[Federal Register Volume 73, Number 190 (Tuesday, September 30, 2008)]
[Proposed Rules]
[Pages 56767-56773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-22940]
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DEPARTMENT OF THE TREASURY
31 CFR Part 50
RIN 1505--AB92
Terrorism Risk Insurance Program; Cap on Annual Liability
AGENCY: Departmental Offices, Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Department of the Treasury (``Treasury'') is issuing this
proposed rule as part of its implementation of Title I of the Terrorism
Risk Insurance Act of 2002 (``TRIA'' or ``the Act''), as amended by the
Terrorism Risk Insurance Program Reauthorization Act of 2007
(``Reauthorization Act''). The Act established a temporary Terrorism
Risk Insurance Program (``TRIP'' or ``Program'') under which the
Federal Government would share with commercial property and casualty
insurers the risk of insured losses from certified acts of terrorism.
The Reauthorization Act has now extended the Program until December 31,
2014. This proposed rule is the latest in a series of regulations
Treasury has issued to implement the Act. The proposed rule
incorporates and implements statutory requirements in section 103(e) of
the Act, as amended by the Reauthorization Act, for capping the annual
liability for insured losses at $100 billion. In particular, the
proposed rule describes how Treasury intends to determine the pro rata
share of insured losses under the Program when insured losses would
otherwise exceed the cap on annual liability. The rule builds upon
previous rules issued by Treasury.
DATES: Written comments must be submitted on or before October 30,
2008.
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: Terrorism Risk
Insurance
[[Page 56768]]
Program, Public Comment Record, Suite 2100, Department of the Treasury,
1425 New York Avenue, NW., Washington, DC 20220. Because paper mail in
the Washington, DC area may be subject to delay, it is recommended that
comments be submitted electronically. All comments should be captioned
with ``TRIA Cap on Annual Liability Proposed Rule Comments.'' Please
include your name, affiliation, address, e-mail address, and telephone
number in your comment. Comments will be available for public
inspection on the Federal eRulemaking Portal and by appointment at the
TRIP Office. To make appointments, call (202) 622-6770 (not a toll-free
number).
FOR FURTHER INFORMATION CONTACT: Howard Leikin, Deputy Director,
Terrorism Risk Insurance Program, (202) 622-6770 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
I. Background
On November 26, 2002, the President signed into law the Terrorism
Risk Insurance Act of 2002 (Pub. L. 107-297, 116 Stat. 2322). The Act
was effective immediately. The Act's purposes are to address market
disruptions, ensure the continued widespread availability and
affordability of commercial property and casualty insurance for
terrorism risk, and allow for a transition period for the private
markets to stabilize and build capacity while preserving state
insurance regulation and consumer protections.
Title I of the Act establishes a temporary federal program of
shared public and private compensation for insured commercial property
and casualty losses resulting from an act of terrorism. The Act
authorizes Treasury to administer and implement the Program, including
the issuance of regulations and procedures. The Program provides a
federal backstop for insured losses from an act of terrorism. Section
103(e) of the Act gives Treasury authority to recoup federal payments
made under the Program through policyholder surcharges. The Act also
contains provisions designed to manage litigation arising from or
relating to a certified act of terrorism.
The Program originally was to expire on December 31, 2005; however,
on December 22, 2005, the President signed into law the Terrorism Risk
Insurance Extension Act of 2005 (Pub. L. 109-144, 119 Stat. 2660),
which extended the Program through December 31, 2007. On December 26,
2007, the President signed into law the Terrorism Risk Insurance
Program Reauthorization Act of 2007 (Pub. L. 110-160, 121 Stat. 1839),
extending the Program through December 31, 2014.
The Reauthorization Act, among other Program changes, revised the
provisions of the Act with regard to the cap on annual liability for
insured losses of $100 billion. Previously, section 103(e)(3) stated
that Congress would determine the procedures for and the source of any
payments for insured losses in excess of the cap. This was deleted.
