Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Proposed Rules 19309

DEPARTMENT OF THE TREASURY

31 CFR Part 50

RIN 1505–AA98

Terrorism Risk Insurance Program

AGENCY: Departmental Offices, Treasury.

ACTION: Notice of proposed rulemaking 

by cross-reference to interim final rule. 

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 

(the Act). 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 rule 

incorporates and clarifies statutory 

conditions for federal payment under 

the Program that require insurers to 

make certain disclosures to 

policyholders. The rule also 

incorporates and clarifies statutory 

requirements that insurers ‘‘make 

available,’’ in their commercial property 

and casualty insurance policies, 

terrorism risk coverage for insured 

losses under the Program. The rule 

generally incorporates interim guidance 

previously issued by Treasury in this 

area, 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 second in a series of regulations 

Treasury will issue to implement the 

Act.

DATES: Written comments may be 

submitted on or before May 19, 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 

‘‘April 18, 2003 TRIA Interim Final Rule 

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 or Cynthia 

Reese, Attorney-Advisors, 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 adding Subparts B and 

C to 31 CFR part 50, which comprises 

Treasury’s regulations implementing 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. 

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. The disclosure and 

make available requirements are 

required by the Act. The proposed rule 

allows all insurers, whether large or 

small, to use existing systems and 

business practices to demonstrate 

compliance. 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 subparts B and C to 31 CFR 

part 50, as follows: 

The text of proposed subparts B and 

C to 31 CFR part 50 is the same as the 

text of subparts B and C to 31 CFR part 

50 in the interim final rule published 

elsewhere in this separate part of this 

issue of the Federal Register.

Dated: April 11, 2003. 

Wayne A. Abernathy, 

Assistant Secretary of the Treasury.

[FR Doc. 03–9612 Filed 4–17–03; 8:45 am] 

BILLING CODE 4810–25–P

DEPARTMENT OF THE TREASURY

31 CFR Part 50 

RIN 1505–AA99 

Terrorism Risk Insurance Program

AGENCY: Departmental Offices, Treasury.

ACTION: Notice of proposed rulemaking.

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 

(Act). The Act established a temporary 

Terrorism Risk Insurance Program 

(Program) under which the Federal 

Government will share the risk of 

insured losses from certified acts of 

terrorism with commercial property and 

casualty insurers until the Program 

sunsets on December 31, 2005. This 

notice of proposed rulemaking would 

apply provisions of the Act to State 

residual market insurance entities and 

State workers’ compensation funds 

which are insurers under the Program. 

This is the third in a series of 

regulations that Treasury will issue to 

implement the Act.

DATES: Written comments may be 

submitted on or before May 19, 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 

‘‘April 18, 2003 NPRM 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. 

19310 Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Proposed Rules 

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 or Cynthia 

Reese, Attorney-Advisors, Office of the 

Assistant General Counsel (Banking & 

Finance), (202) 622–0480 (not toll-free 

numbers).

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Terrorism Risk Insurance Act of 2002 

On November 26, 2002, President 

Bush signed into law the Terrorism Risk 

Insurance Act of 2002 (Public Law 107–

297, 116 Stat. 2322). The Act was 

effective immediately. 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 as defined in 

the Act and certified by the Secretary of 

the Treasury, in concurrence with the 

Secretary of State and the Attorney 

General. The Act authorizes Treasury to 

administer and implement the 

Terrorism Risk Insurance Program, 

including the prescription of regulations 

and procedures. The Program will 

sunset on December 31, 2005. 

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 to allow for a transition period for 

the private markets to stabilize and 

build capacity while preserving State 

insurance regulation and consumer 

protections. 

The amount of Federal payment for an 

insured loss resulting from an act of 

terrorism is to be determined based 

upon the insurance company 

deductibles and excess loss sharing with 

the Federal Government, as specified by 

the Act. Thus, the Program provides a 

Federal reinsurance backstop for a 

temporary period of time. The Act also 

provides Treasury with authority to 

recoup Federal payments made under 

the Program through policyholder 

surcharges, up to a maximum annual 

limit. 

