Terrorism Risk Insurance Program; Updated Regulations in Light of the Terrorism Risk Insurance Program Reauthorization Act of 2019, and for Other Purposes, 71588-71593 [2020-24522]

Download as PDF 71588 Federal Register / Vol. 85, No. 218 / Tuesday, November 10, 2020 / Proposed Rules September 24, 2019 (84 FR 50152) is withdrawn. Sunita Lough, Deputy Commissioner for Services and Enforcement. [FR Doc. 2020–24026 Filed 11–5–20; 4:15 pm] BILLING CODE 4830–01–P DEPARTMENT OF THE TREASURY 31 CFR Part 50 Terrorism Risk Insurance Program; Updated Regulations in Light of the Terrorism Risk Insurance Program Reauthorization Act of 2019, and for Other Purposes Departmental Offices, Department of the Treasury. ACTION: Notice of proposed rulemaking and request for comments. AGENCY: The Department of the Treasury (Treasury) is issuing proposed rules to implement technical changes to the Terrorism Risk Insurance Program (TRIP or Program) required by the Terrorism Risk Insurance Program Reauthorization Act of 2019 (2019 Reauthorization Act), and to update links to the Program’s website, where additional information relating to the administration of the Program is located for public reference. In addition, Treasury is proposing rules to: Clarify the manner in which Treasury will calculate ‘‘property and casualty insurance losses’’ for purposes of considering certification of an act of terrorism, and ‘‘insured losses’’ when administering the financial sharing mechanisms under the Program, including the Program Trigger and Program Cap; and incorporate into the Program rules prior guidance provided by Treasury in connection with standalone cyber insurance under the Program. Treasury also seeks further public comment concerning the certification process under the Program, and the participation of captive insurers in the Program, to facilitate further analysis and study by the Federal Insurance Office (FIO) of the Program and potential future rulemakings in these areas. DATES: Comments must be in writing and received by January 11, 2021. Early submissions are encouraged. ADDRESSES: Please submit comments electronically through the Federal eRulemaking Portal: https:// www.regulations.gov, or by mail (if hard copy, preferably an original and two copies) to the Federal Insurance Office, Attention: Richard Ifft, Room 1410 MT, jbell on DSKJLSW7X2PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 16:51 Nov 09, 2020 Jkt 253001 Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 20220. Because postal mail may be subject to processing delay, it is recommended that comments be submitted electronically. All comments should be captioned with ‘‘2019 TRIA Reauthorization Proposed Rules Comments.’’ Please include your name, organizational affiliation, address, email address and telephone number in your comment. Where appropriate, a comment should include a short Executive Summary (no more than five single-spaced pages). In general, comments received will be posted on https://www.regulations.gov without change, including any business or personal information provided. Comments received, including attachments and other supporting materials, will be part of the public record and subject to public disclosure. Do not enclose any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure. FOR FURTHER INFORMATION CONTACT: Richard Ifft, Senior Insurance Regulatory Policy Analyst, Federal Insurance Office, 202–622–2922, or Lindsey Baldwin, Senior Insurance Regulatory Policy Analyst, Federal Insurance Office, 202–622–3220. SUPPLEMENTARY INFORMATION: I. Background The Terrorism Risk Insurance Act (TRIA) 1 was enacted following the attacks on September 11, 2001 to address disruptions in the market for terrorism risk insurance, to help ensure the continued availability and affordability of commercial property and casualty insurance for terrorism risk, and to help private markets stabilize and build insurance capacity to absorb any future losses for terrorism events. TRIA requires insurers to ‘‘make available’’ terrorism risk insurance for commercial property and casualty losses resulting from certified acts of terrorism (insured losses) and provides for shared public and private compensation for such insured losses. Under TRIA, the Secretary of the Treasury administers the Program, with the assistance of FIO. The Program was originally scheduled to terminate on December 31, 2005, but it was extended several times between 2005 and 2015.2 Most recently, on December 20, 2019, President Trump 1 15 U.S.C. 6701 note. Risk Insurance Extension Act of 2005, Public Law 109–144, 119 Stat. 2660; Terrorism Risk Insurance Program Reauthorization Act of 2007, Public Law 110–160, 121 Stat.1839; Terrorism Risk Insurance Program Reauthorization Act of 2015, Public Law 114–1, 129 Stat. 3. 2 Terrorism PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 signed into law the 2019 Reauthorization Act.3 Section 502 of that Act extends the Program’s termination date to December 31, 2027. The risk-sharing mechanisms for calendar year 2020 remain constant for the entire reauthorization period, and are not modified by the 2019 Reauthorization Act.4 Treasury is issuing this notice of proposed rulemaking to align certain dates in the Program regulations with the 2019 Reauthorization Act. Treasury is also taking this opportunity to update links to the Program website in the regulations. Treasury is also proposing several changes in response to a recent report by the Government Accountability Office (GAO) addressing certain sources of risk and uncertainty related to the Program.5 In the report, GAO indicated that, based upon its engagement with stakeholders during the preparation of the report, some uncertainty may exist about how Treasury would factor in policyholder retention amounts in calculating ‘‘property and casualty insurance losses’’ versus ‘‘insured losses’’ to determine the Program certification threshold, Program Trigger, and Program Cap.6 GAO recommended that Treasury provide further clarification to ‘‘prevent uncertainty in the insurance market and potential litigation following a terrorist event that could delay insurance payments and economic recovery.’’ 7 Treasury agrees that the reduction of uncertainty is an important goal. Accordingly, Treasury proposes certain rule changes designed to clarify how Treasury will apply these defined terms to effectuate the intent and goals of the Program. Treasury is also proposing certain changes based on previous Treasury guidance regarding cyber coverage. In December 2016, Treasury issued interim guidance confirming that certain standalone cyber coverage written in a TRIPeligible line of insurance was within the scope of the Program, such that insurers were obligated to adhere to the ‘‘make available’’ and disclosure requirements under TRIA for such coverage.8 3 Public Law 116–94, 133 Stat. 2534, Title V. sec. 103(e)(1)(B)(vi). 5 GAO, Terrorism Risk Insurance: Program Changes Have Reduced Federal Fiscal Exposure (GAO–20–348) (April 2020), https://www.gao.gov/ assets/710/706243.pdf. 6 Id. at 18–19. 7 Id. at 19. 8 Guidance Concerning Stand-Alone Cyber Liability Insurance Policies Under the Terrorism Risk Insurance Program, 81 FR 95312 (Dec. 27, 2016) (Cyber Guidance), https:// www.federalregister.gov/documents/2016/12/27/ 2016-31244/guidance-concerning-stand-alone4 TRIA, E:\FR\FM\10NOP1.SGM 10NOP1 Federal Register / Vol. 85, No. 218 / Tuesday, November 10, 2020 / Proposed Rules Treasury is proposing certain definitional changes to incorporate the cyber coverage guidance in the Program regulations. While Treasury seeks comments from interested parties and the public on all aspects of the proposed rules, it particularly seeks comments on issues related to the certification process and the participation of captive insurers in the Program. Comments received will inform additional analyses concerning the Program and potential future rulemakings. Treasury has determined to further review these topics partly in response to a May 2020 report 9 issued by the Advisory Committee on RiskSharing Mechanisms (ACRSM), which was established under the 2015 Reauthorization Act to provide advice, recommendations, and encouragement to Treasury for the creation and development of non-governmental, private market risk-sharing mechanisms to protect against losses arising from acts of terrorism.10 The ACRSM Report identifies a number of Program areas for further action and study by Treasury, including Treasury’s existing rules governing the certification process as well as the participation within TRIP of captive insurers and other alternative carrier mechanisms.11 The changes are explained below in the context of the proposed rules. jbell on DSKJLSW7X2PROD with PROPOSALS II. Program Regulations Rules establishing general provisions implementing the Program, including key definitions, and requirements for policy disclosures and mandatory availability, can be found in Subparts A, B, and C of 31 CFR part 50. Treasury’s rules applying provisions of the Act to state residual market insurance entities and state workers’ compensation funds are located at Subpart D of 31 CFR part 50. Rules addressing Treasury’s data collection authorities are found at Subpart F of 31 CFR part 50. Subpart G of 31 CFR part 50 contains the Program’s certification regulations. Rules setting forth procedures for filing cyber-liability-insurance-policies-under-theterrorism-risk. 9 Advisory Committee on Risk-Sharing Mechanisms, Initial Report of the Committee (May 11, 2020) (ACRSM Report), https:// home.treasury.gov/system/files/311/5-20-ACRSMReport-Final.pdf. 10 Terrorism Risk Insurance Program Reauthorization Act of 2015, Public Law 114–1, 129 Stat. 3, § 110. 