Instead, this section now requires the Secretary of the Treasury to
notify Congress not later than 15 days after the date of an act of
terrorism as to whether aggregate insured losses are estimated to
exceed the cap. TRIA, as amended by the Reauthorization Act, also
requires the Secretary to determine the pro rata share of insured
losses to be paid by each insurer incurring losses under the Program
when insured losses exceed the cap, and to issue regulations for
carrying this out.
II. Previous Rulemaking
To assist insurers, policyholders, and other interested parties in
complying with immediately applicable requirements of the Act, Treasury
has issued interim guidance for reference until issuance of superseding
regulation. Rules establishing general provisions implementing the
Program, including key definitions, and requirements for policy
disclosures and mandatory availability, can be found in Subparts A, B,
and C of 31 CFR Part 50. Treasury's rules applying provisions of the
Act to State residual market insurance entities and State workers'
compensation funds are at Subpart D of 31 CFR Part 50. Rules setting
forth procedures for filing claims for payment of the Federal share of
compensation for insured losses are at Subpart F of 31 CFR Part 50.
Subpart G of 31 CFR Part 50 contains rules on audit and recordkeeping
requirements for insurers, while Subpart I of 31 CFR Part 50 contains
Treasury's rules implementing the litigation management provisions of
section 107 of the Act.
III. The Proposed Rule
This proposed rule would add a Subpart J to part 50, which
comprises Treasury's regulations implementing the Act. It also proposes
to amend Sec. 50.53 of Subpart F.
A. Overview
Generally, section 103(e)(2), as amended, provides that,
notwithstanding subsection (e)(1) regarding the Federal share of
compensation or any other provision of Federal or State law, the
Secretary shall not make any payments for any portion of insured losses
in excess of the cap on annual liability of $100 billion. Furthermore,
no insurer that has met its insurer deductible shall be liable for any
portion of insured losses in excess of the cap. For these purposes, the
Secretary determines the pro rata share of insured losses to be paid by
each insurer incurring losses under the Program. Section 103(e)(2)
further provides that no insurer may be required to make any payment
for insured losses in excess of its deductible combined with its share
of insured losses above its deductible. The Reauthorization Act also
added a provision (Section 103(b)(3) of TRIA) requiring insurers to
make a disclosure to policyholders of the existence of the $100 billion
cap under subsection (e)(2).
The cap on insured losses may be reached as a result of a single
act of terrorism, or as a result of multiple smaller acts. Either case
would represent an unprecedented level of losses and present many
difficulties in assessment and projection of insured losses. The cap's
impact on the Federal government's and insurer's liabilities, based on
industry-wide insured losses, involves insurance contract issues not
normally encountered in the insurance market. Examining different
approaches to pro rating payments of insured losses within the cap, it
is apparent that no alternative eliminates the potential for inequities
in how insured losses are settled, mainly due to the timing of events
and the timing of loss settlements.
In developing a proposed process, Treasury is guided by its
authorities provided in the Act. Treasury is attempting, within these
authorities, to reduce the potential for inequitable treatment of
policyholders resulting from the timing of insured losses, the location
of insured losses, or the particular insurer of the policyholder, while
providing a process that is relatively easily understood and that is
operationally reasonable to execute, control, and audit. The proration
process must be established on a going forward basis so insureds that
have already received payments from their insurers would not have to
return any of those payments. The process must also be flexible enough
to address changing circumstances presented by subsequent events or by
the development of new, more accurate information regarding insured
losses.
The proposed rule describes how Treasury would initially estimate
whether the cap will be exceeded, the means by which Treasury would
develop and maintain estimates for determining the pro rata share of
insured losses to be paid, the factors
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that would be considered in determining a pro rata percentage of the
insured losses that are to be paid in order to stay within the cap, and
the application of the pro rata percentage in paying insured losses.
Treasury has consulted with the National Association of Insurance
Commissioners in developing this rule. Treasury seeks comment on all
aspects of the proposed rule and welcomes the submission of
alternatives to the proposed process for prorating insured losses when
aggregate insured losses would exceed the cap on annual liability.
