Surety Companies Doing Business With the United States, 12003-12016 [2022-03937]
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Federal Register / Vol. 87, No. 42 / Thursday, March 3, 2022 / Proposed Rules
promulgated, would not have a
significant economic impact on a
substantial number of small entities
under the criteria of the Regulatory
Flexibility Act.
FEDERAL TRADE COMMISSION
[File No. R207009]
16 CFR Part 4
Petition for Rulemaking of Institute for
Policy Integrity
Environmental Review
This proposal will be subject to an
environmental analysis in accordance
with FAA Order 1050.1F,
‘‘Environmental Impacts: Policies and
Procedures’’ prior to any FAA final
regulatory action.
Federal Trade Commission.
Receipt of petition; request for
comment.
AGENCY:
ACTION:
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference,
Navigation (air).
The Proposed Amendment
Accordingly, pursuant to the
authority delegated to me, the Federal
Aviation Administration proposes to
amend 14 CFR part 71 as follows:
PART 71—DESIGNATION OF CLASS A,
B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND
REPORTING POINTS
1. The authority citation for 14 CFR
part 71 continues to read as follows:
■
Authority: 49 U.S.C. 106(f), 106(g); 40103,
40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR,
1959–1963 Comp., p. 389.
§ 71.1
[Amended]
2. The incorporation by reference in
14 CFR 71.1 of FAA Order JO 7400.11F,
Airspace Designations and Reporting
Points, dated August 10, 2021, and
effective September 15, 2021, is
amended as follows:
■
Paragraph 6005 Class E Airspace Areas
Extending Upward From 700 Feet or More
Above the Surface of the Earth.
*
*
*
ACE KS E5
*
*
Hugoton, KS [Amended]
khammond on DSKJM1Z7X2PROD with PROPOSALS
Hugoton Municipal Airport, KS
(Lat. 37°09′48″ N, long. 101°22′14″ W)
That airspace extending upward from 700
feet above the surface within a 6.5-mile
radius of Hugoton Municipal Airport.
Issued in Fort Worth, Texas, on February
28, 2022.
Martin A. Skinner,
Acting Manager, Operations Support Group,
ATO Central Service Center.
[FR Doc. 2022–04457 Filed 3–2–22; 8:45 am]
BILLING CODE 4910–13–P
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Please take notice that the
Federal Trade Commission
(‘‘Commission’’) received a petition for
rulemaking from NetChoice, Americans
for Prosperity, Hispanic Leadership
Fund, Innovation Economy Institute,
Institute for Policy Innovation, James
Madison Institute, National Taxpayers
Union, R Street Institute, and Young
Voices, and has published that petition
online at https://www.regulations.gov.
This petition requests that the
Commission’s current rule regarding
disqualification of Commissioners be
amended to also apply to enforcement
proceedings and include specific
procedures on time to respond to
petitions, review by the FTC Ethics
Official and the Commissioners, and
standards for determining recusal. The
Commission invites written comments
concerning the petition. Publication of
this petition is pursuant to the
Commission’s Rules of Practice and
Procedure and does not affect the legal
status of the petition or its final
disposition.
DATES: Comments must identify the
petition docket number and be filed by
April 4, 2022.
ADDRESSES: You may view the petition,
identified by docket number FTC–2022–
0005, and submit written comments
concerning its merits by using the
Federal eRulemaking Portal at https://
www.regulations.gov. Follow the online
instructions for submitting comments.
Do not submit sensitive or confidential
information. You may read background
documents or comments received at
https://www.regulations.gov at any time.
FOR FURTHER INFORMATION CONTACT:
Daniel Freer (phone: 202–326–2663,
email: dfreer@ftc.gov), Office of the
Secretary, Federal Trade Commission,
600 Pennsylvania Avenue NW,
Washington, DC 20580.
SUPPLEMENTARY INFORMATION: Pursuant
to Section 18(a)(1)(B) of the Federal
Trade Commission Act, 15 U.S.C.
57a(1)(B), and FTC Rule 1.31(f), 16 CFR
1.31(f), notice is hereby given that the
above-captioned petition has been filed
with the Secretary of the Commission
and has been placed on the public
record for a period of thirty (30) days.
SUMMARY:
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Any person may submit comments in
support of or in opposition to the
petition. All timely and responsive
comments submitted in connection with
this petition will become part of the
public record.
The Commission will not consider the
petition’s merits until after the comment
period closes. It may grant or deny the
petition in whole or in part, and it may
deem the petition insufficient to warrant
commencement of a rulemaking
proceeding. The purpose of this
document is to facilitate public
comment on the petition to aid the
Commission in determining what, if
any, action to take regarding the request
contained in the petition. This
document is not intended to start, stop,
cancel, or otherwise affect rulemaking
proceedings in any way.
Because your comment will be placed
on the publicly accessible website at
https://www.regulations.gov, you are
solely responsible for making sure your
comment does not include any sensitive
or confidential information. In
particular, your comment should not
include any sensitive personal
information, such as your or anyone
else’s Social Security number; date of
birth; driver’s license number or other
state identification number, or foreign
country equivalent; passport number;
financial account number; or credit or
debit card number. You are also solely
responsible for making sure your
comment does not include any sensitive
health information, such as medical
records or other individually
identifiable health information. In
addition, your comment should not
include any ‘‘trade secret or any
commercial or financial information
which . . . is privileged or
confidential’’—as provided by Section
6(f) of the FTC Act, 15 U.S.C. 46(f), and
FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2).
Authority: 15 U.S.C. 46; 15 U.S.C. 57a; 5
U.S.C. 601 note.
April J. Tabor,
Secretary.
[FR Doc. 2022–04489 Filed 3–2–22; 8:45 am]
BILLING CODE 6750–01–P
DEPARTMENT OF THE TREASURY
Bureau of the Fiscal Service
31 CFR Part 223
RIN 1530–AA20
Surety Companies Doing Business
With the United States
Bureau of the Fiscal Service,
Treasury.
AGENCY:
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Federal Register / Vol. 87, No. 42 / Thursday, March 3, 2022 / Proposed Rules
Notice of proposed rulemaking
with request for comments.
ACTION:
The Department of the
Treasury, Bureau of the Fiscal Service
(Treasury) administers the corporate
Federal surety bond program (the
program). Treasury issues certificates of
authority to qualified sureties to
underwrite and reinsure Federal surety
bond obligations. Treasury also
recognizes qualified companies as
admitted reinsurers who can provide
reinsurance to certified companies
except on Federal surety bonds.
Treasury recognizes an admitted
reinsurer for the purpose of providing
credit to a surety for non-Federal
obligations ceded to an admitted
reinsurer when valuing the assets and
liabilities of a surety for Treasury
certificate purposes, as appropriate.
