[Federal Register Volume 84, Number 173 (Friday, September 6, 2019)]
[Proposed Rules]
[Pages 46907-46909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-18728]
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DEPARTMENT OF THE TREASURY
31 CFR Part 50
RIN 1505-AC62
IMARA Calculation Under the 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 this
proposed rule to implement technical changes to program regulations
that address the calculation and notification to the public of the
Terrorism Risk Insurance Program's (Program) insurance marketplace
aggregate retention amount (IMARA) under the Terrorism Risk Insurance
Act (Act), as amended.
DATES: Written comments must be submitted on or before October 7, 2019.
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 ``IMARA Calculation Proposed Rule Comments.'' Please include your
name, group affiliation, address, email address, and telephone number
in your comment.
In general, received comments will be posted on http://www.regulations.gov without change, including any business or personal
information provided. Received comments, including attachments and
other supporting materials, will be part of the public record and
subject to public disclosure. Do not include 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 or
Lindsey Baldwin, Senior Policy Analyst, Federal Insurance Office, 202-
622-3220.
SUPPLEMENTARY INFORMATION:
I. Background
The Terrorism Risk Insurance Act of 2002 (as amended, 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.\2\ 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 Program
has been reauthorized three times, most recently by the Terrorism Risk
Insurance Program Reauthorization Act of 2015 (the 2015 Reauthorization
Act).\3\
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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 U.S. Code, the provisions
of TRIA are identified by the sections of the law.
\2\ TRIA, sec. 101(b).
\3\ See Terrorism Risk Insurance Extension Act of 2005, Public
Law 109-144, 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.
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The Secretary of the Treasury (Secretary) administers the Program.
The Federal Insurance Office (FIO) assists the Secretary in
administering the Program.\4\ To assist insurers, policyholders, and
other interested parties in complying with the applicable requirements
of the Act, Treasury has issued regulations implementing the Program.
In some instances, Treasury has also issued interim guidance to be
relied upon by insurers until superseded by any regulations.\5\ Most
recently, Treasury issued regulations implementing the changes to the
Program required under the 2015 Reauthorization Act.\6\
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\4\ 31 U.S.C. 313(c)(1)(D).
\5\ Treasury summarized the history of prior rulemakings in
connection with the Program in its last notice of proposed
rulemaking proposing rule changes to implement the 2015
Reauthorization Act. See 81 FR 18950 (April 1, 2016) (2016 NPRM).
\6\ See 81 FR 88592 (December 7, 2016) (Certification Interim
Final Rule); 81 FR 93756 (December 21, 2016) (Program Final Rules
Except Certification).
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The Act established an industry marketplace aggregate retention
amount (IMARA) as a threshold figure to determine whether any Treasury
payments under the Program are subject to mandatory recoupment. Under
the Act, if total annual payments by participating insurers are below
the IMARA, Treasury must recoup all expended amounts up to the IMARA
threshold (mandatory recoupment). If total annual payments by
participating insurers are above the IMARA, Treasury has the discretion
to recoup all expended amounts above the IMARA threshold (discretionary
recoupment).\7\
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\7\ See TRIA, sec. 103(e)(7); see also 31 CFR part 50 subpart J
(Recoupment and Surcharge Procedures).
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The 2015 Reauthorization Act established an IMARA of $29.5 billion
beginning in calendar year 2015, and provided for an annual $2 billion
increase in the IMARA until the IMARA reached $37.5 billion in calendar
year 2019.\8\ Once the $37.5 billion figure was reached in 2019, the
2015 Reauthorization Act provided that the IMARA ``shall be revised to
be the amount equal to the annual average of the sum of insurer
deductibles for all insurers participating in the Program for the prior
3 calendar years,'' as such sum is determined by the Secretary.\9\ An
insurer's deductible under the Program for any particular year is 20
percent of its direct earned premium subject to the Program during the
preceding year.\10\ For example, an insurer's calendar year 2019
Program deductible is 20 percent of its calendar year 2018 direct
earned premium.
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\8\ TRIA, sec. 103(e)(6)(A).
\9\ TRIA, sec. 103(e)(6)(B)(ii).
\10\ TRIA, sec. 102(7).
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The 2015 Reauthorization Act required the Secretary to issue a
final rule for determining how subsequent IMARA amounts would be
calculated and providing a timeline for public notification of the
amount each year.\11\
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\11\ TRIA, sec. 103(e)(6)(C).
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The 2015 Reauthorization Act also required that Treasury collect
data from participating insurers related to the effectiveness of the
Program.\12\ Accordingly, Treasury stated in the preamble to the 2016
NPRM that it would calculate the IMARA beginning in calendar year 2020
based upon the data that it would be collecting:
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\12\ TRIA, sec. 104(h).
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
[[Page 46908]]
figure by reference to the data that Treasury will be collecting
concerning insurer participation in the Program under proposed Sec.
50.51.\13\
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\13\ 81 FR 18950, 18952 (April 1, 2016).
In any year, Treasury collects data for the prior year. For
example, in 2019, Treasury collected calendar year 2018 data, which is
used to determine 2019 insurer deductibles. Therefore, to calculate the
IMARA for 2020, Treasury calculates the average deductibles for the
three prior years (2019, 2018, and 2017), which are based on the direct
earned premiums reported in those years for the prior calendar years
(2018, 2017, and 2016, respectively).
Although the preamble to the 2016 NPRM correctly explained the
methodology for calculating the IMARA in 2020 and beyond, as required
by the 2015 Reauthorization Act, the language in the Program rules is
ambiguous as to how the IMARA should be calculated. Under Sec.
