[Federal Register: October 17, 2003 (Volume 68, Number 201)]
[Rules and Regulations]
[Page 59715-59720]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17oc03-8]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
31 CFR Part 50
RIN 1505-AA99
Terrorism Risk Insurance Program; State Residual Market Insurance
Entities
AGENCY: Departmental Offices, Treasury.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Department of the Treasury (Treasury) is issuing this
final 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 loss from certified acts of
terrorism with commercial property and casualty insurers until the
Program ends on December 31, 2005. Treasury published a proposed rule
with a request for comment on April 18, 2003. This rule is issued
pursuant to section 103(d)(1) of the Act, which directs Treasury to
issue regulations that apply the provisions of the Act specifically to
State residual market insurance entities and State workers'
compensation funds. This rule is the third final rule in a series of
regulations that Treasury is issuing to implement the Program.
DATES: This final rule is effective October 17, 2003.
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, or C. Christopher
Ledoux, Senior Attorney,
[[Page 59716]]
Terrorism Risk Insurance Program (202) 622-6770 (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 (Pub. L. 107-297, 116 Stat. 2322). The Act
was effective immediately. 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.
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, which as
defined in the Act is 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 issuance of regulations and
procedures. The Program will end on December 31, 2005.
Each entity that meets the definition of ``insurer'' (well over
2000 firms) must participate in the Program. 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 and the
implementing regulations. An insurer's deductible increases each year
of the Program, thereby reducing the Federal Government's share prior
to expiration of the Program. An insurer's deductible is calculated
based on the value of ``direct earned premiums'' collected over certain
statutory periods. Once an insurer has met its individual deductible,
the Federal payments cover 90 percent of insured losses above the
deductible, subject to an industry-aggregate limit of $100 billion.
The Program provides a Federal reinsurance backstop for three
years. The Act provides Treasury with authority to recoup Federal
payments made under the Program through policyholder surcharges, up to
a maximum annual limit. The Act also prohibits duplicative payments for
insured losses that have been covered under any other Federal program.
The mandatory availability or ``make available'' provisions in
section 103(c) of the Act require that, for Program Year 1 and Program
Year 2 and, if so determined by Treasury, in Program Year 3, all
entities that meet the definition of insurer under the Program must
make available in all of their property and casualty insurance policies
coverage for insured losses resulting from an act of terrorism. This
coverage can not differ materially from the terms amounts and other
coverage limitations arising from events other than acts of terrorism.
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 the
Federal share of compensation for insured losses under the Program. In
addition, the Act requires that insurers must submit a claim and
certain certifications to Treasury. Treasury will engage in rulemaking
to prescribe claims procedures for the Program 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. The Act
provides the United States with the right of subrogation with respect
to any payment or claim paid by the United States under the Program.
1. Three Year Program
The duration of the Program is three years. The Act was signed into
law on November 26, 2002, and section 108(a) of the Act provides that,
``[t]he Program shall terminate on December 31, 2005.'' Thereafter, the
Act provides Treasury with certain continuing authority to take actions
as necessary to ensure payment, recoupment, adjustments of compensation
and reimbursement for insured losses arising out of any act of
terrorism occurring during the period between November 26, 2002, and
December 31, 2005. The duration of the Program and the Program's
termination date should not be confused with the make available
requirements contained in section 103(c) of the Act. As reflected in
both the interim final and final rules, the make available requirements
in section 103(c) of the Act apply to all insurers, through the end of
Program Year 2. However, the Secretary of the Treasury may determine,
not later than September 1, 2004, to extend the make available
requirements through Program Year 3, based on factors referenced in
section 108(d)(1) of the Act. Regardless of whether the make available
requirements of section 103 are extended, the Program and the Act's
Federal backstop for insured losses for acts of terrorism continue
through December 31, 2005.
2. Program Implementation Goals
In implementing the Program, Treasury is guided by several goals.
First, Treasury strives to implement the Act in a transparent and
effective manner that treats comparably those insurers required to
participate in the Program and provides necessary information to
policyholders in a useful and efficient manner. Second, in accord with
the Act's stated purposes, Treasury seeks to rely as much as possible
on the State insurance regulatory structure. In that regard, Treasury
has coordinated the implementation of all aspects of the Program with
the National Association of Insurance Commissioners (NAIC). Third, to
the extent possible within statutory constraints, Treasury seeks to
allow insurers to participate in the Program in a manner consistent
with procedures used in their normal course of business. Finally, given
the temporary and transitional nature of the Program, Treasury is
guided by the Act's goal for insurers to develop their own capacity,
resources, and mechanisms for terrorism insurance coverage when the
Program expires.