11 In addition, GAO issued a separate report in April 2020 in which it recommended that Treasury consider further changes to the rules governing the certification process. See GAO, Terrorism Risk Insurance: Market is Stable but Treasury Could Strengthen Communications about Its Processes (GAO–20–364) (April 2020), https://www.gao.gov/ assets/710/706252.pdf. VerDate Sep<11>2014 16:51 Nov 09, 2020 Jkt 253001 claims for payment of the Federal share of compensation for insured losses are found at Subpart H of 31 CFR part 50. Subpart I of 31 CFR part 50 contains rules on audit and recordkeeping requirements for insurers, while Subpart J of 31 CFR part 50 addresses recoupment and surcharge procedures. Finally, Subpart K of 31 CFR part 50 contains rules implementing the litigation management provisions of TRIA, and Subpart L of 31 CFR part 50 addresses rules concerning the cap on annual liability under TRIA.12 III. The Proposed Rules This proposed rulemaking would revise 31 CFR part 50 to incorporate new dates pursuant to the 2019 Reauthorization Act. The proposed rules also provide an updated link to the Program’s website. Finally, the proposed rules identify certain changes designed to clarify how Treasury will apply certain defined terms to effectuate the intent and goals of the Program and incorporate Treasury’s prior guidance concerning stand-alone cyber coverage. B. Description of the Proposed Rules The changes to the existing rules at 31 CFR part 50 as provided for in these proposed rules, on a section-by-section basis, are as follows: Subpart A—General Provisions Section 50.1—Authority, purpose, and scope. The proposed change adds the 2019 Reauthorization Act to the statutory authority for the Program. Section 50.4—Definitions The proposed change to Section 50.4(b)(2)(ii) adds a sentence to the end of the subsection to clarify that, for purposes of calculating the threshold that must be reached before the Secretary may certify an act of terrorism, ‘‘property and casualty insurance losses’’ include amounts that are ultimately payable by the policyholder, as long as they arise under an insurance policy subject to the Program. ‘‘Property and casualty insurance losses’’ is thus broader than insured loss, as it is not limited to amounts ‘‘covered’’ under the policy. It includes all losses arising from claims associated with TRIP-eligible lines policies, whether or not the policyholder obtained terrorism risk coverage under that policy, or if the 12 To assist insurers, policyholders, and other interested parties in complying with immediately applicable requirements of TRIA, Treasury has also issued interim guidance to be relied upon by insurers until superseded by regulations. PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 71589 losses in question ultimately will be paid by the policyholder. The $5 million certification threshold in TRIA is based upon ‘‘property and casualty insurance losses,’’ a term that is not defined under the statute. By contrast, TRIA defines the term insured loss, which governs the calculation of the Program Trigger and the Program Cap, as ‘‘any loss resulting from an act of terrorism . . . that is covered by primary or excess property and casualty insurance issued by an insurer[.]’’ 13 The term property and casualty insurance is also defined under TRIA, and refers to all insurance subject to the Program.14 Treasury also commonly refers to property and casualty insurance as the ‘‘TRIP-eligible lines of insurance.’’ In practice, the certification analysis needed to accurately assess the size of an event involves calculating all losses associated with property and casualty insurance policies, regardless of whether the policyholder obtained terrorism risk coverage within the policy. The calculated amount would also include, for example, policy deductibles or fronting arrangements, even though the financial loss associated with these components will ultimately fall on the policyholder.15 Accordingly, Treasury proposes to add language to Section 50.4(b)(2)(ii) to clarify that, for purposes of the certification analysis, ‘‘property and casualty insurance losses’’ include any losses associated with a property and casualty insurance policy, even if those losses are ultimately payable by the policyholder. The proposed change to the definition of insured loss in Section 50.4(n) would add subsection (3)(iv) to clarify that insured loss does not include amounts that are paid by the policyholder under property and casualty insurance policies. An insured loss under TRIA governs payments under the Program, including application of the Program Trigger and Program Cap. As noted above, it is defined as ‘‘any loss resulting from an act of terrorism . . . that is covered by primary or excess property and casualty insurance issued by an insurer[.]’’ 16 Insured losses ‘‘covered’’ means insured losses paid by insurers under insurance 13 TRIA, sec. 102(5). sec. 102(11). 15 Treasury also addressed the potential parameters of the ‘‘property and casualty insurance losses’’ language in its 2015 report, The Process for Certifying an ‘‘Act of Terrorism’’ Under the Terrorism Risk Insurance Act of 2002 (Certification Report), at 6 (https://www.treasury.gov/resourcecenter/fin-mkts/Documents/TRIP_Certification_ Report.pdf). 16 TRIA, sec. 102(5). 14 TRIA, E:\FR\FM\10NOP1.SGM 10NOP1 71590 Federal Register / Vol. 85, No. 218 / Tuesday, November 10, 2020 / Proposed Rules jbell on DSKJLSW7X2PROD with PROPOSALS policies within the scope of the Program. This reading is consistent with TRIA’s intent, which is to provide a backstop for the losses of insurance companies. There is no mechanism under TRIA for policyholders to recover ‘‘insured losses’’ from Treasury.17 If the insured loss of an insurer included the obligations of its policyholders, it could permit an insurer to achieve a double recovery of its losses.18 Although the insured loss definition under TRIA does not expressly exclude a deductible under a policy for which the policyholder will be responsible, such a deductible would not be ‘‘covered’’ by the insurer unless the policyholder failed to pay it.19 TRIA bases the Federal share payment upon ‘‘all payments made for insured losses’’ by the insurer.20 Therefore, for purposes of the Program Trigger and Program Cap, TRIA contemplates an insured loss definition that is limited to the actual losses sustained by the participating insurers. Accordingly, Treasury proposes to add a new subsection (3)(iv) to Section 50.4(n) to clarify that insured loss does not include amounts paid by policyholders as part of their retained obligations under TRIP-eligible lines policies subject to the Program. The proposed change to Section 50.4(w) would incorporate into the Program rules the guidance provided by Treasury in December 2016. That guidance stated that stand-alone cyber liability insurance is subject to the Program, unless it is otherwise identified for state reporting purposes as a type of insurance that is not property and casualty insurance under the Program. In the guidance, Treasury also noted the uncertainty presented in some circumstances as to whether cyber liability insurance is within the scope of 17 See, e.g., TRIA, sec. 103(e)(1)(A) (‘‘The Federal share of compensation under the Program to be paid by the Secretary for insured losses of an insurer ’’) (Emphasis added.). 18 Id., sec. 103(e)(1)(C) (prohibiting duplicative compensation where the Federal Government has through another program already provided compensation for the insured losses in question). 19 Insurance practices may make the insurer responsible for payment of a policy deductible to a third party, with the policyholder subject to the insurer’s claim for reimbursement of the deductible amount. By contrast, the policyholder must satisfy a self-insured retention obligation before any obligation on the part of the insurer is triggered under the policy. Thus, this issue would be limited to policyholder deductibles and not self-insured retentions, which could not be considered ‘‘property and casualty insurance issued by an insurer.’’ If an insurer paid a deductible that was not reimbursed by the policyholder (because of financial responsibility issues), Treasury could view such a payment as being within the definition of ‘‘insured loss’’ under ‘‘property and casualty insurance issued by an insurer.’’ 20 TRIA, sec. 103(b)(5)(B)(ii). VerDate Sep<11>2014 16:51 Nov 09, 2020 Jkt 253001 the Program, since it is often written as professional liability insurance, which is a type of insurance expressly excluded from TRIP.21 Treasury observed, however, that the National Association of Insurance Commissioners (NAIC) had recently identified, for state purposes, an insurance product called ‘‘Cyber Liability’’ within the general scope of the Other Liability line of insurance, which is generally subject to the Program.22 Given that this is a type of insurance 23 within a line of insurance subject to the Program, and is not otherwise excluded in any fashion, Treasury confirmed in its guidance that such stand-alone cyber liability insurance is subject to the Program, and instructed participating insurers (to the extent they were not doing so already) to conform to the ‘‘make available’’ and disclosure requirements of TRIA with respect to such policies. Since the TRIA compliance periods identified in the guidance have now passed, there is no need to further modify the Program Rules to address the timing of when TRIA requirements for such insurance must be met. Section 50.6—Special Rules for Interim Guidance Safe Harbors The proposed change to Section 50.6(b) updates the reference to the Program’s website to the current address and deletes specific reference to nowobsolete prior Interim Guidance. Subpart B—Disclosures as Conditions for Federal Payment Section 50.16—Use of Model Forms The proposed change to Section 50.16 updates the reference to the Program’s website to the current address. Subpart C—Mandatory Availability Section 50.20—General Mandatory Availability Requirements The proposed change provides that participating insurers must now comply with the ‘‘make available’’ requirement through December 31, 2027, as distinguished from December 31, 2020, given the Program extension provided for under the 2019 Reauthorization Act. 21 TRIA, sec. 102(11); see Cyber Guidance, 81 FR 95312–13. 