81 FR 88592 - Terrorism Risk Insurance Program; Certification
DEPARTMENT OF THE TREASURY Federal Register Volume 81, Issue 235 (December 7, 2016)
Federal Register Volume 81, Issue 235 (December 7, 2016)
| Page Range | 88592-88598 | |
| FR Document | 2016-29313 |
[Federal Register Volume 81, Number 235 (Wednesday, December 7, 2016)] [Rules and Regulations] [Pages 88592-88598] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-29313] [[Page 88591]] Vol. 81 Wednesday, No. 235 December 7, 2016 Part VII Department of the Treasury ----------------------------------------------------------------------- 31 CFR Part 50 Terrorism Risk Insurance Program; Certification; Final Rule Federal Register / Vol. 81 , No. 235 / Wednesday, December 7, 2016 / Rules and Regulations [[Page 88592]] ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY 31 CFR Part 50 RIN 1505-AC53 Terrorism Risk Insurance Program; Certification AGENCY: Departmental Offices, Department of the Treasury. ACTION: Interim final rule with request for comment. ----------------------------------------------------------------------- SUMMARY: The Department of the Treasury (Treasury) is issuing this interim final rule as part of its implementation of changes to the Terrorism Risk Insurance Program (Program) required by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (2015 Reauthorization Act). This interim final rule only addresses the process for certification of an act of terrorism, as published in proposed form on April 1, 2016, for public comment. Some clarifying changes have been made in this interim final rule in response to comments, and certain wording changes have also been made which are not intended to change the meaning of the rule as originally proposed. The proposed rule includes a more general revision to and renumbering of the Program rules which will be issued in full at a later date. Accordingly, for now, the new subpart is renumbered to avoid duplication with the existing rule numbers. Upon issuance of the final rules for the Program, the final rules will reflect the numbering sequence in the notice of proposed rulemaking published on April 1, 2016. DATES: Effective date: January 6, 2017. Written comments on this interim final rule must be received on or before January 6, 2017. ADDRESSES: 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 ``Terrorism Risk Insurance Program Certification Comments.'' Please include your name, group affiliation, address, email address and telephone number(s) 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 (not a toll free number) or Kevin Meehan, Senior Insurance Regulatory Policy Analyst, Federal Insurance Office, 202-622-7009 (not a toll free number). SUPPLEMENTARY INFORMATION: I. Background The Terrorism Risk Insurance Act of 2002 (the Act or TRIA) \1\ was enacted on November 26, 2002, following the attacks of 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 allow for the private markets to 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. The Secretary of the Treasury (Secretary) administers the Program, including the issuance of regulations and procedures. Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Federal Insurance Office assists the Secretary in administering the Program.\2\ --------------------------------------------------------------------------- \1\ Public Law 107-297, 116 Stat. 2322, codified at 15 U.S.C. 6701, note. Because the provisions of TRIA (as amended) appear in a note, instead of particular sections, of the United States Code, the provisions of TRIA are identified by the sections of the law. \2\ 31 U.S.C. 313(c)(1)(D). --------------------------------------------------------------------------- The Program has been reauthorized three times.\3\ Most recently, on January 12, 2015, the President signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2015 (2015 Reauthorization Act),\4\ reauthorizing the Program until December 31, 2020. The 2015 Reauthorization Act changed various operational matters respecting the Program. Among other changes, the 2015 Reauthorization Act mandates that Treasury issue final rules governing the certification process,\5\ following the submission of a mandated report on improving the process.\6\ --------------------------------------------------------------------------- \3\ Terrorism Risk Insurance Extension Act of 2005, Public Law 109-444, 119 Stat. 2660; Terrorism Risk Insurance Program Reauthorization Act of 2007, Public Law 110-160, 121 Stat. 1839; Terrorism Risk Insurance Program Reauthorization Act of 2015, Public Law 114-1, 129 Stat. 3. \4\ Public Law 114-1, 129 Stat. 3. \5\ TRIA, section 102(1)(D). \6\ 2015 Reauthorization Act, section 107. See U.S. Department of the Treasury, The Process for Certifying an ``Act of Terrorism'' under the Terrorism Risk Insurance Act of 2002 (October 2015) (Certification Report), available at http://www.treasury.gov/initiatives/fio/reports-and-notices/Documents/2015%20Report%20on%20the%20Certification%20Process%20under%20the%20Terrorism%20-%20Production%20Version.pdf. --------------------------------------------------------------------------- II. Previous Rulemaking To date, rules establishing general provisions implementing the Program, including key definitions, and requirements for policy disclosures and mandatory availability, are found in subparts A, B, and C of 31 CFR part 50.\7\ Treasury's rules applying provisions of the Act to state residual market insurance entities and state workers' compensation funds are set forth in subpart D of 31 CFR part 50.\8\ Rules concerning claims procedures governing payment of the Federal share of compensation for insured losses are currently found at subpart F of 31 CFR part 50.\9\ Subpart G of 31 CFR part 50 currently contains rules on audit and recordkeeping requirements for insurers,\10\ while subpart H of 31 CFR part 50 currently addresses recoupment and surcharge procedures.\11\ Finally, subpart I of 31 CFR part 50 currently contains rules implementing the litigation management provisions of [[Page 88593]] TRIA,\12\ and subpart J of 31 CFR part 50 currently addresses rules concerning the cap on annual liability established under TRIA.\13\ To assist insurers, policyholders, and other interested parties in complying with immediately applicable requirements of the Act, Treasury has also at times issued interim guidance to be relied upon by insurers until superseded by regulations. --------------------------------------------------------------------------- \7\ See 68 FR 9804 (Feb. 28, 2003) (Program definitions (Interim Final Rule)); 68 FR 19302 (April 18, 2003) (disclosure and mandatory availability requirements (Interim Final Rule)); 68 FR 41250 (July 11, 2003) (Program definitions (Final Rule)); 68 FR 48280 (Aug. 13, 2003) (``direct earned premium'' definition (Final Rule)). \8\ See 68 FR 19309 (Apr. 18, 2003) (residual market entities and state compensation funds (Notice of Proposed Rulemaking)); 68 FR 59715 (Oct. 17, 2003) (residual market entities and state compensation funds (Final Rule)). \9\ See 68 FR 67100 (Dec. 1, 2003) (claims procedures (Notice of Proposed Rulemaking)); 69 FR 39296 (June 29, 2004) (claims procedures (Final Rule)); 70 FR 2830 (Jan. 18, 2005 (timing of affiliation for purposes of claims payments (Notice of Proposed Rulemaking)); 70 FR 34348 (June 14, 2005) (timing of affiliation for purposes of claims payments (Final Rule)). \10\ See 68 FR 67100 (Dec. 1, 2003) (audit and investigative procedures (Notice of Proposed Rulemaking)); 69 FR 39296 (audit and investigative procedures (Final Rule)). \11\ See 73 FR 53798 (Sept. 17, 2008) (recoupment and surcharge procedures (Notice of Proposed Rulemaking)); 74 FR 66051 (Dec. 14, 2009) (recoupment and surcharge procedures (Final Rule)). \12\ See 69 FR 25341 (May 6, 2004) (Federal cause of action and settlement approval provisions (Notice of Proposed Rulemaking)); 69 FR 44932 (July 28, 2004) (Federal cause of action and settlement approval provisions (Final Rule)). \13\ See 73 FR 56767 (Sept. 30, 2008) (cap on annual liability (Notice of Proposed Rulemaking)); 74 FR 66061 (Dec. 14, 2009) (cap on annual liability (Final Rule)). --------------------------------------------------------------------------- No rules concerning the certification process have previously been proposed or issued by Treasury.\14\ --------------------------------------------------------------------------- \14\ Although, and as noted below, Treasury has previously responded to comments provided in response to proposed rules concerning applicable definitional provisions for the Program that Treasury ``establish a time frame within which the Secretary would be required to make a determination or certification that an `act of terrorism' had occurred. . . .'' See 68 FR 41250, 41252 (July 11, 2003). --------------------------------------------------------------------------- III. The Proposed Rule The proposed rule on which this interim final rule is based was published in the Federal Register at 81 FR 18950 on April 1, 2016. The proposed rule included Subpart G--Certification to 31 CFR part 50, which comprises regulations addressing the certification process, as required under the 2015 Reauthorization Act. Proposed subpart G, which is new, is part of a general proposal published on April 1, 2016 to strike existing 31 CFR part 50 in its entirety and to replace it with revised Program rules that incorporate new financial and operational provisions for the Program added in the 2015 Reauthorization Act. The proposal also reorders the existing rules to incorporate the new subparts, and makes other changes to further clarify existing rules and to eliminate redundancies. Pursuant to the 2015 Reauthorization Act, Treasury submitted a report to Congress in October 2015 entitled The Process for Certifying an ``Act of Terrorism'' under the Terrorism Risk Insurance Act of 2002 (Certification Report). The proposed rules concerning the certification process are consistent with Treasury's findings in the Certification Report. For example, Treasury determined that a rule governing the certification process that required the Secretary to render a certification decision within a given time following an act could adversely affect the Secretary's ability to collect information necessary to that decision.