Each entity that meets the definition 

of ‘‘insurer’’ (well over 2000 firms) must 

participate in the Program. The Act 

includes State residual market 

insurance entities and State workers 

compensation funds in the definition of 

insurer but requires Treasury to issue 

regulations as soon as practicable to 

apply the provisions of the Act to these 

insurers. 

From the date of enactment of the Act 

through the last day of Program Year 2 

(December 31, 2004), insurers under the 

Program must ‘‘make available’’

terrorism risk insurance in their 

commercial property and casualty 

insurance policies and the coverage 

must not differ materially from the 

terms, amounts and other coverage 

limitations applicable to commercial 

property and casualty losses arising 

from events other than acts of terrorism. 

The Act permits Treasury to extend the 

‘‘make available’’ requirement into 

Program Year 3, based on an analysis of 

factors referenced in the study required 

by section 108(d)(1) of the Act, and not 

later than September 1, 2004. 

An insurer’s deductible increases 

each year of the Program, thereby 

reducing the Federal Government’s 

involvement prior to sunset of the 

Program. An insurer’s deductible is 

based on ‘‘direct earned premiums’’

over a statutory Transition Period (now 

expired) and the three Program Years. 

Once an insurer has met its deductible, 

the Federal payments cover 90 percent 

of insured losses above the deductible, 

subject to an aggregate annual cap of 

$100 billion. The Act prohibits 

duplicative payments for insured losses 

that are covered under any other Federal 

program. 

As conditions for Federal payment 

under the Program, insurers must 

provide clear and conspicuous 

disclosure to the policyholders of the 

premium charged for insured losses 

covered by the Program, and must 

submit a claim and certain certifications 

to Treasury. Treasury will be 

prescribing claims procedures at a later 

date. 

The Act also contains specific 

provisions designed to manage litigation 

arising from or relating to a certified act 

of terrorism. Section 107 creates an 

exclusive Federal cause of action, 

provides for claims consolidation in 

Federal court and contains a prohibition 

on Federal payments for punitive 

damages under the Program. This 

section also provides the United States 

with the right of subrogation with 

respect to any payment or claim paid by 

the United States under the Program. As 

part of the claims process, and as 

directed by the President, Treasury will 

be issuing regulations addressing 

Treasury’s role in the approval of 

settlements.

B. Previously Issued Interim Guidance 

To assist insurers, policyholders and 

other interested parties in complying 

with immediately applicable and timesensitive requirements of the Act prior 

to the issuance of regulations, Treasury 

issued interim guidance in four separate 

notices. Treasury publicly released 

these interim guidance notices on its 

Program Web site, http://

www.treasury.gov/trip and published 

each notice in the Federal Register. 

Treasury released the first notice of 

Interim Guidance on December 3, 2002, 

within a week of the Act’s enactment 

(Interim Guidance I). Interim Guidance 

I was published at 67 FR 76206 on 

December 11, 2002, and addressed 

several issues pertaining to immediately 

applicable provisions of the Act, 

including statutory disclosure 

obligations of insurers as conditions for 

Federal payment under the Program and 

the requirement that an insurer ‘‘make 

available’’ terrorism risk insurance. The 

disclosure guidance in Interim 

Guidance I references certain model 

forms of the National Association of 

Insurance Commissioners (NAIC) and 

provides a safe harbor for those insurers 

that make use of such forms prior to the 

issuance of regulations, but Interim 

Guidance I stated that these forms are 

not the exclusive means by which 

insurers could comply with the 

disclosure conditions prior to the 

issuance of regulations. Interim 

Guidance I also provided guidance 

concerning the ‘‘direct earned 

premium’’ on lines of property and 

casualty insurance to enable insurers to 

calculate their ‘‘insurer deductibles’’

and enable insurers to price and 

disclose premiums for terrorism risk 

insurance to policyholders within 

statutory time periods. 

On December 18, 2002, Treasury 

issued a second notice of interim 

guidance. This interim guidance was 

published at 67 FR 78864 on December 

26, 2002 (Interim Guidance II). Interim 

Guidance II addressed the statutory 

categories of ‘‘insurers’’ that are 

required to participate in the Program, 

including their ‘‘affiliates’’; provided 

clarification on the scope of ‘‘insured 

loss’’ covered by the Program and 

provided additional guidance to enable 

eligible surplus line carriers listed on 

the Quarterly Listing of Alien Insurers 

of the NAIC or Federally approved 

insurers to calculate their insurer 

deductibles for purposes of the Program. 

