commences review of
whether an act may satisfy the definition in Sec. 50.5(b), Treasury
shall publish a notice in the Federal Register within 30 days of the
Secretary commencing review 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 review 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 review for certification, and not later than every 60 days
thereafter until the Secretary determines whether to certify an act as
an act of terrorism, Treasury shall publish a notice 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 shall be
construed to preclude the Secretary from certifying or determining not
to certify an act as an
[[Page 88598]]
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. 50.102 Certification data collection.
(a) General. (1) The Secretary, when reviewing 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 review, loss estimates generated by
insurers in connection with the act under review 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 review.
(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. 50.103 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 notice 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.
Dated: December 1, 2016.
Amias Moore Gerety,
Acting Assistant Secretary for Financial Institutions.
[FR Doc. 2016-29313 Filed 12-6-16; 8:45 am]
BILLING CODE 4810-25-P