\15\ Furthermore, the 2015 Reauthorization Act specifically requires the establishment of a timeline for which an act is eligible for certification. Treasury's proposed rules identified the required timing considerations as to when an act is eligible for certification and Treasury believes that additional issues concerning milestones and certainty respecting the certification process are best addressed by procedures providing for improved notification and communication to the public once an act is under review for certification. Treasury's observation in 2003 concerning how an ``act of terrorism'' may occur in various and unpredictable ways, that render imposition of a timeline subject to rigid deadlines impracticable, remains true today as well: --------------------------------------------------------------------------- \15\ Certification Report at 9. [T]here is no way to predict future events and ascertain a time frame that would be appropriate for all potential situations. Facts could be immediately available and, after consultation, present a clear basis for a quick determination by the Secretary; conversely, a determination could require more time to gather information and conduct an analysis of the act.\16\ --------------------------------------------------------------------------- \16\ 68 FR 41250, 41252 (July 11, 2003). --------------------------------------------------------------------------- IV. Summary of Comments and Interim Final Rule Treasury is now issuing this interim final rule concerning the certification process after careful consideration of all comments received on the proposed rule. While this interim final rule largely reflects the proposed rule, Treasury has made several revisions based on the comments received, and Treasury solicits comment on the changes to the timeline for eligibility for certification adopted in this interim final rule. Treasury expects to issue final rules based on this interim final rule and the rules proposed in the Notice of Proposed Rulemaking published on April 1, 2016 in the near future. Ten commenters responded to the proposed rule concerning the certification process. The ten commenters included insurance industry trade associations; a trade association representing consumers of terrorism risk insurance; an insurance company; Lloyd's (an insurance and reinsurance market); a captive insurance manager; and an individual.\17\ The comments received and Treasury's revisions to the proposed rule are summarized below. --------------------------------------------------------------------------- \17\ Comments addressing the certification process in some fashion were submitted by the American Insurance Association (AIA Comments); The Council of Insurance Agents & Brokers (CIAB Comments); the National Association of Mutual Insurance Companies (NAMIC Comments); the Property Casualty Insurers Association of America (PCIAA Comments); the Reinsurance Association of America (RAA Comments); The Coalition to Insure Against Terrorism (CIAT Comments); Exchange Indemnity Company (Exchange Indemnity Comments); Lloyd's of London (Lloyd's Comments); Marsh Captive Solutions (Marsh Captive Solutions Comments); and Jason M. Schupp (Jason Schupp Comments). All of the comments received in connection with the proposed rules published for comment on April 1, 2016, are available at https://www.regulations.gov/docketBrowser?rpp=25&so=DESC&sb=commentDueDate&po=0&dct=PS&D=TREAS-TRIP-2016-0005. --------------------------------------------------------------------------- 1. Certification (Sec. 50.60) Proposed Sec. 50.60 sets forth the general parameters of the certification process, as required under TRIA, as amended by the 2015 Reauthorization Act. It establishes in paragraph (b) that, from a timing standpoint, an act which satisfies the definition of an act of terrorism is eligible for certification once the Secretary has consulted with the Attorney General of the United States and the Secretary of Homeland Security, in accordance with the requirements of the Reauthorization Act. Most of the comments received by Treasury concerning the certification process involve this provision. One comment states that the proposed rule ``falls short of what was required by Congress'' with respect to the certification process because there is no ``clear timeline for certification decisions.'' \18\ Other comments also provide suggestions for specific deadlines to be imposed upon the certification decision, although the other commenters do not imply that such a specific timeline is a statutory requirement.\19\ --------------------------------------------------------------------------- \18\ CIAT Comments at 2. \19\ PCIAA Comments at 4-5 (incorporating prior comment filed in connection with Treasury's preparation of the Certification Report, at 2) (preliminary certification decision within 15 days following the potential act of terrorism, and a final decision 60 days after the potential act of terrorism); CIAB Comments at 2 (proposing certification timeframe of 90 days); CIAT Comments at 2 (proposing as an ``appropriate limit'' 45 days after Treasury commences review of an act, or receives a request from either an insurer or policyholder that it commence such review). --------------------------------------------------------------------------- The 2015 Reauthorization Act, at Section 107(e), requires only that a final rule concerning the certification process include ``a timeline for which an act is eligible for certification by the Secretary on whether an act is an act of terrorism under this paragraph.'' This means that Section 107(e) requires that Treasury promulgate rules establishing a timeline for when an act is eligible for certification as an act of terrorism, [[Page 88594]] rather than for when that act will be certified. The 2015 Reauthorization Act also does not include any requirements for including specific deadlines in the eligibility timeline. Indeed, the previously proposed version of the 2015 Reauthorization Act did contain such specific deadline requirements, see H. Rept. 113-523, 45, but the final version passed by Congress instead delegated authority to establish a timeline to Treasury. Furthermore, Congress required Treasury to conduct a study on the establishment of a reasonable timeline by which the Secretary must make an accurate determination on whether to certify an act before issuing this rule. This sequence provides evidence that Congress intended for Treasury to adopt rules governing the certification process that reflect the findings of the study. The Senate Banking Committee report reflects this intent, noting that ``[a]fter the conduction of the study, the Secretary would be required to issue regulations under existing authorities governing the certification process to address the finding of the study.'' S. Rept. 113-199, 9. Based on the statutory text and legislative history, Treasury believes that it is not required to adopt a timeline that includes a strict deadline for certification. Treasury also believes that it would not be prudent to adopt such a timeline that includes such strict deadlines. The principal problems the study identified with imposing a time by which an act must be certified are two-fold. First, certification may implicate complex issues relating to the motivation of the actor(s) involved in a particular situation or the actual facts of the situation, all of which may be subject to ongoing criminal investigations (of unknown duration), and Treasury may need to await the results of such investigations before determining whether to certify an act of terrorism.\20\ For example, the Secretary may not be able to determine whether an airplane crashing in the ocean is an act of terrorism or a mechanical failure until the black box is recovered. Such recovery may take several months or years. A rule requiring that a certification decision be made within any specified time period keyed to the occurrence of an act could force the Secretary to make a decision without all of the relevant information. Accordingly, it is important that the Secretary's decision be made only after considering all of the relevant information. Given the wide differences in circumstances surrounding potential acts of terrorism, Treasury does not believe that it would be reasonable to establish any specific deadlines for certification, even where such deadlines could be extended when necessary. --------------------------------------------------------------------------- \20\ Certification Report at 9 (``In order for the Secretary to make an informed certification decision in accordance with the statutory criteria, for example, Treasury might need to coordinate with other government agencies conducting investigations concerning the perpetrators of or motivations for the act. The Secretary will also need to be respectful of activities of law enforcement and the justice system concerning the investigation, apprehension, and prosecution of the individual or individuals suspected or accused of committing the act.'' (Footnote omitted.)). --------------------------------------------------------------------------- The second problem identified in the report is that, in many cases, insurance losses may take substantial periods of time to develop before Treasury can determine whether an act is even eligible for certification.\21\ For example, it could take years to fully evaluate whether insurance losses related to certain events (e.g., the introduction of a carcinogenic agent into a municipal water supply) result in losses above the certification threshold. No commenters have suggested that these issues are illusory, or offered for consideration any mechanisms to avoid the problems that a timeline subject to specific deadlines presents given these realities. --------------------------------------------------------------------------- \21\ Certification Report at 9-10 (``Loss development patterns-- i.e., the severity, timing, and distribution of losses as information becomes available--are not always predictable from preliminary information and will be affected by the magnitude and type of act under consideration for certification. The time it may take for claims to be submitted to one or more insurers by affected policyholders after an act has occurred, for those claims to be investigated and adjusted by the insurers, and (if appropriate) to be reserved or paid by the insurers, might vary considerably.''). --------------------------------------------------------------------------- The renewed calls for a timeline subject to precise deadlines have also been based upon arguments that insurers require a quick decision respecting certification of an act of terrorism because of the effect that this determination might have upon coverage issues, and their obligations to respond promptly to claims under state law provisions.\22\ In addition, some commenters have suggested that a certification decision made within a defined time is necessary for economic stability and for a proper functioning insurance market.