22 Cyber Guidance, 81 FR 95313; see NAIC, Uniform Property & Casualty Product Coding Matrix (effective Jan. 1, 2020), 10, https:// www.naic.org/documents/industry_pcm_p_c_ 2020.pdf. 23 In one place in the Cyber Guidance, standalone cyber liability insurance was identified as, for reporting purposes, a sub-line of insurance within Other Liability, which is not the case, and the proposed rule does not incorporate such language. PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 Subpart D—State Residual Market Insurance Entities; Workers’ Compensation Funds Section 50.30—General Participation Requirements The proposed change to Section 50.30 updates the reference to the Program’s website to the current address. Subpart E—Self-Insurance Arrangements; Captives [Reserved] Treasury continues to reserve Subpart E for future additional rules addressing the participation of self-insurance arrangements and captive insurers in TRIP. Treasury poses a number of questions below concerning the participation of captive insurers in the Program, as to which it seeks comments from the public. Subpart F—Data Collection There are no proposed changes to Subpart F. Subpart G—Certification There are no proposed changes to Subpart G. Treasury poses a number of questions below concerning Treasury’s certification process under its existing rules, as to which it seeks comments from the public. Subpart H—Claims Procedures Section 50.74—Payment of Federal Share of Compensation The proposed change to Section 50.74 updates the reference to the Program’s website to the current address. Subpart I—Audit and Investigative Procedures Section 50.83—Adjustment of Civil Monetary Penalty Amount The proposed change to Section 50.83 updates the reference to the Program’s website to the current address. Subpart J—Recoupment and Surcharge Procedures Section 50.90—Mandatory and Discretionary Recoupment The proposed change to Section 50.90 identifies the new dates by which Treasury must collect mandatory recoupment amounts under the 2019 Reauthorization Act. Subpart K—Federal Cause of Action; Approval of Settlements Section 50.103—Procedure for Requesting Approval of Proposed Settlements The proposed change to Section 50.103 updates the reference to the Program’s website to the current address. E:\FR\FM\10NOP1.SGM 10NOP1 Federal Register / Vol. 85, No. 218 / Tuesday, November 10, 2020 / Proposed Rules Subpart L—Cap on Annual Liability There are no proposed changes to Subpart L. IV. Request for Comments Concerning Certification Process and Captive Insurers FIO periodically issues reports and proposes regulations to address and improve the efficiency and effectiveness of the administration of the Program. FIO has also received recommendations from the ACRSM on certain issues. In its May 2020 report, the ACRSM made a number of suggestions concerning the certification process under TRIA, including matters concerning the treatment of cyber incidents, a potential petitioning procedure for a certification process, and further adjustment of the existing timeframes in the Program rules associated with the certification process.24 Treasury invites the public to comment on the following issues: Program’s Treatment of Cyber Events Outside the United States TRIA is generally limited (subject to certain defined exceptions) to acts of terrorism that ‘‘result[ ] in damage within the United States.’’ 25 The ACRSM has asked that FIO evaluate whether ‘‘cyber incidents that occur outside the U.S. with damage outside the U.S., but with impacts both inside and outside the U.S.’’ could be eligible for certification under the Program. We request comment on: (a) Whether cyber events outside the United States can inflict cyber-related losses within the United States that qualify as ‘‘damage within the United States’’ for purposes of TRIA; (b) To the extent such cyber events can be said to inflict losses that qualify as ‘‘damage within the United States,’’ whether such losses may also be subject to compensation under the terrorism risk insurance pools or arrangements of other jurisdictions; and (c) How Treasury could evaluate such losses representing ‘‘damage within the United States’’ from a certification standpoint, particularly if the causative cyber events in question take place outside the United States. jbell on DSKJLSW7X2PROD with PROPOSALS Certification Process The ACRSM recommended that Treasury establish a petitioning procedure under the Program rules that would permit third parties to request that Treasury commence a certification process under its rules. We request comment on: 24 ACRSM Report, 6, 27. VerDate Sep<11>2014 16:51 Nov 09, 2020 Jkt 253001 (a) How such a procedure could be established consistent with TRIA; (b) What types of parties should be permitted to make such a petition to Treasury; and (c) The information that a prospective petitioner should be required to submit to inform Treasury that the certification requirements of TRIA have been met, including but not limited to whether property and casualty insurance losses have met the $5 million certification threshold. The ACRSM also recommended that Treasury consider whether the existing time periods and notification requirements under the certification process should be modified. Treasury invites comment on this proposal, while noting that it has previously acknowledged the difficulty of using prescriptive time periods or requirements in connection with the certification process.26 We request comment on: (a) How different time periods or notification requirements under the certification process could affect the administration of the Program and the terrorism risk insurance market; and (b) How any modifications to the existing time periods or notification requirements would be consistent with the flexibility that Treasury has previously indicated it needs for certification under various circumstances. Captive Insurers Prior Treasury studies concerning the effectiveness of the Program have noted, in connection with analysis of the results of modeled loss questions posed by Treasury, that captive insurers have been projected to receive benefits in connection with those hypothetical loss events that are proportionally larger than those received by other insurance industry segments.27 In addition, the ACRSM Report provides an example of how losses of a similar size could be reimbursed for such insurers as compared with conventional insurers that have a much larger direct earned premium base from which Program deductibles are calculated, and 27 See Treasury, Report on the Effectiveness of the Terrorism Risk Insurance Program (June 2018), 47– 53, https://home.treasury.gov/system/files/311/ 2018_TRIP_Effectiveness_Report.pdf; Treasury, Report on the Effectiveness of the Terrorism Risk Insurance Program (June 2020), 49–55, https:// home.treasury.gov/system/files/311/2020-TRIPEffectiveness-Report.pdf. Based upon the information available to FIO, this is likely because although captive insurers may insure large exposures of their policyholders, they tend to have smaller deductibles under the Program because of the small amount of their overall TRIP-eligible lines premiums. PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 71591 recommends that Treasury provide further transparency concerning the participation of captive insurers in the Program.28 We request comment on: (1) With respect to captive insurers: (a) Whether, in light of the size and operation of captive insurers and the current structure of TRIP, captive insurers are likely to obtain larger payments under the Program in a large loss event as compared to traditional insurers that assume similar risk exposures; (b) Whether there are administrative rule changes that could be made to the Program rules and administration for captive insurers that would result in recovery percentages for captive insurers that may be more consistent with those indicated in modeled loss analyses for other industry segments; (c) Whether the Program should attribute some amount of captive parent revenues to captive insurers for TRIP deductible calculation purposes; and (d) Whether changes to the Program structure for captive insurers could prevent policyholders (who may be unable to obtain terrorism risk insurance in the conventional market for a reasonable price) from obtaining such insurance from captive insurers. (2) Whether FIO should make public financial information regarding participating captive insurers, taking into account whether this additional transparency would be beneficial to the terrorism risk insurance market and the administration of TRIP. We request comment on: (a) The information that should and should not be made available to the public; (b) The reasons for making (or not making) this type of information available to the public; (c) Whether the publication of information on an individual company basis is consistent with the provisions of TRIA stating that Treasury should only obtain information from participating insurers in an anonymized fashion, and otherwise providing for the confidentiality of the information submitted; 29 and (d) How making information publicly available concerning captive insurers could address, if at all, the issues presented by potentially disproportionate recoveries by captive insurers under TRIP, or otherwise assist FIO in the administration of the Program. (3) Any other issues regarding the participation of captive insurers in TRIP. 28 ACRSM 29 TRIA, E:\FR\FM\10NOP1.SGM Report, 6, 19–20. sec. 104(h)(3), (5). 10NOP1 71592 Federal Register / Vol. 85, No. 218 / Tuesday, November 10, 2020 / Proposed Rules V. Procedural Requirements Executive Order 12866, ‘‘Regulatory Planning and Review.’’ This proposed 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, if promulgated, will have a ‘‘significant economic impact on a substantial number of small entities.’’ 5 U.S.C. 605(b). In this case, Treasury certifies that this proposed rule, if adopted, would not have a significant economic impact on a substantial number of small entities, because the changes it proposes 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 proposed rule. Treasury continues to submit to OMB for review, under the requirements of the Paperwork Reduction Act, 44 U.S.C. 3507(d), material changes to existing collection requirements. List of Subjects in 31 CFR Part 50 Insurance, Terrorism. For the reasons stated in the preamble, the Department of the Treasury proposes to amend 31 CFR part 50 as follows: PART 50—TERRORISM RISK INSURANCE PROGRAM 1. The authority citation for part 50 is revised to read as follows: ■ Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107–297, 116 Stat. 2322, as amended by Pub. L. 109–144, 119 Stat. 2660, Pub. L. 110–160, 121 Stat. 1839, Pub. L. 114– 1, 129 Stat. 3, Pub. L. 116–94, 133 Stat. 2534 (15 U.S.C. 6701 note), Pub. L. 114–74, 129 Stat. 601, Title VII (28 U.S.C. 2461 note). 