[Federal Register: December 11, 2002 (Volume 67, Number 238)]
[Notices]
[Page 76206-76208]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11de02-65]
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DEPARTMENT OF THE TREASURY
Departmental Offices; Interim Guidance Concerning New Statutory
Disclosure and Mandatory Availability Requirements of the Terrorism
Risk Insurance Act of 2002
AGENCY: Department of the Treasury, Departmental Offices.
ACTION: Notice.
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SUMMARY: This notice provides interim guidance to insurers concerning
certain statutory disclosure and mandatory availability requirements
contained in the Terrorism Risk Insurance Act of 2002 (Pub. L. 107-
297). In addition, this notice provides interim guidance to insurers
concerning the types of commercial property and casualty insurance
covered by the Act and concerning the term ``direct earned premium'' as
used in the Act.
DATES: This notice is effective immediately and will remain in effect
until superceded by regulations or by subsequent notice.
FOR FURTHER INFORMATION CONTACT: Mario Ugoletti, Deputy Director,
Office of Financial Institutions and GSE Policy 202-622-2730; Martha
Ellett, Attorney-Advisor, Office of Assistant General Counsel (Banking
and Finance) 202-622-0480.
SUPPLEMENTARY INFORMATION: This notice provides interim guidance to
assist insurers in meeting certain requirements of the Terrorism Risk
Insurance Act of 2002 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until superceded by regulations or subsequent notice.
I. Background
On November 26, 2002, the President signed into law the Terrorism
Risk Insurance Act of 2002 (the Act). The Act became effective
immediately. It establishes a temporary federal 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 Terrorism Risk Insurance Program is administered and
implemented by the Department of the Treasury (Treasury) and will
sunset on December 31, 2005.
II. Interim Guidance
Treasury will be issuing regulations to administer and implement
the Program. This notice is issued to assist insurers in complying with
certain statutory requirements prior to the issuance of regulations.
This notice contains interim guidance on disclosures required by
sections 103 and 105 of the Act and concerning compliance with the
mandatory availability requirements in section 103(c) of the Act. In
addition, this notice provides interim guidance concerning commercial
lines of property and casualty insurance covered by section 102(12) and
concerning the statutory term ``direct earned premium.'' Treasury also
may issue additional interim guidance as necessary prior to the
issuance of regulations.
[[Page 76207]]
A. Disclosures to Policyholders
What Disclosures Are Required by the Act in Section 103(b)(2)?
The Act requires that disclosures be made to policyholders as part
of the conditions for Federal payments under the Terrorism Risk
Insurance Program. Section 103(b)(2) requires an insurer to provide
clear and conspicuous disclosure to the policyholder of the premium
charged for insured losses covered by the Terrorism Risk Insurance
Program and the Federal share of compensation for insured losses under
the Program.
[sbull] For existing (in-force) policies issued before the date of
enactment (November 26, 2002), the Act requires that disclosure to the
policyholder be made not later than 90 days after November 26, 2002;
[sbull] For policies issued within 90 days of November 26, 2002,
the Act requires the disclosure to the policyholder be made at the time
of offer, purchase and renewal of the policy; and
[sbull] For policies issued more than 90 days after November 26,
2002, the Act requires disclosure on a separate line item in the policy
at the time of offer, purchase and renewal of the policy.
What Disclosures (or Statements) Are Required by the Reinstatement
Provisions in Section 105(c) of the Act?
Section 105(c) of the Act allows an insurer to reinstate
preexisting exclusions of coverage for an act of terrorism in a
contract for property and casualty insurance that is in force on the
date of enactment, notwithstanding the general nullification and
general preemption of terrorism exclusions in force on the date of
enactment of the Act in section 105(a) and (b), but only if (1) the
insurer has received a written statement from the insured that
affirmatively authorizes such reinstatement or (2) if (A) the insured
fails to pay any increased premium charged by the insurer for providing
such terrorism coverage and (B) the insurer provided notice, at least
30 days before any such reinstatement of (i) the increased premium for
such terrorism coverage and (ii) the rights of the insured with respect
to such coverage, including the date upon which the exclusion would be
reinstated if no payment is received.
How May an Insurer Comply With the Disclosure Requirements of Section
103(b) (2)(A) if There Is No Change in the Premium?
