[Federal Register: January 29, 2008 (Volume 73, Number 19)]
[Notices]
[Page 5264-5267]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29ja08-119]
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DEPARTMENT OF THE TREASURY
Departmental Offices; Interim Guidance Concerning the Terrorism
Risk Insurance Reauthorization Act of 2007
AGENCY: Department of the Treasury.
ACTION: Notice.
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SUMMARY: This notice provides interim guidance to insurers,
policyholders, state insurance regulators and the public concerning
recent statutory amendments to the Terrorism Risk Insurance Act of 2002
(Pub. L. 107-297,
[[Page 5265]]
116 Stat. 2322) (the ``Act''). Those amendments revise the definition
of an ``act of terrorism'' covered by the Act, and make certain other
changes. This notice addresses the changes to mandatory availability
(''make available'') and disclosure requirements.
DATES: This notice is effective immediately and will remain in effect
until superseded by regulations or by subsequent notice.
FOR FURTHER INFORMATION CONTACT: Howard Leikin, Deputy Director,
Terrorism Risk Insurance Program (202-622-6770).
SUPPLEMENTARY INFORMATION: This notice provides interim guidance to
assist insurers, policyholders, state insurance regulators and the
public in understanding certain requirements of the Terrorism Risk
Insurance Act of 2002 as amended by the Terrorism Risk Insurance
Program Reauthorization Act of 2007, pending the issuance of
regulations by the Department of the Treasury. The interim guidance
contained in this notice may be relied upon by insurers in complying
with these statutory requirements prior to the issuance of regulations,
but is not the exclusive means of compliance. This interim guidance
remains in effect until superseded by regulations or subsequent notice.
I. Background
On November 26, 2002, the President signed into law the Terrorism
Risk Insurance Act of 2002 (Pub. L. 107-297) (``TRIA'' or the ``Act'').
The Act became effective immediately. It established a temporary
Terrorism Risk Insurance Program (``TRIP'' or the ``Program'') of
shared public and private compensation for insured commercial property
and casualty losses resulting from an act of terrorism, as defined in
the Act. The Act was scheduled to expire on December 31, 2005. The
Terrorism Risk Insurance Extension Act of 2005 (Pub. L. 109-144)
(Extension Act) extended TRIA through December 31, 2007. On December
26, 2007, the President signed into law the Terrorism Risk Insurance
Program Reauthorization Act of 2007 (``Reauthorization Act''). The
Reauthorization Act extends the Program through December 31, 2014 (with
calendar years 2008-2014 being called the ``Additional Program
Years''). Other provisions of the Reauthorization Act:
Revise the definition of ``Act of Terrorism'' to remove
the requirement that the act of terrorism be committed by an individual
acting on behalf of any foreign person or foreign interest in order to
be certified as an ``act of terrorism'' for purposes of the Act.
Define ``Insurer Deductible'' for all Additional Program
Years as the value of an insurer's direct earned premium for commercial
property and casualty insurance for the immediately preceding calendar
year multiplied by 20 percent.
Set the Federal share of compensation for insured losses
(subject to a $100 million Program Trigger) for all Additional Program
Years at 85 percent of that portion of the amount of insured losses
that exceeds the applicable insurer deductible.
Require Treasury to submit a report to Congress and issue
final regulations for determining the pro rata share of insured losses
to be paid under the Program when aggregate insured losses exceed the
annual liability cap of $100,000,000,000.
Require 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
$100,000,000,000.
Require for policies issued after the date of enactment,
that insurers provide clear and conspicuous disclosure to the
policyholder of the existence of the $100,000,000,000 cap at the time
of offer, purchase, and renewal of a policy (in addition to current
disclosure requirements).
Revise the recoupment provisions of the Act. For purposes
of recouping the Federal share of compensation under the Act, the
``insurance marketplace aggregate retention amount'' for all Additional
Program Years is the lesser of $27.5 billion and the aggregate amount,
for all insurers, of insured losses during each Program Year. With
regard to mandatory recoupment of the Federal share of compensation
through policyholder surcharges, collection is required within a
certain schedule specified in the Reauthorization Act. The limitation
that surcharges not exceed 3 percent of the premium charged for
property and casualty insurance coverage under the policy is eliminated
(but remains in the case of discretionary recoupment).
Require Treasury to issue recoupment regulations within
180 days of enactment, and publish an estimate of aggregate insured
losses within 90 days after an act of terrorism.
Require the President's Working Group on Financial Markets
to perform an ongoing analysis regarding the long-term availability and
affordability of terrorism risk insurance and submit reports in 2010
and 2013.