On January 22, 2003, Treasury issued 

a third notice of interim guidance, 

published at 68 FR 4544 on January 29, 

2003 (Interim Guidance III). Interim 

Guidance III further clarified certain 

disclosure and certification questions, 

issues for non-U.S. insurers, and the 

scope of the term ‘‘insured loss’’ under 

the Act. 

On March 25, 2003 Treasury issued a 

fourth interim guidance published at 68 

FR 15039 on March 27, 2003 (Interim 

Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Proposed Rules 19311

Guidance IV). Interim Guidance IV 

provided insurers a procedure by which 

they could seek to rebut a presumption 

of control established in Treasury’s first 

set of interim final regulations. See 

Previously Issued Regulations in section 

C below and Treasury’s Web site at 

http://www.treasury.gov/trip. 

In issuing each notice of Interim 

Guidance, Treasury stated that the 

Interim Guidance may be relied upon by 

insurers until superseded by regulations 

or a subsequent notice. Treasury 

provided safe harbors for actions by 

those insurers taken in accordance with, 

and in reliance on, the interim guidance 

for the time period prior to the issuance 

of regulations. 

C. Previously Issued Regulations 

Treasury published the first 

regulation implementing the Act on 

February 28, 2003 (68 FR 9804) as an 

interim final rule together with a 

proposed rule. Both request comments 

by March 31, 2003. The first regulation, 

which is subpart A of new part 50 in 

Title 31 of the CFR, covers the purpose 

and scope of the Program, key 

definitions, and certain general 

provisions. 

In addition, Treasury has published 

an interim final rule on requirements 

concerning disclosures that insurers 

must make to policyholders as a 

condition for federal payment under the 

Act, and requirements that insurers 

make available, in their commercial 

property and casualty insurance 

policies, terrorism risk coverage for 

insured losses under the Program. (See

Subparts B and C of 31 CFR Part 50). 

II. The Proposed Rule 

Section 102(6) of the Act includes 

State residual market insurance entities 

and State workers’ compensation funds 

as insurers that are required to 

participate in the Program. Section 

103(d) of the Act requires Treasury to 

‘‘issue regulations, as soon as 

practicable after the date of enactment 

of this Act, that apply the provisions of 

this title [Title I] to State residual 

market insurance entities and State 

workers’ compensation funds.’’

Pursuant to this statutory directive, 

Treasury is issuing this notice of 

proposed rulemaking. 

A. Mandatory Participation as an 

‘‘Insurer’’ 

State residual market insurance 

entities and State workers’

compensation funds have been 

established to provide insurance 

coverage where private insurance 

companies are unwilling or unable to 

provide coverage. Private insurance 

companies may be unwilling or unable 

to provide coverage because of the 

policyholder’s risk profile or because 

the economics of a particular 

transaction are not consistent with the 

types of risk the insurer is willing or 

able to underwrite. In some cases a 

residual market entity shares the risks of 

its underlying policies with insurance 

companies that provide certain types of 

coverage within the state, and in other 

cases a residual market entity operates 

on a stand alone basis. 

All entities that meet the definition of 

‘‘insurer’’ in section 102(6)(A) and (B) 

and, if prescribed by Treasury, criteria 

in 102(6)(C), of the Act are required to 

participate in the Program. Section 

102(6)(A)(iv) includes State residual 

market insurance entities and State 

workers’ compensation funds in the 

definition of insurer for purposes of the 

Program. Treasury considers the term 

State residual market insurance entity to 

encompass all such residual market 

entities that arrange for or provide 

commercial property and casualty 

insurance coverage. This includes 

residual market entities associated with 

the provision of commercial property, 

liability, workers’ compensation, and 

automobile (including State automobile 

funds) coverage. Section 102(6)(B) 

provides an exception to the direct 

earned premium requirement for State 

residual market entities and State 

workers’ compensation funds. Treasury 

has issued no regulatory criteria under 

section 102(6)(C). Therefore, State 

residual market insurance entities and 

State workers’ compensation funds are 

insurers covered by the Program and 

required to participate in the Program. 

