through the use of their examining facilities. The company shall keep records which fully disclose all matters pertinent to the business reinsured, including premiums and claims paid or payable under the contract. Records relating to premiums shall be retained and available for three (3) years after final adjustment of premiums, and to reinsurance claims three (3) years after final adjustment of such claims.

§ 1906.39 Information and annual state

ments.

The company shall furnish to the reinsurer such summaries and analyses of information in its records as may be necessary to carry out the purposes of the Urban Property Protection and Reinsurance Act of 1968, 12 U.S.C. 1749bbb1749bbb-21, in such form as the reinsurer, in cooperation with the State insurance authority, shall prescribe; and the company shall file with the reinsurer a true and correct copy of the company's Fire and Casualty Annual Statement, or amendment thereof, as filed with the State insurance authority of the company's domicillary State, at the time it files such statement or amendment with the State insurance authority. The company shall also file with the reinsurer an equivalent of page 14 of such annual statement for each State in which reinsurance is provided under the contract. § 1906.40 Notice of offer of reinsurance.

(a) Commencing with the Standard Reinsurance Contract for the May 1, 1972, to April 30, 1973, contract year, Federal reinsurance against riots or civil disorders shall be offered to eligible insurance companies by publication in the FEDERAL REGISTER of a notice of offer to provide reinsurance against riots or civil disorders. The notice of offer shall include an offer to provide reinsurance, a statement of the method by which the offer may be accepted, and the terms and conditions of the Standard Reinsurance Contract being offered.

(b) Copies of the terms and conditions of the Standard Reinsurance Contract offered in the notice of offer shall be maintained for public inspection at the office of the Federal Insurance Administrator, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410, during regular business hours and may be obtained

1907.7 Notification of enactment.

AUTHORITY: The provisions of this Part 1907 issued under sec. 7(d), 79 Stat. 670; 42 U.S.C. 3535(d); sec. 1103, 82 Stat. 566; 12 U.S.C. 1749bbb-17.

SOURCE: The provisions of this Part 1907 appear at 36 F.R. 24758, Dec. 22, 1971, unless otherwise noted.

§ 1907.1 State reimbursement requirement in general.

(a) Section 1223(a)(1) of the National Housing Act (12 U.S.C. 1749bbb-9), added by the Urban Property Protection and Reinsurance Act of 1968, hereinafter referred to as the "Act," prohibits the Secretary of Housing and Urban Development from offering riot loss reinsurance with respect to any line of insurance in a State which does not by the close of the second full regular session of the appropriate State legislative body following August 1, 1968, adopt legislation, retroactive to August 1, 1968, which enables it to reimburse him annually (to the extent necessary) for a portion of the claims he pays in connection with excessive losses which may occur in that State with respect to the line of insurance reinsured. While in many States no actual payment may be required, legislation providing for such payment, if needed, is required for the continued provision of Federal riot loss reinsurance.

(b) The minimum lines of insurance for which State reimbursement legislation is required as a condition of continued Federal reinsurance for any line 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. Optional lines of insurance for which State reimbursement legislation may be enacted on either a group basis or an individual basis are inland marine, glass, boiler and machinery, ocean marine, and aircraft physical damage. But no line of insurance will be eligible for Federal reinsurance in any State after the specified date unless it is included, either explicity or implicity, within the State reimbursement legislation.

§ 1907.2 Amount of State share.

(a) The actual State share is limited to the amount by which the Secretary's total reinsured losses in the State during the current year exceed the total reinsurance premiums received for the same year, and such State share is reduced by (1) any excess of net reinsurance premiums over reinsured losses realized from business in that State since the year for which reimbursement was last required, and (2) any assessments of reinsured companies made under the Federal Standard Reinsurance Contract with respect to the current year.

(b) The maximum State share in any 1 year is an amount equal to 5 percent of the aggregate or total property insurance premiums earned in the State during the calendar year immediately preceding the end of the reinsurance contract year on all lines of insurance for which any reinsurance is provided by the Secretary in the State during the contract year, regardless of the number of companies actually purchasing Federal reinsurance. § 1907.3

Timing of State legislation.

To enable companies doing business within a State to continue to participate in the Federal reinsurance program, the State must enact the necessary reimbursement legislation by the close of the second full regular session of the appropriate State legislative body after August 1, 1968, when the Federal Act became law.

§ 1907.4 Source of State share.

Funds for the State share may be raised in any constitutional manner con

sistent with the intent of the Federal Act to place appropriate responsibility upon the State to share in property insurance losses resulting from riots or civil disorders. The Federal Act provides that the Secretary is to be reimbursed by the State, its political subdivisions, or a governmental corporation or fund established pursuant to State law. Thus, the State share should be financed out of general revenues or in some other manner which broadly distributes the burden of property insurance losses resulting from riots or civil disorders.

§ 1907.5 Timing of State payments.

