**This bulletin and its attachments have been made available at the AAIS public Web site: AAISonline.com. This bulletin will not be distributed in a paper format.**

COUNTRYWIDE 
CERTIFIED TERRORISM LOSS ENDORSEMENT & RULES FILED
Reference Bulletin 02-0550 & 03-0089

Endorsement FL 0670, Certified Terrorism Loss, has been filed in the Dwelling Properties and Personal & Premises Liability programs solely for use with policies covering premises regularly rented or held for rental to others for residential purposes. The endorsement covers certified terrorism loss and includes provisions for fulfilling the line item disclosure notice requirements of the Terrorism Risk Insurance Act of 2002 (TRIA). The provisions of the endorsement apply only in the event that the Secretary of the Treasury determines that the exposures covered by such policies are subject to TRIA.

An explanation of the reason for this filing action and more information regarding the endorsement and its companion manual supplement are provided in subsequent sections of this bulletin. Also included is a section identifying Personal Umbrella considerations with respect to TRIA.

The Dwelling Properties and Personal & Premises Liability filings have been submitted on a 'file and use' basis with an effective date of April 1, 2003. Refer to the Company Action section of this bulletin for additional information regarding the implementation of the endorsement and supplement.

BACKGROUND

TRIA established a mechanism whereby insurance companies that comply with specified disclosure requirements will be partially reimbursed by the United States Government for losses resulting from acts of terrorism that are certified as such by the Secretary of the Treasury. Refer to Bulletins 02-0550 and
03-0089, posted on the AAIS public Web site, AAISonline.com, for additional information regarding TRIA and its disclosure requirements.

The Department of the Treasury has issued a number of interim guidelines regarding the implementation of TRIA, and on February 28, 2003, it published an Interim Final Rule and related Supplementary Information. The Supplementary Information identifies the lines and types of insurance that are subject to TRIA.

There are varying interpretations of the Supplementary Information as to whether, with respect to TRIA, insurance written to cover the exposures of the owner of a one to four family dwelling regularly rented or held for rental to others is personal insurance or commercial insurance. Endorsement FL 0670 and its companion manual supplement are being filed to provide companies with a means to qualify for federal reinsurance under TRIA should the Department of the Treasury determine that policies covering the exposures of owners of one to four family dwellings regularly rented or held for rental to others constitute commercial insurance.

As previously mentioned, endorsement FL 0670 covers certified terrorism loss. At this time, AAIS is not filing materials that enable a policyholder to reject, nor a company to exclude, coverage for certified terrorism losses. (To date, regulators in most jurisdictions have permitted terrorism exclusions for policies covering premises used primarily for residential purposes only in rare, company-specific circumstances. AAIS believes that until such time as Treasury determines that policies covering dwellings regularly rented or held for rental to others constitute commercial insurance, most regulators will remain unwilling to approve an exclusion for terrorism loss, regardless of whether it applies to certified or non-certified acts of terrorism.)

ENDORSEMENT FL 0670

Endorsement FL 0670 has been filed for both the Dwelling Properties and Personal & Premises Liability programs. There are 3 editions of the endorsement: the 05 03 edition has been filed in New York; the
04 03 edition has been filed in Georgia; and the 03 03 edition has been filed in all other jurisdictions in which AAIS has one or both of the aforementioned programs on file. The endorsement is intended for use with both new and renewal policies.

Refer to the New York section of this bulletin for information regarding additional endorsement filing action that has been taken in that state.

The endorsement's introductory paragraph specifies that the added provisions apply only in the event that the Secretary of the Treasury determines that the exposures covered by the policy are subject to TRIA or any amendments thereto.

Other significant provisions are as follows:

 --    The endorsement adds definitions for the terms "certified act of terrorism" and "certified terrorism loss".

 --  The endorsement specifies that coverage for certified terrorism loss (to the extent that such coverage is provided by the policy) will be partially reimbursed by the United States Government, Department of the Treasury, under a formula established by TRIA. It also includes a place for the company to disclose the premium applicable to the portion of certified terrorism loss that it retains.

  --    The endorsement filed in jurisdictions other than New York specifies that in the event the Secretary of the Treasury determines that the amount of certified terrorism loss has exceeded the maximum annual liability as set forth by TRIA or any amendments thereto, and the company has met its deductible requirements as specified by that Act, the company will not pay for any portion of certified terrorism loss that exceeds the maximum annual liability. In the endorsement filed only in Georgia, an exception is made with respect to property coverages for loss caused by fire resulting from a certified act of terrorism, unless it is determined that coverage for such loss is subject to the terms of Section 103(e)(2) of TRIA or any amendments thereto. The exception for loss caused by fire does not apply to loss of earnings, extra expense, or fire legal liability.

