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Federal Register / Vol. 86, No. 109 / Wednesday, June 9, 2021 / Rules and Regulations insured loss in the insurance industry.18 Although Treasury values administrative efficiency in the operation of the Program, the two terms are different and address different although related matters. Property and casualty insurance losses measures the size of the event in question, which logically means any insurance-related loss associated with the event. By contrast, insured loss in the context of the Program must be limited to the actual losses of participating insurers, when calculating Federal Share of Compensation payments to participating insurers in the event that payments under the Program are triggered, or when determining the cap on total payments by participating insurers.
Accordingly, Treasury will not apply the same definition where Congress chose not to do so. Furthermore, and for the reasons explained above, including policyholder obligations within the meaning of insured loss would potentially permit recoveries by insurers for amounts not paid by such insurers, and excuse insurer payments to some extent on account of policyholder payments through operation of the Program Cap. Treasury therefore declines to interpret insured loss in this fashion.
A third commenter offered alternative language to clarify the terms property and casualty insurance losses and insured loss. 19 Specifically, the commenter suggested that the property and casualty insurance losses should only include losses after the hypothetical application of any terrorism exclusions, reasoning that such an approach would be more favorable to a policyholder that chose not to take up its insurers mandatory offer of terrorism risk insurance under TRIA.20 Treasury declines to adopt the approach proposed by this commenter, which would result in Treasury adopting a definition that would facilitate the provision of coverage to policyholders that consciously declined to purchase it. As Treasury explained in the November 2020 NPRM, the purpose of the certification analysis is to accurately assess the size of an event and it therefore focuses on the total economic loss of an event involving TRIP-eligible lines of insurance. When 18 See
NAMIC Comments at 12.
CBI Comments, 3, 6.
20 Id. To the extent the Secretary does not certify an event as an act of terrorism under TRIA, policy exclusions for certified acts of terrorism that can be and typically are included in a policy where the policyholder fails to accept the mandatory offer under TRIA would not apply, and the policyholder would be entitled to coverage for associated losses assuming all other policy terms and conditions were met.

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the Secretary is making a certification decision under the Program, it is important for Treasury to be in a position to identify the relevant size of a particular event that might be considered for certification.21 In Treasurys view, Congress did not intend to limit the Secretarys ability to certify an event as an act of terrorism in the manner proposed by this commenter. Moreover, the concern identified by this commenter is addressed by the fact that it is within the Secretarys discretion to consider factors, such as policyholder take-up rates, when determining whether to certify any particular event as an act of terrorism.22
Regarding the proposed modification to the insured loss definition, the same commenter generally approved of the concept behind Treasurys proposed rule i.e., that amounts paid or absorbed by the policyholder are not an insured loss under the Program. However, this commenter suggested that the proposed rule could be gamed by insurers and policyholders by not going far enough in protecting against abuses intended to augment insurer recoveries to the benefit of both participating insurers and their policyholders.23
However, the commenter recognized that attempting to anticipate the full range of sophistication, complexity, and ingenuity that might be deployed to obtain an unfair advantage under the Program may not be possible.24
As Treasury has advised from the outset of the Program, efforts to avoid the requirements of TRIA so as to artificially increase recoveries under the Program are impermissible and will have adverse consequences when Treasury evaluates claims for the Federal Share of Compensation in the event of a certified act of terrorism.25

Policy structures and arrangements providing for special treatment where an act of terrorism is involved, with the goal of increasing claims for the Federal Share of Compensation, will be subject to significant scrutiny by Treasury in both the claim approval process and any subsequent audit process as contemplated under TRIA.26
Accordingly, Treasury is also adopting without change in this final rule the interpretation of property and casualty insurance losses and insured loss proposed in the November 2020
NPRM.

21 Treasury has also considered the additional wording issues identified by this commenter concerning the clarifications proposed to property and casualty insurance losses for certification purposes CBI Comments at 34 and finds that they do not warrant revisions to the proposed rule. No new concepts are introduced by Treasury in connection with the Program by referencing terrorism risk insurance. Second, a first-party policyholder remains responsible for the payment of losses within an assumed deductible amount, even where it elects not to repair the property at all.
22 See TRIA sec. 1021; 31 CFR 50.4b.
23 See CBI Comments at 5 The insurer could issue a policy that simply waives collection of any deductible in the event of a certified act of terrorism..
24 Id.
25 See, e.g., Interpretative Letter, TRIA-Only Captives/TRIA Section 1026c/31 CFR 50.5d Mar. 2, 2004 We believe that an entity considering forming a captive insurer for standalone, single risk terrorism insurance should be strongly cautioned and advised against undertaking
List of Subjects in 31 CFR Part 50

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IV. Procedural Requirements Executive Order 12866, Regulatory Planning and Review. This final rule is not a significant regulatory action for purposes of Executive Order 12866, Regulatory Planning and Review, and thus has not been reviewed by the Office of Management and Budget OMB.
Regulatory Flexibility Act. Under the Regulatory Flexibility Act, 5 U.S.C. 601
et seq., Treasury must consider whether this rule will have a significant economic impact on a substantial number of small entities. 5 U.S.C.
605b. In this case, Treasury certifies that this final rule will not have a significant economic impact on a substantial number of small entities, because the changes it implements are largely ministerial and are not expected to impact small entities more than the existing Program regulations.
Paperwork Reduction Act. No collection of information is addressed in this final rule. Treasury continues to submit to OMB for review under the requirements of the Paperwork Reduction Act, 44 U.S.C. 3507d, material changes to existing collection requirements.
Insurance, Terrorism.
For the reasons stated in the preamble, 31 CFR part 50 is amended as follows:
PART 50TERRORISM RISK
INSURANCE PROGRAM
1. The authority citation for part 50
continues to read as follows:

such proposed action if it is doing so in order to avoid the Acts deductible requirements., https
home.treasury.gov/system/files/311/redactedv.pdf.
26 TRIA sec. 104a1; 31 CFR Subpart I Audit and Investigative Procedures. In addition, significant civil penalty provisions apply under TRIA where a participating insurer submits to Treasury fraudulent claims under the Program for insured losses. TRIA sec. 104e1C; 31 CFR
50.82a3.

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