Treasury Department Proposed Rule: Updated Regulations in Light of Terrorism Risk Insurance Program Reauthorization Act of 2019, for Other Purposes
Targeted News Service
WASHINGTON, Nov. 10 -- The Department of the Treasury has issued a proposed rule (31 CFR Part 50), published in the Federal Register, entitled: "Terrorism Risk Insurance Program; Updated Regulations in Light of the Terrorism Risk Insurance Program Reauthorization Act of 2019, and for Other Purposes".
The proposed rule was issued by Jonathan Greenstein, Deputy Assistant Secretary for Financial Institutions Policy.
DATES: Comments must be in writing and received by January 11, 2021. Early submissions are encouraged.
Please submit comments electronically through the Federal eRulemaking Portal: http://www.regulations.gov, or by mail (if hard copy, preferably an original and two copies) to the Federal Insurance Office, Attention: Richard Ifft, Room 1410 MT, Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 20220. Because postal mail may be subject to processing delay, it is recommended that comments be submitted electronically. All comments should be captioned with "2019 TRIA Reauthorization Proposed Rules Comments." Please include your name, organizational affiliation, address, email address and telephone number in your comment. Where appropriate, a comment should include a short Executive Summary (no more than five single-spaced pages).
In general, comments received will be posted on http://www.regulations.gov without change, including any business or personal information provided. Comments received, including attachments and other supporting materials, will be part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.
FOR FURTHER INFORMATION CONTACT: Richard Ifft, Senior Insurance Regulatory Policy Analyst, Federal Insurance Office, 202-622-2922, or Lindsey Baldwin, Senior Insurance Regulatory Policy Analyst, Federal Insurance Office, 202-622-3220.
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The Department of the Treasury (Treasury) is issuing proposed rules to implement technical changes to the Terrorism Risk Insurance Program (TRIP or Program) required by the Terrorism Risk Insurance Program Reauthorization Act of 2019 (2019 Reauthorization Act), and to update links to the Program's website, where additional information relating to the administration of the Program is located for public reference.
In addition, Treasury is proposing rules to: Clarify the manner in which Treasury will calculate "property and casualty insurance losses" for purposes of considering certification of an act of terrorism, and "insured losses" when administering the financial sharing mechanisms under the Program, including the Program Trigger and Program Cap; and incorporate into the Program rules prior guidance provided by Treasury in connection with stand-alone cyber insurance under the Program.
Treasury also seeks further public comment concerning the certification process under the Program, and the participation of captive insurers in the Program, to facilitate further analysis and study by the Federal Insurance Office (FIO) of the Program and potential future rulemakings in these areas.
The Terrorism Risk Insurance Act (TRIA) was enacted following the attacks on September 11, 2001 to address disruptions in the market for terrorism risk insurance, to help ensure the continued availability and affordability of commercial property and casualty insurance for terrorism risk, and to help private markets stabilize and build insurance capacity to absorb any future losses for terrorism events. TRIA requires insurers to "make available" terrorism risk insurance for commercial property and casualty losses resulting from certified acts of terrorism (insured losses) and provides for shared public and private compensation for such insured losses. Under TRIA, the Secretary of the Treasury administers the Program, with the assistance of FIO.
The Program was originally scheduled to terminate on December 31, 2005, but it was extended several times between 2005 and 2015. Most recently, on December 20, 2019, President Trump signed into law the 2019 Reauthorization Act. Section 502 of that Act extends the Program's termination date to December 31, 2027. The risk-sharing mechanisms for calendar year 2020 remain constant for the entire reauthorization period, and are not modified by the 2019 Reauthorization Act.
Treasury is issuing this notice of proposed rulemaking to align certain dates in the Program regulations with the 2019 Reauthorization Act. Treasury is also taking this opportunity to update links to the Program website in the regulations.
Treasury is also proposing several changes in response to a recent report by the Government Accountability Office (GAO) addressing certain sources of risk and uncertainty related to the Program. In the report, GAO indicated that, based upon its engagement with stakeholders during the preparation of the report, some uncertainty may exist about how Treasury would factor in policyholder retention amounts in calculating "property and casualty insurance losses" versus "insured losses" to determine the Program certification threshold, Program Trigger, and Program Cap. GAO recommended that Treasury provide further clarification to "prevent uncertainty in the insurance market and potential litigation following a terrorist event that could delay insurance payments and economic recovery." Treasury agrees that the reduction of uncertainty is an important goal. Accordingly, Treasury proposes certain rule changes designed to clarify how Treasury will apply these defined terms to effectuate the intent and goals of the Program.
Treasury is also proposing certain changes based on previous Treasury guidance regarding cyber coverage. In December 2016, Treasury issued interim guidance confirming that certain stand-alone cyber coverage written in a TRIP-eligible line of insurance was within the scope of the Program, such that insurers were obligated to adhere to the "make available" and disclosure requirements under TRIA for such coverage.8 Treasury is proposing certain definitional changes to incorporate the cyber coverage guidance in the Program regulations.
While Treasury seeks comments from interested parties and the public on all aspects of the proposed rules, it particularly seeks comments on issues related to the certification process and the participation of captive insurers in the Program. Comments received will inform additional analyses concerning the Program and potential future rulemakings. Treasury has determined to further review these topics partly in response to a May 2020 report issued by the Advisory Committee on Risk-Sharing Mechanisms (ACRSM), which was established under the 2015 Reauthorization Act to provide advice, recommendations, and encouragement to Treasury for the creation and development of non-governmental, private market risk-sharing mechanisms to protect against losses arising from acts of terrorism. The ACRSM Report identifies a number of Program areas for further action and study by Treasury, including Treasury's existing rules governing the certification process as well as the participation within TRIP of captive insurers and other alternative carrier mechanisms.
The changes are explained below in the context of the proposed rules.
II. Program Regulations
Rules establishing general provisions implementing the Program, including key definitions, and requirements for policy disclosures and mandatory availability, can be found in Subparts A, B, and C of 31 CFR part 50. Treasury's rules applying provisions of the Act to state residual market insurance entities and state workers' compensation funds are located at Subpart D of 31 CFR part 50. Rules addressing Treasury's data collection authorities are found at Subpart F of 31 CFR part 50. Subpart G of 31 CFR part 50 contains the Program's certification regulations. Rules setting forth procedures for filing claims for payment of the Federal share of compensation for insured losses are found at Subpart H of 31 CFR part 50. Subpart I of 31 CFR part 50 contains rules on audit and recordkeeping requirements for insurers, while Subpart J of 31 CFR part 50 addresses recoupment and surcharge procedures. Finally, Subpart K of 31 CFR part 50 contains rules implementing the litigation management provisions of TRIA, and Subpart L of 31 CFR part 50 addresses rules concerning the cap on annual liability under TRIA.
Dated: October 30, 2020.
Deputy Assistant Secretary for Financial Institutions Policy.
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