Treasury is proposing to amend its
regulations to allow for recognition of
additional companies as reinsurers that
are excluded under the current
regulations. Additionally, Treasury
proposes to amend its regulations to
incorporate requirements for surety
companies to submit information that
Treasury uses to perform financial
analysis of these companies, which was
previously published in supplemental
guidance documents. Treasury also
proposes a reorganization of the existing
regulations to modernize and improve
their structure.
DATES: Submit written comments on or
before May 2, 2022.
ADDRESSES: You may submit comments,
identified by docket number FISCAL–
2021–0006, using the following
methods:
• Federal eRulemaking Portal:
(https://www.regulations.gov). Follow
the instructions on the website for
submitting comments.
• Mail: Surety Bond Branch, Bureau
of the Fiscal Service, 200 Third Street,
Room 110, Parkersburg, WV 26106.
Instructions: All submissions received
must refer to Fiscal Service and docket
number FISCAL–2021–0006. In general,
comments received will be published on
www.regulations.gov without change,
including any business or personal
information provided. Do not disclose
any information in your comment or
supporting materials that you consider
confidential or inappropriate for public
disclosure. Comments will not be edited
to remove any identifying or contact
information.
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SUMMARY:
FOR FURTHER INFORMATION CONTACT:
Melvin Saunders, at melvin.saunders@
fiscal.treasury.gov or 304–480–5108;
Bobbi McDonald, bobbi.mcdonald@
fiscal.treasury.gov or 304–480–7098; or
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David Crowe at david.crowe@
fiscal.treasury.gov or 304–480–8971.
SUPPLEMENTARY INFORMATION:
I. Background
Treasury’s Bureau of the Fiscal
Service is responsible for administering
the corporate Federal surety bond
program under the authority of 31
U.S.C. 9304–9308 and 31 CFR part 223
(part 223). Treasury publishes
supplemental guidance on its
requirements in annual letters posted to
its website. Congress delegated to
Treasury the discretion to issue a
certificate of authority to a surety
company if Treasury determines that:
The surety’s articles of incorporation
authorize it to engage in the business of
surety; the company has the requisite
paid-up capital, cash, or equivalent
assets; and the company is able to carry
out its contracts. Treasury issues a
certificate of authority to companies
(‘‘certified sureties’’) to write or reinsure
Federal surety bonds. Additionally,
Treasury recognizes certain companies
as admitted reinsurers, i.e., companies
permitted by Treasury to provide
reinsurance to the certified sureties
except on excess risks that run to the
United States. Treasury publishes
annual lists of companies holding a
certificate of authority and of companies
recognized as admitted reinsurers.
Treasury published a Request for
Information (RFI) on December 30,
2019.1 The RFI sought input from the
public on a variety of topics relating to
Treasury’s evaluation of surety
companies, as well as the operations of
the corporate Federal surety bond
program. These topics included, among
other things, Treasury’s financial
analysis methodology, its rules
regarding credit for reinsurance, and the
documentation it requires to perform its
review of companies seeking
designation and renewal as certified
sureties or admitted reinsurers. The RFI
closed for comments on February 13,
2020. The comments received informed,
in part, Treasury’s decision to develop
and propose this rulemaking.
The Bureau of the Fiscal Service
coordinated closely with Treasury’s
Federal Insurance Office in developing
both the RFI and the following proposed
regulations.
A. Reinsurance
Since the earliest days of the surety
program, Treasury considered an
evaluation of reinsurance to be an
important part of its review and analysis
of surety companies’ abilities to carry
out their contracts. Treasury Circular
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105, dated December 22, 1906,
instituted a limitation on surety
companies that prevented them from
underwriting any risk in excess of 10
percent of their paid-up capital and
surplus unless the amount exceeding
the 10 percent limitation was secured by
‘‘reinsurance to the satisfaction of this
Department.’’ This allowance for
companies with satisfactory reinsurance
applied only to risks running to parties
other than the United States
government; companies were not
permitted to underwrite any Federal
risk in excess of the 10 percent
limitation.
As Treasury’s regulatory requirements
for surety companies became more
thorough, so too did the requirements
regarding reinsurance. Treasury added a
requirement in 1922 that such
companies providing reinsurance file
financial statements with Treasury
annually. In addition to its list of
certified surety companies, Treasury
began publishing different lists of
acceptable reinsurance companies,
specifying which companies could
reinsure Federal risks.
The limitation of risk, and the
protection required when a risk runs to
the United States, endures in part 223
today. Sections 223.10 and 223.11
specify the 10 percent limitation (now
referred to as the underwriting
limitation) and the available methods of
protecting risk in excess of that
limitation. The regulations also require
surety companies to submit quarterly
schedules showing their risks in excess
of the limitation and describing the
protective methods they have taken to
cover their excess risks. A surety
company may only use a company
holding a certificate of authority from
Treasury to reinsure risks in excess of
its underwriting limitation where the
United States is the obligee. For a
Treasury-certified surety to receive
credit for an excess risk on a nonFederal bond ceded to a reinsurer, the
excess risk must be reinsured either by
another certified surety, or by an
admitted reinsurer.
Treasury examines a surety
company’s reinsurance to determine
compliance with the underwriting
limitation provisions of part 223, and as
part of Treasury’s analysis of whether
the company is solvent and able to carry
out its contracts. The provision at 31
CFR 223.9 states that Treasury may
value the assets and liabilities of
companies in its discretion, and notes
that credit for reinsurance will be
allowed to the surety company if the
reinsurer holds a certificate of authority
from Treasury or is recognized by
Treasury as an admitted reinsurer.
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Additionally, Treasury allows credit for
reinsurance ceded to recognized pools
or secured by trust accounts in certain
circumstances. For the surety company
to receive credit for any other
reinsurance, Treasury requires the
reinsurer’s liability to be secured with
approved collateral.
Treasury has not significantly
updated the requirements regarding
reinsurance in part 223 in many years.
In that time, various changes have taken
place in the regulation of insurance that
affect the companies applying to
Treasury for a certificate of authority or
renewal of their certificate. These
include the completion and entry into
force of the Covered Agreements with
the European Union and the United
Kingdom, providing for (among other
things) the elimination of collateral
requirements, under specified
conditions, for reinsurers from those
jurisdictions assuming business from
United States ceding insurers. Relatedly,
in 2011 and 2019, the National
Association of Insurance Commissioners
(NAIC) adopted significant amendments
to its Credit for Reinsurance Model Law
and Model Regulation. These
amendments allow for United States
insurers ceding reinsurance to certain
foreign reinsurers to receive credit for
the ceded reinsurance with reduced or
eliminated collateral requirements.