2. Amend § 50.1 by revising paragraph (a) as follows: ■ jbell on DSKJLSW7X2PROD with PROPOSALS § 50.1 Authority, purpose, and scope. (a) Authority. This part is issued pursuant to authority in Title I of the Terrorism Risk Insurance Act of 2002, Public Law 107–297, 116 Stat. 2322, as amended by the Terrorism Risk Insurance Extension Act of 2005, Public Law 109–144, 119 Stat. 2660, the Terrorism Risk Insurance Program Reauthorization Act of 2007, Public Law 110–160, 121 Stat. 1839, the Terrorism Risk Insurance Program Reauthorization Act of 2015, Public Law 114–1, 129 Stat. 3, and the Terrorism Risk Insurance VerDate Sep<11>2014 16:51 Nov 09, 2020 Jkt 253001 Program Reauthorization Act of 2019, Public Law 116–94, 133 Stat. 2534. * * * * * ■ 3. Amend § 50.4 by revising paragraphs (b)(2)(ii), (n)(3), (w)(1) and (w)(2) as follows: financial-institutions-and-fiscal-service/ federal-insurance-office/terrorism-riskinsurance-program. ■ 5. Amend § 50.16 by revising paragraph (c) as follows: § 50.4 * Definitions. * * * * * (b) * * * (2) * * * (ii) Property and casualty insurance losses resulting from the act, in the aggregate, do not exceed $5,000,000. For these purposes, property and casualty insurance losses include any amounts subject to payment under a property and casualty insurance policy, even if the policyholder declined to obtain terrorism risk insurance under the policy or is otherwise ultimately responsible for the payment. * * * * * (n) * * * (3) * * * (iii) Payments by an insurer in excess of policy limits; or (iv) Amounts paid by a policyholder as required under the terms and conditions of property and casualty insurance issued by an insurer. * * * * * (w) * * * (1) Means commercial lines within only the following lines of insurance from the NAIC’s Exhibit of Premiums and Losses (commonly known as Statutory Page 14): Line 1—Fire; Line 2.1—Allied Lines; Line 5.1— Commercial Multiple Peril (non-liability portion); Line 5.2—Commercial Multiple Peril (liability portion); Line 8—Ocean Marine; Line 9—Inland Marine; Line 16—Workers’ Compensation; Line 17—Other Liability; Line 18—Products Liability; Line 22— Aircraft (all perils); and Line 27—Boiler and Machinery; a stand-alone cyber liability policy falling within Line 17— Other Liability, is property and casualty insurance, so long as it is not otherwise identified for state reporting purposes as a policy that is not property and casualty insurance, such as professional liability insurance. (2) Property and casualty insurance does not include: * * * * * ■ 4. Amend § 50.6 by revising paragraph (b) as follows: § 50.6 Special rules for Interim Guidance safe harbors. * * * * * (b) For purposes of this section, any Interim Guidance will be posted by Treasury at https://home.treasury.gov/ policy-issues/financial-markets- PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 § 50.16 Use of model forms. * * * * (c) Definitions. For purposes of this section, references to NAIC Model Disclosure Form No. 1 and NAIC Model Disclosure Form No. 2 refer to such forms as revised in March 2020, or as subsequently modified by the NAIC, provided that Treasury has stated that usage by insurers of any such subsequently modified forms is deemed to satisfy the disclosure requirements of the Act and that the insurer uses the most current forms, so approved by Treasury, that are available at the time of disclosure. These forms may be found on the Treasury website at https:// home.treasury.gov/policy-issues/ financial-markets-financial-institutionsand-fiscal-service/federal-insuranceoffice/terrorism-risk-insurance-program. ■ 6. Amend § 50.20 by revising paragraphs (b) and (c) as follows: § 50.20 General mandatory availability requirements. * * * * * (b) Compliance through 2027. Under section 108(a) of the Act, an insurer must comply with paragraphs (a)(1) and (2) of this section through calendar year 2027. (c) Beyond 2027. Notwithstanding paragraph (a)(2) of this section and § 50.22(a), property and casualty insurance coverage for insured losses does not have to be made available beyond December 31, 2027, even if the policy period of insurance coverage for losses from events other than acts of terrorism extends beyond that date. ■ 7. Amend § 50.30 by revising paragraph (c) as follows: § 50.30 General participation requirements. * * * * * (c) Identification. Treasury maintains a list of state residual market insurance entities and state workers’ compensation funds at https:// home.treasury.gov/policy-issues/ financial-markets-financial-institutionsand-fiscal-service/federal-insuranceoffice/terrorism-risk-insurance-program. Procedures for providing comments and updates to that list are posted with the list. ■ 8. Amend § 50.74 by revising paragraph (b) as follows: § 50.74 Payment of Federal share of compensation. * E:\FR\FM\10NOP1.SGM * * 10NOP1 * * Federal Register / Vol. 85, No. 218 / Tuesday, November 10, 2020 / Proposed Rules (b) Payment process. Payment of the Federal share of compensation for insured losses will be made to the insurer designated on the Notice of Deductible Erosion required by § 50.72. An insurer that requests payment of the Federal share of compensation for insured losses must receive payment through electronic funds transfer. The insurer must establish either an account for reimbursement as described in paragraph (c) of this section (if the insurer only seeks reimbursement) or a segregated account as described in paragraph (d) of this section (if the insurer seeks advance payments or a combination of advance payments and reimbursement). Applicable procedures will be posted at https:// home.treasury.gov/policy-issues/ financial-markets-financial-institutionsand-fiscal-service/federal-insuranceoffice/terrorism-risk-insurance-program or otherwise will be made publicly available. * * * * * ■ 9. Amend § 50.83 by revising paragraph (b) as follows: percent of any required amounts by September 30, 2024, and the remainder by September 30, 2029; and (3) For any act of terrorism that occurs on or after January 1, 2024, the Secretary shall collect all required amounts by September 30, 2029. ■ 11. Amend § 50.103 by revising paragraph (a) as follows: § 50.83 Adjustment of civil monetary penalty amount. Dated: October 30, 2020. Jonathan Greenstein, Deputy Assistant Secretary for Financial Institutions Policy. * * * * * (b) Annual adjustment. The maximum penalty amount that may be assessed under this section will be adjusted in accordance with the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, 28 U.S.C. 2461 note, by January 15 of each year and the updated amount will be posted in the Federal Register and on the Treasury website at https:// home.treasury.gov/policy-issues/ financial-markets-financial-institutionsand-fiscal-service/federal-insuranceoffice/terrorism-risk-insurance-program. ■ 10. Amend § 50.90 by revising paragraph (c) as follows: § 50.90 Mandatory and discretionary recoupment. jbell on DSKJLSW7X2PROD with PROPOSALS * * * * * (c) If the Secretary imposes a Federal terrorism policy surcharge as provided in paragraph (a) of this section, then the required amounts, based upon the extent to which payments for the Federal share of compensation have been made by the collection deadlines in section 103(e)(7)(E) of the Act, shall be collected in accordance with such deadlines: (1) For any act of terrorism that occurs on or before December 31, 2022, the Secretary shall collect all required amounts by September 30, 2024; (2) For any act of terrorism that occurs between January 1 and December 31, 2023, the Secretary shall collect 35 VerDate Sep<11>2014 16:51 Nov 09, 2020 Jkt 253001 § 50.103 Procedure for requesting approval of proposed settlements. (a) Submission of notice. Insurers must request advance approval of a proposed settlement by submitting a notice of the proposed settlement and other required information in writing to the Terrorism Risk Insurance Program Office or its designated representative. The address where notices are to be submitted will be available at https:// home.treasury.gov/policy-issues/ financial-markets-financial-institutionsand-fiscal-service/federal-insuranceoffice/terrorism-risk-insurance-program following any certification of an act of terrorism pursuant to section 102(1) of the Act. * * * * * [FR Doc. 2020–24522 Filed 11–9–20; 8:45 am] BILLING CODE P FEDERAL COMMUNICATIONS COMMISSION 47 CFR Part 1 [MD Docket Ns. 20–105; FCC 20–120; FRS 17210] Assessment and Collection of Regulatory Fees for Fiscal Year 2020 Federal Communications Commission. ACTION: Proposed rule. AGENCY: In this document, the Federal Communications Commission (Commission) seeks comment on several regulatory fee issues impacting international services. DATES: Submit comments on or before December 10, 2020; and reply comments December 28, 2020. ADDRESSES: Pursuant to §§ 1.415 and 1.419 of the Commission’s rules, 47 CFR 1.415, 1.419, interested parties may file comments and reply comments identified by MD Docket No. 20–105, by any of the following methods below. Comments and reply comments may be filed using the Commission’s Electronic Comment Filing System (ECFS). See SUMMARY: PO 00000 Frm 00014 Fmt 4702 Sfmt 4702 71593 Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998). • Electronic Filers: Comments may be filed electronically using the internet by accessing the ECFS: https://apps.fcc.gov/ ecfs/. • Paper Filers: Parties who choose to file by paper must file an original and one copy of each filing. Filings can be sent by commercial overnight courier, or by first-class or overnight U.S. Postal Service mail. All filings must be addressed to the Commission’s Secretary, Office of the Secretary, Federal Communications Commission. • Commercial overnight mail (other than U.S. Postal Service Express Mail and Priority Mail) must be sent to 9050 Junction Drive, Annapolis Junction, MD 20701. • U.S. Postal Service first-class, Express, and Priority mail must be addressed to 445 12th Street SW, Washington DC 20554. • Effective March 19, 2020, and until further notice, the Commission no longer accepts any hand or messenger delivered filings. This is a temporary measure taken to help protect the health and safety of individuals, and to mitigate the transmission of COVID–19. See FCC Announces Closure of FCC Headquarters Open Window and Change in Hand-Delivery Policy, Public Notice, DA 20–304 (March 19, 2020). https://www.fcc.gov/document/fcccloses-headquarters-open-window-andchanges-hand-delivery-policy • During the time the Commission’s building is closed to the general public and until further notice, if more than one docket or rulemaking number appears in the caption of a proceeding, paper filers need not submit two additional copies for each additional docket or rulemaking number; an original and one copy are sufficient. FOR FURTHER INFORMATION CONTACT: Roland Helvajian, Office of Managing Director at (202) 418–0444. SUPPLEMENTARY INFORMATION: This is a summary of the Commission’s Further Notice of Proposed Rulemaking ((Further Notice)), FCC 20–120, MD Docket No. 20–105, adopted and released on August 31, 2020. The full text of this document is available for public inspection on the Commission’s website at https://docs.fcc.gov/public/ attachments/FCC-20-120A1.pdf. This document is available in alternative formats (computer diskette, large print, audio record, and braille). Persons with disabilities who need documents in these formats may contact the FCC by email: FCC504@fcc.gov or phone: 202– 418–0530 or TTY: 202–418–0432. E:\FR\FM\10NOP1.SGM 10NOP1