B. Description of the Proposed Rule
The major provisions of the proposed rule are as follows:
1. Notice to Congress (Sec. 50.91)
Section 103(e)(3) of the Act requires the Secretary to provide an
initial notice to Congress not later than 15 days after the date of an
act of terrorism, stating whether the Secretary estimates that
aggregate insured losses will exceed $100 billion. TRIA defines an
``act of terrorism,'' in part, as any act that is certified by the
Secretary, in concurrence with the Secretary of State and the Attorney
General of the United States. Treasury intends to meet this requirement
within the designated time following the certification of an act of
terrorism, although there may be significant challenges involved in
obtaining data for such an estimate within the designated time. The
first challenge could be restrictions on access to the affected areas
that would hinder the ability of anyone to accurately assess losses.
Additionally, from the Program's perspective, since the $100 billion
cap applies only to insured losses, the distinction between estimation
of insured and uninsured losses will be critical.
In determining initial estimates of insured losses, Treasury's
preferred means of gathering information would be through contacting
insurance industry statistical organizations such as the Property
Claims Services of Insurance Services Office, Inc. To the extent that
insurers are able to estimate their insured losses early on, aggregate
loss information would become available through such industry sources.
Supplemented with other information regarding insurer deductibles and
expectations for insured losses that would emerge later, such as
liability losses, this represents, we believe, the best source for an
initial report as to whether the cap will be exceeded. Treasury is also
exercising its own data call authority, which is further discussed in
the description below for Sec. 50.94 in the proposed rule. For the
purposes of this initial reporting to Congress, however, a Treasury
data call, separate from other industry efforts, may not be timely
enough.
Treasury has also considered the utility of certain computer models
to estimate initial insured losses. (This modeling has been developed
as an industry tool for analyzing the terrorism risk for underwriting
purposes.) While this may be of some value in making initial estimates,
we have also been advised that the values for input parameters
necessary for model accuracy for an actual terrorist event are not
likely to be as readily available in the immediate aftermath as they
are from natural hazard events such as hurricanes. This seems to limit
the utility of this approach for purposes of the report to Congress.
Treasury may also look to Federal, state, and local sources of
damage assessments in advance of any disaster response and recovery
efforts. These will likely also be helpful, but, as discussed above,
such overall estimates may not be refined enough for us to estimate the
more limited insured losses of concern to the Program.
2. Determination of Pro Rata Share (Sec. 50.92)
Under the Reauthorization Act, the Secretary shall not make any
payment for any portion of the amount of such insured losses that
exceeds $100 billion; and no insurer that has met its deductible shall
be liable for the payment of any portion of the amount of such insured
losses that exceeds $100 billion. As previously noted, the timing of
events and the timing of resulting loss payments have the potential for
inequities that may be impossible to avoid completely. Treasury is
proposing a rule that ensures fair and equal treatment of insurers,
policyholders, and claimants, to the extent possible given the
inequities inherent in the cap provisions of the Act and the
possibility that proration may need to be implemented midway in the
settlement of insured losses arising from a Program Year. Generally,
Treasury's approach would be to establish any pro ration relatively
conservatively when it is estimated that the cap will be reached, so
that early payments are not inequitably higher than later payments, and
so that, barring a subsequent act of terrorism, later refinements to
the pro ration would allow additional payments to policyholders for
prior settled losses. During a Program Year, until events have
transpired that lead Treasury to believe that the cap could be reached,
it would be our intention that no pro ration would be established.
The proposed rule includes a definition of ``pro rata loss
percentage'' (``PRLP''). This would be the percentage determined by the
Secretary to be applied against the amount that would otherwise be paid
by an 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. An insurer would apply the PRLP to
compute the pro rata share of insured losses to be paid under an
insurance policy.
Treasury has examined the issue of whether different lines of
business or different types of insured losses should have different pro
rata loss percentages applied. Given the inherent potential for
inequities arising out of the timing and nature of multiple acts of
terrorism that are the cause of insured losses, the difficulties in
quickly estimating aggregate losses, as well as the difficulty in
prioritizing certain insured losses over others, Treasury believes a
single pro rata loss percentage should be used in determining the pro
rata share of insured losses from all lines of business covered by the
Program.