B. The Proposed Rule
The proposed rule proposed to amend subpart D of part 50 in title
31 of the Code of Federal Regulations by adding sections 50.30, 50.33,
50.35, and 50.36. Subpart A of part 50 addresses the scope and purpose
of the Program, key definitions and certain general provisions and was
finalized and published in the Federal Register at 68 FR 41250 (July
11, 2003) (as amended at 68 FR 48280 (August 13, 2003)). Subparts B and
C were established by an interim final rule published in the Federal
Register at 68 FR 19301 (Apr. 18, 2003) and were recently finalized.
Subpart B incorporates and clarifies certain conditions for Federal
payment contained in section 103(b) of the Act that require insurers to
provide certain clear and conspicuous disclosures to their
policyholders with regard to terrorism risk insurance for insured
losses under the Program. Subpart C clarifies requirements in section
103(c) of the Act that insurers ``make available,'' in all of their
commercial property and casualty insurance policies, coverage for
insured losses
[[Page 59717]]
resulting from an act of terrorism as defined by section 102(1) of the
Act. In this regard, section 103(c) requires insurers to make such
terrorism risk coverage available at terms, amounts and other coverage
limitations that do not differ materially from those applicable to
losses arising from events other than from acts of terrorism. Subpart
D, as directed by section 103(d)(1) of the Act, applies the provisions
of the Act to State residual market insurance entities and State
workers' compensation funds. In the preamble to the proposed rule,
Treasury requested comment on application of the disclosure
requirements of the Act to State residual market insurance entities and
State workers' compensation funds. As part of this rulemaking, Treasury
is amending section 50.19 of subpart B, which was previously reserved,
to apply the disclosure requirements to those entities.
The various rules reflect earlier interim guidance notices, issued
by Treasury soon after the Act's enactment date, and designed to assist
insurers, policyholders, and other interested parties in complying with
immediately applicable and time-sensitive requirements.\1\ In
finalizing this rule, Treasury carefully considered the comments
submitted and consulted with the NAIC.
---------------------------------------------------------------------------
\1\ These interim guidance notices were published in the Federal
Register at 67 FR 76206 (Dec. 11, 2002); 67 FR 78864 (Dec. 26, 2002)
and at 68 FR 4544 (Jan. 29, 2003). Treasury also issued a fourth
interim guidance at 68 FR 15039 (Mar. 27, 2003), which has
subsequently been superceded by a new provision in the final rule
for Subpart A, published at 68 FR 41250 (July 11, 2003). The interim
guidance and all regulations can also be located on Treasury's
Terrorism Risk Insurance Program Web site at http://www.treasury.gov/trip.
---------------------------------------------------------------------------
II. Summary of Comments and Final Rule
Treasury received four comments on the proposed rule. Comments were
submitted by a group of insurance trade associations, the Ohio Bureau
of Workers' Compensation, and a State residual market insurance entity.
After review and careful consideration of these comments, as well as
additional research and consultation with the NAIC, Treasury is now
promulgating a final rule applying the Act to State residual market
insurance entities and State workers' compensation funds (referred to
collectively as ``residual market mechanisms'' where appropriate).
Treasury has made no changes to the proposed rule. Treasury is,
however, adding specific disclosure provisions by amending section
50.19. The final rule and amendment to section 50.19, including
clarifications, are discussed in the summary of comments below.
A. Mandatory Participation by Residual Market Mechanisms (Section
50.30)
In subpart D of this final rule, Treasury is setting forth
regulations specific to the participation of residual market mechanisms
in the Program. Section 102(6) of the Act specifically includes State
residual market insurance entities and State workers' compensation
funds as insurers that are required to participate in the Program. As
we stated in the notice of proposed rulemaking (published in the
Federal Register at 68 FR 19309 on April 18, 2003), Treasury considers
the Act's terms ``State residual market insurance entities'' and
``State workers' compensation funds'' to encompass all State
legislatively-created residual market mechanisms that facilitate the
availability of primary and excess commercial property and casualty
insurance coverage for risks that face difficulties in obtaining such
coverage from the voluntary market. This includes--but is not limited
to--residual market mechanisms associated with the provision of
commercial property, commercial liability, workers' compensation, and
commercial automobile coverage. Sections 50.30(a) and (b) of this final
rule, taken together, provide that residual market mechanisms are
insurers under the Program, even if they do not receive direct earned
premiums, and thus are mandatory participants in the Program.