Agencies

DEPARTMENT OF THE TREASURY

[Federal Register Volume 85, Number 218 (Tuesday, November 10, 2020)]
[Proposed Rules]
[Pages 71588-71593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24522]

=======================================================================
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DEPARTMENT OF THE TREASURY

31 CFR Part 50

Terrorism Risk Insurance Program; Updated Regulations in Light of
the Terrorism Risk Insurance Program Reauthorization Act of 2019, and
for Other Purposes

AGENCY: Departmental Offices, Department of the Treasury.

ACTION: Notice of proposed rulemaking and request for comments.

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SUMMARY: The Department of the Treasury (Treasury) is issuing proposed
rules to implement technical changes to the Terrorism Risk Insurance
Program (TRIP or Program) required by the Terrorism Risk Insurance
Program Reauthorization Act of 2019 (2019 Reauthorization Act), and to
update links to the Program's website, where additional information
relating to the administration of the Program is located for public
reference. In addition, Treasury is proposing rules to: Clarify the
manner in which Treasury will calculate ``property and casualty
insurance losses'' for purposes of considering certification of an act
of terrorism, and ``insured losses'' when administering the financial
sharing mechanisms under the Program, including the Program Trigger and
Program Cap; and incorporate into the Program rules prior guidance
provided by Treasury in connection with stand-alone cyber insurance
under the Program. Treasury also seeks further public comment
concerning the certification process under the Program, and the
participation of captive insurers in the Program, to facilitate further
analysis and study by the Federal Insurance Office (FIO) of the Program
and potential future rulemakings in these areas.

DATES: Comments must be in writing and received by January 11, 2021.
Early submissions are encouraged.

ADDRESSES: Please submit comments electronically through the Federal
eRulemaking Portal: https://www.regulations.gov, or by mail (if hard
copy, preferably an original and two copies) to the Federal Insurance
Office, Attention: Richard Ifft, Room 1410 MT, Department of the
Treasury, 1500 Pennsylvania Avenue NW, Washington, DC 20220. Because
postal mail may be subject to processing delay, it is recommended that
comments be submitted electronically. All comments should be captioned
with ``2019 TRIA Reauthorization Proposed Rules Comments.'' Please
include your name, organizational affiliation, address, email address
and telephone number in your comment. Where appropriate, a comment
should include a short Executive Summary (no more than five single-
spaced pages).
In general, comments received will be posted on https://www.regulations.gov without change, including any business or personal
information provided. Comments received, including attachments and
other supporting materials, will be part of the public record and
subject to public disclosure. Do not enclose any information in your
comment or supporting materials that you consider confidential or
inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: Richard Ifft, Senior Insurance
Regulatory Policy Analyst, Federal Insurance Office, 202-622-2922, or
Lindsey Baldwin, Senior Insurance Regulatory Policy Analyst, Federal
Insurance Office, 202-622-3220.

SUPPLEMENTARY INFORMATION:

I. Background

The Terrorism Risk Insurance Act (TRIA) \1\ was enacted following
the attacks on September 11, 2001 to address disruptions in the market
for terrorism risk insurance, to help ensure the continued availability
and affordability of commercial property and casualty insurance for
terrorism risk, and to help private markets stabilize and build
insurance capacity to absorb any future losses for terrorism events.
TRIA requires insurers to ``make available'' terrorism risk insurance
for commercial property and casualty losses resulting from certified
acts of terrorism (insured losses) and provides for shared public and
private compensation for such insured losses. Under TRIA, the Secretary
of the Treasury administers the Program, with the assistance of FIO.
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\1\ 15 U.S.C. 6701 note.
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The Program was originally scheduled to terminate on December 31,
2005, but it was extended several times between 2005 and 2015.\2\ Most
recently, on December 20, 2019, President Trump signed into law the
2019 Reauthorization Act.\3\ Section 502 of that Act extends the
Program's termination date to December 31, 2027. The risk-sharing
mechanisms for calendar year 2020 remain constant for the entire
reauthorization period, and are not modified by the 2019
Reauthorization Act.\4\
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\2\ Terrorism Risk Insurance Extension Act of 2005, Public Law
109-144, 119 Stat. 2660; Terrorism Risk Insurance Program
Reauthorization Act of 2007, Public Law 110-160, 121 Stat.1839;
Terrorism Risk Insurance Program Reauthorization Act of 2015, Public
Law 114-1, 129 Stat. 3.
\3\ Public Law 116-94, 133 Stat. 2534, Title V.
\4\ TRIA, sec. 103(e)(1)(B)(vi).
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Treasury is issuing this notice of proposed rulemaking to align
certain dates in the Program regulations with the 2019 Reauthorization
Act. Treasury is also taking this opportunity to update links to the
Program website in the regulations.
Treasury is also proposing several changes in response to a recent
report by the Government Accountability Office (GAO) addressing certain
sources of risk and uncertainty related to the Program.\5\ In the
report, GAO indicated that, based upon its engagement with stakeholders
during the preparation of the report, some uncertainty may exist about
how Treasury would factor in policyholder retention amounts in
calculating ``property and casualty insurance losses'' versus ``insured
losses'' to determine the Program certification threshold, Program
Trigger, and Program Cap.\6\ GAO recommended that Treasury provide
further clarification to ``prevent uncertainty in the insurance market
and potential litigation following a terrorist event that could delay
insurance payments and economic recovery.'' \7\ Treasury agrees that
the reduction of uncertainty is an important goal. Accordingly,
Treasury proposes certain rule changes designed to clarify how Treasury
will apply these defined terms to effectuate the intent and goals of
the Program.
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\5\ GAO, Terrorism Risk Insurance: Program Changes Have Reduced
Federal Fiscal Exposure (GAO-20-348) (April 2020), https://www.gao.gov/assets/710/706243.pdf.
\6\ Id. at 18-19.
\7\ Id. at 19.
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Treasury is also proposing certain changes based on previous
Treasury guidance regarding cyber coverage. In December 2016, Treasury
issued interim guidance confirming that certain stand-alone cyber
coverage written in a TRIP-eligible line of insurance was within the
scope of the Program, such that insurers were obligated to adhere to
the ``make available'' and disclosure requirements under TRIA for such
coverage.\8\

[[Page 71589]]

Treasury is proposing certain definitional changes to incorporate the
cyber coverage guidance in the Program regulations.
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\8\ Guidance Concerning Stand-Alone Cyber Liability Insurance
Policies Under the Terrorism Risk Insurance Program, 81 FR 95312
(Dec. 27, 2016) (Cyber Guidance), https://www.federalregister.gov/documents/2016/12/27/2016-31244/guidance-concerning-stand-alone-cyber-liability-insurance-policies-under-the-terrorism-risk.
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While Treasury seeks comments from interested parties and the
public on all aspects of the proposed rules, it particularly seeks
comments on issues related to the certification process and the
participation of captive insurers in the Program. Comments received
will inform additional analyses concerning the Program and potential
future rulemakings. Treasury has determined to further review these
topics partly in response to a May 2020 report \9\ issued by the
Advisory Committee on Risk-Sharing Mechanisms (ACRSM), which was
established under the 2015 Reauthorization Act to provide advice,
recommendations, and encouragement to Treasury for the creation and
development of non-governmental, private market risk-sharing mechanisms
to protect against losses arising from acts of terrorism.\10\ The ACRSM
Report identifies a number of Program areas for further action and
study by Treasury, including Treasury's existing rules governing the
certification process as well as the participation within TRIP of
captive insurers and other alternative carrier mechanisms.\11\
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\9\ Advisory Committee on Risk-Sharing Mechanisms, Initial
Report of the Committee (May 11, 2020) (ACRSM Report), https://home.treasury.gov/system/files/311/5-20-ACRSM-Report-Final.pdf.
\10\ Terrorism Risk Insurance Program Reauthorization Act of
2015, Public Law 114-1, 129 Stat. 3, Sec. 110.
\11\ In addition, GAO issued a separate report in April 2020 in
which it recommended that Treasury consider further changes to the
rules governing the certification process. See GAO, Terrorism Risk
Insurance: Market is Stable but Treasury Could Strengthen
Communications about Its Processes (GAO-20-364) (April 2020),
https://www.gao.gov/assets/710/706252.pdf.
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The changes are explained below in the context of the proposed
rules.