While these developments do not
directly require changes to the
regulations in part 223, surety
companies have experienced increased
difficulty in complying with Treasury’s
requirements for collateral while also
complying with their state of domicile
regulations and reducing collateral
previously used to secure non-U.S.
reinsurance.
B. Financial Analysis
Prior to 1977, Treasury’s regulations
outlined requirements for how it
evaluated surety companies’ financial
statements, valued assets and liabilities,
reviewed investments, and performed
its financial analysis. In 1977,
Treasury’s approach changed. Treasury
decided it would only publish highlevel requirements in its regulations
and, moving forward, would provide the
more specific guidance regarding its
financial analysis in its annual letters or
other guidance. Since then, the letters
have been issued on an annual basis,
and modified from time-to-time, to
respond to program needs or to
developments in the insurance industry,
as appropriate.
Over time, Treasury’s annual letters
have therefore become the primary
source for companies seeking
information on the surety bond program
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and the process for becoming certified
or admitted to the program. Treasury
intends to amend its regulations to
include the more detailed information
related to its financial analysis of surety
companies previously published in the
annual letters.
Treasury would like to provide
companies, trade associations, and other
members of the public the opportunity
to formally comment on the proposed
changes to the financial analysis and
credit for reinsurance requirements in
the surety bond regulations.
II. Treasury’s Proposed Changes
Treasury proposes to update part 223
in three respects:
1. Update 31 CFR 223.9, 223.11,
223.12, and 223.22 to add two new
categories of reinsurers eligible for
recognition: Complementary reinsurers
and alien reinsurers.
2. Update 31 CFR 223.9 to provide
more detail, previously provided in the
program’s guidance, as to how Treasury
conducts its financial analysis of surety
companies, including the valuation of
assets and liabilities.
3. Make updates to 31 CFR 223.1,
223.2, 223.3, 223.4, 223.5, 223.6, 223.7,
223.8, 223.9, 223.10, 223.11, 223.12,
223.13, 223.14, 223.15, 223.16, 223.17,
223.18, 223.19, 223.20, 223.21, and
223.22. These changes mostly reflect
Treasury’s effort to reorganize part 223
and to ensure it includes more detailed
information for companies applying for
a certificate of authority or recognition
as an admitted reinsurer, or renewal
thereof. As a part of this reorganization,
§§ 223.4, 223.6, 223.13, and 223.14 will
be reserved. These changes also include
technical revisions, such as updating
terminology and website addresses.
Additionally, some of these changes
clarify longstanding Treasury policies
that may have been unclear in the
current regulations or in the annual
letters.
A. New Categories of Recognized
Reinsurance Companies
Treasury proposes to add two new
categories of companies that can receive
recognition from Treasury, provided
they apply for recognition and meet
Treasury’s requirements. The first
would be known as complementary
reinsurers. Complementary reinsurers
must be based in a non-U.S. jurisdiction
that is subject to an in-force Covered
Agreement addressing the elimination,
under specified conditions, of collateral
requirements and must meet other
requirements defined in the proposed
regulations. Certified sureties ceding
reinsurance to companies recognized as
complementary reinsurers would
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12005
receive credit for the ceded reinsurance
without it being secured by collateral.
The second category would be known as
alien reinsurers. These companies must
be based in a jurisdiction that the NAIC
recognizes as a Qualified Jurisdiction or
a Reciprocal Jurisdiction, provided that
the Reciprocal Jurisdiction is not party
to an in-force Covered Agreement.
These companies must also meet other
requirements defined specifically in the
proposed regulations. Certified sureties
ceding reinsurance to companies
recognized as alien reinsurers would be
eligible to receive credit for the ceded
reinsurance to the extent allowed by the
ceding company’s state of domicile.
In addition to receiving credit for
reinsurance ceded to complementary or
alien reinsurers, certified sureties could
rely on complementary reinsurers or
alien reinsurers to reinsure excess risks
not running to the United States.
Treasury believes these new
categories of reinsurers reflect, and are
informed by, developments and risk
management practices that have
occurred or been implemented
internationally or at the state level since
it last significantly updated its
requirements. Treasury’s current
collateral requirements were imposed
due to the importance to the Federal
Government of ensuring that certified
sureties have reliable reinsurance.
While it remains essential that those
companies providing reinsurance to
certified sureties be steadfast in their
ability and willingness to pay when
called upon, Treasury has determined
that a risk-based approach (rather than
an approach strictly favoring U.S.-based
reinsurers)) to credit for reinsurance and
collateral requirements provides
sufficient protection to the Federal
Government. Some insurance trade
associations and companies responding
to Treasury’s RFI pointed out that there
have not been adverse effects for United
States ceding insurers (or their
policyholders) since the U.S. states
began implementing revised NAIC
model law and regulation provisions
allowing reduced collateral for some
non-U.S. reinsurance in 2011.
Supporting this assertion, one company
pointed to data from the NAIC showing
that there has not been an increase in
the amount of uncollectible reinsurance
in the United States since 2010. The
changes that have taken place in the
regulation of reinsurance collateral at
the state level demonstrate that it is
appropriate to evaluate reinsurance
companies based on the financial
strength and market conduct of the
companies themselves, provided they
are from jurisdictions with sufficient
prudential and market conduct
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regulatory regimes. There is thus little
increased risk to the Federal
Government of allowing Treasurycertified sureties to cede reinsurance to
companies from these jurisdictions with
reduced or eliminated collateral that
satisfy the qualifications specified in the
revised rule. Treasury’s proposed
changes will still ensure that companies
able and willing to pay when called
upon will be recognized as being able to
provide reinsurance for certified surety
companies, but the proposed regulations
acknowledge that limiting recognition to
only United States domiciled companies
(and requiring 100 percent collateral
from all other reinsurers) is no longer
the best way to do so.
Treasury’s current collateral
requirements and local presence
requirements are not in alignment with
industry trends and no longer provide
sufficient benefit to the Federal
Government to justify their
restrictiveness. Many companies and
insurance trade associations responding
to the RFI stated that companies have
had difficulty complying with
Treasury’s continued imposition of
100% collateral requirements on ceding
companies’ non-U.S. reinsurance, even
as the ceding companies’ state
regulators began modernizing risk-based
collateral requirements. Treasury has
long considered an evaluation of a
surety company’s entire portfolio of
reinsurance, not just the reinsurance
used to protect Federal risks, to be
critical to its analysis of the surety’s
solvency and ability to carry out its
contracts. Thus, Treasury’s current
requirements essentially give sureties
the choice of reserving capital as
collateral to comply with its
requirements or reducing collateral (as
allowed by their state regulator) with
attendant risk of losing their Treasurycertified status. Accordingly, Treasury’s
proposal to recognize these two new
categories of reinsurers will ease the
regulatory and financial burden on
certified surety companies without
significantly increasing the financial
risk to the Federal Government.