It is not required that funds for the State share be made available in advance of the year in which the losses occur. However, the State legislation must provide for a method of financing the State share which will assure timely reimbursement of the Secretary. It is anticipated that notification by the Secretary as to the amount of the State share due with respect to losses in any given year will not be made until the third quarter of the succeeding year. The State payment will be due and payable approximately 60 to 90 days thereafter. § 1907.6

Effect of failure to enact State legislation.

If appropriate legislation is not enacted in a given State within the time specified, no Federal reinsurance may thereafter be offered or made applicable to insurance policies written in that State until such legislation is enacted. However, Federal reinsurance on insurance policies written prior to the specified date for the enactment of the State's reimbursement legislation may be continued for the remainder of the current Federal contract year, which ends on April 30. § 1907.7 Notification of enactment.

In order to prevent unnecessary lapses in Federal reinsurance coverage, each State insurance authority is requested promptly to notify the Federal Insurance Administrator, Department of Housing and Urban Development, Washington, D.C. 20410, of the date on which the State's reimbursement legislation is effective and to provide him with a copy of the enacted legislation.

As used in this subchapter

"Accounting period" means any annual period during which the agreement is in effect, commencing on July 1 and ending on June 30. Each accounting period under the agreement applies separately to the insurance premiums payable, losses incurred, premium equalization and reinsurance payments due, and operating costs and allowances attributable with respect to all policies issued under the program during the accounting period.

"Act" means the National Flood Insurance Act of 1968, as amended, 42 U.S.C. 4001-4127.

"Actuarial rates" means the risk premium rates, estimated by the Administrator for individual communities pursuant to studies and investigations undertaken by him in accordance with section 1307 of the Act in order to provide flood insurance in accordance with accepted actuarial principles. Actuarial rates also contain provision for operating costs and allowances.

"Actuarial rate zone" means a zone identified on a Flood Insurance Rate Map as subject to a specified degree of flood or mudslide hazards, to which a particular set of actuarial rates applies.

"Administrator" means the Federal Insurance Administrator, to whom the Secretary has delegated the administration of the program (34 F.R. 2680-81, Feb 27, 1969).

"Affiliates" means two or more associated business concerns which are or can be directly or indirectly controlled by one or more of the affiliates or by a third party.

"Agreement" means the contract entered into for any accounting period by and between the Administrator and the Association whereby the Association will provide policies of flood insurance under the program within designated areas and will adjust and pay claims for losses arising under such policies. The agreement is renewed automatically with respect to each subsequent accounting period unless either the Administrator or the Association gives the other written notice of intention to terminate on or before January 31 of the then current accounting period.

"Applicant" means a community whose legislative body has indicated a desire to participate in the National Flood Insurance Program.

"Association"

means the National Flood Insurers Association and, as the context may indicate, the insurance pool composed of two or more of its members or any member acting for or on behalf of the Association under the agreement.

"Chargeable rates" means the reasonable premium rates, estimated by the Administrator in accordance with section 1308 of the Act, which are established in order to encourage the purchase of flood insurance.

"Coastal high hazard area" means the portion of a coastal flood plain having special flood hazards that is subject to high velocity waters, including hurricane wave wash and tsunamis.

"Community” means any State or political subdivision thereof with authority to adopt and enforce land use and control measures for the areas within its jurisdiction.

"Criteria" means the comprehensive criteria for land use and control measures developed under section 1361 of the Act for the purposes set forth in 88 1910.21 and 1910.42 of this subchapter.

"Deductible" means the fixed amount or percentage of any loss not covered by an insurance policy. The amount of the deductible must be exceeded before insurance coverage takes effect.

"Department" means the U.S. Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410.

"Eligible community" means a community in which the Administrator has authorized the sale of flood insurance under the program.

"Emergency Flood Insurance Map" means an official map on which the Administrator has delineated one or more areas eligible for the sale of insurance under the Emergency Flood Insurance Program.

"Emergency Flood Insurance Program" or "emergency program" means the National Flood Insurance Program authorized by the Act, as implemented on an emergency basis and without the need for individual community ratemaking studies, in accordance with section 1336 of the Act, 42 U.S.C. 4056.

"Flood" or "flooding" means a general and temporary condition of partial or complete inundation of normally dry land areas from the overflow of streams, rivers, or other inland water, or abnormally high tidal waters or rising coastal waters proximately caused by severe storms, hurricanes, or tsunamis. It also includes collapse or subsidence of land along the shore of a lake or other body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels.

"Flood Hazard Boundary Map" means an official map or plat of a community, issued or approved by the Administrator, on which the boundaries of the flood plain and/or mudslide areas having special hazards have been drawn. This map must conform to the Special Flood Hazard Map and be of sufficient scale and clarity to permit the ready identification of individual building sites as either within or without the area having special flood hazards.

"Flood insurance" means insurance coverage for both floods and mudslides under the program.

"Flood Insurance Rate Map" means an official map of a community, on which the Administrator has delineated the area in which flood insurance may be sold under the regular flood insurance pro

gram and the actuarial rate zones applicable to such area.