\23\ --------------------------------------------------------------------------- \22\ Lloyd's Comments at 1-2; PCIAA Comments at 4-5 (incorporating prior comments at 1). \23\ CIAB Comments at 2; CIAT Comments at 2. --------------------------------------------------------------------------- Although Treasury appreciates insurers have obligations to respond to claims in a timely fashion, the state law obligations that have been invoked are subject to extensions when a greater period of time is necessary to make a claims determination.\24\ None of the commenters that have invoked these obligations have addressed this feature of state law. Commenters also claimed that a rule with specific deadlines may further ``economic stability'' and avoid ``market consequences,'' yet the commenters did not identify any specific economic or insurance marketplace stability issue resulting from uncertainty about Treasury's position with respect to a particular act. Furthermore, Treasury's public communications under proposed Sec. 50.61 should provide sufficient information to allow market participants to take appropriate steps pending the finalization of a future certification process. --------------------------------------------------------------------------- \24\ Certification Report at 8 n.36 (observing that state model regulations identified by insurers as imposing time deadlines upon claims decisions, which have been adopted in some form by 47 states and two territories, provide ``the opportunity to obtain further time, upon notice to the policyholder, within which to make the claims determination'') (citing NAIC, Unfair Property/Casualty Claims Settlement Practices Model Regulation, 902-4, section 7.B, available at http://www.naic.org/store/free/MDL-902.pdf). --------------------------------------------------------------------------- While Treasury believes, based on the statutory text and the findings in the Certification Report, that adopting strict deadlines is neither required by statute nor an appropriate policy decision, the regulations as adopted in this interim final rule have been modified to more clearly lay out a timeline for whether an act is eligible for certification by the Secretary as an act of terrorism. Each of the events outlined in this interim final rule were contemplated in the proposed rule, but are now consolidated in a single schedule to provide for greater clarity. The timeline in this interim final rule clarifies that there will be (1) a commencement to this process, subject to public notification, as discussed in proposed Sec. 50.61(a); (2) regular public notification under the schedule set forth in proposed Sec. 50.61(b); (3) a period of time during which the Secretary evaluates the factors relevant to the certification decision, which is subject to regular public notification of continued review, as reflected in proposed Sec. 50.61(b); and (4) a consultation between the Secretary and the Attorney General and Secretary of Homeland Security, as required by TRIA, as reflected in proposed Sec. 50.60(a), (b). Because the consultation required by TRIA will take place after the Secretary has obtained relevant information and completed the review identified in Step 3, the concerns militating against adoption of specific deadlines do not apply to the timing of the consultation. Therefore, Treasury can and has identified a time period of 30 days during which this action can be expected to occur. Treasury specifically [[Page 88595]] solicits comment on whether there are any reasonable improvements to the timeline set forth in this interim final rule that would provide further clarity concerning the process, in a way that would materially benefit interested parties and which would still be practical given the nature of the process and the issues with a strict deadline identified by Treasury. Two commenters suggested the inclusion of a provision that would permit an interested party (identified as either an insurer or a policyholder) to request that Treasury make a certification determination regarding a particular act.\25\ Another commenter proposed a ``dispute resolution and/or notice and comment procedure to ensure that all impacted parties are given the opportunity to address concerns surrounding certification or non-certification of an event.'' \26\ Such comments fail to appreciate the nature of the certification determination entrusted to the Secretary under TRIA. --------------------------------------------------------------------------- \25\ Lloyd's Comments at 2; CIAT Comments at 2. \26\ CIAB Comment at 3. --------------------------------------------------------------------------- Initially, the certification decision is entrusted to the Secretary, who is empowered with non-delegable authority under TRIA to determine whether to certify an act as an act of terrorism, once there has been the required consultation between the Secretary, the Attorney General, and the Secretary of Homeland Security. TRIA recognizes the high levels of sensitivity embodied in this determination by making this decision final and not subject to judicial review. The Secretary, in consultation with the Attorney General and the Secretary of Homeland Security, may, for instance, conclude that law enforcement priorities require waiting to make the certification decision. Permitting an insurer or policyholder to trigger a certification determination, or to be able to dispute the certification or non-certification of an event would be inconsistent with TRIA's delegation of authority to the Secretary to make the determination on a non-reviewable basis. Moreover, nothing in TRIA or Treasury's proposed rules prohibits a stakeholder from contacting Treasury to bring to its attention an event that the stakeholder believes might be subject to certification under TRIA, or other information relevant to that event. Treasury's adoption of proposed Sec. 50.62(b) specifically recognizes the value that stakeholder input has to the certification process. Furthermore, a dispute resolution or notice and comment procedure would only operate to delay a certification determination, which is inconsistent with comments otherwise offered that a timeline is necessary to insure that a timely certification decision is made. Two additional comments concerning proposed Sec. 50.60 warrant attention. First, two commenters note that proposed Sec. 50.60(a), as currently proposed, could be read to require that the Secretary consult with the Attorney General and the Secretary of Homeland Security even when ultimately deciding not to certify an act as an act of terrorism.\27\ It was not Treasury's intent to impose a consultation requirement where the Secretary determines not to certify, and in this context the word ``whether'' in proposed Sec. 50.60(a) should not be read to impose any obligation on the Secretary that would be inconsistent with the Secretary's discretion under TRIA. Accordingly, this interim final rule adopts Sec. 50.60(a) as originally proposed, subject to this understanding. --------------------------------------------------------------------------- \27\ Jason Schupp Comments at 8; AIA Comments at 7. --------------------------------------------------------------------------- Second, another comment observes that there is circularity in the provisions of proposed Sec. 50.60(b), respecting the timing of when a certification decision can take place, in that the cross-reference in proposed Sec. 50.60(b) to proposed Sec. 50.4(b) (the ``act of terrorism'' definition) incorporates the consultation process which then would have to take place before the consultation process identified in proposed Sec. 50.60(b). Thus, the commenter observes, proposed Sec. 50.60(b) could be read to suggest ``that no act could ever be certified because only previously certified acts are eligible for certification,'' and that the provision should just be deleted.\28\ --------------------------------------------------------------------------- \28\ Jason Schupp Comments at 8-9. --------------------------------------------------------------------------- Proposed Sec. 50.60(b) cannot be eliminated, as it is a necessary provision setting forth the timeline for when an act is eligible for certification by the Secretary as an act of terrorism. Treasury's modification of proposed Sec. 50.60(b) to better reflect the timeline contemplated in the proposed rule resolves this ambiguity. As noted, this formulation is already contemplated by the proposed rules, and as expressed in this fashion provides for a clearer ordering of the relevant milestones that avoids the potential circularity issue identified in the comments. For the reasons set forth above, Treasury will modify proposed Sec. 50.60 as described above, and adopt in this interim final rule Sec. 50.100 as so amended. As noted at the outset, this section of the interim final rule is for now adopted as Sec. 50.100 to avoid duplication with existing rule numbers, and we anticipate it will be renumbered to Sec. 50.60 in the final rule. 2. Public Communication (Sec. 50.61) Proposed Sec. 50.61 addresses the commencement of the certification process and public communication concerning the process. As Treasury explained in the Certification Report, public communication respecting the certification process provides the public with necessary information concerning the certification process in a way that is not subject to the problems inherent with a strict timeline, as addressed above.\29\ No commenters disagreed with Treasury's proposal to provide such public communication of the certification process. Three commenters suggested that the proposed rule should incorporate a deadline or milestones to govern when Treasury must notify the public that an act is being considered for certification, and even to provide ``preliminary indications'' respecting certification at that point of initial notification.