B. Update to Financial Analysis
Methodology
Treasury proposes amending 31 CFR
223.9 to describe in greater detail the
type of financial analysis it performs
and incorporate certain requirements
regarding the valuation of companies’
assets and liabilities, credit for
reinsurance, financial ratios, and other
aspects of the financial analysis. These
revisions to 31 CFR 223.9 reflect
requirements previously published in
the annual letters and supplemental
guidance. Treasury expects that
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publishing these requirements will give
companies greater clarity as to
Treasury’s requirements and policies
moving forward.
C. Reorganization of Part 223 and Other
Changes
As part of its effort to update and
modernize the surety regulations,
Treasury proposes a reorganization of
the provisions contained in part 223.
Current part 223’s structure is largely
unchanged since it was originally
codified into the Code of Federal
Regulations from Treasury circulars.
The current part 223 has similar
requirements, such as baseline
eligibility requirements for obtaining a
certificate of authority, scattered across
sections. A company seeking
information about the requirements for
applying for a certificate of authority
would need to review at least five
different sections in current part 223 as
well as guidance on the surety
program’s website, for example.
Treasury proposes reorganizing part 223
to group similar or related requirements
together and to make the sections of part
223 flow in a more logical order. Under
these revisions, part 223 would list the
requirements for an application for a
certificate of authority in one section.
This proposed reorganization moves
requirements in part 223 without
substantive change. These changes
would also add to part 223 some
existing guidance and instructions from
the program’s website, ensuring that
part 223 could be the primary source of
information for companies seeking
information about the program’s
requirements.
Treasury also proposes changes
throughout part 223 that are mostly
technical in nature. These changes
include updating organizational
references, contact addresses, and
website addresses, and updating
terminology that may be outdated or
confusing. Finally, some of the changes
clarify or state longstanding Treasury
policies that may have been unclear or
unstated in the current part 223, the
annual letters, or elsewhere on the
program’s website.
One such change concerns Treasury’s
policy that any company engaged in
only insuring or reinsuring business of
its parent, affiliated, or controlled
unaffiliated business is not eligible to
obtain a certificate of authority or
recognition as a reinsurer. Such
companies have historically not been
able to provide Treasury with the
financial documentation it requires to
ensure that they are solvent and able to
carry out their contracts. The proposed
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regulations would codify this
longstanding policy.
Another change concerns Treasury’s
issuance of certificates of authority to
certain reinsurers. Treasury historically
has allowed companies to apply for
certificates of authority to act only as
reinsurers on Federal surety bonds,
provided that such reinsurers meet all of
the requirements of certified surety
companies, including the statutory
requirements that the reinsurers be
incorporated in the United States and
submit quarterly financial reports.
Because Treasury has historically
required the reinsurers seeking a
certificate of authority to comply with
all of the requirements, including the
statutory requirements, applicable to
other certified companies, Treasury
intends to amend its regulations to
codify its longstanding interpretation
that certificate-holding reinsurers must
meet the requirements of the surety
statutes.
III. Section by Section Analysis
Section 223.1
Current § 223.1 provides information
about the scope of the regulations
regarding the issuance, renewal, and
revocation of certificates of authority.
Proposed § 223.1 adds a baseline
requirement to be eligible for a
certificate of authority, that a company
that exists primarily to insure or
reinsure business of its parent, affiliated
company, or controlled unaffiliated
business, is not eligible for a certificate
of authority.
Section 223.2
Current § 223.2 provides information
as to how a company can apply for a
certificate of authority. Proposed § 223.2
provides an overview of the information
Treasury requires in an application
package for a new certificate of
authority or renewal of an existing
certificate of authority.
Section 223.3
Current § 223.3 discusses the criteria
for the issuance of a certificate of
authority. Proposed § 223.3 adjusts the
timing of the annual renewal of
certificates of authority, from July to
August. Proposed § 223.3 would also
codify Treasury’s longstanding
interpretation, in view of the statutory
requirement that companies
underwriting Federal surety bonds must
be incorporated in the United States,
that only companies incorporated in the
United States can obtain a certificate of
authority as a reinsuring company on
Federal bonds. Finally, proposed § 223.3
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updates unclear terminology and
phrasing throughout.
Section 223.4
We propose moving the requirement
in existing § 223.4 to § 223.2 as a
requirement for applicants for
certificates of authority. Section 223.4
will be reserved.
Section 223.5
Current § 223.5(a) requires that
companies applying for authority to
write surety bonds must be actively
engaged in surety business. We propose
moving this requirement to § 223.1 as a
baseline eligibility requirement, with a
modification that it applies to
companies engaged in the business of
writing fidelity contracts as well as
surety contracts. Proposed § 223.5 also
updates the list of U.S. territories where
sureties may be licensed.
Section 223.6
We propose that § 223.6 be reserved,
as the current provision is superfluous.
Section 223.7
Current § 223.7 contains a
requirement regarding the investments
of companies seeking or holding a
certificate of authority. We propose
moving this requirement to § 223.9(a), as
it is a requirement regarding the assets
on a company’s financial statements.
Proposed § 223.7 would now codify
provisions from the program’s annual
guidance regarding instances where
companies must notify Treasury of
changes that may have a significant
impact on the companies’ financial
statements or solvency.
Section 223.10
Current § 223.10 defines the
limitation of risk, known as the
underwriting limitation. Proposed
§ 223.10 would also contain a
requirement moved from § 223.13
regarding how Treasury determines the
underwriting limitation. Proposed
§ 223.10 also clarifies Treasury’s
definition of the term ‘‘single risk.’’
Section 223.9
Section 223.11
Current § 223.11(b) provides the
requirements for how a surety company
can use reinsurance to protect excess
risks. Proposed § 223.11(b) is updated to
note that excess risks not running to the
United States can be protected by the
recognized reinsurers in proposed
§ 223.12, below. Proposed § 223.11(b)
updates form titles and terminology.
Proposed § 223.11(c) codifies in
regulation a longstanding Treasury
policy previously published in the
annual letters that collateral used to
secure amounts in excess of a
company’s underwriting limitation
cannot also be used to secure
reinsurance not authorized by Treasury
to obtain credit for reinsurance under
§ 223.9. Proposed § 223.11 also breaks
out and renumbers the paragraphs in
§ 223.11(b) for ease of reading and
clarity. Proposed § 223.11 also updates
unclear language and terminology
throughout.
Current § 223.9 states that Treasury
may value the assets and liabilities of
companies in its discretion. It states that
credit for reinsurance will be granted for
business ceded to other certified
companies or admitted reinsurers.
