§ 1906.20

Statement of applicable law. Title XII of the National Housing Act (hereinafter referred to as the Act), as added by the Urban Property Protection and Reinsurance Act of 1968, 12 U.S.C. 1749bbb-1749bbb-21, provides for a National Insurance Development Program. Pursuant to title XII of the Act, the Secretary of Housing and Urban Development is authorized to offer to any insurer reinsurance against losses resulting from riots or civil disorders in any one or more States, on all standard lines of property insurance enumerated under subparagraphs (A) through (E) of section 1203 (a) (10) together, and, with respect to any State in which such reinsurance is purchased, to offer reinsurance on any one or more standard lines of property insurance enumerated under subparagraphs (F) through (J) of section 1203 (a) (10) of the Act.

§ 1906.21 Definitions.

As used in this part:

(a) "Reinsurer" means the Federal Insurance Administrator.

(b) "Contract" means the Standard Reinsurance Contract.

(c) "Losses" means all claims proved and approved by the company under policies reinsured resulting from riots or civil disorders during the period of the contract, together with an allowance for expenses in connection therewith, hereby agreed to equal an amount per claim of eight per centum (8%) of the first $25,000 of any such claim, plus three per centum (3%) of the amount by which such claim exceeds $25,000 but is less than $100,000, plus one per centum (1%) of the amount by which the claim exceeds $100,000, after making proper deduction for salvage and for recoveries other than reinsurance.

(d) "Riot" or "civil disorder" means:

(1) Any tumultuous disturbance of the public peace by three or more persons mutually assisting one another, or otherwise acting in concert, in the execution of a common purpose by the unlawful use of force and violence resulting in property damage of any kind;

(2) Three or more unlawful and terroristic acts or occurrences, all taking place under similar circumstances and within reasonable proximity as to time and place and apparently having civil disruption or civil disobedience as a primary motivation, at least two of which each involve intentionally caused property damage of any kind in excess of $1,000; or

(3) Any other unlawful and terroristic act or occurrence, apparently having civil disruption or civil disobedience as a primary motivation, resulting in intentionally caused property damage of any kind in the amount of $2,000 or more, which may reasonably be determined by the reinsurer, on the basis of evidence submitted by the company, to have been, under the circumstances, a form of civil disorder.

(e) "Aggregate losses" means the sum total of losses resulting from riots or civil disorders occurring in (or allocable to) a State during the period of the contract.

(f) "Excess aggregate losses" means that part of aggregate losses which is equal to the sum of:

(1) Ninety per centum (90%) for that part of the aggregate losses which exceeds the net retention but does not exceed the sum of the net retention and

an amount equal to twenty per centum (20%) of the specified percentage of the company's direct premiums earned for the calendar year 1969;

(2) Ninety-five per centum (95%) for that part of the aggregate losses which exceeds the sum of the net retention and an amount equal to twenty per centum (20%) of the specified percentage of the company's direct premiums earned for the calendar year 1969, but does not exceed the sum of the net retention and an amount equal to sixty per centum (60%) of such specified percentage; and

(3) Ninety-eight per centum (98%) for that part of the aggregate losses which exceeds the sum of the net retention and an amount equal to sixty per centum (60%) of the specified percentage of the company's direct premiums earned for the calendar year 1969.

(g) "Net retention" means the amount of aggregate losses that the company must stand before the reinsurer's liability hereunder attaches and shall be one aggregate figure for each State which shall be determined by applying a factor of two and one-half per centum (22%) to the specified percentage of the company's direct premiums earned in the State for the calendar year 1969 on those lines of insurance hereby reinsured.

(h) "Specified percentage” means one hundred per centum (100%) of each line of insurance reinsured under this contract except that the specified percentage of Homeowners multiple peril shall be eighty-five per centum (85%) and that of Commercial multiple peril shall be sixty-five per centum (65%).

(i) "Direct premiums earned" means direct premiums earned as reported in column 2 on page 14 of the company's Fire and Casualty Annual Statement, for the appropriate calendar year, in the form adopted by the National Association of Insurance Commissioners subject to adjustment as approved by the reinsurer for cessions to pools, facilities, and associations and for the inclusion of participation shares in such pools, facilities, and associations and such other appropriate adjustments, which shall include adjustments for dividends paid or credited to policy holders and reported in column 3 on page 14, as may be approved or required by the reinsurer.

(j) "Company" means any company authorized to engage in the insurance business under the laws of any State

except that, if there are two or more companies within a State in which reinsurance is to be provided under this contract which, as determined by the reinsurer:

(1) Are under common ownership and ordinarily operate on a group basis; or (2) Are under single management direction; or

(3) Are otherwise determined by the reinsurer to have substantially common or interrelated ownership, direction, management, or control;

then all such related, associated, or affiliated companies shall be reinsured only as one aggregate entity.