II. Program Regulations

Rules establishing general provisions implementing the Program,
including key definitions, and requirements for policy disclosures and
mandatory availability, can be found in Subparts A, B, and C of 31 CFR
part 50. Treasury's rules applying provisions of the Act to state
residual market insurance entities and state workers' compensation
funds are located at Subpart D of 31 CFR part 50. Rules addressing
Treasury's data collection authorities are found at Subpart F of 31 CFR
part 50. Subpart G of 31 CFR part 50 contains the Program's
certification regulations. Rules setting forth procedures for filing
claims for payment of the Federal share of compensation for insured
losses are found at Subpart H of 31 CFR part 50. Subpart I of 31 CFR
part 50 contains rules on audit and recordkeeping requirements for
insurers, while Subpart J of 31 CFR part 50 addresses recoupment and
surcharge procedures. Finally, Subpart K of 31 CFR part 50 contains
rules implementing the litigation management provisions of TRIA, and
Subpart L of 31 CFR part 50 addresses rules concerning the cap on
annual liability under TRIA.\12\
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\12\ To assist insurers, policyholders, and other interested
parties in complying with immediately applicable requirements of
TRIA, Treasury has also issued interim guidance to be relied upon by
insurers until superseded by regulations.
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III. The Proposed Rules

This proposed rulemaking would revise 31 CFR part 50 to incorporate
new dates pursuant to the 2019 Reauthorization Act. The proposed rules
also provide an updated link to the Program's website. Finally, the
proposed rules identify certain changes designed to clarify how
Treasury will apply certain defined terms to effectuate the intent and
goals of the Program and incorporate Treasury's prior guidance
concerning stand-alone cyber coverage.

B. Description of the Proposed Rules

The changes to the existing rules at 31 CFR part 50 as provided for
in these proposed rules, on a section-by-section basis, are as follows:
Subpart A--General Provisions
Section 50.1--Authority, purpose, and scope.
The proposed change adds the 2019 Reauthorization Act to the
statutory authority for the Program.
Section 50.4--Definitions
The proposed change to Section 50.4(b)(2)(ii) adds a sentence to
the end of the subsection to clarify that, for purposes of calculating
the threshold that must be reached before the Secretary may certify an
act of terrorism, ``property and casualty insurance losses'' include
amounts that are ultimately payable by the policyholder, as long as
they arise under an insurance policy subject to the Program. ``Property
and casualty insurance losses'' is thus broader than insured loss, as
it is not limited to amounts ``covered'' under the policy. It includes
all losses arising from claims associated with TRIP-eligible lines
policies, whether or not the policyholder obtained terrorism risk
coverage under that policy, or if the losses in question ultimately
will be paid by the policyholder.
The $5 million certification threshold in TRIA is based upon
``property and casualty insurance losses,'' a term that is not defined
under the statute. By contrast, TRIA defines the term insured loss,
which governs the calculation of the Program Trigger and the Program
Cap, as ``any loss resulting from an act of terrorism . . . that is
covered by primary or excess property and casualty insurance issued by
an insurer[.]'' \13\ The term property and casualty insurance is also
defined under TRIA, and refers to all insurance subject to the
Program.\14\ Treasury also commonly refers to property and casualty
insurance as the ``TRIP-eligible lines of insurance.''
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\13\ TRIA, sec. 102(5).
\14\ TRIA, sec. 102(11).
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In practice, the certification analysis needed to accurately assess
the size of an event involves calculating all losses associated with
property and casualty insurance policies, regardless of whether the
policyholder obtained terrorism risk coverage within the policy. The
calculated amount would also include, for example, policy deductibles
or fronting arrangements, even though the financial loss associated
with these components will ultimately fall on the policyholder.\15\
Accordingly, Treasury proposes to add language to Section
50.4(b)(2)(ii) to clarify that, for purposes of the certification
analysis, ``property and casualty insurance losses'' include any losses
associated with a property and casualty insurance policy, even if those
losses are ultimately payable by the policyholder.
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\15\ Treasury also addressed the potential parameters of the
``property and casualty insurance losses'' language in its 2015
report, The Process for Certifying an ``Act of Terrorism'' Under the
Terrorism Risk Insurance Act of 2002 (Certification Report), at 6
(https://www.treasury.gov/resource-center/fin-mkts/Documents/TRIP_Certification_Report.pdf).
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The proposed change to the definition of insured loss in Section
50.4(n) would add subsection (3)(iv) to clarify that insured loss does
not include amounts that are paid by the policyholder under property
and casualty insurance policies.
An insured loss under TRIA governs payments under the Program,
including application of the Program Trigger and Program Cap. As noted
above, it is defined as ``any loss resulting from an act of terrorism .
. . that is covered by primary or excess property and casualty
insurance issued by an insurer[.]'' \16\ Insured losses ``covered''
means insured losses paid by insurers under insurance

[[Page 71590]]

policies within the scope of the Program. This reading is consistent
with TRIA's intent, which is to provide a backstop for the losses of
insurance companies. There is no mechanism under TRIA for policyholders
to recover ``insured losses'' from Treasury.\17\ If the insured loss of
an insurer included the obligations of its policyholders, it could
permit an insurer to achieve a double recovery of its losses.\18\
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\16\ TRIA, sec. 102(5).
\17\ See, e.g., TRIA, sec. 103(e)(1)(A) (``The Federal share of
compensation under the Program to be paid by the Secretary for
insured losses of an insurer '') (Emphasis added.).
\18\ Id., sec. 103(e)(1)(C) (prohibiting duplicative
compensation where the Federal Government has through another
program already provided compensation for the insured losses in
question).
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Although the insured loss definition under TRIA does not expressly
exclude a deductible under a policy for which the policyholder will be
responsible, such a deductible would not be ``covered'' by the insurer
unless the policyholder failed to pay it.\19\ TRIA bases the Federal
share payment upon ``all payments made for insured losses'' by the
insurer.\20\ Therefore, for purposes of the Program Trigger and Program
Cap, TRIA contemplates an insured loss definition that is limited to
the actual losses sustained by the participating insurers. Accordingly,
Treasury proposes to add a new subsection (3)(iv) to Section 50.4(n) to
clarify that insured loss does not include amounts paid by
policyholders as part of their retained obligations under TRIP-eligible
lines policies subject to the Program.
---------------------------------------------------------------------------

\19\ Insurance practices may make the insurer responsible for
payment of a policy deductible to a third party, with the
policyholder subject to the insurer's claim for reimbursement of the
deductible amount. By contrast, the policyholder must satisfy a
self-insured retention obligation before any obligation on the part
of the insurer is triggered under the policy. Thus, this issue would
be limited to policyholder deductibles and not self-insured
retentions, which could not be considered ``property and casualty
insurance issued by an insurer.'' If an insurer paid a deductible
that was not reimbursed by the policyholder (because of financial
responsibility issues), Treasury could view such a payment as being
within the definition of ``insured loss'' under ``property and
casualty insurance issued by an insurer.''
\20\ TRIA, sec. 103(b)(5)(B)(ii).
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The proposed change to Section 50.4(w) would incorporate into the
Program rules the guidance provided by Treasury in December 2016. That
guidance stated that stand-alone cyber liability insurance is subject
to the Program, unless it is otherwise identified for state reporting
purposes as a type of insurance that is not property and casualty
insurance under the Program. In the guidance, Treasury also noted the
uncertainty presented in some circumstances as to whether cyber
liability insurance is within the scope of the Program, since it is
often written as professional liability insurance, which is a type of
insurance expressly excluded from TRIP.\21\ Treasury observed, however,
that the National Association of Insurance Commissioners (NAIC) had
recently identified, for state purposes, an insurance product called
``Cyber Liability'' within the general scope of the Other Liability
line of insurance, which is generally subject to the Program.\22\
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\21\ TRIA, sec. 102(11); see Cyber Guidance, 81 FR 95312-13.
\22\ Cyber Guidance, 81 FR 95313; see NAIC, Uniform Property &
Casualty Product Coding Matrix (effective Jan. 1, 2020), 10, https://www.naic.org/documents/industry_pcm_p_c_2020.pdf.
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Given that this is a type of insurance \23\ within a line of
insurance subject to the Program, and is not otherwise excluded in any
fashion, Treasury confirmed in its guidance that such stand-alone cyber
liability insurance is subject to the Program, and instructed
participating insurers (to the extent they were not doing so already)
to conform to the ``make available'' and disclosure requirements of
TRIA with respect to such policies. Since the TRIA compliance periods
identified in the guidance have now passed, there is no need to further
modify the Program Rules to address the timing of when TRIA
requirements for such insurance must be met.
---------------------------------------------------------------------------