Proposed § 223.9 would be retitled
‘‘Determination of financial condition
and other required information’’ and
provides greater detail into how
Treasury conducts its financial analysis
Section 223.12
Section 223.12 establishes the
application requirements and standards
for a company to be recognized by
Treasury as an admitted reinsurer for
surety companies doing business with
the United States. Proposed § 223.12
maintains the standards for recognition
as an admitted reinsurer, while
clarifying some existing terminology
and adding the timeframe for
Section 223.8
Current § 223.8 requires that
companies holding a certificate of
authority must submit annual and
quarterly financial statements on the
forms utilized by the NAIC. We propose
moving some of existing § 223.8 to
§ 223.2 as an application requirement.
Proposed § 223.8 contains more detailed
information regarding certified
companies’ quarterly reporting
requirements.
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than is currently provided in § 223.9.
Treasury will still issue supplemental
guidance as needed, but proposed
§ 223.9 would become the primary
source for information as to Treasury’s
current requirements regarding
admissibility of assets, treatment of
securities and investments, ratios,
financial trends, and other important
items from a company’s financial
statements. These changes to § 223.9
largely reflect policies that have been
published for many years in Treasury’s
annual letter. Proposed § 223.9 also
highlights the changes to Treasury’s
approach to credit for reinsurance, in
allowing credit for the two new
categories of recognized reinsurers (in
addition to admitted reinsurers)
discussed in proposed § 223.12, below.
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applications. Proposed § 223.12 adds
two new categories of reinsurers eligible
for recognition: Complementary
reinsurers and alien reinsurers.
To obtain recognition as a
complementary reinsurer, a company
must be from a non-U.S. jurisdiction
that is subject to an in-force Covered
Agreement. The company must also be
recognized by at least one U.S. state as
a Reciprocal Jurisdiction Reinsurer, as
defined by the NAIC Credit for
Reinsurance Model Law and Model
Regulation.
To obtain recognition as an alien
reinsurer, a company must be from a
non-U.S. jurisdiction that is recognized
by the NAIC as a Qualified Jurisdiction
or as a Reciprocal Jurisdiction, provided
the Reciprocal Jurisdiction is not party
to an in-force Covered Agreement. The
company must also be recognized by at
least one state as a Certified Reinsurer
or Reciprocal Jurisdiction Reinsurer, as
those terms are defined by the NAIC, to
obtain recognition by Treasury as an
alien reinsurer. Proposed § 223.12, taken
in concert with proposed § 223.11,
would thus allow a certified surety to
rely on one or more admitted reinsurers,
complementary reinsurers, and/or alien
reinsurers to provide reinsurance for the
surety’s excess risks not running to the
United States, in addition to the other
acceptable methods already described in
§ 223.11. Additionally, proposed
§ 223.12, in concert with proposed
§ 223.9, would recognize that certified
surety companies may obtain credit for
reinsurance for amounts ceded to other
certified companies, admitted
reinsurers, complementary reinsurers,
or alien reinsurers. Under current
§§ 223.12 and 223.9, amounts ceded to
other certified companies and admitted
reinsurers are eligible for full credit
without the posting of collateral. Under
proposed § 223.12, in concert with
Proposed § 223.9, amounts ceded to
complementary reinsurers would also
be eligible for full credit without the
posting of collateral, provided the
amounts were ceded after the
complementary reinsurer has been
recognized by at least one U.S. state
regulator as a Reciprocal Jurisdiction
Reinsurer from a jurisdiction that is
subject to an in-force Covered
Agreement. Under proposed §§ 223.12
and 223.9, amounts ceded to alien
reinsurers would be eligible for credit to
the extent such credit is authorized by
the surety’s state of domicile regulator.
Because some alien reinsurers may be
eligible for full credit for reinsurance
under state law, proposed § 223.12
would also allow amounts ceded to
those reinsurers to be eligible for full
credit without the posting of collateral.
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In reviewing applications for
recognition as an alien reinsurer (or
renewal of such recognition), Treasury
will consider all relevant financial data
to determine if it is appropriate to grant
credit for reinsurance to the full extent
allowed by the ceding company’s state
of domicile. Additionally, proposed
§ 223.9 contains a provision that states
that if Treasury determines that either
the alien reinsurer or the certified surety
may be unable to carry out its
obligations, Treasury may require
additional collateral for ceding
companies to receive credit for
reinsurance to the extent allowed by the
state.
Proposed § 223.12 also codifies
Treasury’s policy that companies that
exist to only reinsure business of their
parent, affiliated, or controlled
unaffiliated business are not eligible for
recognition as a reinsurer under the
program.
Section 223.13
Current § 223.13 requires that when
applying a certified surety company
underwriting limitation, the full penalty
of the obligation will be regarded as the
liability, and lists exceptions to that
general rule. We propose moving this
requirement to § 223.10 to group
requirements regarding the
underwriting limitation together in the
same section. We propose reserving this
section.
Section 223.14
Current § 223.14 requires certified
surety companies to report to Treasury
on their excess risks and protective
measures taken. We propose moving
this requirement to § 223.8 so it is
grouped with other ongoing, quarterly
reporting requirements for certified
companies. We propose reserving this
section.
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Section 223.15
Section 223.15 explains how Treasury
determines a company’s paid-up capital
and surplus. Proposed § 223.15 clarifies
that this provision applies to companies
holding or seeking a certificate of
authority or to companies recognized or
seeking to be recognized as admitted
reinsurers.
Section 223.16
Section 223.16 describes Treasury’s
list of companies holding certificates of
authority. Proposed § 223.16 updates
terminology and website addresses, and
also changes the publication date of the
list from July to August.
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Section 223.17
Section 223.17 describes the
circumstances under which an agency
official can decline to accept a bond
underwritten by a certified surety.
Proposed § 223.17 updates unclear
language.
Section 223.18
Section 223.18 describes the ways in
which Treasury may initiate revocation
proceedings against a certified
company. Proposed § 223.18 updates
some phrasing to enhance clarity.
Section 223.19
Section 223.19 describes Treasuryinitiated revocation proceedings.
Proposed § 223.19 updates some
phrasing to enhance clarity.
Section 223.20
Section 223.20 describes agencyinitiated revocation proceedings.
Proposed § 223.20 updates unclear
phrasing in § 223.20(b)(1) and (h)(8).
Proposed § 223.20 also updates section
223.20(h)(9) by removing references to
the Treasury Financial Manual and the
Annual Letter to Executive Heads of
Surety Companies.
Section 223.21
Section 223.21 describes how a
company may become reinstated after
non-renewal or revocation of its
certificate of authority. Proposed
§ 223.21 updates unclear language and
codifies Treasury’s practice of allowing
a waiver of the one-year waiting period
in limited instances where a company
demonstrates exigent circumstances that
warrant such a waiver.