(k) "State pool or other facility" means any pool or facility required under State law or approved by the State insurance authority which is formed, associated, or otherwise created as part of a statewide plan for the purpose of making property insurance more readily available.

(1) "Property owner" means any individual or group of individuals, corporation, partnership, or association, or any other organized group of persons having an insurable interest in any real, personal, or mixed real and personal property.

§ 1906.22

Offer to provide reinsurance. Pursuant to the provisions of the Urban Property Protection and Reinsurance Act of 1968 and subject to the terms and conditions set forth in this part, the reinsurer offers to enter into a contract to pay, as reinsurance of the company, the amount of the company's excess aggregate losses resulting from riots or civil disorders in such lines of mandatory and optional coverage as may be designated by the company separately for each State.

§ 1906.23 Effective date of offer.

The reinsurer's offer to provide reinsurance under the terms and conditions set forth in this part is effective at the time this document is filed for public inspection at the Office of the Federal Register (8:49 a.m., e.s.t., April 11, 1969). § 1906.24 Acceptance of offer.

(a) Acceptance of this offer shall be by telegraphed or mailed notice of acceptance to the reinsurer. The date of dispatch of this notice of acceptance, which date shall be no later than 12 p.m., e.s.t., April 30, 1969, must be clearly

shown either by telegraph dispatch notation or postmark.

(b) The telegram or letter accepting this offer of reinsurance must indicate the States in which reinsurance on lines of mandatory coverage is to be provided and must specifically designate for each such State the lines of optional coverage for which reinsurance is to be provided. This notice of acceptance shall be in substantially the following form:

The [name of insurer or insurers] hereby accepts the offer as filed with the FEDERAL REGISTER of a Standard Reinsurance Contract pursuant to the Urban Property Protection and Reinsurance Act of 1968 for the mandatory and [specify] optional lines in the following States: [specify].

(c) Any company accepting this offer of reinsurance in accordance with paragraphs (a) and (b) of this section shall be supplied copies of the Standard Reinsurance Contract, HUD-1601, for execution and return to the reinsurer.

(a) Reinsurance, under a Standard Reinsurance Contract provided pursuant to this offer, shall apply to:

(1) All policies or contracts of insurance (unless otherwise reinsured by the reinsurer under subparagraphs (2) and (3) of this paragraph) issued by the company to any property owner;

(2) The company's participation shares (to the extent not otherwise reinsured by the reinsurer under subparagraphs (1) and (3) of this paragraph) in any State pool or other facility required under the State law or approved by the State insurance authority as a part of a statewide plan to improve the availability of essential property insurance in urban areas; and

(3) As may be approved by the reinsurer, the company's participation shares (to the extent not otherwise reinsured by the reinsurer under subparagraphs (1) and (2) of this paragraph) in any continuing organization or association of insurers created to meet special problems of insurability,

which policies, contracts, or participation shares are in force on the effective date of the contract or which commence or are renewed on or after such effective date in all the mandatory and in such optional standard lines of property insurance listed under paragraphs (b) and (c) of this section as may be designated separately for each State.

(b) The lines of mandatory coverage

are:

(1) Fire and extended coverage;

(2) Vandalism and malicious mischief;

(3) Other allied lines of fire insurance; (4) Burglary and theft; and

(5) Those portions of multiple peril policies covering similar perils to those provided in subparagraphs (1), (2), (3), and (4) of this paragraph.

(c) The lines of optional coverage are: (1) Inland marine;

(2) Glass;

(3) Boiler and machinery;

(4) Ocean marine; and

(5) Aircraft physical damage.

§ 1906.26 Premiums.

(a) The aggregate gross reinsurance premium due the reinsurer for the coverage provided under the contract of reinsurance shall be computed by applying an annual rate of one and one-quarter per centum (1.25%) to a premium base consisting of the sum of the products of the company's direct premiums earned in each State in each reinsured line for the calendar year 1969 multiplied by the specified percentage of such earned premiums, as defined in §§ 1906.21 (h) and (i). Where a company is newly authorized to write insurance in a State after May 1, 1969, and subsequently acquires reinsurance under the contract with respect to such insurance, the premium for such reinsurance shall be prorated in the ratio of (1) the number of days of coverage to be provided from the date of inception of coverage through April 30, 1970, to (2) 365.

coverage

(b) If any reinsurance existed with respect to any State under a prior contract of reinsurance between the reinsurer and the company, and reinsurance with respect to any lines of insurance in the same State is continued under the contract with no lapse following the termination of the prior contract, a renewal credit equal to eighty per centum (80%) of the net premium paid for such prior reinsurance coverage, as adjusted, will be applied as a credit against the gross premium hereby required to be paid with respect to all lines of insurance reinsured in the same State: Provided, however, That the minimum net premium due the reinsurer under the contract for reinsurance in any State for a full contract year shall in no event be less than one-half of one