Section 103(d) of the Act requires 

Treasury to issue regulations as soon as 

practicable to apply the provisions of 

the Act to these types of insurers. 

Following consultation with the 

NAIC, Treasury identified a group of 

entities that falls within the category of 

State residual market insurance entities 

and State workers compensation funds. 

Treasury included this list as part of its 

Interim Guidance II (67 FR 78864). In 

that notice of interim guidance, 

Treasury also requested that any State 

residual market insurance entity or State 

workers’ compensation fund, not 

included on the list, notify Treasury. In 

response, Treasury received additional 

information and a number of 

suggestions concerning the State 

residual market entities and State 

workers’ compensation funds on the 

list. After consideration of this 

additional information and further 

consultation with the NAIC, Treasury 

has updated and expanded the initial 

list in the interim guidance of State 

residual market insurance entities and 

State workers’ compensation funds. 

This revised list will be updated as 

necessary, and publicly available at 

http://www.treasury.gov/trip. 

B. Treatment or Allocation of Premium 

Section 103(d)(2) of the Act divides 

State residual market insurance entities 

into two broad classes for purposes of 

their treatment as insurers under the 

Program: (1) Entities that do not share 

profits and losses with private sector 

insurance companies; and (2) entities 

that do share profits and losses with 

private sector insurance companies. 

Section 103(d)(2)(A) provides that ‘‘a 

State residual market insurance entity 

that does not share its profits and losses 

with private sector insurers shall be 

treated as a separate insurer.’’ For State 

residual market insurance entities that 

fall under section 103(d)(2)(A) or for 

State workers’ compensation funds 

Treasury is proposing that these entities 

follow the regulatory guidelines set 

forth in 31 CFR 50.5(d)(1) or 50.5(d)(2) 

for the purposes of calculating the 

appropriate measure of direct earned 

premium. 

Section 103(d)(2)(B) of the Act 

provides that ‘‘a State residual market 

insurance entity that shares its profits 

and losses with private sector insurers 

shall not be treated as a separate insurer, 

and shall report to each private sector 

insurance participant its share of the 

insured losses of the entity, which shall 

be included in each private sector 

insurer’s insured losses.’’ Section 

103(d)(3) further provides that ‘‘any 

insurer that participates in sharing 

profits and losses of a State residual 

market insurance entity shall include in 

its calculations of premiums any 

premiums distributed to the insurer by 

the State residual market insurance 

entity.’’ A significant number of State 

residual market entities share their 

profits and losses with private sector 

insurance companies, including entities 

that arrange for commercial automobile, 

property, and workers’ compensation 

coverages. In addition, some State 

residual insurance market entities 

contract with private sector insurance 

companies, which act as servicing 

carriers. In a servicing carrier 

arrangement, a private sector insurance 

company issues and services the 

residual market entity’s policies in 

exchange for a servicing fee. The 

servicing carrier does not bear the 

ultimate risk of such policies, but rather 

that risk is shared by all the insurance 

companies that participate in the 

residual market. However, other 

residual market entities (e.g., most 

property plans) do not use servicing 

19312 Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Proposed Rules 

carriers but, instead, issue and service 

their policies directly. 

As mentioned in Interim Guidance II, 

Treasury has consulted with the NAIC 

to develop a proposed allocation 

methodology that is in accord with 

statutory requirements. In order to 

implement the requirements of section 

103(d)(2)(B) (no separate treatment) and 

103(d)(3) (inclusion of premium 

income) for State residual market 

insurance entities that share profits and 

losses with private sector insurers, 

Treasury is proposing the following 

methodology for allocating direct earned 

premiums across all insurance 

companies that participate in the 

residual market mechanism.

First, premiums written by a servicing 

carrier, on behalf of a State residual 

market insurance entity and ceded to 

such an entity shall not be included as 

‘‘Direct Earned Premium’’ for purposes 

of calculation of that servicing carrier’s 

deductible. 