\30\ One commenter suggested a change to proposed Sec. 50.61(a) to confirm that Treasury will only provide public notification where an act is actually under review for certification as an act of terrorism, ``to avoid any suggestion [Treasury's] routine monitoring of events should trigger expectations of public notification.'' \31\ --------------------------------------------------------------------------- \29\ Certification Report at 10-11. \30\ Lloyd's Comments at 2; CIAT Comments at 2; see NAMIC Comments at 4 (initial notification that certification is under review ``should also contain a preliminary indication as to whether Treasury expects that the act will be certified as an act of terrorism''). \31\ Jason Schupp Comments at 9. --------------------------------------------------------------------------- In response to the comments, Treasury has modified proposed Sec. 50.61(a) to provide that once the Secretary commences review, Treasury shall publish a document in the Federal Register within 30 days notifying the public of this fact. Although this provision remains subject to the rule of construction that would permit the modification of this date by the Secretary in the event that timely notification is impracticable, the modification to the proposed rule reflects Treasury's intention to provide notification of the commencement of a certification process within 30 days. As respects the comment that a revision to proposed Sec. 50.61(a) may be in order to confirm that public notification should not be expected simply on account of the ``routine monitoring of events'' by Treasury, the proposed rule should not engender any such expectations. Notice will be [[Page 88596]] provided when the Secretary determines that an act should be considered for certification as an act of terrorism under TRIA. Nothing in the proposed rule suggests, or is meant to suggest, that consideration of current events by Treasury short of the Secretary's determination to commence the certification process will trigger any sort of public notification by Treasury. For the above reasons, Treasury will modify proposed Sec. 50.61 as described above, and adopt in this interim final rule Sec. 50.101 as so amended. As noted at the outset, this section of the interim final rule is for now adopted as Sec. 50.101 to avoid duplication with existing rule numbers, and we anticipate it will be renumbered to Sec. 50.61 in the final rule. 3. Certification Data Collection (Sec. 50.62) A few comments were received concerning proposed Sec. 50.62, which establishes rules for the collection of data by Treasury in aid of the certification process. Under TRIA, the Secretary may not certify an act as an act of terrorism unless property and casualty insurance losses resulting from the act, in the aggregate, exceed $5 million. Treasury may need to collect data from insurers, as well as from other entities in the insurance industry, in connection with its analysis of whether the insurance losses resulting from an act under review for certification satisfy the loss threshold. No comments were received asserting that the proposed rule was unnecessary.\32\ Two comments suggested that some restrictions upon the data collection provision should be incorporated, to allow insurers to challenge a request on the grounds that an insufficient period to respond has been provided, or that the request is unduly broad, burdensome, or involves confidential information.\33\ Because these requests involve the certification process, Treasury may need to obtain information on an accelerated basis. However, in setting the reporting deadline, Treasury will take into account the amount and the complexity of the information requested. Regarding the scope of any requests, the act under review will define the scope of the needed information, and Treasury expects that any requests will be narrowly tailored to the act in question which should prevent any requests from being unduly broad or burdensome. As respects confidentiality, proposed Sec. 50.54 (concerning Handling of Data) already sufficiently addresses the treatment of any confidential information that might be obtained pursuant to proposed Sec. 50.62. Accordingly, no changes to proposed Sec. 50.62 for the reasons identified are warranted. --------------------------------------------------------------------------- \32\ One comment did take the opportunity to criticize the statutory greater than $5 million aggregate loss threshold aspect of the ``act of terrorism'' definition, asserting that ``the threshold has been more of an impediment to practical application of TRIA than a worthwhile definitional component,'' and observed that ``[a] more useful way of looking at the threshold would be to view it in the context of the TRIA aggregate loss program trigger.'' AIA Comment at 7. Treasury notes that this threshold is prescribed by statute and may not be modified via regulation. \33\ Exchange Indemnity Comments at 2; Marsh Captive Solutions Comments at 2. --------------------------------------------------------------------------- Another comment observed that any certification data collection process should be ``a streamlined, orderly method for collecting and organizing data from carriers and their affiliates, as well as a federal consolidation point for claims data (perhaps FIO),'' and encourages that any final rules ``include a centralized data collection process for purposes of the certification determination.'' \34\ No specific language or revisions to achieve this goal, however, were suggested. --------------------------------------------------------------------------- \34\ CIAB Comments at 3. --------------------------------------------------------------------------- Although Treasury is in agreement with the sentiments of this comment, proposed Sec. 50.62 sets forth the sort of process identified by the commenter. The certification process is one that is solely within the responsibility of the Secretary, who is assisted by FIO in the administration of the Program. Proposed Sec. 50.62 sets forth a process under which Treasury will collect insurance-related information relevant to the certification decision, and does not contemplate that this will be accomplished through any other federal agencies or processes. While requests are likely to be tailored to address a particular situation, such that different requests may be made from case to case, nothing in the rule contemplates any sort of process that would subject responding entities to conflicting, disparate requests for information. For the above reasons, Treasury is adopting Sec. 50.102 as it was proposed. As noted at the outset, this section of the interim final rule is for now adopted as Sec. 50.102 to avoid duplication with existing rule numbers, and we anticipate it will be renumbered to Sec. 50.62 in the final rule. 4. Notification of Certification Determination (Sec. 50.63) Proposed Sec. 50.63 provides for Federal Register notification and other communication of any certification decision, as well as separate notifications to Congress and specified insurance supervisory authorities. One commenter observed that proposed Sec. 50.63 should only require notification of ``actual certification decisions,'' and not for ``acts that clearly will not meet the definition outlined in TRIA.'' \35\ Another commenter suggested that the rule could be modified to provide that notice under proposed Sec. 50.63 will be provided only for those situations where Treasury has provided notice under proposed Sec. 50.61(a) that an act is under review for certification as an act of terrorism.\36\ --------------------------------------------------------------------------- \35\ AIA Comment at 8. \36\ Jason Schupp Comments at 9. --------------------------------------------------------------------------- Treasury acknowledges that it monitors events and situations that, given their circumstances, could potentially involve the Program. The proposed certification rules address and contemplate situations in which the Secretary (1) determines that an act will or will not be certified as an act of terrorism without any prior advance notification to the public (see proposed Sec. 50.61(d), as adopted below); or (2) commences review of whether to certify an act as an act of terrorism, as provided for in proposed Sec. 50.61(a). The notification procedures under proposed Sec. 50.63 govern these situations, once a decision whether to certify has been made by the Secretary. For the above reasons, Treasury is adopting Sec. 50.63 as it was proposed. As noted at the outset, this section of the interim final rule is for now adopted as Sec. 50.103 to avoid duplication with existing rule numbers, and we anticipate it will be renumbered to Sec. 50.63 in the final rule. V. Procedural Requirements Executive Order 12866, ``Regulatory Planning and Review.'' Executive Order 12866, as supplemented by Executive Order 13563, establishes a program to reform and make more efficient the regulatory process of the Federal Government. In accordance with such Executive Orders, this rule is a significant regulatory action, and has been reviewed by the Office of Management and Budget. Regulatory Flexibility Act. In general, the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), which applies to any rule subject to notice and comment rulemaking under the Administrative Procedure Act or any other law, requires a federal agency to conduct a full regulatory flexibility analysis unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. (5 U.S.C. 605(b)). In the preamble to the proposed rule, Treasury certified that the rule, if promulgated, would not have [[Page 88597]] a significant economic impact on a substantial number of small entities. Treasury did not receive any comments in response to Subpart G of the proposed rule on the impact to small entities or insurers, and the interim final rule has not been revised in any way that warrants a change to this certification. As discussed in the preamble to the proposed rule, some small entities--as defined by the regulations of the SBA (see 13 CFR 121. 