\23\ In one place in the Cyber Guidance, stand-alone cyber
liability insurance was identified as, for reporting purposes, a
sub-line of insurance within Other Liability, which is not the case,
and the proposed rule does not incorporate such language.
---------------------------------------------------------------------------

Section 50.6--Special Rules for Interim Guidance Safe Harbors
The proposed change to Section 50.6(b) updates the reference to the
Program's website to the current address and deletes specific reference
to now-obsolete prior Interim Guidance.
Subpart B--Disclosures as Conditions for Federal Payment
Section 50.16--Use of Model Forms
The proposed change to Section 50.16 updates the reference to the
Program's website to the current address.
Subpart C--Mandatory Availability
Section 50.20--General Mandatory Availability Requirements
The proposed change provides that participating insurers must now
comply with the ``make available'' requirement through December 31,
2027, as distinguished from December 31, 2020, given the Program
extension provided for under the 2019 Reauthorization Act.
Subpart D--State Residual Market Insurance Entities; Workers'
Compensation Funds
Section 50.30--General Participation Requirements
The proposed change to Section 50.30 updates the reference to the
Program's website to the current address.
Subpart E--Self-Insurance Arrangements; Captives [Reserved]
Treasury continues to reserve Subpart E for future additional rules
addressing the participation of self-insurance arrangements and captive
insurers in TRIP. Treasury poses a number of questions below concerning
the participation of captive insurers in the Program, as to which it
seeks comments from the public.
Subpart F--Data Collection
There are no proposed changes to Subpart F.
Subpart G--Certification
There are no proposed changes to Subpart G. Treasury poses a number
of questions below concerning Treasury's certification process under
its existing rules, as to which it seeks comments from the public.
Subpart H--Claims Procedures
Section 50.74--Payment of Federal Share of Compensation
The proposed change to Section 50.74 updates the reference to the
Program's website to the current address.
Subpart I--Audit and Investigative Procedures
Section 50.83--Adjustment of Civil Monetary Penalty Amount
The proposed change to Section 50.83 updates the reference to the
Program's website to the current address.
Subpart J--Recoupment and Surcharge Procedures
Section 50.90--Mandatory and Discretionary Recoupment
The proposed change to Section 50.90 identifies the new dates by
which Treasury must collect mandatory recoupment amounts under the 2019
Reauthorization Act.
Subpart K--Federal Cause of Action; Approval of Settlements
Section 50.103--Procedure for Requesting Approval of Proposed
Settlements
The proposed change to Section 50.103 updates the reference to the
Program's website to the current address.

[[Page 71591]]

Subpart L--Cap on Annual Liability
There are no proposed changes to Subpart L.

IV. Request for Comments Concerning Certification Process and Captive
Insurers

FIO periodically issues reports and proposes regulations to address
and improve the efficiency and effectiveness of the administration of
the Program.
FIO has also received recommendations from the ACRSM on certain
issues. In its May 2020 report, the ACRSM made a number of suggestions
concerning the certification process under TRIA, including matters
concerning the treatment of cyber incidents, a potential petitioning
procedure for a certification process, and further adjustment of the
existing timeframes in the Program rules associated with the
certification process.\24\ Treasury invites the public to comment on
the following issues:
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\24\ ACRSM Report, 6, 27.
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Program's Treatment of Cyber Events Outside the United States

TRIA is generally limited (subject to certain defined exceptions)
to acts of terrorism that ``result[ ] in damage within the United
States.'' ²⁵ The ACRSM has asked that FIO evaluate whether
``cyber incidents that occur outside the U.S. with damage outside the
U.S., but with impacts both inside and outside the U.S.'' could be
eligible for certification under the Program. We request comment on:
(a) Whether cyber events outside the United States can inflict
cyber-related losses within the United States that qualify as ``damage
within the United States'' for purposes of TRIA;
(b) To the extent such cyber events can be said to inflict losses
that qualify as ``damage within the United States,'' whether such
losses may also be subject to compensation under the terrorism risk
insurance pools or arrangements of other jurisdictions; and
(c) How Treasury could evaluate such losses representing ``damage
within the United States'' from a certification standpoint,
particularly if the causative cyber events in question take place
outside the United States.

Certification Process

The ACRSM recommended that Treasury establish a petitioning
procedure under the Program rules that would permit third parties to
request that Treasury commence a certification process under its rules.
We request comment on:
(a) How such a procedure could be established consistent with TRIA;
(b) What types of parties should be permitted to make such a
petition to Treasury; and
(c) The information that a prospective petitioner should be
required to submit to inform Treasury that the certification
requirements of TRIA have been met, including but not limited to
whether property and casualty insurance losses have met the $5 million
certification threshold.
The ACRSM also recommended that Treasury consider whether the
existing time periods and notification requirements under the
certification process should be modified. Treasury invites comment on
this proposal, while noting that it has previously acknowledged the
difficulty of using prescriptive time periods or requirements in
connection with the certification process.²⁶ We request
comment on:
(a) How different time periods or notification requirements under
the certification process could affect the administration of the
Program and the terrorism risk insurance market; and
(b) How any modifications to the existing time periods or
notification requirements would be consistent with the flexibility that
Treasury has previously indicated it needs for certification under
various circumstances.

Captive Insurers

Prior Treasury studies concerning the effectiveness of the Program
have noted, in connection with analysis of the results of modeled loss
questions posed by Treasury, that captive insurers have been projected
to receive benefits in connection with those hypothetical loss events
that are proportionally larger than those received by other insurance
industry segments.\27\ In addition, the ACRSM Report provides an
example of how losses of a similar size could be reimbursed for such
insurers as compared with conventional insurers that have a much larger
direct earned premium base from which Program deductibles are
calculated, and recommends that Treasury provide further transparency
concerning the participation of captive insurers in the Program.\28\ We
request comment on:
---------------------------------------------------------------------------

\27\ See Treasury, Report on the Effectiveness of the Terrorism
Risk Insurance Program (June 2018), 47-53, https://home.treasury.gov/system/files/311/2018_TRIP_Effectiveness_Report.pdf; Treasury, Report on the
Effectiveness of the Terrorism Risk Insurance Program (June 2020),
49-55, https://home.treasury.gov/system/files/311/2020-TRIP-Effectiveness-Report.pdf. Based upon the information available to
FIO, this is likely because although captive insurers may insure
large exposures of their policyholders, they tend to have smaller
deductibles under the Program because of the small amount of their
overall TRIP-eligible lines premiums.
\28\ ACRSM Report, 6, 19-20.
---------------------------------------------------------------------------

(1) With respect to captive insurers:
(a) Whether, in light of the size and operation of captive insurers
and the current structure of TRIP, captive insurers are likely to
obtain larger payments under the Program in a large loss event as
compared to traditional insurers that assume similar risk exposures;
(b) Whether there are administrative rule changes that could be
made to the Program rules and administration for captive insurers that
would result in recovery percentages for captive insurers that may be
more consistent with those indicated in modeled loss analyses for other
industry segments;
(c) Whether the Program should attribute some amount of captive
parent revenues to captive insurers for TRIP deductible calculation
purposes; and
(d) Whether changes to the Program structure for captive insurers
could prevent policyholders (who may be unable to obtain terrorism risk
insurance in the conventional market for a reasonable price) from
obtaining such insurance from captive insurers.
(2) Whether FIO should make public financial information regarding
participating captive insurers, taking into account whether this
additional transparency would be beneficial to the terrorism risk
insurance market and the administration of TRIP. We request comment on:
(a) The information that should and should not be made available to
the public;
(b) The reasons for making (or not making) this type of information
available to the public;
(c) Whether the publication of information on an individual company
basis is consistent with the provisions of TRIA stating that Treasury
should only obtain information from participating insurers in an
anonymized fashion, and otherwise providing for the confidentiality of
the information submitted; \29\ and
---------------------------------------------------------------------------

\29\ TRIA, sec. 104(h)(3), (5).
---------------------------------------------------------------------------

(d) How making information publicly available concerning captive
insurers could address, if at all, the issues presented by potentially
disproportionate recoveries by captive insurers under TRIP, or
otherwise assist FIO in the administration of the Program.
(3) Any other issues regarding the participation of captive
insurers in TRIP.