Second, premium distributed to or 

assumed by State residual market 

participants, whether directly from the 

State residual market insurance entity or 

as quota share insurers of risks written 

by servicing carriers, is included in 

‘‘Direct Earned Premium’’ for purposes 

of calculation of each pool participant’s 

deductible. 

These two proposed provisions would 

allocate risk within a State residual 

market mechanism to the ultimate risk 

bearers. Because servicing carriers do 

not hold the entire risk for the policies 

that they service for the State residual 

market insurance entity, the premium 

from those policies should not fully 

accrue to the servicing carrier. The 

servicing carrier does absorb risk within 

the State residual market mechanism, 

and the appropriate portion of such risk 

would be allocated back to the servicing 

carrier and other residual market 

participants in the second step. The net 

effect of these offsetting exclusions and 

inclusions will be no change in total 

industry-wide ‘‘Direct Earned 

Premium,’’ but rather a reallocation to 

account for the unique nature of State 

residual market insurance entities. 

The following provides an illustration 

as to how insurers that participate in 

State residual market insurance 

mechanisms should calculate their 

‘‘direct earned premium’’ for purposes 

of calculating an ‘‘insurer deductible’’ as 

defined in section 102(7): 

(1) Start with the appropriate measure 

of direct earned premium as specified in 

31 CFR 50.5(d)(1) or 50.5(d)(2). That 

measure would include appropriate 

adjustments for personal insurance 

coverage as described in section 

50.5(d)(1). 

(2) Subtract the value of direct earned 

premium earned by servicing carriers 

and ceded to State residual market 

insurance entities if those direct earned 

premiums are reported in step 1. 

(3) Add direct earned premium 

assumed from or distributed by State 

residual market insurance entities to 

insurers participating in the State 

residual market mechanism. 

Although no report or information is 

requested or proposed at this time, 

Treasury may later request that the 

administrator of a qualifying State 

residual market entity provide Treasury 

with certified information about the 

aggregate premium and losses, and 

participant allocation information that it 

provides to participating insurance 

companies if, and to the extent, deemed 

to be needed by Treasury to verify 

insurers’ ‘‘deductible’’ calculations. 

C. Other State Residual Market Insurer 

Issues 

Treasury has not yet issued 

regulations regarding the federal share 

of insured losses as described in section 

103(e)(1)(A) of the Act; however, 

consistent with the treatment of 

premium income described above, 

Treasury is considering proposing that 

insured losses arising from policies 

insured through State residual market 

insurance entities described in section 

103(d)(2)(B) be calculated for each 

residual market insurance participant 

based on each such insurer’s share of 

the insured losses of the State residual 

market entity as allocated to the insurer 

by the residual market entity. Treasury 

is also considering proposing that the 

State residual market insurance entity 

provide an allocation of insured losses 

to each participant and other 

information related to the sharing of 

insured losses among residual market 

participants as part of regulations issued 

under the claims verification process. 

Treasury specifically solicits comment 

in these areas. 

As regulations regarding the Federal 

share of insured loss and the claims 

verification process are developed, 

Treasury will also be considering the 

general issue of how the insolvency of 

insurers under the Program will be 

addressed, and in particular how the 

insolvency of a residual market 

participant or a servicing carrier affects 

the allocation of insured losses among 

residual market participants. Although 

Treasury has no specific proposal, 

Treasury also solicits comment on these 

issues. 

D. Disclosure 

In Interim Guidance II, Treasury did 

not require disclosures under section 

103(b)(2) of the Act by insurers that fall 

under section 102(6)(A)(iv), if such State 

residual market and workers’

compensation fund insurers did not 

have sufficient information to make 

such disclosures under section 

103(b)(2), pending issuance of final 

regulations. Treasury is still evaluating 

the applicability of the disclosure 

requirement on certain insurers in this 

category and solicits information on this 

issue. 

III. 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. 

Pursuant to the Regulatory Flexibility 

Act (5 U.S.C. chapter 6), it is hereby 

certified that this proposed rule will not 

have a significant economic impact on 

a substantial number of small entities. 

The Act itself requires State residual 

market insurance entities and State 

workers’ compensation funds to 

participate in the Program, and these 

entities or funds are generally not small 

entities.