Section 223.22
Section 223.22 describes the
categories of fees that Treasury charges
companies applying for certification or
recognition, or renewal of their status.
Proposed § 223.22 adds that fees will be
charged for new applications and
applications for renewal of recognition
as a complementary or alien reinsurer.
DISTRIBUTION CHART FOR REVISED
PART 223
Old section
223.3(a)(1)(i) .............
223.4 .........................
223.5(a) .....................
223.6 .........................
223.7 .........................
223.8(a) .....................
223.8(b) .....................
223.13 .......................
223.14 .......................
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New section
223.2(a)(3) and
(a)(8).
223.2(a)(10).
223.1(b).
Removed.
223.9(a)(1).
223.2(a)(8),
223.2(b)(4).
223.8(a)(5).
223.10(b).
223.8(a)(2).
Sfmt 4702
IV. Procedural Analysis
Request for Comment
Treasury welcomes comments on all
aspects of this proposed rulemaking, but
particularly on the specific questions
below:
1. Does Treasury’s proposal to
recognize two new classes of reinsurers
benefit the surety industry without
significantly increasing risks?
2. Should Treasury consider
alternative approaches to credit for
reinsurance than those proposed in
§§ 223.9, 223.11, and 223.12?
3. In §§ 223.2, 223.7, 223.8, and 223.9,
Treasury proposes publishing, without
substantive change, several
requirements that have been previously
contained in annual guidance or on the
surety program’s website. Should
Treasury consider modifying these
regulations or not codifying them in the
regulations?
4. Does the proposed reorganization of
part 223 make the regulations clearer
and easier to follow, and would
additional changes more effectively
accomplish this goal?
5. Are there additional changes
Treasury should consider to better help
the surety program accomplish its
mission of evaluating and approving
surety companies to do business with
the United States?
Regulatory Planning and Review
The proposed rule does not meet the
criteria for a ‘‘significant’’ regulatory
action under Executive Order 12866.
Therefore, the regulatory review
procedures contained therein do not
apply.
Regulatory Flexibility Act Analysis
It is hereby certified that the proposed
rule will not have a significant
economic impact on a substantial
number of small entities. The proposed
changes allowing for recognition of
additional reinsurance companies
would not increase any regulatory
burden or have an economic impact on
small entities. The proposed rule adopts
criteria for recognition outlined in the
Covered Agreements and in the NAIC
Credit for Reinsurance Model Law.
Accordingly, by the time these proposed
rules are published and become
effective, reinsurance companies from
relevant non-U.S. jurisdictions seeking
to assume business from U.S. ceding
insurers will already be complying with
similar financial requirements.
Additionally, adherence to these
requirements is only required for
companies seeking recognition by
Treasury; participation in the program is
voluntary. The proposed rule changes
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regarding Treasury’s financial analysis
mainly codify existing requirements and
policies of which Treasury-certified
sureties were already aware. Therefore,
this proposed rule will not have a
significant economic impact on a
substantial number of small entities and
a regulatory flexibility analysis under
the Regulatory Flexibility Act is not
required.
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Unfunded Mandates Act of 1995
Section 202 of the Unfunded
Mandates Reform Act of 1995, 2 U.S.C.
1532, requires agencies to prepare
budgetary impact statements before
promulgating any rule likely to result in
a Federal mandate that may result in the
expenditure by state, local, and tribal
governments, in the aggregate, or by the
private sector, of $100 million or more
in any one year. If a budgetary impact
statement is required, section 205 of the
Unfunded Mandates Reform Act also
requires the agency to identify and
consider a reasonable number of
regulatory alternatives before
promulgating the rule. This proposed
rule will not result in expenditures by
state, local, and tribal governments, or
by the private sector, of $100 million of
more in any one year. Accordingly,
Treasury has not prepared a budgetary
impact statement or specifically
addressed any regulatory alternatives.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(Act) requires that collections of
information prescribed in the proposed
rules be submitted to the Office of
Management and Budget (OMB) for
review and approval.2 In accordance
with that requirement, Treasury has
submitted the collection of information
contained in this notice of proposed
rulemaking for review. Under the Act,
an agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless it
displays a valid OMB control number.
Comments on the collection of
information may be submitted
electronically to oira.submission@
omb.eop.gov, or may be mailed to the
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Attention: Desk Officer for
Department of the Treasury,
Washington, DC 20503; and to the
Surety Bond Branch, Bureau of the
Fiscal Service, at the address specified
at the beginning of this document.
The collection of information in the
proposed amendments is contained in
proposed § 223.12(i) and (j). The
proposed amendments require
2 44
U.S.C. 3507(d).
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companies applying for initial
recognition as a complementary
reinsurer to submit to Treasury all
information provided by the company
or by the supervisory authority of the
company’s domiciliary jurisdiction to
any U.S. state regulator in the two most
recently completed calendar years. For
renewal of such recognition, companies
will submit all semi-annual and annual
filing information provided by the
company or by the supervisory
authority of the company’s domiciliary
jurisdiction to any U.S. state regulator in
the most recently completed calendar
year. Companies applying for initial
recognition as an alien reinsurer will
submit to Treasury all information
provided to any U.S. state regulator in
the two most recently completed
calendar years. For renewal of such
recognition, companies will submit all
annual filing information provided to
any U.S. state regulator in the most
recently completed calendar year.
Treasury invites further comments on:
(1) Whether the proposed collection of
information is necessary for the proper
performance of Treasury’s functions,
including whether the information has
practical utility; (2) the accuracy of
Treasury’s estimate of the burden; (3)
enhancement of the quality, utility, and
clarity of information to be collected;
and (4) minimizing the information
collection burden on respondents,
including through the use of automated
collection techniques or other forms of
information technology.
Estimated total annual reporting
burden: 400 hours.
Estimated annual number of
respondents: 100.
Estimated annual frequency of
response: 1.
Proposed Regulations
List of Subjects in 31 CFR Part 223
Financial analysis, Reinsurance,
Surety bonds.
For the reasons set forth in the
preamble, we propose to amend 31 CFR
part 223 as set forth below:
PART 223—SURETY COMPANIES
DOING BUSINESS WITH THE UNITED
STATES
1. The authority citation for part 223
continues to read as follows:
■
Authority: 5 U.S.C. 301; 31 U.S.C. 9304–
9308.
■
2. Revise § 223.1 to read as follows:
§ 223.1
Certificate of authority.
(a) The regulations in this part govern
the issuance, renewal, and revocation by
the Secretary of the Treasury, acting
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through the U.S. Department of the
Treasury, Bureau of the Fiscal Service
(Treasury), of certificates of authority to
bonding companies to do business with
the United States as sureties on, or
reinsurers of, Federal surety bonds
(hereinafter ‘‘bonds’’ or ‘‘obligations’’)
under the authority of 31 U.S.C. 9304–
9308 and this part, and the acceptance
of such obligations.