[[Page 71592]]

V. Procedural Requirements

Executive Order 12866, ``Regulatory Planning and Review.'' This
proposed 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, if
promulgated, will have a ``significant economic impact on a substantial
number of small entities.'' 5 U.S.C. 605(b). In this case, Treasury
certifies that this proposed rule, if adopted, would not have a
significant economic impact on a substantial number of small entities,
because the changes it proposes 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 proposed rule. Treasury continues to submit to OMB for review,
under the requirements of the Paperwork Reduction Act, 44 U.S.C.
3507(d), material changes to existing collection requirements.

List of Subjects in 31 CFR Part 50

Insurance, Terrorism.

For the reasons stated in the preamble, the Department of the
Treasury proposes to amend 31 CFR part 50 as follows:

PART 50--TERRORISM RISK INSURANCE PROGRAM

0
1. The authority citation for part 50 is revised to read as follows:

Authority: 5 U.S.C. 301; 31 U.S.C. 321; Title I, Pub. L. 107-
297, 116 Stat. 2322, as amended by Pub. L. 109-144, 119 Stat. 2660,
Pub. L. 110-160, 121 Stat. 1839, Pub. L. 114-1, 129 Stat. 3, Pub. L.
116-94, 133 Stat. 2534 (15 U.S.C. 6701 note), Pub. L. 114-74, 129
Stat. 601, Title VII (28 U.S.C. 2461 note).

0
2. Amend Sec. 50.1 by revising paragraph (a) as follows:

Sec. 50.1 Authority, purpose, and scope.

(a) Authority. This part is issued pursuant to authority in Title I
of the Terrorism Risk Insurance Act of 2002, Public Law 107-297, 116
Stat. 2322, as amended by the Terrorism Risk Insurance Extension Act of
2005, Public Law 109-144, 119 Stat. 2660, the Terrorism Risk Insurance
Program Reauthorization Act of 2007, Public Law 110-160, 121 Stat.
1839, the Terrorism Risk Insurance Program Reauthorization Act of 2015,
Public Law 114-1, 129 Stat. 3, and the Terrorism Risk Insurance Program
Reauthorization Act of 2019, Public Law 116-94, 133 Stat. 2534.
* * * * *
0
3. Amend Sec. 50.4 by revising paragraphs (b)(2)(ii), (n)(3), (w)(1)
and (w)(2) as follows:

Sec. 50.4 Definitions.

* * * * *
(b) * * *
(2) * * *
(ii) Property and casualty insurance losses resulting from the act,
in the aggregate, do not exceed $5,000,000. For these purposes,
property and casualty insurance losses include any amounts subject to
payment under a property and casualty insurance policy, even if the
policyholder declined to obtain terrorism risk insurance under the
policy or is otherwise ultimately responsible for the payment.
* * * * *
(n) * * *
(3) * * *
(iii) Payments by an insurer in excess of policy limits; or
(iv) Amounts paid by a policyholder as required under the terms and
conditions of property and casualty insurance issued by an insurer.
* * * * *
(w) * * *
(1) Means commercial lines within only the following lines of
insurance from the NAIC's Exhibit of Premiums and Losses (commonly
known as Statutory Page 14): Line 1--Fire; Line 2.1--Allied Lines; Line
5.1--Commercial Multiple Peril (non-liability portion); Line 5.2--
Commercial Multiple Peril (liability portion); Line 8--Ocean Marine;
Line 9--Inland Marine; Line 16--Workers' Compensation; Line 17--Other
Liability; Line 18--Products Liability; Line 22--Aircraft (all perils);
and Line 27--Boiler and Machinery; a stand-alone cyber liability policy
falling within Line 17--Other Liability, is property and casualty
insurance, so long as it is not otherwise identified for state
reporting purposes as a policy that is not property and casualty
insurance, such as professional liability insurance.
(2) Property and casualty insurance does not include:
* * * * *
0
4. Amend Sec. 50.6 by revising paragraph (b) as follows:

Sec. 50.6 Special rules for Interim Guidance safe harbors.

* * * * *
(b) For purposes of this section, any Interim Guidance will be
posted by Treasury at https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/terrorism-risk-insurance-program.
0
5. Amend Sec. 50.16 by revising paragraph (c) as follows:

Sec. 50.16 Use of model forms.

* * * * *
(c) Definitions. For purposes of this section, references to NAIC
Model Disclosure Form No. 1 and NAIC Model Disclosure Form No. 2 refer
to such forms as revised in March 2020, or as subsequently modified by
the NAIC, provided that Treasury has stated that usage by insurers of
any such subsequently modified forms is deemed to satisfy the
disclosure requirements of the Act and that the insurer uses the most
current forms, so approved by Treasury, that are available at the time
of disclosure. These forms may be found on the Treasury website at
https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/terrorism-risk-insurance-program.
0
6. Amend Sec. 50.20 by revising paragraphs (b) and (c) as follows:

Sec. 50.20 General mandatory availability requirements.

* * * * *
(b) Compliance through 2027. Under section 108(a) of the Act, an
insurer must comply with paragraphs (a)(1) and (2) of this section
through calendar year 2027.
(c) Beyond 2027. Notwithstanding paragraph (a)(2) of this section
and Sec. 50.22(a), property and casualty insurance coverage for
insured losses does not have to be made available beyond December 31,
2027, even if the policy period of insurance coverage for losses from
events other than acts of terrorism extends beyond that date.
0
7. Amend Sec. 50.30 by revising paragraph (c) as follows:

Sec. 50.30 General participation requirements.

* * * * *
(c) Identification. Treasury maintains a list of state residual
market insurance entities and state workers' compensation funds at
https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/terrorism-risk-insurance-program. Procedures for providing comments and updates
to that list are posted with the list.
0
8. Amend Sec. 50.74 by revising paragraph (b) as follows:

Sec. 50.74 Payment of Federal share of compensation.

* * * * *

[[Page 71593]]

(b) Payment process. Payment of the Federal share of compensation
for insured losses will be made to the insurer designated on the Notice
of Deductible Erosion required by Sec. 50.72. An insurer that requests
payment of the Federal share of compensation for insured losses must
receive payment through electronic funds transfer. The insurer must
establish either an account for reimbursement as described in paragraph
(c) of this section (if the insurer only seeks reimbursement) or a
segregated account as described in paragraph (d) of this section (if
the insurer seeks advance payments or a combination of advance payments
and reimbursement). Applicable procedures will be posted at https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/terrorism-risk-insurance-program or otherwise will be made publicly available.
* * * * *
0
9. Amend Sec. 50.83 by revising paragraph (b) as follows:

Sec. 50.83 Adjustment of civil monetary penalty amount.

* * * * *
(b) Annual adjustment. The maximum penalty amount that may be
assessed under this section will be adjusted in accordance with the
Federal Civil Penalties Inflation Adjustment Act Improvements Act of
2015, 28 U.S.C. 2461 note, by January 15 of each year and the updated
amount will be posted in the Federal Register and on the Treasury
website at https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/terrorism-risk-insurance-program.
0
10. Amend Sec. 50.90 by revising paragraph (c) as follows:

Sec. 50.90 Mandatory and discretionary recoupment.

* * * * *
(c) If the Secretary imposes a Federal terrorism policy surcharge
as provided in paragraph (a) of this section, then the required
amounts, based upon the extent to which payments for the Federal share
of compensation have been made by the collection deadlines in section
103(e)(7)(E) of the Act, shall be collected in accordance with such
deadlines:
(1) For any act of terrorism that occurs on or before December 31,
2022, the Secretary shall collect all required amounts by September 30,
2024;
(2) For any act of terrorism that occurs between January 1 and
December 31, 2023, the Secretary shall collect 35 percent of any
required amounts by September 30, 2024, and the remainder by September
30, 2029; and
(3) For any act of terrorism that occurs on or after January 1,
2024, the Secretary shall collect all required amounts by September 30,
2029.
0
11. Amend Sec. 50.103 by revising paragraph (a) as follows:

Sec. 50.103 Procedure for requesting approval of proposed
settlements.

(a) Submission of notice. Insurers must request advance approval of
a proposed settlement by submitting a notice of the proposed settlement
and other required information in writing to the Terrorism Risk
Insurance Program Office or its designated representative. The address
where notices are to be submitted will be available at https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/terrorism-risk-insurance-program following any certification of an act of
terrorism pursuant to section 102(1) of the Act.
* * * * *

Dated: October 30, 2020.
Jonathan Greenstein,
Deputy Assistant Secretary for Financial Institutions Policy.
[FR Doc. 2020-24522 Filed 11-9-20; 8:45 am]
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