The proposed rule provides that if Treasury estimates that insured
losses may exceed the cap on annual liability for a Program Year, then
Treasury would determine an initial PRLP and an effective date for that
PRLP. This percentage would be applied in determining insured loss
payments for insured losses incurred during the subject Program Year,
starting with the effective date until Treasury determines a revised
PRLP. Considerations in establishing the PRLP are proposed to be: (1)
Estimates of insured losses from insurance industry statistical
organizations; (2) any data calls issued by Treasury; (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; and (5)
such other factors as the Secretary considers important. Revisions to
the PRLP would be based on the same considerations, as needed. Notices
of the initial and any revised PRLP would be provided through the
Federal Register, or in another manner Treasury deems appropriate,
based upon the circumstances of the act of terrorism under
consideration.
It will almost certainly be necessary to continue to update
aggregate insured loss estimates, in light of more information
regarding losses from events which have already occurred or
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because of subsequent events. New and refined information may result in
Treasury's determination of a new PRLP. In developing this proposed
rule, Treasury contemplated including a schedule for updating estimates
of aggregate insured losses. Because of the unique circumstances of any
act of terrorism, we believe that it would be better to formulate a
plan for updating this information when we know more about what has
actually occurred.
Treasury needs information on unprorated insured losses in order to
accurately determine an appropriate initial or subsequent PRLP. It is
Treasury's understanding that as insured losses develop and are paid
under a pro rata share calculation, insurer loss reserves generally
will reflect the reduced payments expected to be made. For this reason,
Treasury anticipates requiring, both for data call purposes discussed
below, and for insurer claim submissions for the Federal share of
compensation, the provision to Treasury of insured loss amount
information that would reflect the unprorated amounts of both
settlements and losses yet to be paid in the future.
Treasury is concerned that there could be circumstances where we
estimate that the cap on annual liability will be exceeded, but there
is not yet adequate knowledge of insured losses with which to determine
a PRLP. Allowing payments for early insured losses to continue without
proration appears to be inequitable to those coming in later, for which
the pro rata share calculation would have to be that much more severe.
Treasury is proposing in this rule that in such a circumstance it would
call a brief hiatus in insurer loss payments of up to two weeks. During
this time Treasury would develop a PRLP as quickly as possible. During
this hiatus, insurers could still make payments, but with the
understanding that the PRLP would be effective retroactively to the
start of the hiatus. Any insured losses later submitted in support of
an insurer's claim for the Federal share of compensation would be
reviewed for compliance with the regulations pertaining to the pro rata
share payments.
3. Application of Pro Rata Share (Sec. 50.93)
Treasury is proposing that the PRLP be applied by insurers
prospectively on individual insured losses that have not been settled
as of the effective date of a PRLP. The intention is that the process
of pro ration will not retroactively require repayment of any claims
already legitimately made (or agreed to be paid) to insureds for
insured losses. The impracticality of recovering payments already made
is generally recognized.
From the standpoint of operational ease and in the interest of
equitable treatment of all insured losses once it is expected that the
cap on annual liability will be reached, Treasury sees merit in
applying pro rata sharing of insured losses whether they are within or
in excess of an individual insurer's deductible. In closely examining
its authorities as stipulated in the Reauthorization Act, however,
Treasury has concluded that it cannot provide for pro rata sharing of
insured losses in such a way that an insurer's liability would be
limited when it has not met its deductible. The proposed rule addresses
this issue.