The Act itself requires all licensed or 

admitted insurers to participate in the 

Program. This includes all insurers 

regardless of size or sophistication. 

Although insurers that participate in 

sharing profits and losses of a State 

residual market insurance entity or State 

workers’ compensation fund may 

include small entities, the proposed rule 

is based on existing business practices 

of residual market entities in 

determining the impact on participating 

insurers. The Act also defines property 

and casualty insurance to mean 

commercial lines without any reference 

to the size or scope of the commercial 

entity. 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. 

Accordingly, a regulatory flexibility 

analysis is not required.

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:

Federal Register / Vol. 68, No. 75 / Friday, April 18, 2003 / Proposed Rules 19313

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 (15 

U.S.C 6701 note).

2. Subpart D of part 50 is proposed to 

be amended by adding §§ 50.30, 50.33, 

50.35 and 50.36 to read as follows:

§ 50.30 General participation 

requirements. 

(a) Insurers. As defined in § 50.5(f), all 

State residual market insurance entities 

and State workers’ compensation funds 

are insurers under the Program even if 

such entities do not receive direct 

earned premiums. 

(b) Mandatory participation. State 

residual market insurance entities and 

State workers’compensation funds that 

meet the requirements of § 50.5(f) are 

mandatory participants in the Program 

subject to the rules issued in this 

subpart. 

(c) Identification. Treasury will 

release and maintain a list of State 

residual market insurance entities and 

State workers’ compensation funds at 

www.treasury.gov/trip. Procedures for 

providing comments and updates to that 

list will be posted with the list.

§ 50.33 Entities that do not share profits 

and losses with private sector insurers. 

(a) Treatment. A State residual market 

insurance entity or a State workers’

compensation fund that does not share 

profits and losses with a private sector 

insurer is deemed to be a separate 

insurer under the Program. 

(b) Premium calculation. A State 

residual market insurance entity or a 

State workers’ compensation fund that 

is deemed to be a separate insurer 

should follow the guidelines specified 

in § 50.5(d)(1) or 50.5(d)(2) for the 

purposes of calculating the appropriate 

measure of direct earned premium.

§ 50.35 Entities that share profits and 

losses with private sector insurers. 

(a) Treatment. A State residual market 

insurance entity or a State workers’

compensation fund that shares profits 

and losses with a private sector insurer 

is not deemed to be a separate insurer 

under the Program. 

(b) Premium and loss calculation. A 

State residual market insurance entity or 

a State workers’ compensation fund that 

is not deemed to be a separate insurer 

should continue to report, in accordance 

with normal business practices, to each 

participant insurer its share of premium 

income and insured losses, which shall 

then be included respectively in the 

participant insurer’s direct earned 

premium or insured loss calculations.

§ 50.36 Allocation of premium income 

associated with entities that do share 

profits and losses with private sector 

insurers. 

(a) Servicing carriers. For purposes of 

this subpart, a servicing carrier is an 

insurer that enters into an agreement to 

place and service insurance contracts 

for a State residual market insurance 

entity or a State workers’ compensation 

fund and to cede premiums associated 

with such insurance contracts to the 

State residual market insurance entity or 

State workers’ compensation fund. 

Premiums written by a servicing carrier 

on behalf of a State residual market 

insurance entity or State workers’

compensation fund that are ceded to 

such an entity or fund shall not be 

included as direct earned premium (as 

described in § 50.5(d)(1) or 50.5(d)(2)) of 

the servicing carrier. 

(b) Participant insurers. For purposes 

of this subpart, a participant insurer is 

an insurer that shares in the profits and 

losses of a State residual market 

insurance entity or a State workers’

compensation fund. Premium income 

that is distributed to or assumed by 

participant insurers in a State residual 

market insurance entity or State 

workers’ compensation fund (whether 

directly or as quota share insurers of 

risks written by servicing carriers), shall 

be included in direct earned premium 

(as described in § 50.5(d)(1) or 

50.5(d)(2)) of the participant insurer.

Dated: April 11, 2003. 

Wayne A. Abernathy, 

Assistant Secretary of the Treasury.

[FR Doc. 03–9613 Filed 4–17–03; 8:45 am] 

BILLING CODE 4810–25–P