1. List of Residual Market Mechanisms
In its second notice of interim guidance (67 FR 78864), Treasury
first published a list of entities that Treasury, in consultation with
the NAIC, identified as residual market mechanisms required to
participate in the Program and that provide commercial property and
casualty insurance, as defined by the Act and regulations. The list is
not exclusive. A residual market mechanism should not assume that
because it is not listed on Treasury's List of State Residual Market
Mechanisms it is not required to participate in the Program. All State
residual market insurance entities and State workers' compensation
funds are insurers that must participate in the Program. See sections
50.5(f)(1)(D) and 50.4. Treasury's list was merely intended to provide
guidance and certainty to those entities on the list as well as to
foster transparency in the Program.
In the notice of interim guidance, Treasury encouraged residual
market mechanisms that were not included on the list to notify
Treasury. Since the publication of that notice of interim guidance,
Treasury has continued to work with the NAIC to revise the List of
State Residual Market Mechanisms. Section 50.30(c) of this final rule
explains that Treasury will maintain and continue to update this list
from time to time, as necessary. Treasury's list will be publicly
available at http://www.treasury.gov/trip, along with the procedures for
providing comments and updates.
Treasury, in consultation with the NAIC, has considered the
following characteristics in identifying residual market mechanisms
that should be included on Treasury's list:
[sbull] Was the mechanism created by a state legislature?
[sbull] Does the mechanism provide commercial property and casualty
insurance to policyholders, either directly or through servicing
carriers?
[sbull] Does the mechanism seek to make available commercial
property and casualty insurance for risks that are ``distressed'' or
``hard to place'' in the voluntary market?
[sbull] How does the mechanism share or allocate its profits and
losses from its operations?
[sbull] Does the mechanism meet the requirements of Sec. 50.5(f)?
2. State Workers' Compensation Reinsurance Pools
Treasury received a comment from the Minnesota Workers'
Compensation Reinsurance Association (``WCRA''), a State workers''
compensation reinsurance pool, that requested the Secretary exercise
his discretion under section 103(f) of the Act (which mentions State
workers' compensation reinsurance pools) and include such pools in the
Program. Treasury is not making a section 103(f) determination at this
time. However, looking beyond the commenter's name to its function,
Treasury has determined that the commenter fits within the residual
market mechanism category under section 103(d) of the Act, as explained
below.
The WCRA is a State-mandated reinsurance pool from which workers'
compensation insurers are required by State law to purchase excess
reinsurance. WCRA also provides workers' compensation insurance
directly to self-insured employers. While section 102(12)(vii) of the
Act expressly excludes reinsurance from the definition of property and
casualty insurance covered by the Program, Treasury believes that an
insurance arrangement between a self-insured and
[[Page 59718]]
an insurer, or a pool of insurers, is more like direct primary or
excess property and casualty insurance versus traditional reinsurance
(i.e., an insurer reinsuring another insurer).
After consulting with the NAIC and considering the characteristics
described above, Treasury considers WCRA to be similar to a residual
market mechanism. WCRA is a legislatively-established risk pool that
issues insurance directly to policyholders, which risks are hard to
place in the voluntary insurance market. WCRA also has a procedure
through which it shares or allocates its profits and losses with
private sector insurers. Therefore, for these reasons, Treasury has
added WCRA to its List of State Residual Market Mechanisms and its
participation in the Program is confirmed. If any other State workers'
compensation reinsurance pool believes that it shares the
characteristics of a residual market mechanism and believes it should
be included on the list, under section 50.9, the reinsurance pool
should submit a request for an interpretation of the application of
these regulations to its particular circumstance.
B. Allocation of Premium (Sections 50.33 through 50.36)
Section 103(d)(2) of the Act divides residual market mechanisms
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) of the Act or for State workers' compensation funds,
section 50.33 of the final rule provides that these mechanisms follow
the regulations set forth in sections Sec. 50.5(d)(1) or Sec.
50.5(d)(2) for the purposes of calculating the appropriate measure of
direct earned premium. Residual market mechanisms functioning in this
manner are thus treated as risk bearers in the same manner as private
sector insurers. Treasury received a comment from a group of trade
associations that endorsed this approach. These provisions of the
proposed rule are adopted without change.
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) of the Act
provides that ``any insurer that participates in sharing profits and
losses of a State residual market insurance entity shall include in its
calculations or premiums any premiums distributed to the insurer by the
State residual market insurance entity.'' Residual market insurance
mechanisms functioning in this manner are thus treated as risk
apportioning entities and not risk bearing entities. Proposed section
50.35 reflected this treatment and also provided that these entities
should continue to report, in accordance with normal business
practices, to each participant insurer its share of premium income and
insured losses, which is to be included respectively in the participant
insurer's direct earned premium and insured loss calculations. Treasury
received a comment from a group of trade associations that supported
this approach. This provision of the proposed rule is adopted without
change.
