The Treasury Department recently proposed a rule that would implement the statutory requirements in Section 103(e) of the Terrorism Risk Insurance Program Reauthorization Act of 2007 (“TRIPRA”) that caps the annual liability of the Terrorism Risk Insurance Program (the “Program”) for insured losses at $100 billion. The new rule also enunciates the procedure by which the Treasury will determine the pro rata share of insurers for insured losses under the Program when the total insured losses exceed the $100 billion cap in any single year.
Under TRIPRA, which extended the Program to December 31, 2014, the Treasury Department is prohibited from paying losses that exceed $100 billion in any single year. Further, insurers that meet their deductible requirements under TRIPRA are exempt from paying any portion of insured losses that exceed the $100 billion cap. The new rule proposes that, in the instance losses exceed $100 billion in any single year, the Treasury Department determines a pro rata share of the total losses for insurers. The proposed rule describes how Treasury would initially estimate whether the $100 billion cap for insured losses is exceeded, and the prorata percentage of insured losses to be paid, based on:
- Estimates of insured losses from insurance industry statistical organizations;
- Data calls issued by the Treasury Department;
- Expected reliability and accuracy of insured loss estimates and likelihood that insured loss estimates could increase;
- Estimates of insured losses and expenses not included in available in statistical reporting; and
- Any such other factors as the Secretary of the Treasury deems important.
The proposed rule includes a definition of “pro rata loss percentage” (“PRLP”) that will be determined by the Secretary of the Treasury to be applied against the amount that would otherwise be paid by an individual insurer under the Program if there were no cap on annual liability.
The Treasury Department notes that there could be circumstances when it estimates the annual cap will be exceeded, and it will call a brief hiatus in insurer loss payments of early submitted losses, to avoid payments without proration that would be inequitable to losses coming in later. The Treasury Department also notes that it is proposing that it may issue a data call to insurers for the submission of loss information as in order to estimate whether the cap on annual liability will be reached and determine an initial or subsequent PRLP, it may be necessary to have more timely detail.