--   The endorsement specifies that no coverage is provided for any loss that would otherwise be excluded by the policy under exclusions that address war, military action, or nuclear hazard or any other exclusion. It also specifies that the absence of any other terrorism endorsement does not imply coverage for any loss that would otherwise be excluded by the policy under exclusions that address war, military action, or nuclear hazard or any other exclusion.

 MANUAL SUPPLEMENT

Certified Terrorism Losses Manual Supplement Revision 1.0 has been filed for both the Dwelling Properties and Personal & Premises Liability programs in all jurisdictions in which AAIS has those programs on file.

The rules provided in this supplement specify that the endorsement is to be attached only to policies written to cover the exposures of premises that are regularly rented or held for rental to others. In the Dwelling Properties program, endorsement FL 0670 can be attached to policies covering non-owner occupied dwellings, including policies written using the Landlord's Premises-Only Liability Coverage option. In the Personal & Premises Liability program, endorsement FL 0670 can be attached to policies that include premises liability form GL-600.

Further, the rules specify that unless a company has taken specific filing action to introduce a premium consideration for losses arising from certified acts of terrorism, the premium charge applicable to the company's portion of coverage for such losses is zero.

COMPANY ACTION

AAIS advised the departments of insurance that materials may be provided to affiliated companies in an electronic format and that, due to differences in printer configurations or other hardware or software differences, the cosmetic appearance of the material may be altered slightly when produced by another system without affecting the content.

These filings were submitted on a 'file and use' basis with an effective date of April 1, 2003. Except as noted below (or, as it becomes known to us, on our public Web site), companies that have granted AAIS filing authority for forms and endorsements and/or manual rules for the Dwelling Properties program and/or Personal & Premises Liability program can adopt the endorsement and/or rules without notifying an insurance department.

As of this date, the following exceptions apply to the company action described above:

Alaska: For the Dwelling Properties program only, with respect to rules, companies are obligated to take independent filing action. (At the present time, AAIS does not make available Dwelling Properties rules or rating information for the state of Alaska. Therefore, with respect to the Dwelling Properties program, the manual supplement described in this bulletin has not been submitted to the Alaska Division of Insurance.)

Arkansas: With respect to rules, companies must notify the insurance department of their intent to adopt the manual supplement and remit the appropriate filing fee.

California: With respect to the endorsement, all companies must submit a reference filing which establishes an effective date and includes the necessary completed California filing forms. CDI numbers will be posted on the AAIS public Web site, AAISonline.com, as soon as they are available from the California Department of Insurance.

Colorado: Forms are not required to be filed in this state. Therefore, AAIS has not filed the endorsement in this state. Companies are not required to notify the insurance department regarding their use of the endorsement, however, AAIS recommends that companies keep documentation as to the date upon which they begin using it. With respect to rules, companies must notify the insurance department of their intent to adopt the manual supplement. The notification must establish the effective date and include completed form Colorado Form A.

Florida: For the Dwelling Properties program only, with respect to the rules, companies must submit to the insurance department copies of the manual pages they intend to use.

Hawaii: For the Dwelling Properties program only, companies are obligated to take independent filing action with respect to both the endorsement and the manual supplement. (AAIS does not make available Dwelling Properties forms, rules, or rating information for the state of Hawaii. Therefore, with respect to the Dwelling Properties program, the materials described in this bulletin have not been submitted to the Hawaii Insurance Department.) For the Personal & Premises Liability program, with respect to rules, companies can satisfy their obligation to file rules by referencing the AAIS filing and indicating their effective date. Companies must take filing action by October 1, 2003.

Illinois: AAIS has not filed the manual supplement in this state. For the Personal & Premises Liability program only, with respect to rules, rules are not required to be filed in this state. Companies are not required to notify the insurance department regarding their use of the supplement, however, AAIS recommends that companies keep documentation as to the date upon which they begin using it. For the Dwelling Properties program only, with respect to rules, companies must establish their own effective date and submit the rules to the insurance department as an independent filing.

Louisiana: For the Dwelling Properties program only, with respect to rules, companies are obligated to take independent filing action. (AAIS does not make available Dwelling Properties rules or rating information for the state of Louisiana. Therefore, with respect to the Dwelling Properties program, the manual supplement described in this bulletin has not been submitted to the Louisiana Department of Insurance.)

New Mexico: With respect to rules, companies must establish their own effective date and submit the rules to the insurance division. (In accordance with New Mexico guidelines, companies are required to submit individual filings despite the fact that the New Mexico Insurance Division has placed the AAIS rules on file.)

New York: With respect to rules, companies are required to advise the insurance department whether or not they intend to adopt this filing.

Texas: For both the Dwelling Properties and Personal & Premises Liability programs, companies are obligated to take independent filing action with respect to both the endorsement and the manual supplement. (AAIS does not make available Dwelling Properties or Personal & Premises Liability forms, rules, or rating information for the state of Texas. Therefore, with respect to both programs, the materials described in this bulletin have not been submitted to the Texas Department of Insurance.)