Prior to the issuance of regulations or further guidance by
Treasury, any insurer that uses the Model Form No. 2 attached to the
model bulletin on Terrorism Risk Insurance dated November 26, 2002, of
the National Association of Insurance Commissioners (NAIC), and posted
on the NAIC Web site at http://www.naic.org/pressroom/releases/disclose_two_final.pdf
, as a policyholder disclosure form for in-
force policies, if the insurer makes no change in the existing premium,
will be deemed by Treasury to be in compliance with section
103(b)(2)(A).
How May an Insurer Comply With the Disclosure Requirements of Section
103(b)(2)(B) for Policies Issued Within 90 Days of Enactment?
Either NAIC Model Disclosure Form No. 1 which is posted on the NAIC
Web site at http://www.naic.org/pressroom/releases/disclose_one_final.pdf
, or NAIC Model Disclosure Form No. 2 which is posted on the
NAIC Web site at http://www.naic.org/pressroom/releases/disclose_two_final.pdf
, may be modified as appropriate by insurers for the
particular policy and used for policies issued within 90 days of
enactment. Prior to the issuance of regulations or further guidance by
Treasury, any insurer that modifies as appropriate and uses either of
these model disclosure forms as its disclosure for policies issued
within 90 days of enactment of the Act will be deemed by Treasury to be
in compliance with the section 103(b)(2)(B) disclosure requirements.
May an Insurer Use the Same Form To Comply With the Reinstatement
Requirements of Section 105(c) and the Disclosure Requirements of
Section 103(b)(2)(A) if Applicable?
Yes. Prior to the issuance of regulations or further guidance by
Treasury, if applicable to an existing policyholder, e.g. for in-force
policies where there is a change of premium, Treasury will deem
disclosure by an insurer to an existing policyholder using NAIC Model
Disclosure Form 1, posted on the NAIC Web site at http://www.naic.org/pressroom/releases/disclose_one_final.pdf
, to comply with the
disclosure requirements of section 105(c) of the Act, as well as with
the requirements of section 103(b)(2)(A).
Is This Interim Guidance the Exclusive Means by Which an Insurer May
Comply With Disclosure or Reinstatement Requirements of the Act?
No. This interim guidance concerning certain disclosures as
specified above may be relied upon by insurers as a safe harbor in
complying with these requirements of the Act until regulations or
further guidance is issued by Treasury, but it is not the exclusive
means by which an insurer may comply with these requirements of the
Act.
How May an Insurer Comply With the ``Separate Line Item'' Requirement
in Section 103(b)(2)(C) for Policies Issued More Than 90 Days After the
Date of Enactment?
Treasury will be issuing additional interim guidance as
appropriate, and will be issuing regulations concerning other
disclosure requirements, such as the separate line item disclosure
requirement.
May an Insurer Comply With the Disclosure Requirements of the Act
Through a Broker or Other Agent?
Yes. In many situations, commercial property and casualty insurance
is procured for policyholders through an insurance broker or other
intermediary acting as agent for the insurer. Prior to the issuance of
regulations or further guidance by Treasury, if the normal form of
communication between an insurer and the policyholder is through an
insurance broker (or other intermediary acting as agent for the
insurer), an insurer may provide the Act's required disclosures through
such agents. While this interim guidance permits an insurer to provide
disclosures to its policyholders through an insurance broker or other
agent, the responsibility for ensuring that such disclosures are
provided to policyholders still rests with the insurer.
B. Mandatory Availability
What Does ``Make Available'' Mean?
From enactment through the end of Program Year 2 (December 31,
2004), section 103(c)(1) of the Act requires that an insurer:
(A) Shall make available, in all of its property and casualty
insurance policies, coverage for insured losses; and
(B) Shall make available property and casualty insurance
coverage for insured losses that does not differ materially from the
terms, amounts, and other coverage limitations applicable to losses
arising from events other than acts of terrorism.
Until Treasury issues regulations or provides further guidance on
the requirements of section 103(c), ``make available'' means an insurer
is required to offer coverage to a policyholder for acts of terrorism
(as defined in the Act) that does not differ materially from the terms,
amounts, and other coverage limitations offered to the policyholder for
losses from events other than acts of terrorism. For example,
compliance with ``make available'' means that insurers offer coverage
for acts of
[[Page 76208]]
terrorism (as defined in the Act) at deductibles and limits that do not
differ materially from the coverage provided for other perils.
For the purposes of this interim guidance, the ``make available''
requirement does not mean that insurers must make available coverage
for all types of risks. For example, if an insurer does not cover all
types of risks, either because the insurer is outside of direct State
regulatory oversight or a State permits exclusions for certain types of
losses (e.g., nuclear, biological, or chemical events) an insurer would
not be required to make such coverage available.