50.4(m)(2)(i) of the Program rules, the IMARA calculation is to be
based on the ``direct earned premium reported by insurers to Treasury .
. . for the three calendar years prior to the calendar year in
question'' (emphasis added.) \14\ This language could be interpreted to
mean, for example, that the 2020 IMARA would be calculated using direct
earned premiums in 2019, 2018, and 2017, rather than using the data
reported in 2019, 2018, and 2017 for calendar years 2018, 2017, and
2016, as intended. This unintended interpretation would be inconsistent
with the methodology specified in the 2015 Reauthorization Act and
would result in an incorrect IMARA.
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\14\ This language was proposed in the 2016 NPRM and included in
the Program Final Rules Except Certification.
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II. The Proposed Rule
A. Overview
Treasury is proposing a technical correction to 31 CFR
50.4(m)(2)(i) to clarify that the IMARA calculation is based upon
direct earned premium reported ``in'' the three calendar years prior to
the calendar year in question, instead of ``for'' the three calendar
years prior to the calendar year in question. For example, this would
result in a proper calculation of the 2020 IMARA by referring to the
insurer deductibles for the previous three years (2019, 2018, and
2017), which are based on reported data for calendar years 2018, 2017,
and 2016.
In addition, Treasury is proposing to modify 31 CFR 50.4(m)(3) to
accelerate the notification date of the IMARA, in an effort to improve
administrative efficiency. The Program rules provide that, for any
year, Treasury will publish the notification of the IMARA in the
Federal Register by April 30 of that year. (The Program rules also
state that if an event is certified as an act of terrorism by the
Secretary before any April 30, Treasury will publish notice of the
IMARA ``as soon as practicable thereafter.'' \15\) The proposed rule
change described above, which directs use of data reported ``in'' as
opposed to ``for'' the prior three years, will provide Treasury with
additional time to make the IMARA calculation by reference to data
reported in the prior three years.
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\15\ 31 CFR 50.4(m)(3).
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This notice of proposed rulemaking therefore proposes to change the
IMARA notification requirement such that, for any year, Treasury will
publish the IMARA no later than December 31 of the prior year. This
change will notify participating insurers of the new IMARA figure in
advance of the IMARA taking effect (rather than during the year the
IMARA is already in effect). The change will also provide Treasury with
time to assess and respond to any late reported or corrected data in
the last year. This will also alert participating insurers of potential
changes in their obligations under the Program before the IMARA takes
effect. Additionally, this change promotes efficient operation of the
Program by the Federal Insurance Office.
As noted above, the Program rules also address situations where an
act of terrorism is certified before the establishment of that year's
IMARA. Because the IMARA under the proposed rule would be calculated
and announced before the year begins, this provision would no be longer
necessary and would be eliminated from the regulations.
Treasury seeks comment on all aspects of the proposed rule changes
from interested persons and entities.
B. Description of the Proposed Rule
Treasury proposes the following changes:
(1) In existing 31 CFR 50.4(m)(2)(i), change the word ``for'' to
``in,'' so that this subsection refers to amounts reported ``in the
three calendar years prior to the calendar year in question'';
(2) In existing 31 CFR 50.4(m)(3), change the annual deadline for
Treasury to publish the IMARA from April 30 of the year in question to
December 31 of the prior year; and
(3) Eliminate current language in 31 CFR 50.4(m)(3) addressing the
timing for publication of the IMARA in situations where the Secretary
certifies an act of terrorism prior to April 30 of any year.
III. Procedural Requirements
Executive Order 12866, ``Regulatory Planning and Review.'' This
rule is not a significant regulatory action for purposes of Executive
Order 12866, ``Regulatory Planning and Review,'' and thus has not been
reviewed by the Office of Management and Budget (OMB).
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 not have a
significant economic impact on a substantial number of small entities.
The rule provides for a technical change in the manner in which
Treasury will calculate a figure relevant to operation of the Program
and to better conform it to Congressional requirements. The only other
rule change is to provide for earlier notice to insurers of the IMARA
calculation than the existing rule. It has no effect on the collection
of the data (including data collected from small entities) under the
Program rules.
Paperwork Reduction Act. The proposed rule does not involve the
collection of information and thus has not been submitted to OMB for
review under the requirements of the Paperwork Reduction Act, 44 U.S.C.
3507(d). The proposed rule only involves the calculation and public
notification of the IMARA in connection with the Program based on data
collected by Treasury under rules which have already been subject to
OMB review and approval under Control No. 1505-0257.
List of Subjects in 31 CFR Part 50
Insurance, Terrorism.
For the reasons stated in the preamble, the Department of the
Treasury proposes to amend 31 CFR part 50 as follows:
PART 50--TERRORISM RISK INSURANCE PROGRAM
0
1. The authority citation for part 50 continues 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) Pub. L. 114-74, 129 Stat. 601, Title VII (28
U.S.C. 2461 note).
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2. Amend Sec. 50.4 by revising paragraphs (m)(2) introductory text,
(m)(2)(i) and (m)(3) to read as follows:
Sec. 50.4 Definitions.
* * * * *
(m) * * *
(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 Sec. 50.51 in the three calendar years prior
to the calendar year in question, and then dividing that figure by
three; and
* * * * *
(3) For calendar year 2020 and each subsequent calendar year,
Treasury shall publish in the Federal Register the insurance
marketplace aggregate retention amount no later than December 31 of the
prior calendar year.
* * * * *
Dated: August 21, 2019.
Bimal Patel,
Assistant Secretary for Financial Institutions.
[FR Doc. 2019-18728 Filed 9-5-19; 8:45 am]
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