201)--and small insurers--as defined by the proposed rules--will be impacted by the rule, but the costs that may be incurred arise from requirements in TRIA and not Treasury regulations. Paperwork Reduction Act. The proposed collection of information concerning the certification process as contained in the proposed rule was submitted to the Office of Management and Budget (OMB) for review under the requirements of the Paperwork Reduction Act, 44 U.S.C. 3507(d). Although solicited, Treasury did not receive any comments from the public concerning (1) the necessity of the collection of information in aid of the certification process; (2) the accuracy of Treasury's burden estimates; (3) suggestions for enhancement of the quality, utility, and clarity of the information collection; (4) suggestions for minimization of the burden of the information collection; \37\ or (5) estimates of capital or start-up costs that would be necessary for compliance with the information collection. The interim final rule does not contain any new collections of information. Under the Paperwork Reduction Act, an agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid OMB Control number. Treasury will obtain final OMB approval for the collection of information in aid of the certification process prior to any collection of such information. --------------------------------------------------------------------------- \37\ As noted above, Treasury did receive one comment suggesting that any certification data collection process should be established to provide for ``a streamlined, orderly method for collecting and organizing data from carriers and their affiliates, as well as a federal consolidation point for claims data (perhaps FIO),'' and encourages that any final rules ``include a centralized data collection process for purposes of the certification determination.'' CIAB Comments at 3. As explained above, Treasury believes that the proposed collection of information, which will be managed through the Federal Insurance Office at Treasury, satisfies the concern identified in this comment. In addition, Treasury also received two comments suggesting the adoption of procedures allowing for various challenges to data as requested by Treasury; however, as explained above, the timing and scope of data required by Treasury will be driven by the nature of the act under review for certification, such that changes to the proposed collection would not be warranted. --------------------------------------------------------------------------- Administrative Procedure Act. The Administrative Procedure Act (5 U.S.C. 551 et seq.) (APA) generally requires public notice before promulgation of regulations. See 5 U.S.C. 553(b). The Department published a notice of proposed rulemaking requesting comment on the proposed rule on April 1, 2016 (81 FR 18949). The Department has considered the comments received in developing this interim final rule but also wishes to provide the public another opportunity to comment on the provisions described in this document. List of Subjects in 31 CFR Part 50 Insurance, Terrorism. Authority and Issuance For the reasons stated in the preamble, 31 CFR part 50 is amended as follows: PART 50--TERRORISM RISK INSURANCE PROGRAM 0 1. The authority citation for part 50 is revised to read as follows: Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107- 297, 116 Stat. 2322, as amended by Pub. L. 109-144, 119 Stat. 2660, Pub. L. 110-160, 121 Stat. 1839 and Pub. L. 114-1, 129 Stat. 3 (15 U.S.C. 6701 note). 0 2. Subpart K is added to read as follows: Subpart K--Certification Sec. 50.100 Certification. 50.101 Public communication. 50.102 Certification data collection. 50.103 Notification of certification determination. Subpart K--Certification Sec. 50.100 Certification. (a) Certification decision. The Secretary, in consultation with the Attorney General of the United States and the Secretary of Homeland Security, is responsible for determining whether to certify an act as an act of terrorism. (b) Timeline for eligibility. An act is eligible for certification as an act of terrorism at the end of the following timeline: (1) The Secretary commences review of whether an act satisfies the definition in Sec. 50.5(b); (2) Within 30 days of the Secretary commencing review, Treasury publishes the notice required by Sec. 50.101(a). During such review, the schedule of public notifications in Sec. 50.101(b) shall apply, as appropriate; (3) The Secretary's review finds that the act satisfies the elements for certification under Sec. 50.5(b)(1)(i) through (iv), and that it is not otherwise precluded from certification by Sec. 50.5(b)(2); and (4) Within 30 days or as soon as otherwise practicable after the review identified in paragraph (b)(3) of this section concludes that the act satisfies the necessary criteria, the Secretary consults with the Attorney General of the United States and the Secretary of Homeland Security pursuant to section 102(1)(A) of the Act. (c) Other consultation. Nothing in this section shall prevent the Secretary from consulting and coordinating with the Attorney General of the United States, the Secretary of Homeland Security, or any other government official prior to the consultation identified in paragraph (b)(4) of this section. (d) Finality. Any decision by the Secretary to certify, or determination not to certify, an act as an act of terrorism under this Subpart shall be final, and shall not be subject to judicial review. (e) Nondelegation. The Secretary may not delegate or designate to any other officer, employee, or person, the determination of whether to certify an act as an act of terrorism. Sec. 50.101 Public communication. (a) Initial notification. After the Secretary commences review of whether an act may satisfy the definition in Sec. 50.5(b), Treasury shall publish a notice in the Federal Register within 30 days of the Secretary commencing review notifying the public that the act is under review for certification as an act of terrorism. Treasury may also announce that an act is not under review for certification. (b) Update notification. Not later than 30 days following the publication of a notice under paragraph (a) of this section that an act is under review for certification, and not later than every 60 days thereafter until the Secretary determines whether to certify an act as an act of terrorism, Treasury shall publish a notice in the Federal Register notifying the public whether the act is still under review for certification as an act of terrorism. (c) Contents of notification. Nothing in this section shall require Treasury to provide any information other than whether the act is under review for certification as an act of terrorism (or is no longer under such review) or shall limit Treasury from providing further information of relevance. (d) Rules of construction. Nothing in this section shall be construed to preclude the Secretary from certifying or determining not to certify an act as an [[Page 88598]] act of terrorism before notifying the public that the act is under review for certification. If, in the discretion of the Secretary, circumstances relating to an act render timely notification under this section by Treasury impracticable, Treasury shall provide the notification as soon as practicable, in a manner the Secretary determines is appropriate. (e) Nonbinding decision. A notification made under this section shall not be construed to be a final determination by the Secretary of whether to certify an act as an act of terrorism. Sec. 50.102 Certification data collection. (a) General. (1) The Secretary, when reviewing an act for certification as an act of terrorism, may at any time direct one or more insurers to submit information regarding projected and actual losses in connection with an act and any other information the Secretary determines appropriate. The information sought by the Secretary shall be specified in the data request, and any insurer subject to the data request shall respond to the request within the time frame specified by the Secretary at the time of the request. The data requested may include actual loss reserves established by insurers in connection with the act under review, loss estimates generated by insurers in connection with the act under review which have not yet been established as actual loss reserves, and information respecting an insurer's property and casualty exposures in a particular geographic area associated with the act under review. (2) An insurer not required by Treasury to submit information under paragraph (a)(1) of this section may voluntarily submit information to the Secretary as specified in public notifications issued by Treasury. (b) Other sources of information. The Secretary may request information with respect to loss estimates and likely affected insurers from organizations, including state insurance regulators, insurance modeling organizations, rating agencies, insurance brokers and producers, and insurance data aggregators. Sec. 50.103 Notification of certification determination. (a) Public notification. Not later than 5 business days after the Secretary determines whether to certify an act as an act of terrorism, Treasury shall publish a statement and submit a notice to the Federal Register notifying the public of the Secretary's decision. (b) Insurance supervisor notification. Not later than 5 business days after the Secretary determines whether to certify an act as an act of terrorism, Treasury shall notify in writing any relevant supervisory officials of the Secretary's decision. (c) Congressional notification. Not later than 5 business days after the Secretary determines whether to certify an act as an act of terrorism, Treasury shall notify in writing the President of the U.S. Senate and the Speaker of the U.S. House of Representatives of the Secretary's decision. (d) Rule of construction. If, in the discretion of the Secretary, circumstances relating to an act render timely notification by Treasury under this section impracticable, Treasury shall provide the notification as soon as practicable, in a manner the Secretary determines is appropriate. Dated: December 1, 2016. Amias Moore Gerety, Acting Assistant Secretary for Financial Institutions. [FR Doc. 2016-29313 Filed 12-6-16; 8:45 am] BILLING CODE 4810-25-P
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TRIA,12 and subpart J of 31 CFR part 50 affect the Secretary’s ability to collect comments received and Treasury’s
currently addresses rules concerning the information necessary to that revisions to the proposed rule are
cap on annual liability established decision.15 Furthermore, the 2015 summarized below.
under TRIA.13 To assist insurers, Reauthorization Act specifically
1. Certification (§ 50.60)
policyholders, and other interested requires the establishment of a timeline
parties in complying with immediately for which an act is eligible for Proposed § 50.60 sets forth the general
applicable requirements of the Act, certification. Treasury’s proposed rules parameters of the certification process,
Treasury has also at times issued identified the required timing as required under TRIA, as amended by
interim guidance to be relied upon by considerations as to when an act is the 2015 Reauthorization Act. It
insurers until superseded by eligible for certification and Treasury establishes in paragraph (b) that, from a
regulations. believes that additional issues timing standpoint, an act which satisfies
No rules concerning the certification concerning milestones and certainty the definition of an act of terrorism is
process have previously been proposed respecting the certification process are eligible for certification once the
or issued by Treasury.14 best addressed by procedures providing Secretary has consulted with the
III. The Proposed Rule for improved notification and Attorney General of the United States
communication to the public once an and the Secretary of Homeland Security,
The proposed rule on which this act is under review for certification.