Section 50.36 of the proposed rule further addressed the
calculation of direct earned premium based on the allocation of premium
income shared between the residual market mechanism and its servicing
carriers or participant insurers. Favorable comments were received on
this provision, which is adopted without change.
C. Other Issues
State Residual Market Mechanisms and Natural Disaster Insurance
Treasury received a comment from a residual market mechanism that
issues commercial policies that provide coverage only for the peril of
wind. The commenter requested that Treasury modify section 50.5(l) of
the regulations to exclude commercial single peril wind insurance from
the provisions of the Act. The commenter analogized single peril wind
insurance to that of flood insurance and earthquake insurance, which
are not included in the Program. See section 50.5(l)(1). Upon
consideration of the comment, Treasury is not revising section 50.5(l).
However, as stated in the preamble to the final rule published July 11,
2003, Treasury may later request comment on the exclusion from the
Program definition of commercial property and casualty insurance
single-peril natural disaster insurance currently included in the
Program.
D. Disclosure Requirements (Section 50.19)
Subpart B of 31 CFR part 50 sets forth regulations that address,
inter alia, the clear and conspicuous disclosures that all insurers are
required by the Act to provide to policyholders. Section 50.19 of
subpart B, entitled Disclosure by State residual market insurance
entities and State workers' compensation funds, had been reserved
pending this rulemaking. This final rule amends 50.19 to address how
residual market mechanisms are to comply with the Act's disclosure
requirements.
Section 102(6) of the Act specifically includes residual market
mechanisms as insurers that are required to participate in the Program.
As a condition for Federal payment under the Program, section 103(b)(2)
of the Act requires that insurers provide clear and conspicuous
disclosure to policyholders of the premium charged for insured losses
covered by the Program and the Federal share of compensation under the
Program. Section 103(d) of the Act directed the Secretary of the
Treasury to issue regulations as soon as practicable that apply the
provisions of the Act (including the disclosure requirements) to
residual market mechanisms.
On December 18, 2002, Treasury issued a second notice of interim
guidance (67 FR 78864). In this notice of interim guidance Treasury
indicated it would temporarily waive the disclosure requirements for
those insurers that: (1) are State residual market insurance entities
and State workers' compensation funds; and (2) have insufficient
information to issue the disclosures, until Treasury issued regulations
as required under section 103(d) to apply the provisions of the Act to
these entities. Thus, the waiver provided a safe harbor pending the
issuance of this final rule. We expected residual market mechanisms to
have provided the disclosures if they possessed sufficient information
to do so.
In the preamble to the proposed rule, Treasury stated that it was
still evaluating the applicability of the disclosure requirements to
certain insurers in this category and asked for public comment.
Treasury received two comments on this issue. One comment deferred the
issue to Treasury. Another commenter requested that Treasury exempt
State workers' compensation funds from the disclosure requirements. The
commenter argued that the burden and cost associated with providing the
disclosures outweighs the goals of such
[[Page 59719]]
notice, especially where the fund does not charge additional premium
for insured losses.
Section 103(b) of the Act requires that insurers make certain
disclosures to policyholders as a condition for federal payment under
the Act. Section 50.10 of the regulations states, in part, that an
insurer must provide clear and conspicuous disclosure to the
policyholder of: (1) the premium charged for insured losses covered by
the Program; and (2) the Federal share of compensation for insured
losses under the Program. Congress required this disclosure in order
``to enhance the competitiveness of the marketplace by better enabling
consumers to comparison shop for terrorism insurance coverage, and to
make policyholders better aware that the Federal government will be
sharing the costs of such coverage with insurers thereby reducing the
insurers' exposure.'' H.R. Conf. Rep. No. 107-779, at 24 (2002).
After consideration of the comment and the relevant provisions of
the Act, and following consultation with NAIC and additional study of
the issue, Treasury is applying disclosure provisions to residual
market mechanisms that have not yet issued disclosures to
policyholders. Thus, Treasury is issuing regulations relating to the
disclosures required of State residual market insurance entities and
State workers' compensation funds by amending section 50.19 of subpart
B in this final rule. These regulations supercede the earlier interim
guidance referenced above and the safe-harbor provided in that guidance
will no longer be available to these insurers.