(b) A company applying for authority
to write surety bonds in favor of the
United States must be engaged in the
business of writing surety or fidelity
contracts at the time of its application
to Treasury, whether or not also making
contracts in other classes of insurance,
but shall not be engaged in any type or
class of business not authorized by its
charter or the laws of the state in which
the company is incorporated. It must be
the intention of the company to engage
actively in the execution of surety bonds
or fidelity contracts in favor of the
United States.
(c) A company is not eligible for a
certificate of authority if it only insures
or reinsures risks of its parent, affiliated,
or controlled unaffiliated business, or is
deemed by Treasury to be primarily
engaged in self-insurance.
■ 3. Revise § 223.2 to read as follows:
§ 223.2 Application for certificate of
authority.
(a) Application for issuance of
certificate of authority. Every company
not currently holding a certificate of
authority wishing to apply for a
certificate of authority shall submit an
application to Treasury, c/o Surety
Bonds Program, to the location, and in
the manner, specified online at https://
www.fiscal.treasury.gov/surety-bonds/.
The company shall file the following
data with Treasury, and shall transmit
therewith the fee in accordance with the
provisions of § 223.22:
(1) Receipt or proof of payment of the
application fee in accordance with the
provisions of § 223.22;
(2) A written request for a certificate
of authority, signed by an officer of the
company. This request must indicate:
(i) Whether the company has
previously applied for a certificate of
authority from Treasury and, if so, the
date of the previous application; and
(ii) Whether Treasury has ever
previously issued the company a
certificate of authority, the reason for
termination of its certificate of
authority, and the applicable dates;
(3) A certified copy of its charter or
articles of incorporation showing that it
is duly authorized to conduct the
business referenced under 31 U.S.C.
9304(a)(2) and a statement from an
officer of the company certifying that:
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(i) The company is authorized to
transact surety business; and
(ii) If granted a certificate of authority,
there are no restrictions upon the
company preventing it from being able
to execute and guarantee bonds and
undertakings in judicial proceedings,
and guarantee contracts to which the
United States is a party;
(4) A listing of the names of the
company’s current officers and directors
as of the date of application, including
a biographical affidavit of each officer
and director per instructions online at
https://www.fiscal.treasury.gov/suretybonds/;
(5) A memorandum setting forth:
(i) A comprehensive statement of the
company’s method of operation,
including, but not limited to,
underwriting guidelines, claims
adjustment procedures, reinsurance
philosophy, and control over collateral;
(ii) The classes of business in which
it engages;
(iii) Any special underwriting
agreements, management agreements, or
pooling agreements in force. Copies of
agreements must be included with the
memorandum; and
(iv) Present plans of the company as
to the types of Federal bonds it intends
to write, the anticipated annual
premium volume of the Federal bonds,
and the geographical areas in which it
intends to write the Federal bonds;
(6) A certified copy of a license from
its state of incorporation and a
completed Surety License Form (Form
No. FS 2208);
(7) A copy of the latest available
report of its examination by its
domiciliary State Insurance Department
including a copy of company responses
to any significant findings or
recommendations;
(8) A statement of its financial
condition, as of the close of the last two
years preceding the date of application,
on the annual statement form of the
National Association of Insurance
Commissioners (hereinafter referred to
in this part as NAIC) with all Schedules
and Exhibits completed, showing that it
has paid-up capital of at least $250,000
in cash or its equivalent, in the case of
a stock insurance company, or has net
assets of not less than $500,000 over and
above all liabilities, in the case of a
mutual insurance company. The annual
financial statement’s Jurat Page (only) is
to be signed (facsimile signatures are
acceptable) by the company President,
Secretary, and a Notary Public who
shall also affix a notary seal;
(9) The Insurance Regulatory
Information System (hereinafter referred
to in this part as IRIS) ratio results, and
an explanation for any ratios outside the
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normal ranges as established by the
NAIC for the last two years preceding
the date of application;
(10) A written statement signed by the
Insurance Commissioner or other proper
financial officer of any state attesting
that the company maintains on deposit
legal investments having a current
market value of not less than $100,000
for the protection of claimants,
including all of its policyholders in the
U.S.;
(11) A completed Treasury Schedule
F (Form No. TFS 6314), as referenced in
§ 223.9(c) for the last two years
preceding the date of application;
(12) Copies of all reinsurance treaties
currently in force along with a
completed Summary of Reinsurance
Treaties, per instructions provided
online at https://
www.fiscal.treasury.gov/surety-bonds/;
(13) A completed Schedule of Excess
Risks form (Form No. FS 285–A) as of
the date of the application;
(14) A Statement of Actuarial Opinion
as of the close of the last two years
preceding the date of application
provided by an independent qualified
actuary, as defined by the NAIC, on the
adequacy of all loss reserves with the
scope and format of the statement also
conforming to the requirements of the
NAIC; and
(15) Such other evidence as Treasury
may request to establish that the
company is solvent, willing, and able to
meet the continuing obligation to carry
out its contracts. Treasury will publish
supplemental guidance annually
regarding evidence it may require,
submission methods, and format of the
data listed in paragraphs (a)(1) through
(14) of this section.
(b) Applications for renewal of
certificate of authority. Every company
wishing to apply for the annual renewal
of its certificate of authority shall
submit an application to Treasury, c/o
Surety Bonds Program, to the location,
and in the manner, specified online at
https://www.fiscal.treasury.gov/suretybonds/. The company shall file the
following data with Treasury, and shall
transmit therewith the fee in accordance
with the provisions of § 223.22:
(1) Receipt or proof of payment of the
application fee in accordance with the
provisions of § 223.22;
(2) A completed Surety License Form
(Form No. FS 2208) and a certified copy
of the licenses from any states indicated
on the Surety License Form that were
not indicated on the company’s most
recent form;
(3) A copy of the latest available
report of its examination by its
domiciliary State Insurance Department
including a copy of company responses
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to any significant findings or
recommendations;
(4) A statement of its financial
condition, as of the close of the
preceding year, on the annual statement
form of the NAIC with all Schedules
and Exhibits completed, showing that it
has paid-up capital of at least $250,000
in cash or its equivalent, in the case of
a stock insurance company, or has net
assets of not less than $500,000 over and
above all liabilities, in the case of a
mutual insurance company. The Annual
Financial Statement’s Jurat Page (only)
is to be signed (facsimile signatures are
acceptable) by the company President,
Secretary, and a Notary Public who
shall also affix a notary seal;
(5) IRIS ratio results, and an
explanation for any ratios outside the
normal ranges as established by the
NAIC, as of the close of the preceding
year;
(6) A completed Treasury Schedule F
(Form No. TFS 6314), as referenced in
§ 223.9(c) as of the close of the
preceding year;
(7) A completed Schedule of Excess
Risks form (Form No. FS 285–A) as of
the close of the preceding year;
(8) A Statement of Actuarial Opinion
as of the close of the preceding year
provided by an independent qualified
actuary, as defined by the NAIC, on the
adequacy of all loss reserves with the
scope and format of the statement also
conforming to the requirements of the
NAIC;
(9) A listing of the names of the
company’s current officers and directors
as of the close of the preceding year,
including a biographical affidavit of any
new officer and director for whom a
biographical affidavit was not
previously provided, per instructions
online at https://
www.fiscal.treasury.gov/surety-bonds/;
(10) A Report of Federal Business
Written/or Assumed and Outstanding as
of the close of the preceding year, per
instructions provided online at https://
www.fiscal.treasury.gov/surety-bonds/;
and
(11) Such other evidence as Treasury
may request to establish that the
company is solvent, willing, and able to
meet the continuing obligation to carry
out its contracts. Treasury will publish
supplemental guidance annually
regarding evidence it may require,
submission methods, and format of the
data listed in paragraphs (b)(1) through
(10) of this section.