Washington: For the Dwelling Properties program only, with respect to both the endorsement and the manual supplement, companies are obligated to take independent filing action. All companies must take such action with the Washington Insurance Department before the company-chosen effective date. (With respect to the endorsement, AAIS cannot file on behalf of companies, nor can companies adopt AAIS forms and endorsements by reference. With respect to rules, at the present time AAIS does not make available advisory Dwelling Properties rules or rating information for the state of Washington. Therefore, with respect to the Dwelling Properties program, the manual supplement described in this bulletin has not been submitted to the Washington Insurance Department.)

Wyoming: Rules are not required to be filed in this state. Therefore, AAIS has not filed the manual supplement in this state. Companies are not required to notify the insurance department regarding their use of the supplement, however, AAIS recommends that companies keep documentation as to the date upon which they begin using it.

In all jurisdictions, refer to the pertinent AAIS filing number(s) and, when applicable, insurance department-assigned filing number(s) in all correspondence directed to an insurance department. These numbers can be found on the AAIS public Web site, AAISonline.com. Any filing numbers assigned by an insurance department will be posted on the Web site as soon as they are made known to AAIS.

Companies that have not granted AAIS filing authority for forms and endorsements and/or manual rules for the Dwelling Properties program and/or Personal & Premises Liability program must take independent filing action with respect to the materials described in this bulletin. Companies are advised to refer to the bulletins issued by the state insurance departments for the filing requirements that apply to terrorism-related filings. A list identifying the various bulletin numbers and the dates of their publication is provided on the AAIS public Web site, AAISonline.com.

NEW YORK

Due to requirements imposed by the New York Insurance Department, an endorsement specifying that the company will not pay for any portion of certified terrorism loss that exceeds the maximum annual liability as set forth by TRIA could not be filed on a 'file and use' basis. Therefore, at the same time that AAIS submitted endorsement FL 0670 05 03 in New York on a 'file and use' basis, it also submitted endorsement FL 0670 04 03 on a 'prior approval' basis. Once approved, the 04 03 edition will replace the 05 03 edition in New York. A description of the company action needed to adopt endorsement FL 0670 04 03 in New York will be provided in the bulletin that announces its approval.

SUPPLIES

Endorsements

The endorsements described above have been released to Uniform Information Services, Inc. (UIS), the print vendor of AAIS forms and endorsements. Call UIS at 800/382-2424 to order AAIS forms and endorsements in paper printed format. Call UIS at 800/782-9481 to order the text of AAIS forms and endorsements in a variety of electronic formats.

AAIS also offers the text of forms and endorsements in limited electronic formats. Call Veronica Clarke at 800/564-AAIS for more information.

Manual Supplement

Affiliated companies may print and reproduce Certified Terrorism Losses Manual Supplement Revision 1.0 from the AAIS public Web site.

Future orders for Dwelling Properties and Personal & Premises Liability manuals will automatically include the manual supplement.

PERSONAL UMBRELLA PROGRAM

The Supplementary Information (SI) published by the Department of the Treasury on February 28, 2003 identifies the lines and types of insurance that are subject to TRIA. Included are commercial lines reported on Line 17, Other Liability, of the NAIC Annual Statement of the Exhibit of Premiums and Losses (commonly known as Statutory Page 14). The SI indicates that personal insurance reported on this line of Statutory Page 14 should be excluded from an insurer's calculation of its direct earned premium and insurer deductible. Further, the SI indicates that personal insurance policies that include incidental coverage for commercial purposes are considered to be primarily personal policies, and, for the purposes of TRIA, Treasury considers incidental commercial coverage to exist when less than 25% of total premium is attributable to commercial coverage. Finally, the SI indicates that when a policy covers both commercial and personal exposures, insurers should allocate the proportion of risk between commercial and personal components in determining what portion of the policy falls under TRIA.

There are three endorsements filed in the Personal Umbrella Program that can be used to provide umbrella liability coverage for business activities. They are UM 0130, Specified Business Activities; UM 0131, Specified Farm Activities; and UM 0136, Business Activities. AAIS believes that only in rare circumstances will these endorsements generate premium that is 25% or more of the total policy premium, and it is therefore not taking filing action for this program with respect to TRIA. However, each company will need to independently determine whether or not it has any Personal Umbrella policies that may be subject to TRIA and take action accordingly.

ATTACHMENTS

--   FL 0670 03 03, Certified Terrorism Loss
--   FL 0670 04 03, Certified Terrorism Loss (Georgia and, upon approval, New York)
--   FL 0670 05 03, Certified Terrorism Loss (New York)
--   Certified Terrorism Losses Manual Supplement Revision 1.0

Direct Questions to:

Susan Luecke
Director of Personal Lines
suel@AAISonline.com