interim final rule is based was in accordance with the requirements of
Treasury’s observation in 2003 the Reauthorization Act. Most of the
published in the Federal Register at 81 concerning how an ‘‘act of terrorism’’
FR 18950 on April 1, 2016. The comments received by Treasury
may occur in various and unpredictable concerning the certification process
proposed rule included Subpart G— ways, that render imposition of a
Certification to 31 CFR part 50, which involve this provision. One comment
timeline subject to rigid deadlines states that the proposed rule ‘‘falls short
comprises regulations addressing the
impracticable, remains true today as of what was required by Congress’’ with
certification process, as required under
well: respect to the certification process
the 2015 Reauthorization Act. Proposed
subpart G, which is new, is part of a [T]here is no way to predict future events because there is no ‘‘clear timeline for
general proposal published on April 1, and ascertain a time frame that would be certification decisions.’’ 18 Other
appropriate for all potential situations. Facts comments also provide suggestions for
2016 to strike existing 31 CFR part 50 could be immediately available and, after
in its entirety and to replace it with specific deadlines to be imposed upon
consultation, present a clear basis for a quick the certification decision, although the
revised Program rules that incorporate determination by the Secretary; conversely, a
new financial and operational determination could require more time to other commenters do not imply that
provisions for the Program added in the gather information and conduct an analysis such a specific timeline is a statutory
2015 Reauthorization Act. The proposal of the act.16 requirement.19
also reorders the existing rules to IV. Summary of Comments and Interim The 2015 Reauthorization Act, at
incorporate the new subparts, and Final Rule Section 107(e), requires only that a final
makes other changes to further clarify rule concerning the certification process
existing rules and to eliminate Treasury is now issuing this interim include ‘‘a timeline for which an act is
redundancies. final rule concerning the certification eligible for certification by the Secretary
Pursuant to the 2015 Reauthorization process after careful consideration of all on whether an act is an act of terrorism
Act, Treasury submitted a report to comments received on the proposed under this paragraph.’’ This means that
Congress in October 2015 entitled The rule. While this interim final rule Section 107(e) requires that Treasury
Process for Certifying an ‘‘Act of largely reflects the proposed rule, promulgate rules establishing a timeline
Terrorism’’ under the Terrorism Risk Treasury has made several revisions for when an act is eligible for
Insurance Act of 2002 (Certification based on the comments received, and certification as an act of terrorism,
Report). The proposed rules concerning Treasury solicits comment on the
the certification process are consistent changes to the timeline for eligibility for Comments); the National Association of Mutual
with Treasury’s findings in the certification adopted in this interim Insurance Companies (NAMIC Comments); the
Certification Report. For example, final rule. Treasury expects to issue Property Casualty Insurers Association of America
final rules based on this interim final (PCIAA Comments); the Reinsurance Association of
Treasury determined that a rule America (RAA Comments); The Coalition to Insure
governing the certification process that rule and the rules proposed in the Against Terrorism (CIAT Comments); Exchange
required the Secretary to render a Notice of Proposed Rulemaking Indemnity Company (Exchange Indemnity
certification decision within a given published on April 1, 2016 in the near Comments); Lloyd’s of London (Lloyd’s Comments);
future. Marsh Captive Solutions (Marsh Captive Solutions
time following an act could adversely Comments); and Jason M. Schupp (Jason Schupp
Ten commenters responded to the
Comments). All of the comments received in
12 See 69 FR 25341 (May 6, 2004) (Federal cause proposed rule concerning the connection with the proposed rules published for
of action and settlement approval provisions certification process. The ten comment on April 1, 2016, are available at https://
(Notice of Proposed Rulemaking)); 69 FR 44932 commenters included insurance www.regulations.gov/docketBrowser?rpp=25&so=
(July 28, 2004) (Federal cause of action and industry trade associations; a trade DESC&sb=commentDueDate&po=0&dct=PS&D=
settlement approval provisions (Final Rule)). TREAS-TRIP-2016-0005.
13 See 73 FR 56767 (Sept. 30, 2008) (cap on association representing consumers of 18 CIAT Comments at 2.
annual liability (Notice of Proposed Rulemaking)); terrorism risk insurance; an insurance 19 PCIAA Comments at 4–5 (incorporating prior
74 FR 66061 (Dec. 14, 2009) (cap on annual liability company; Lloyd’s (an insurance and comment filed in connection with Treasury’s
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(Final Rule)). reinsurance market); a captive insurance preparation of the Certification Report, at 2)
14 Although, and as noted below, Treasury has (preliminary certification decision within 15 days
manager; and an individual.17 The
previously responded to comments provided in following the potential act of terrorism, and a final
response to proposed rules concerning applicable decision 60 days after the potential act of terrorism);
15 Certification
Report at 9.
definitional provisions for the Program that CIAB Comments at 2 (proposing certification
16 68FR 41250, 41252 (July 11, 2003).
Treasury ‘‘establish a time frame within which the timeframe of 90 days); CIAT Comments at 2
Secretary would be required to make a 17 Comments addressing the certification process (proposing as an ‘‘appropriate limit’’ 45 days after
determination or certification that an ‘act of in some fashion were submitted by the American Treasury commences review of an act, or receives
terrorism’ had occurred. . . .’’ See 68 FR 41250, Insurance Association (AIA Comments); The a request from either an insurer or policyholder that
41252 (July 11, 2003). Council of Insurance Agents & Brokers (CIAB it commence such review).
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rather than for when that act will be certification decision be made within commenters that have invoked these
certified. any specified time period keyed to the obligations have addressed this feature
The 2015 Reauthorization Act also occurrence of an act could force the of state law. Commenters also claimed
does not include any requirements for Secretary to make a decision without all that a rule with specific deadlines may
including specific deadlines in the of the relevant information. further ‘‘economic stability’’ and avoid
eligibility timeline. Indeed, the Accordingly, it is important that the ‘‘market consequences,’’ yet the
previously proposed version of the 2015 Secretary’s decision be made only after commenters did not identify any
Reauthorization Act did contain such considering all of the relevant specific economic or insurance
specific deadline requirements, see H. information. Given the wide differences marketplace stability issue resulting
Rept. 113–523, 45, but the final version in circumstances surrounding potential from uncertainty about Treasury’s
passed by Congress instead delegated acts of terrorism, Treasury does not position with respect to a particular act.
authority to establish a timeline to believe that it would be reasonable to Furthermore, Treasury’s public
Treasury. Furthermore, Congress establish any specific deadlines for communications under proposed
required Treasury to conduct a study on certification, even where such deadlines § 50.61 should provide sufficient
the establishment of a reasonable could be extended when necessary. information to allow market participants
timeline by which the Secretary must The second problem identified in the to take appropriate steps pending the
make an accurate determination on report is that, in many cases, insurance finalization of a future certification
whether to certify an act before issuing losses may take substantial periods of process.
this rule. This sequence provides time to develop before Treasury can While Treasury believes, based on the
evidence that Congress intended for determine whether an act is even statutory text and the findings in the
Treasury to adopt rules governing the eligible for certification.21 For example, Certification Report, that adopting strict
certification process that reflect the it could take years to fully evaluate deadlines is neither required by statute
findings of the study. The Senate whether insurance losses related to nor an appropriate policy decision, the
Banking Committee report reflects this certain events (e.g., the introduction of regulations as adopted in this interim
intent, noting that ‘‘[a]fter the a carcinogenic agent into a municipal final rule have been modified to more
conduction of the study, the Secretary water supply) result in losses above the clearly lay out a timeline for whether an
would be required to issue regulations certification threshold. No commenters act is eligible for certification by the
under existing authorities governing the have suggested that these issues are Secretary as an act of terrorism. Each of
certification process to address the illusory, or offered for consideration any the events outlined in this interim final
finding of the study.’’ S. Rept. 113–199, mechanisms to avoid the problems that rule were contemplated in the proposed
9. Based on the statutory text and a timeline subject to specific deadlines rule, but are now consolidated in a
legislative history, Treasury believes presents given these realities. single schedule to provide for greater
that it is not required to adopt a timeline The renewed calls for a timeline clarity. The timeline in this interim final
that includes a strict deadline for subject to precise deadlines have also rule clarifies that there will be (1) a
certification. been based upon arguments that commencement to this process, subject
Treasury also believes that it would insurers require a quick decision to public notification, as discussed in
not be prudent to adopt such a timeline respecting certification of an act of proposed § 50.61(a); (2) regular public
that includes such strict deadlines. The terrorism because of the effect that this notification under the schedule set forth
principal problems the study identified determination might have upon in proposed § 50.61(b); (3) a period of
with imposing a time by which an act coverage issues, and their obligations to time during which the Secretary
must be certified are two-fold. First, respond promptly to claims under state evaluates the factors relevant to the
certification may implicate complex law provisions.22 In addition, some certification decision, which is subject
issues relating to the motivation of the commenters have suggested that a to regular public notification of
actor(s) involved in a particular certification decision made within a continued review, as reflected in
situation or the actual facts of the defined time is necessary for economic proposed § 50.61(b); and (4) a
situation, all of which may be subject to stability and for a proper functioning consultation between the Secretary and
ongoing criminal investigations (of insurance market.23 the Attorney General and Secretary of
unknown duration), and Treasury may Although Treasury appreciates
Homeland Security, as required by
need to await the results of such insurers have obligations to respond to
TRIA, as reflected in proposed
investigations before determining claims in a timely fashion, the state law
obligations that have been invoked are § 50.60(a), (b). Because the consultation
whether to certify an act of terrorism.20 required by TRIA will take place after
For example, the Secretary may not be subject to extensions when a greater
period of time is necessary to make a the Secretary has obtained relevant
able to determine whether an airplane information and completed the review
crashing in the ocean is an act of claims determination.24 None of the
identified in Step 3, the concerns
terrorism or a mechanical failure until militating against adoption of specific
21 Certification Report at 9–10 (‘‘Loss
the black box is recovered. Such deadlines do not apply to the timing of
development patterns—i.e., the severity, timing,
recovery may take several months or and distribution of losses as information becomes the consultation. Therefore, Treasury
years. A rule requiring that a available—are not always predictable from can and has identified a time period of
preliminary information and will be affected by the
20 Certification Report at 9 (‘‘In order for the magnitude and type of act under consideration for 30 days during which this action can be
Secretary to make an informed certification certification. The time it may take for claims to be expected to occur. Treasury specifically
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decision in accordance with the statutory criteria, submitted to one or more insurers by affected
for example, Treasury might need to coordinate policyholders after an act has occurred, for those imposing time deadlines upon claims decisions,
with other government agencies conducting claims to be investigated and adjusted by the which have been adopted in some form by 47 states
investigations concerning the perpetrators of or insurers, and (if appropriate) to be reserved or paid and two territories, provide ‘‘the opportunity to
motivations for the act. The Secretary will also need by the insurers, might vary considerably.’’). obtain further time, upon notice to the
22 Lloyd’s Comments at 1–2; PCIAA Comments at
to be respectful of activities of law enforcement and policyholder, within which to make the claims
the justice system concerning the investigation, 4–5 (incorporating prior comments at 1). determination’’) (citing NAIC, Unfair Property/
