Federal Register / Vol. 68, No. 40 / Friday, February 28, 2003 / Proposed Rules 9815

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.

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, AttorneyAdvisor, 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 

9816 Federal Register / Vol. 68, No. 40 / Friday, February 28, 2003 / Proposed Rules 

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] 

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