Require the Comptroller General to examine and report on
the availability and affordability of insurance coverage for nuclear,
biological, chemical, and radiological terrorist events; the future
outlook for such coverage; and the capacity of insurers and State
workers compensation funds to manage the risk associated with nuclear,
biological, chemical, and radiological terrorist events.
Require the Comptroller General to study and report on the
question of whether there are specific markets in the United States
where there are unique capacity constraints on the amount of terrorism
risk insurance available.
II. Interim Guidance
Treasury will be issuing regulations to administer and implement
TRIA, as amended by the Reauthorization Act. This notice is issued to
assist insurers in complying with certain new statutory requirements
pending the issuance of such regulations. This notice contains interim
guidance concerning compliance with the mandatory availability or
``make available'' requirements in section 103(c) of the Act, and the
disclosure notice requirements in section 103(b) of the Act. Other
requirements in current regulations remain in effect.
Given the change in the definition of an ``Act of Terrorism,'' will
Treasury be issuing specific guidance concerning the language in
property and casualty insurance policies?
As noted above, the Reauthorization Act revises the definition of
an ``act of terrorism'' in section 102(1)(A)(iv) of TRIA and removes
the requirement that the act be committed by an individual or
individuals ``acting on behalf of any foreign person or foreign
interest'' to be certified as an ``act of terrorism''.
Treasury understands that the language in property and casualty
insurance policies describing a ``certified'' act of terrorism covered
by TRIA and other (or ``non-certified'') acts of terrorism has varied.
In addition, insurers have designed their insurance contracts and
notifications to policyholders concerning potential changes to the
certification criteria for ``acts of terrorism'' differently. Insurers
must determine how their policy language and particular circumstances
are affected by the revised definition of an act of terrorism.
It is Treasury's intent with this guidance and in subsequent
regulations to address the statutory requirements and regulations of
TRIA, as amended by the Reauthorization Act. The decision whether to
certify an act of terrorism will be governed by the criteria in TRIA,
[[Page 5266]]
as amended by the Reauthorization Act. Treasury will consider losses
resulting from an act of terrorism (as now defined in TRIA) that are
covered by an insurer under a policy for property and casualty
insurance to be insured losses covered by the Program, provided the
insurer makes payment to the policyholder in accordance with the terms
and conditions of the policy, appropriate business practices, and other
applicable requirements and conditions.
How do the ``make available'' and disclosure requirements apply to
initial offers of coverage and offers of renewal?
There is no change to the TRIA requirements in section 103(c) that
insurers make available, in all property and casualty insurance
policies, coverage for insured losses that does not differ materially
from the terms, amounts, and other coverage limitations applicable to
losses arising from events other than acts of terrorism. However,
because the ``make available'' requirements apply to ``insured
losses,'' and an ``insured loss'' is defined, in part, as a loss
resulting from an ``act of terrorism,'' the revision of the definition
of an act of terrorism in the Reauthorization Act to eliminate the
``foreign person or interest'' element (i.e., to add what is often
referred to as ``domestic terrorism'') may have an impact on an
insurer's compliance with the ``make available'' requirements.
The Reauthorization Act is effective immediately upon enactment,
December 26, 2007. The TRIA regulations in 31 CFR 50.21(a) generally
provide that the ``make available'' requirements apply at the time of
the initial offer of coverage or offer of renewal of an existing
policy. Thus, any initial offers of coverage, or offers of renewal of
existing policies, made on or after the date of enactment, must be
consistent with the revised definition of act of terrorism.
The Reauthorization Act also made no change to the requirement in
section 103(b) in TRIA that insurers provide clear and conspicuous
disclosure to the policyholder of the premium charged for insured
losses covered by the Program and the Federal share of compensation for
insured losses under the Program. These disclosures must be made on a
separate line item in the policy, at the time of offer, purchase, and
renewal of the policy. However, disclosure of the premium must now
reflect the premium charged for insured losses (as determined by the
revised definition of an act of terrorism).
As stated above, any initial offers of coverage, or offers of
renewal of existing policies, made on or after the date of enactment
must be consistent with the revised definition of ``act of terrorism.''
So too, the required disclosure must be made on a separate line item in
the policy, at the time of offer, purchase, and renewal of the policy.
Treasury realizes that as a practical matter, insurers may have to
modify operations and may be subject to rate and policy form filing
and/or prior approval processes, and therefore may need some time to
meet these requirements.
Treasury expects that all insurers will provide compliant initial
and renewal offers and disclosures as quickly as possible. In this
regard, Treasury considers March 31, 2008, to be the latest reasonable
date for compliant offers of coverage and disclosures to policyholders
(including reprocessing of policies, if necessary, where a compliant
post-December 26, 2007 offer and/or disclosure was not possible),
barring unforeseen or unusual circumstances. If the March 31 date is
not met by an insurer, Treasury will expect the insurer to demonstrate,
when submitting a claim for the Federal share of compensation under the
Program, why it could not comply by that date.