23 CIAB Comments at 2; CIAT Comments at 2.
apprehension, and prosecution of the individual or Casualty Claims Settlement Practices Model
individuals suspected or accused of committing the 24 Certification Report at 8 n.36 (observing that Regulation, 902–4, section 7.B, available at http://
act.’’ (Footnote omitted.)). state model regulations identified by insurers as www.naic.org/store/free/MDL-902.pdf).
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solicits comment on whether there are which is inconsistent with comments duplication with existing rule numbers,
any reasonable improvements to the otherwise offered that a timeline is and we anticipate it will be renumbered
timeline set forth in this interim final necessary to insure that a timely to § 50.60 in the final rule.
rule that would provide further clarity certification decision is made.
Two additional comments concerning 2. Public Communication (§ 50.61)
concerning the process, in a way that
would materially benefit interested proposed § 50.60 warrant attention. Proposed § 50.61 addresses the
parties and which would still be First, two commenters note that commencement of the certification
practical given the nature of the process proposed § 50.60(a), as currently process and public communication
and the issues with a strict deadline proposed, could be read to require that concerning the process. As Treasury
identified by Treasury. the Secretary consult with the Attorney explained in the Certification Report,
Two commenters suggested the General and the Secretary of Homeland public communication respecting the
inclusion of a provision that would Security even when ultimately deciding certification process provides the public
permit an interested party (identified as not to certify an act as an act of with necessary information concerning
either an insurer or a policyholder) to terrorism.27 It was not Treasury’s intent the certification process in a way that is
request that Treasury make a to impose a consultation requirement not subject to the problems inherent
certification determination regarding a where the Secretary determines not to with a strict timeline, as addressed
particular act.25 Another commenter certify, and in this context the word above.29 No commenters disagreed with
proposed a ‘‘dispute resolution and/or ‘‘whether’’ in proposed § 50.60(a) Treasury’s proposal to provide such
notice and comment procedure to should not be read to impose any public communication of the
ensure that all impacted parties are obligation on the Secretary that would certification process. Three commenters
given the opportunity to address be inconsistent with the Secretary’s suggested that the proposed rule should
concerns surrounding certification or discretion under TRIA. Accordingly, incorporate a deadline or milestones to
non-certification of an event.’’ 26 Such this interim final rule adopts § 50.60(a) govern when Treasury must notify the
comments fail to appreciate the nature as originally proposed, subject to this public that an act is being considered
of the certification determination understanding. for certification, and even to provide
entrusted to the Secretary under TRIA. Second, another comment observes ‘‘preliminary indications’’ respecting
Initially, the certification decision is that there is circularity in the provisions certification at that point of initial
entrusted to the Secretary, who is of proposed § 50.60(b), respecting the notification.30 One commenter
empowered with non-delegable timing of when a certification decision suggested a change to proposed
authority under TRIA to determine can take place, in that the cross- § 50.61(a) to confirm that Treasury will
whether to certify an act as an act of reference in proposed § 50.60(b) to only provide public notification where
terrorism, once there has been the proposed § 50.4(b) (the ‘‘act of an act is actually under review for
required consultation between the terrorism’’ definition) incorporates the certification as an act of terrorism, ‘‘to
Secretary, the Attorney General, and the consultation process which then would avoid any suggestion [Treasury’s]
Secretary of Homeland Security. TRIA have to take place before the routine monitoring of events should
recognizes the high levels of sensitivity consultation process identified in trigger expectations of public
embodied in this determination by proposed § 50.60(b). Thus, the notification.’’ 31
making this decision final and not commenter observes, proposed In response to the comments,
subject to judicial review. The § 50.60(b) could be read to suggest ‘‘that Treasury has modified proposed
Secretary, in consultation with the no act could ever be certified because § 50.61(a) to provide that once the
Attorney General and the Secretary of only previously certified acts are Secretary commences review, Treasury
Homeland Security, may, for instance, eligible for certification,’’ and that the shall publish a document in the Federal
conclude that law enforcement provision should just be deleted.28 Register within 30 days notifying the
priorities require waiting to make the Proposed § 50.60(b) cannot be public of this fact. Although this
certification decision. Permitting an eliminated, as it is a necessary provision provision remains subject to the rule of
insurer or policyholder to trigger a setting forth the timeline for when an construction that would permit the
certification determination, or to be able act is eligible for certification by the modification of this date by the
to dispute the certification or non- Secretary as an act of terrorism. Secretary in the event that timely
certification of an event would be Treasury’s modification of proposed notification is impracticable, the
inconsistent with TRIA’s delegation of § 50.60(b) to better reflect the timeline modification to the proposed rule
authority to the Secretary to make the contemplated in the proposed rule reflects Treasury’s intention to provide
determination on a non-reviewable resolves this ambiguity. As noted, this notification of the commencement of a
basis. Moreover, nothing in TRIA or formulation is already contemplated by certification process within 30 days.
Treasury’s proposed rules prohibits a the proposed rules, and as expressed in As respects the comment that a
stakeholder from contacting Treasury to this fashion provides for a clearer revision to proposed § 50.61(a) may be
bring to its attention an event that the ordering of the relevant milestones that in order to confirm that public
stakeholder believes might be subject to avoids the potential circularity issue notification should not be expected
certification under TRIA, or other identified in the comments. simply on account of the ‘‘routine
information relevant to that event. For the reasons set forth above, monitoring of events’’ by Treasury, the
Treasury’s adoption of proposed Treasury will modify proposed § 50.60 proposed rule should not engender any
§ 50.62(b) specifically recognizes the as described above, and adopt in this such expectations. Notice will be
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value that stakeholder input has to the interim final rule § 50.100 as so
certification process. Furthermore, a amended. As noted at the outset, this 29 Certification Report at 10–11.
dispute resolution or notice and section of the interim final rule is for 30 Lloyd’s Comments at 2; CIAT Comments at 2;
comment procedure would only operate see NAMIC Comments at 4 (initial notification that
now adopted as § 50.100 to avoid certification is under review ‘‘should also contain
to delay a certification determination, a preliminary indication as to whether Treasury
27 Jason Schupp Comments at 8; AIA Comments expects that the act will be certified as an act of
25 Lloyd’s
Comments at 2; CIAT Comments at 2. at 7. terrorism’’).