Proposed Sec. 50.93 directs insurers to apply the PRLP to
determine the pro rata share of each insured loss to be paid by the
insurer on all insured losses where there is not a signed settlement as
of the effective date established by Treasury for the PRLP. The same
procedure applies whether this is an initial PRLP or a subsequent PRLP
that is superseding the prior determination. Treasury is proposing that
the pro rata share is determined based on the final claim settlement
amount that would otherwise be paid. 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 or the amount
computed by applying the PRLP to the final claim settlement amount. The
proposed rule refers to ``estimated or actual'' final claim settlement
amounts. This recognizes that insurers may be submitting underlying
claim information in support of a claim for the Federal share of
compensation after making partial payments, but prior to a final
adjustment of the claim.
Some insured losses, such as those associated with workers'
compensation or business interruption, may involve ongoing regular
payments. In these cases, the proration is still determined based on
the final claim settlement amount that would otherwise be paid. In the
claims procedures regulations and in the forms for insurer submissions
for the Federal share of compensation that Treasury has promulgated,
workers' compensation losses are required to be substantiated at the
policy level. That is to say, underlying loss information on the
bordereaux and reviewed by Treasury in determining the Federal share is
submitted in aggregate by policy/employer rather than individual
claimant/employee. In this proposed rule, Treasury proposes to continue
that scheme. The application of the PRLP to determine the pro rata
share would be against the estimated or actual unprorated loss amounts
by policy (broken down by medical only, medical portion of indemnity,
and indemnity portion of indemnity), following the way loss information
has been required to be reported as part of the TRIP Certifications of
Loss. Despite this calculation of the pro rata share at the policy
level for purposes of reporting to Treasury, Treasury expects that
insurers would pro rate payments made to individual claimants.
If an insurer that has not yet made payments in excess of its
insurer deductible estimates it will exceed its deductible making
payments based on the application of the PRLP, then that insurer shall
apply the PRLP as of the effective date of the PRLP. If an insurer that
has not yet made payments in excess of its insurer deductible estimates
it will not exceed its deductible making payments based on the
application of the PRLP, then that insurer may make payments on the
same basis as prior to the effective date of the PRLP. This means there
is no requirement to pro-rate losses. In such circumstances, whether to
pro-rate as of the effective date of the PRLP is up to the insurer. If
the insurer pro rates and does not exceed its deductible, then it is
liable for additional, retroactive 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. If the insurer does not pro rate, but does exceed its
deductible, then it must apply the PRLP to its remaining insured losses
once it makes payments equal to its insurer deductible. Once an insurer
exceeds its deductible and submits a claim for the Federal share of
compensation, however, Treasury's review of eligible payments
associated with the underlying losses and calculations for the Federal
share would be based on the application of the PRLP as if the insurer
had originally been subject to paragraph (b) of this section.
4. Data Call Authority (Sec. 50.94)
Treasury is proposing that it may issue a data call to insurers for
the submission of insured loss information. We anticipate requesting
summary level information on insured losses and insurer deductible
information. Such a collection of data may be necessary not only for
the purposes of the cap on annual liability, but also with regard to
potential recoupment. Treasury intends, to the extent possible, to rely
on existing industry statistical reporting
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mechanisms in making initial estimates. However, in order to estimate
whether the cap on annual liability will be reached and determine an
initial or subsequent PRLP, it may be necessary to have more timely
detail regarding insurer deductibles and reserves for insured losses
from lines of business not normally included in existing industry
reporting.
It is Treasury's intention to proceed with the development of forms
for the electronic submission of insurer responses to a data call, with
appropriate opportunity provided for public review and comment. It has
been observed that reporting similar to that required on the current
TRIP Initial Notice of Loss may be sufficient for these purposes.
Treasury will review this as part of its forms development process. The
circumstances of a particular Program Trigger Event will likely have a
significant bearing on which insurers should receive the data call and
how the data should be coordinated, perhaps with the NAIC or a
particular state. Additional data call guidance will be provided as
necessary based on the circumstances of the particular Program Trigger
Event.