This interim guidance is consistent with the Act's stated purpose
of ensuring widespread availability of terrorism risk insurance while
preserving State insurance regulation. During the course of
implementing the Program, Treasury will be monitoring the pricing and
availability of terrorism risk insurance coverage as part of the Act's
requirements that Treasury study the effectiveness of the Program
(section 108(d)(1)) and compile information on the premium rates of
insurers (section 104(f)).
How May Insurers Comply With the ``Make Available'' Provision?
For purposes of this interim guidance, an insurer that makes a
formal offer of coverage to a policyholder that does not differ
materially from the terms (other than price), amounts and other
coverage limitations offered to the policyholder will be deemed in
compliance with the ``make available'' requirement.
May an Insurer Offer Coverage for Acts of Terrorism (as Defined in the
Act) That Differs Materially From the Terms, Amounts, and Other
Coverage Limitations for Losses Arising From Events Other Than Acts of
Terrorism?
For the purposes of this interim guidance, an insurer may offer
coverage that is on different terms, amounts, or coverage limitations
as long as the insurer satisfies the ``make available'' requirements
(as described in the previous question and answer) and as long as such
offers do not violate any State laws or regulations. For example, in a
State that requires the provision of full coverage without any
exclusion, the Act would not preempt that State's preexisting
requirements. In contrast, if a State permits certain exclusions or
allows for other limitations, or if an insurance policy is not directly
governed by State requirements, then after first satisfying the ``make
available'' requirement (as described in the previous question and
answer), an insurer could offer limited coverage or coverage with
exclusions.
C. Property and Casualty Insurance and Direct Earned Premium
What Types of Property and Casualty Insurance Are Covered by the
Program?
Section 102(12) of the Act defines property and casualty insurance
to mean commercial lines of property and casualty insurance, including
excess insurance, workers' compensation insurance, and surety
insurance.
As interim guidance prior to the issuance of regulations, Treasury
deems the following lines of insurance from the NAIC's Exhibit of
Premiums and Losses (commonly known as Statutory Page 14) to be
included in the Program: Line 1--Fire; Line 2.1--Allied Lines; Line 3--
Farmowners Multiple Peril; Line 5.1--Commercial Multiple Peril (non-
liability portion); Line 5.2--Commercial Multiple Peril (liability
portion); Line 8--Ocean Marine; Line 9--Inland Marine; Line 16--
Workers' Compensation; Line 17--Other Liability; Line 18--Products
Liability; Line 19.3--Commercial Auto No-Fault (personal injury
protection); Line 19.4--Other Commercial Auto Liability; Line 21.2--
Commercial Auto Physical Damage; Line 22--Aircraft (all perils); Line
24--Surety; Line 26--Burglary and Theft; and Line 27--Boiler and
Machinery.
Section 102(12) (B) of the Act lists types of insurance coverage
that are excluded from the Program. These are private mortgage or title
insurance; financial guaranty insurance issued by monoline financial
guaranty insurance corporations; insurance for medical malpractice;
health or life insurance, including group life insurance; flood
insurance provided under the National Flood Insurance Act of 1968; and
reinsurance or retrocessional reinsurance.
In addition, the Act excludes, ``Federal crop insurance issued or
reinsured under the Federal Crop Insurance Act, or any other type of
crop or livestock insurance that is privately issued or reinsured.'' As
interim guidance to facilitate implementation, Treasury deems the
phrase ``any other type of crop or livestock insurance that is
privately issued or reinsured'' to mean Multiple Peril Crop insurance
reported on Line 2.2 of the NAIC's Exhibit of Premiums and Losses
(commonly known as Statutory Page 14).
How Is Direct Earned Premium Measured?
The Act contains the term ``direct earned premium.'' The Act
specifies an insurer's direct earned premiums over a given calendar
year as the deductible base for purposes of calculating an ``insurer
deductible'' as defined in section 102(7) of the Act. For purposes of
interim guidance to enable insurers that report to the NAIC to
calculate their ``insurer deductible'' and to facilitate immediate
implementation of the Program, the term ``direct earned premium'' means
the direct premiums earned as reported to the NAIC in the Annual
Statement in column 2 of the Exhibit of Premiums and Losses (commonly
known as Statutory Page 14). Treasury will be issuing additional
guidance for entities covered under the Program that do not report to
the NAIC.
Dated: December 3, 2002.
Peter R. Fisher,
Under Secretary of the Treasury.
[FR Doc. 02-31256 Filed 12-10-02; 8:45 am]
BILLING CODE 4810-25-P