Section 50.19 generally follows the regulations applicable to all
other insurers. In order to provide residual market insurance
mechanisms with sufficient time to come into compliance (if they are
not already), section 50.19 provides a 90-day safe harbor. For policies
in force on October 17, 2003, or issued or renewed on or before January
15, 2004, the disclosure is required by the Act but the condition for
Federal payment is waived with regard to those policies until January
15, 2004. In section 50.12(c), Treasury has provided that ``an insurer
may provide disclosure using normal business practices, including forms
and methods of communication used to communicate similar policyholder
information to policyholders.'' Section 50.19(b) extends this rule to
State residual market insurance entities and State workers'
compensation funds and clarifies that while disclosures may be made by
the residual market mechanism, the individual insurers that participate
in the residual market, or the servicing carriers (depending on their
normal business practices), the ultimate responsibility for ensuring
that the disclosure requirements have been met rests with the insurer
that will be filing any claim. In accordance with other requirements of
subpart B, disclosure must be clear and conspicuous, made on a separate
line item in the policy at the time of offer, purchase, and renewal of
the policy.
III. Procedural Requirements
The Act established a Program to provide for loss sharing payments
by the Federal Government for insured losses resulting from certified
acts of terrorism. The Act became effective immediately upon the date
of enactment (November 26, 2002). Preemptions of terrorism risk
exclusions in policies, mandatory participation provisions, disclosure
and other requirements and conditions for Federal payment contained in
the Act applied immediately to those entities that come within the
Act's definition of ``insurer.''
This rule amends subpart D to part 50 in title 31 that addresses
how the Program applies to State residual market insurance entities and
State workers' compensation funds. This rule also amends section 50.19
of subpart B. This rule is intended to respond to section 103(d)(1) of
the Act, which directs Treasury to issue regulations that apply the
provisions of the Act to State residual market insurance entities and
State workers' compensation funds. Given the importance of applying
regulations to State residual market insurance entities and State
workers' compensation funds, there is an urgent need to issue
immediately effective regulations.
Accordingly, pursuant to 5 U.S.C. 553(d)(3), Treasury has
determined that there is good cause for the final rule to become
effective immediately upon publication.
This final 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
0
For the reasons set forth above, 31 CFR part 50 is amended as follows:
PART 50--TERRORISM RISK INSURANCE PROGRAM
0
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).
0
2. Section 50.19 of subpart B is revised to read as follows:
Sec. 50.19 1General disclosure requirements for State residual market
insurance entities and State worker's compensation funds.
(a) Policies in force on October 17, 2003, or renewed or issued on
or before January 15, 2004. For policies in force on October 17, 2003,
or renewed or issued on or before January 15, 2004, the disclosure
required by section 103(b) of the Act as a condition for Federal
payment is waived for those State residual market insurance entities
and State workers' compensation funds that since November 26, 2002,
have not provided disclosures to policyholders, until January 15, 2004,
after which disclosures are to be made to policyholders for policies
then in force and subsequently issued.
[[Page 59720]]
(b) Residual Market Mechanism Disclosure. A State residual market
insurance entity or State workers' compensation fund may provide the
disclosures required by this subpart B to policyholders using normal
business practices, including forms and methods of communication used
to communicate similar policyholder information to policyholders. The
disclosures may be made by the State residual market insurance entity
or State workers' compensation fund itself, the individual insurers
that participate in the State residual market insurance entity or a
State workers' compensation fund, or its servicing carriers. The
ultimate responsibility for ensuring that the disclosure requirements
have been met rests with the insurer filing a claim under the Program.
(c) Other requirements. Except as provided in this section, all
other disclosure requirements set out in this subpart B apply to State
residual insurance market entities and State workers' compensation
funds.
(d) Prior safe harbor superseded. This section supersedes the
disclosure safe harbor provisions found at paragraph C.4 of the Interim
Guidance issued by Treasury in a notice published on December 18, 2002,
and published at 67 FR 78864 (December 26, 2002).
0
3. Subpart D of part 50 is amended by adding Sec. Sec. 50.30, 50.33,
50.35, and 50.36 to read as follows:
Sec. 50.30 General participation requirements.
(a) Insurers. As defined in Sec. 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 Sec. 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 http://www.treasury.gov/trip. Procedures for providing
comments and updates to that list will be posted with the list.
Sec. 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 Sec. 50.5(d)(1) or
50.5(d)(2) for the purposes of calculating the appropriate measure of
direct earned premium.
Sec. 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.
Sec. 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 Sec. 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 Sec. 50.5(d)(1) or 50.5(d)(2))
of the participant insurer.
Dated: October 1, 2003.
Wayne A. Abernathy,
Assistant Secretary of the Treasury.
[FR Doc. 03-26250 Filed 10-16-03; 8:45 am]
BILLING CODE 4811-15-P