5. Final Amount (Sec. 50.95)
As previously discussed, Treasury intends to establish, to the
extent possible, pro ration of insured losses conservatively so as to
not exceed the legislative cap on annual liability. The proposed rule
includes provision for Treasury to determine a final PRLP that would be
used for determining the pro rata share to be paid on all remaining
insured losses as well as for being able to provide additional payments
on previously settled losses and still remain within the cap. The
proposed rule also proposes that there may be a need for supplementary
explanation regarding how additional payments are provided on
previously settled losses that would accompany the Certifications of
Loss submitted by insurers for the Federal share of compensation. The
proposed rule also includes a provision, consistent with the above
discussion of the treatment of pro rata sharing in connection with
insurer deductibles, that at the time of determination of a final pro
ration, an insurer may still be liable for loss payments that in the
aggregate bring the insurer's total loss payments up to an amount equal
to the lesser of its insured losses without proration or its insurer
deductible.
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. Pursuant to the Regulatory Flexibility
Act, 5 U.S.C. 601 et seq., it is hereby certified that this proposed
rule will not have a significant economic impact on a substantial
number of small entities. Under the Act, Treasury shall not make any
payment for any portion of the amount of annual aggregate insured
losses that exceed $100 billion and no insurer that has met its insurer
deductible is liable for the payment of any portion of the amount of
annual aggregate insured losses that exceeds $100 billion. Further, the
Act requires the Secretary to determine the pro rata share of insured
losses to be paid by each insurer and to issue regulations for
determining the pro rata share of insured losses under the Program.
Accordingly, any economic impact associated with the proposed rule
flows from the Act and not the proposed rule. A regulatory flexibility
analysis is thus not required.
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, or by e-mail to [email protected]. A copy of the comments should also be sent to
Treasury at the addresses previously specified. Comments on the
collection of information should be received by December 1, 2008.
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 (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 through
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.
The forms to be prescribed by Treasury for the data call pursuant
to the authority in Sec. 50.94 to collect information to ascertain the
aggregate amount of insured losses will require information readily
derived from existing normal industry internal and external reporting.
Treasury may issue data calls to insurers to make initial estimates of
aggregate losses where available industry statistical information is
not specific enough, and to further refine the information needed to
determine the PRLP. The number of respondents to such a data call is
not expected to exceed 200 insurers. The data to be obtained in the
immediate aftermath of certification of an act of terrorism would
include the insurers' total expected losses and estimated insurer
deductibles. Subsequent data calls to refine the information would
include catastrophe code, line of business, losses paid, allocated loss
adjustment expenses paid, case reserves, incurred but not reported
reserves as well as the total expected loss (unprorated) and insurer
deductible data. Treasury estimates that an insurer will require 5
hours, on average, to assemble data and respond to the Treasury
request. The estimated total burden would therefore be 1,000 hours (200
insurers x 5 hours). At a blended, fully loaded hourly rate of $85.00,
the cost would $85,000. (Note, the data call forms and submission
would, as appropriate, also be utilized to obtain aggregate insured
loss data needed for making recoupment determinations and notices
required by the Act).
In the event of imposition of a PRLP, it will be necessary to
determine insurer compliance when the Treasury is processing insurer
claims for payment of the Federal share of compensation. This would be
accomplished by revision to the currently approved Treasury form TRIP
02C, revised April 2006 (OMB 1505-0200, expiration December 31, 2010).
This form, the ``Bordereau'' or ``Schedule C'' is submitted in support
of the insurer's certification of loss (see 31 CFR 50.53) and provides
detailed information about individual underlying claims. The revised
form would require the addition of the settlement date of an underlying
claim, the total unprorated amount of the loss, and the date of the
latest payment on the claim. These are data that are normally in the
insurer's own file and their reporting and recordkeeping are estimated
to not represent any measurable additional reporting or recordkeeping
burden.
Executive Order 13132, ``Federalism.'' The proposed rule may have
federalism implications to the extent it deals with
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the making of payments by insurers to their policyholders under
contracts of insurance, which is ordinarily regulated under State
insurance law. However, TRIA established a temporary Federal program
that is national in scope and significance. Section 106 of TRIA
preserves the jurisdiction or regulatory authority of State insurance
commissioners or similar offices, except as specifically provided in
TRIA. Section 103(e)(2) requires Treasury to issue regulations for
determining the pro rata share of insured losses under the Program when
insured losses exceed $100 billion.