26 CIAB Comment at 3. 28 Jason Schupp Comments at 8–9. 31 Jason Schupp Comments at 9.
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provided when the Secretary determines review will define the scope of the commenter observed that proposed
that an act should be considered for needed information, and Treasury § 50.63 should only require notification
certification as an act of terrorism under expects that any requests will be of ‘‘actual certification decisions,’’ and
TRIA. Nothing in the proposed rule narrowly tailored to the act in question not for ‘‘acts that clearly will not meet
suggests, or is meant to suggest, that which should prevent any requests from the definition outlined in TRIA.’’ 35
consideration of current events by being unduly broad or burdensome. As Another commenter suggested that the
Treasury short of the Secretary’s respects confidentiality, proposed rule could be modified to provide that
determination to commence the § 50.54 (concerning Handling of Data) notice under proposed § 50.63 will be
certification process will trigger any sort already sufficiently addresses the provided only for those situations where
of public notification by Treasury. treatment of any confidential Treasury has provided notice under
For the above reasons, Treasury will information that might be obtained proposed § 50.61(a) that an act is under
modify proposed § 50.61 as described pursuant to proposed § 50.62. review for certification as an act of
above, and adopt in this interim final Accordingly, no changes to proposed terrorism.36
rule § 50.101 as so amended. As noted § 50.62 for the reasons identified are Treasury acknowledges that it
at the outset, this section of the interim warranted. monitors events and situations that,
final rule is for now adopted as § 50.101 Another comment observed that any given their circumstances, could
to avoid duplication with existing rule certification data collection process potentially involve the Program. The
numbers, and we anticipate it will be should be ‘‘a streamlined, orderly proposed certification rules address and
renumbered to § 50.61 in the final rule. method for collecting and organizing contemplate situations in which the
data from carriers and their affiliates, as Secretary (1) determines that an act will
3. Certification Data Collection (§ 50.62) well as a federal consolidation point for or will not be certified as an act of
A few comments were received claims data (perhaps FIO),’’ and terrorism without any prior advance
concerning proposed § 50.62, which encourages that any final rules ‘‘include notification to the public (see proposed
establishes rules for the collection of a centralized data collection process for § 50.61(d), as adopted below); or (2)
data by Treasury in aid of the purposes of the certification commences review of whether to certify
certification process. Under TRIA, the determination.’’ 34 No specific language an act as an act of terrorism, as provided
Secretary may not certify an act as an or revisions to achieve this goal, for in proposed § 50.61(a). The
act of terrorism unless property and however, were suggested. notification procedures under proposed
casualty insurance losses resulting from Although Treasury is in agreement § 50.63 govern these situations, once a
the act, in the aggregate, exceed $5 with the sentiments of this comment, decision whether to certify has been
million. Treasury may need to collect proposed § 50.62 sets forth the sort of made by the Secretary.
data from insurers, as well as from other process identified by the commenter. For the above reasons, Treasury is
entities in the insurance industry, in The certification process is one that is adopting § 50.63 as it was proposed. As
connection with its analysis of whether solely within the responsibility of the noted at the outset, this section of the
the insurance losses resulting from an Secretary, who is assisted by FIO in the interim final rule is for now adopted as
act under review for certification satisfy administration of the Program. Proposed § 50.103 to avoid duplication with
the loss threshold. § 50.62 sets forth a process under which existing rule numbers, and we
No comments were received asserting Treasury will collect insurance-related anticipate it will be renumbered to
that the proposed rule was information relevant to the certification § 50.63 in the final rule.
unnecessary.32 Two comments decision, and does not contemplate that
this will be accomplished through any V. Procedural Requirements
suggested that some restrictions upon
the data collection provision should be other federal agencies or processes. Executive Order 12866, ‘‘Regulatory
incorporated, to allow insurers to While requests are likely to be tailored Planning and Review.’’ Executive Order
challenge a request on the grounds that to address a particular situation, such 12866, as supplemented by Executive
an insufficient period to respond has that different requests may be made Order 13563, establishes a program to
been provided, or that the request is from case to case, nothing in the rule reform and make more efficient the
unduly broad, burdensome, or involves contemplates any sort of process that regulatory process of the Federal
confidential information.33 Because would subject responding entities to Government. In accordance with such
these requests involve the certification conflicting, disparate requests for Executive Orders, this rule is a
process, Treasury may need to obtain information. significant regulatory action, and has
information on an accelerated basis. For the above reasons, Treasury is been reviewed by the Office of
However, in setting the reporting adopting § 50.102 as it was proposed. As Management and Budget.
deadline, Treasury will take into noted at the outset, this section of the Regulatory Flexibility Act. In general,
account the amount and the complexity interim final rule is for now adopted as the Regulatory Flexibility Act (5 U.S.C.
of the information requested. Regarding § 50.102 to avoid duplication with 601 et seq.), which applies to any rule
the scope of any requests, the act under existing rule numbers, and we subject to notice and comment
anticipate it will be renumbered to rulemaking under the Administrative
32 One comment did take the opportunity to § 50.62 in the final rule. Procedure Act or any other law, requires
criticize the statutory greater than $5 million a federal agency to conduct a full
aggregate loss threshold aspect of the ‘‘act of
4. Notification of Certification regulatory flexibility analysis unless the
terrorism’’ definition, asserting that ‘‘the threshold Determination (§ 50.63) agency certifies that the rule will not
asabaliauskas on DSK3SPTVN1PROD with RULES
has been more of an impediment to practical
application of TRIA than a worthwhile definitional
Proposed § 50.63 provides for Federal have a significant economic impact on
component,’’ and observed that ‘‘[a] more useful Register notification and other a substantial number of small entities. (5
way of looking at the threshold would be to view communication of any certification U.S.C. 605(b)). In the preamble to the
it in the context of the TRIA aggregate loss program decision, as well as separate proposed rule, Treasury certified that
trigger.’’ AIA Comment at 7. Treasury notes that this
threshold is prescribed by statute and may not be
notifications to Congress and specified the rule, if promulgated, would not have
modified via regulation. insurance supervisory authorities. One
33 Exchange Indemnity Comments at 2; Marsh 35 AIA Comment at 8.
Captive Solutions Comments at 2. 34 CIAB Comments at 3. 36 Jason Schupp Comments at 9.
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![88598 Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Rules and Regulations
act of terrorism before notifying the reserves established by insurers in to the Federal Register notifying the
public that the act is under review for connection with the act under review, public of the Secretary’s decision.
certification. If, in the discretion of the loss estimates generated by insurers in (b) Insurance supervisor notification.
Secretary, circumstances relating to an connection with the act under review Not later than 5 business days after the
act render timely notification under this which have not yet been established as Secretary determines whether to certify
section by Treasury impracticable, actual loss reserves, and information an act as an act of terrorism, Treasury
Treasury shall provide the notification respecting an insurer’s property and shall notify in writing any relevant
as soon as practicable, in a manner the casualty exposures in a particular supervisory officials of the Secretary’s
Secretary determines is appropriate. geographic area associated with the act decision.
(e) Nonbinding decision. A under review.
(2) An insurer not required by (c) Congressional notification. Not
notification made under this section later than 5 business days after the
shall not be construed to be a final Treasury to submit information under
paragraph (a)(1) of this section may Secretary determines whether to certify
determination by the Secretary of an act as an act of terrorism, Treasury
whether to certify an act as an act of voluntarily submit information to the
Secretary as specified in public shall notify in writing the President of
terrorism. the U.S. Senate and the Speaker of the
notifications issued by Treasury.
§ 50.102 Certification data collection. (b) Other sources of information. The U.S. House of Representatives of the
Secretary may request information with Secretary’s decision.
(a) General. (1) The Secretary, when respect to loss estimates and likely (d) Rule of construction. If, in the
reviewing an act for certification as an affected insurers from organizations, discretion of the Secretary,
act of terrorism, may at any time direct including state insurance regulators, circumstances relating to an act render
one or more insurers to submit insurance modeling organizations, timely notification by Treasury under
information regarding projected and rating agencies, insurance brokers and this section impracticable, Treasury
actual losses in connection with an act producers, and insurance data shall provide the notification as soon as
and any other information the Secretary aggregators. practicable, in a manner the Secretary
determines appropriate. The determines is appropriate.
information sought by the Secretary § 50.103 Notification of certification
shall be specified in the data request, determination. Dated: December 1, 2016.
and any insurer subject to the data (a) Public notification. Not later than Amias Moore Gerety,
request shall respond to the request 5 business days after the Secretary Acting Assistant Secretary for Financial
within the time frame specified by the determines whether to certify an act as Institutions.
Secretary at the time of the request. The an act of terrorism, Treasury shall [FR Doc. 2016–29313 Filed 12–6–16; 8:45 am]
data requested may include actual loss publish a statement and submit a notice BILLING CODE 4810–25–P
asabaliauskas on DSK3SPTVN1PROD with RULES
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Document Created: 2016-12-07 05:31:27
Document Modified: 2016-12-07 05:31:27
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Interim final rule with request for comment. | |
| Contact | Richard Ifft, Senior Insurance Regulatory Policy Analyst, Federal Insurance Office, 202-622-2922 (not a toll free number) or Kevin Meehan, Senior Insurance Regulatory Policy Analyst, Federal Insurance Office, 202-622-7009 (not a toll free number). | |
| FR Citation | 81 FR 88592 | |
| RIN Number | 1505-AC53 | |
| CFR Associated | Insurance and Terrorism |
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