[Federal Register: February 28, 2003 (Volume 68, Number 40)]
[Proposed Rules]
[Page 9815-9816]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28fe03-56]
[[Page 9815]]
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DEPARTMENT OF THE TREASURY
31 CFR Part 50
RIN 1505-AA96
Departmental Offices; Terrorism Risk Insurance Program
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. That Act established a temporary Terrorism
Risk Insurance Program (Program) under which the Federal Government
will share the risk of insured loss from certified acts of terrorism
with commercial property and casualty insurers until the Program
sunsets on December 31, 2005. This proposed rule sets forth the purpose
and scope of the Program and key definitions that Treasury will use in
implementing the Program. In general, the proposed rule incorporates
interim guidance previously issued by Treasury concerning these
definitions, but with some modifications. This proposed rule, together
with the interim final rule published elsewhere in this separate part
of the Federal Register, are the first in a series of regulations
Treasury will issue to implement the Act.
DATES: Written comments may be submitted on or before March 31, 2003.
ADDRESSES: Submit comments (if hard copy, preferably an original and
two copies) to Office of Financial Institutions Policy, Attention:
Terrorism Risk Insurance Program Public Comment Record, Room 3160
Annex, Department of the Treasury, 1500 Pennsylvania Ave., NW.,
Washington, DC 20220. Because paper mail in the Washington, DC area may
be subject to delay, it is recommended that comments be submitted by
electronic mail to: triacomments@do.treas.gov. All comments should be
captioned with ``February 28, 2003 TRIA Comments.'' Please include your
name, affiliation, address, e-mail address and telephone number in your
comment. Comments will be available for public inspection by
appointment only at the Reading Room of the Treasury Library. To make
appointments, call (202) 622-0990 (not a toll-free number).
FOR FURTHER INFORMATION CONTACT: Mario Ugoletti, Deputy Director,
Office of Financial Institutions Policy (202) 622-2730, or Martha
Ellett, Attorney-Advisor, Office of the Assistant General Counsel
(Banking & Finance), (202) 622-0480 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
I. The Proposed Rule
Published elsewhere in this separate part of the Federal Register
is an interim final rule establishing 31 CFR Part 50, which will
comprise Treasury's regulations implementing the Terrorism Risk
Insurance Act of 2002 (the Act). The preamble to the interim final rule
explains these provisions of the proposed rule in detail, and the text
of the interim final rule serves as the text for this proposed rule.
In addition, Treasury specifically solicits public comment on
whether the Secretary should prescribe criteria for certain insurers
pursuant to the authority provided to Treasury in section 102(6)(C)
and, if so, what criteria Treasury should prescribe. First, Treasury
solicits comment on appropriate criteria to prevent participation in
the Program by newly formed insurance companies deemed by Treasury to
be established for the purpose of evading the insurer deductible
requirements of the Act and the Program. In this regard, Treasury's
objectives are to encourage new sources of capital in the market for
terrorism risk insurance, and at the same time, ensure the integrity of
the Program and provide comparable treatment of Program participants.
Accordingly, the intent of any additional criteria, if proposed under
section 102(6)(C), is not to discourage Program participation by newly
formed commercial property and casualty insurance companies in their
normal course of business, but to administer the Program effectively
and fairly, including preventing evasion of insurer deductible
requirements by special purpose entities formed to provide terrorism
risk only coverage.
Second, Treasury solicits comment on appropriate additional
criteria, including financial standards, that should be proposed for
federally approved insurers under Treasury's authority in section
102(6)(C) of the Act. One reason for imposing additional criteria on
federally approved insurers is because there are no uniform
requirements or standards for federal approval under various federal
programs. Although some federal programs impose minimum financial
standards, others do not. Therefore, Treasury is considering whether
additional criteria for federally approved insurers should be proposed
to promote the financial integrity of the Program and to otherwise
effectively administer the Program. Third, Treasury solicits comment on
appropriate additional criteria that should be proposed pursuant to
section 102(6)(C) to ensure that federal payments made under the
Program do not benefit entities with connections to terrorist
organizations.