Treasury consulted with the National Association of Insurance
Commissioners early in the process of formulating this proposed rule.
State insurance commissioners who are members of the NAIC Terrorism
Insurance Working Group were given an opportunity to submit comments,
and a few minor and technical comments were received and considered by
Treasury. The NAIC and State insurance commissioners will have a
further opportunity to comment on this proposed rule.
The provision in the proposed rule (Sec. 50.92(e)) where Treasury
would call for a hiatus in payments by insurers in circumstances where
the cap on annual liability may be exceeded, but an appropriate PRLP
cannot yet be determined, could potentially conflict with State
insurance laws prescribing fixed periods for insurers to pay claims.
However, Treasury believes the impact is limited in the proposed rule
because the period of the hiatus is brief (up to two weeks), and it
would apply shortly after an act of terrorism occurs. Treasury has
concluded that a brief hiatus is necessary to carry out the purpose of
the statute to establish shares of insured losses on a pro rata basis
by avoiding the inequity of allowing early claims to be paid in full
before a PRLP can be determined.
List of Subjects in 31 CFR Part 50
Terrorism risk insurance.
Authority and Issuance
For the reasons set forth above, 31 CFR part 50 is proposed to be
amended as follows:
PART 50--TERRORISM RISK INSURANCE PROGRAM
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
and Pub. L. 110-160, 121 Stat. 1839 (15 U.S.C. 6701 note).
2. Subpart J is added to read as follows:
Subpart J--Cap on Annual Liability
Sec.
50.90 Cap on annual liability.
50.91 Notice to Congress.
50.92 Determination of pro rata share.
50.93 Application of pro rata share.
50.94 Data call authority.
50.95 Final amount.
Sec. 50.90 Cap on annual liability.
Pursuant to Section 103 of the Act, if the aggregate insured losses
exceed $100,000,000,000 during any Program 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) 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; 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. 50.91 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 Program Year in which the event occurs. Such initial estimate
shall be based on insured loss amounts as compiled by insurance
industry statistical organizations 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 Program Year.
Sec. 50.92 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 Program Year, then Treasury will determine an
initial PRLP. The PRLP applies to insured loss payments by insurers for
insured losses incurred in the subject Program Year, as specified in
Sec. 50.93, 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. 50.94);
(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 Program 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 calling 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.
Sec. 50.93 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 where
there is not a signed settlement 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
[[Page 56773]]
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. 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 or the amount computed by applying the PRLP to the
estimated or actual final claim settlement amount.
(b) If an insurer that has not yet made payments in excess of its
insurer deductible 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. 50.92(b).
(c) If an insurer that has not yet made payments in excess of its
insurer deductible 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. If such insurer thereafter
reaches its insurer deductible, then the insurer shall apply the PRLP
to its 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. 50.94 Data call authority.
For the purpose of determining initial or recalculated PRLPs
Treasury may issue a data call to insurers for insured loss
information. Submission of data in response to a data call shall be on
a form promulgated by Treasury.
Sec. 50.95 Final amount.
(a) Treasury shall determine if, as a final pro ration, remaining
insured loss payments, as well as adjustments to previous insured loss
payments, can be made by insurers based on an adjusted PRLP, 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, supplementary explanation regarding how additional
payments will be provided on previously settled insured losses.
(c) An insurer that has pro rated 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.
Sec. 50.53 [Amended]
3. Section 50.53 is amended by adding paragraph (b)(5) to read as
follows:
* * * * *
(b) * * *
(5) A certification that if Treasury has determined a Pro rata Loss
Percentage (PRLP) (see Sec. 50.92), the insurer has complied with
applying the PRLP to insured loss payments, where required.
* * * * *
David G. Nason,
Assistant Secretary (Financial Institutions).
[FR Doc. E8-22940 Filed 9-29-08; 8:45 am]
BILLING CODE 4810-25-P