Does an insurer have to provide a separate, new offer of terrorism risk
insurance coverage for property and casualty insurance policies that
are in mid-term as of January 1, 2008, if the insurer previously
complied with the Act's ``make available'' requirement when the policy
was issued or renewed prior to December 26, 2007?
Because under TRIA regulations, the ``make available'' requirements
apply at the time of the initial offer of coverage or offer of renewal
of an existing policy, no new offer is required if coverage for the
duration of the policy term was offered under the provisions of the Act
at the time of the offer. This is the case whether the offer was
accepted or rejected. If no new offer is made, then a new disclosure of
the premium charged for insured losses covered by the Program and the
Federal share of compensation for insured losses is also not required,
because under TRIA the disclosure requirements apply at the time of
offer, purchase and renewal of the policy.
If existing coverage for an act of terrorism does not continue for
the duration of the policy term beyond December 31, 2007, such as a
case where an exclusion becomes effective upon some circumstance, then
a new offer is required for the duration of the policy term.
If for any reason an insurer makes a new offer mid-term, and that
offer is after December 26, 2007, then the offer must be based on the
Reauthorization Act's requirements. The associated disclosure of the
premium must reflect the premium for insured losses in accordance with
the revised definition of act of terrorism. Disclosure of the $100
billion cap must also be provided, as explained below.
What if a policy renewal or application was processed in 2007 for
coverage becoming effective in 2008 and the insurer did not ``make
available'' terrorism coverage?
The Reauthorization Act continues the ``make available''
requirement for insurers under TRIA. If an insurer wishes to receive
Federal compensation under the Program for insured losses, the insurer
must ``make available'' terrorism coverage for insured losses for all
policies becoming effective in 2008, even if the policy was processed
in late 2007 or early 2008. As noted in guidance above, Treasury
expects that all insurers will provide policyholders an offer of
terrorism coverage and appropriate disclosures as quickly as possible.
When must the new disclosure to policyholders of the $100 billion cap
on liability be made?
The Reauthorization Act requires a clear and conspicuous disclosure
to the policyholder of the existence of the $100 billion cap under
section 103(e)(2) of TRIA. The requirement applies to ``any policy that
is issued after the date of enactment'' of the Reauthorization Act, or
December 26, 2007. Under section 103(e)(2), if the aggregate insured
losses exceed $100 billion during a Program Year, Treasury shall not
make any payment for any portion of the amount of such losses that
exceeds $100 billion, and no insurer that has met its insurer
deductible shall be liable for the payment of any portion of the amount
of such losses that exceeds $100 billion. The disclosure must be made
at the time of offer, purchase and renewal of the policy.
For policies issued after December 26, 2007, this disclosure must
be provided to the policyholder at the first occurrence thereafter of
an offer, purchase or renewal.
As noted above, Treasury realizes that as a practical matter,
insurers may need some time to meet these requirements. Treasury
expects that all insurers will provide compliant disclosures as quickly
as possible. In this regard, Treasury considers March 31, 2008, to be
the latest reasonable date for providing the cap disclosure (including
reprocessing of policies, if necessary, where a compliant disclosure
was not possible), barring unforeseen or unusual
[[Page 5267]]
circumstances. If the March 31 date is not met by an insurer, Treasury
will expect the insurer to demonstrate, when submitting a claim for the
Federal share of compensation under the Program, why it could not
comply by that date.
May an insurer still use NAIC Model Disclosure Forms to meet the
disclosure requirement for property and casualty insurance policies?
Under 31 CFR 50.17(e) of the TRIA regulations, insurers are
permitted to use NAIC Model Disclosure Forms No. 1 and 2 to satisfy the
disclosure requirements of section 103(b)(2) of the Act, provided that
the insurer uses the most current forms that are available at the time
of disclosure and the current forms are deemed to satisfy the
disclosure requirements of the Act. The National Association of
Insurance Commissioners (NAIC) has recently modified the forms and
Treasury has deemed the newly modified forms to satisfy the disclosure
requirements, including the cap disclosure requirement. The new forms
will be found on the Treasury Web site at http://www.treasury.gov/trip.
Insurers are not required to use the NAIC forms, and may use other
means to comply with the disclosure requirements.
Dated: January 22, 2008.
Taiya Smith,
Executive Secretary.
[FR Doc. E8-1467 Filed 1-28-08; 8:45 am]
BILLING CODE 4811-42-P