"Flood plain" or "flood-prone area" means a land area adjoining a river, stream, watercourse, ocean, bay, or lake, which is likely to be flooded.

"Flood plain area having special flood hazards" means that maximum area of the flood plain that, on the average, is likely to be flooded once every 100 years (i.e., that has a 1-percent chance of being flooded each year).

"Flood plain management" means the operation of an overall program of corrective and preventive measures for reducing flood damage, including but not limited to emergency preparedness plans, flood control works, and land use and control measures.

"Floodproofing" means any combination of structural and nonstructural additions, changes, or adjustments to properties and structures which reduce or eliminate flood damage to lands, water and sanitary facilities, structures, and contents of buildings.

"Floodway" means the channel of a river or other watercourse and the adjacent land areas required to carry and discharge a flood of a given magnitude.

"Floodway encroachment lines" means the lines marking the limits of floodways on official Federal, State, and local flood plain maps.

"Insurance adjustment organization" means any organization or person engaged in the business of adjusting loss claims arising under insurance policies issued by an insurance company or other insurer.

"Insurance company" or "insurer" means any person or organization authorized to engage in the insurance business under the laws of any State.

"Land use and control measures" means zoning ordinances, subdivision regulations, building codes, health regulations, and other applications and extensions of the normal police power, to provide standards and effective enforcement provisions for the prudent use and occupancy of flood-prone and mudslide

areas.

"Mudslide" means a general and temporary movement down a slope of a mass of rock or soil, artificial fill, or a combination of these materials, caused or precipitated by the accumulation of water on or under the ground.

"Mudslide area" or "mudslide-prone area" means an area characterized by unstable slopes and land surfaces, whose

history, geology, soil and bedrock structure, and climate indicate a potential for mudslides.

"Mudslide area having special mudslide hazards" means a mudslide area with a high potential for mudslides.

"Mudslide area management" means the operation of an overall program of corrective and preventive measures for reducing mudslide damage, including but not limited to emergency preparedness plans, mudslide control works, and land use and control measures.

"National Flood Insurers Association" is the Association sponsoring the industry flood insurance pool formed in accordance with sections 1331 and 1332 of the Act (see "Agreement" and "Association"). The Association headquarters is located at 160 Water Street, New York, NY 10038.

"100-year flood" means the highest level of flooding that, on the average, is likely to occur once every 100 years (i.e., that has a 1-percent chance of occurring each year).

"Person" includes any individual or group of individuals, corporation, partnership, association, or any other organized group of persons, including State and local governments and agencies thereof.

"Policy" means the Standard Flood Insurance policy.

"Policyholder premium" means the total insurance premium payable by the insured for the coverage or coverages provided under the policy. The calculation of the policyholder premium may be based upon either chargeable rates or actuarial rates, or a combination of both.

"Program" means the overall National Flood Insurance Program authorized by the Act, including its required coordination with land management programs in flood-prone areas under both the 1968 Act (regular program) and the 1969 amendment adding section 1336 (emergency program) to the Act.

"Secretary" means the Secretary of Housing and Urban Development.

"Special Flood Hazard Map" means the official map designated by the Administrator to identify (a) flood plain areas having special flood hazards, and/ or (b) mudslide areas having special mudslide hazards.

"Standard Flood Insurance Policy" means a standard contract or policy by means of which flood insurance coverage under the program is made available to an insured by the Association. The form

of the policy, as well as its terms and conditions, is approved by the administrator and is uniform with respect to all areas.

"Start of construction” means the first placement of permanent construction on a site, such as the pouring of slabs or footings or any work beyond the stage of excavation. For a structure without a basement or poured footings, the start of construction includes the first permanent framing or assembly of the structure or any part thereof on its pilings or foundation, or the affixing of any prefabricated structure or mobile home to its permanent site. Permanent construction does not include land preparation, land clearing, grading, filling; excavation for basement, footings, piers, or foundations; erection of temporary forms; the installation of piling under proposed subsurface footings; installation of sewer, gas, and water pipes, or electric or other service lines from the street; or existence on the property of accessory buildings, such as garages or sheds not occupied as dwelling units or not a part of the main structure.

"State" means the several States, the District of Columbia, the territories and possessions, the Commonwealth of Puerto Rico, and the Trust Territory of the Pacific Islands.

"Structure" means a building which is used for residential, business, agricultural, or religious purposes, or which is occupied by a private nonprofit organization, or which is owned by a State or local government or an agency thereof. The term includes a building while in the course of construction, alteration or repair, but does not include building materials or supplies intended for use in such construction, alteration, or repair, unless such materials or supplies are within an enclosed building on the premises.

"Substantial improvement” means any repair, reconstruction, or improvement of a structure, the cost of which equals or exceeds 50 percent of the actual cash value of the structure either (a) before the improvement is started, or (b) if the structure has been damaged and is being restored, before the damage occurred. Substantial improvement is started when the first alteration of any structural part of the building commences.

"Water surface elevation" means the heights in relation to Mean Sea Level expected to be reached by floods of various magnitudes and frequencies at perti