In addition to comments concerning possible additional criteria
under section 102(6)(C), Treasury is soliciting comments on whether the
definition of control contained in the interim final rule should be
supplemented by proposing a rule to address situations in which a
corporate insurance structure may contain multiple insurers that own,
control or have the power to vote more than 25 percent of the voting
shares of another insurer. See Section 102(3)(A) of the Act. Based on
available information, such control arrangements exist but they do not
appear to be common. In particular, Treasury is considering and
solicits comment on consolidating direct earned premiums for purposes
of calculating the insurer deductible on a pro rata basis among the
multiple controlling owners. For example, if Insurer Y owns 40 percent
of the voting shares of Insurer Z and Insurer X owns 30 percent of the
voting shares of Insurer Z, then a pro rata allocation of premium
income and insured loss under the Program would be, respectively, 57
percent and 43 percent.
Treasury also is considering and solicits comment on a similar pro
rata allocation method for control determinations under section
102(3)(C) of the Act in situations in which multiple insurers each
provide 25 percent or more of the capital of a stock insurer,
policyholder surplus of a mutual insurer or corporate capital of other
entities that meet the definition of insurer under the Act and in the
interim final rule. If proposed as considered, this pro rata approach
would treat each insurer on a standalone basis for purposes of section
102(3)(C) of the Act if no insurer provides 25 percent or more of the
capital of a stock insurer, policyholder surplus of a mutual insurer or
corporate capital of other entities that meet the definition of insurer
under the Act and the Program.
In accordance with the consolidated treatment of direct earned
premiums among insurer affiliates, Treasury anticipates that the
controlling insurer will be the insurer that will be required to file
any claim with Treasury for federal payment under the Program and that
this insurer will receive the federal payment that is to be distributed
within the consolidated insurer group in accordance with distribution
of risk within the consolidated insurer group. Treasury solicits
comments on various means to ensure the prompt and equitable
distribution of the federal
[[Page 9816]]
payment as appropriate to ensure that the purposes of the Program are
not thwarted or evaded, and that the ultimate risk bearing entities are
treated in an equitable manner, within the Act's requirements.
II. Procedural Requirements
This proposed rule is a significant regulatory action and has been
reviewed by the Office of Management and Budget under the terms of
Executive Order 12866.
It is hereby certified that this proposed rule will not have a
significant economic impact on a substantial number of small entities.
The Act requires all licensed or admitted insurers to participate in
the Program. This includes all insurers regardless of size or
sophistication. The Act also defines property and casualty insurance to
mean commercial lines without any reference to the size or scope of the
commercial entity. Although the Act affects small insurers, the
proposed rule also gives insurers flexibility in calculating their
direct earned premium for policies that have both commercial and
personal exposures, and it provides a safe harbor to exclude policies
that have incidental coverage for commercial purposes. Accordingly, any
economic impact associated with the proposed rule flows from the Act
and not the proposed rule. However, the Act and the Program are
intended to provide benefits to the U.S. economy and all businesses,
including small businesses, by providing a federal reinsurance backstop
to commercial property and casualty insurance policyholders and
spreading the risk of insured loss resulting from an act of terrorism.
List of Subjects in 31 CFR Part 50
Terrorism risk insurance.
Authority and Issuance
For the reasons set forth above, the Department of the Treasury
proposes to adopt as a final rule the interim final rule adding part 50
to 31 CFR subtitle A, as follows:
[The part title and text of proposed Part 50 is the same as the
part title and text of Part 50 in the interim final rule published
elsewhere in this separate part of this issue of the Federal Register.]
Dated: February 25, 2003.
Wayne A. Abernathy,
Assistant Secretary of the Treasury.
[FR Doc. 03-4832 Filed 2-27-03; 8:45 am]
BILLING CODE 4810-25-P