■ 4. Revise § 223.3 to read as follows:
§ 223.3 Issuance of certificates of
authority.
(a) In determining whether to issue or
renew a certificate of authority,
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Treasury will evaluate the whole
application package under § 223.2, the
financial condition of the company as
determined under § 223.9, the past
history of the company, and any further
evidence or information that Treasury
may require the company to submit (at
the company’s expense).
(b) A certificate of authority will be
effective for a term that expires on the
last day of the next July. All such
statutory requirements and regulatory
requirements under this part are
continuing obligations, and any
certificate issued is expressly subject to
continuing compliance with such
requirements. The certificate of
authority will be renewed annually on
the first day of August, provided the
company remains qualified under the
law, the regulations in this part, and
other pertinent Treasury requirements,
and the company submits the fee
required under § 223.22 by March 1st of
each year.
(c) If a company meets the
requirements for a certificate of
authority as an acceptable surety on
Federal bonds in all respects except it
is limited to reinsure business only, it
may be issued a certificate of authority
as a reinsuring company on Federal
bonds. The fees for initial application
and renewal of a certificate as a
reinsuring company will be the same as
the fees for a certificate of authority as
an acceptable surety on Federal bonds.
§ 223.4
■
■
[Removed and Reserved]
5. Remove and reserve § 223.4.
6. Revise § 223.5 to read as follows:
§ 223.5
Business.
A company holding a certificate of
authority, or its agent, may only execute
(sign or otherwise validate) a surety
bond in favor of the United States in a
state where it is licensed to do surety
business. It need not be licensed in the
state or other area in which the
principal resides or where the contract
is to be performed. The term other area
includes the District of Columbia,
American Samoa, Guam, the Northern
Mariana Islands, Puerto Rico, and the
U.S. Virgin Islands.
§ 223.6
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■
■
[Removed and Reserved]
7. Remove and reserve § 223.6.
8. Revise § 223.7 to read as follows:
§ 223.7
Notification of changes.
(a) Every company certified under this
part or recognized as an admitted
reinsurer pursuant to § 223.12(h) must
notify Treasury of changes that have a
significant impact on its financial
statements or solvency. The following is
not intended to be an exhaustive list of
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all changes that Treasury may require to
be reported and may evaluate as part of
this analysis of the company. Treasury
will publish supplemental guidance on
additional information that may be
required. Every company certified under
this part or recognized as an admitted
reinsurer pursuant to § 223.12(h) must
notify Treasury of the following:
(1) Capital changes. Companies must
forward to Treasury, when available,
approvals by the insurance authorities
of the company’s lead state regulator
when changes in paid-up capital or
contributions/withdrawals to surplus
have occurred;
(2) Changes in stock ownership. Stock
insurance companies must provide a
statement signed and sworn to by the
Secretary or Assistant Secretary and by
the Treasurer or Assistant Treasurer of
the company each time any person
(whether an individual, corporation, or
organization of any kind) becomes
owner of more than 5 percent of any
class of outstanding stock issued by the
company;
(3) Mergers, transfer, assumption, and
group/pool restructuring. Companies
must notify Treasury at least six months
prior to any merger, consolidation,
transfer, assumption, material group or
pool restructuring, or name changes in
which the reporting company is
involved. The company must furnish to
Treasury copies or agreements or
documents pertaining to the same, as
approved by the insurance authorities of
the company’s lead state regulator; and
(4) Charters and bylaws amendments.
Whenever a company amends its charter
or bylaws it must submit a certified
copy of the amended charter or bylaws
to Treasury.
(b) Noncompliance with this section
may result in Treasury denying a
company’s application for its certificate
of authority, its recognition as an
admitted reinsurer, renewal of its
certificate of authority, renewal of its
recognition as an admitted reinsurer, or
in Treasury revoking a company’s
certificate of authority or recognition as
an admitted reinsurer.
■ 9. Revise § 223.8 to read as follows:
§ 223.8 Quarterly financial reporting
requirements.
Every company certified under this
part is required to file the following
quarterly with Treasury, c/o Surety
Bonds Program, to the location, and in
the manner, specified online at https://
www.fiscal.treasury.gov/surety-bonds/:
(a) A statement of its financial
condition, as of the close of the
preceding quarter, on the quarterly
statement form of the NAIC with all
Schedules and Exhibits completed,
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showing that it has paid-up capital of at
least $250,000 in cash or its equivalent,
in the case of a stock insurance
company, or has net assets of not less
than $500,000 over and above all
liabilities, in the case of a mutual
insurance company. The Quarterly
Financial Statement’s Jurat Page (only)
is to be signed (facsimile signatures are
acceptable) by the company President,
Secretary, and a Notary Public who
shall also affix a notary seal;
(b) A completed Schedule of Excess
Risks form (Form No. FS 285–A) as of
the close of the preceding quarter;
(c) A Report of Federal Business
Written/or Assumed and Outstanding as
of the close of the preceding quarter, per
instructions provided online at https://
www.fiscal.treasury.gov/surety-bonds/;
(d) A copy of the latest available
report of its examination by its
domiciliary State Insurance Department
including a copy of company responses
to any significant findings or
recommendations;
(e) A listing of the names of the
company’s current officers and directors
as of the close of the preceding quarter,
including a biographical affidavit of
each new officer and director per
instructions online at https://
www.fiscal.treasury.gov/surety-bonds/;
and
(f) Such other evidence as Treasury
may request to establish that the
company is solvent, willing, and able to
meet the continuing obligation to carry
out its contracts. Treasury will publish
supplemental guidance annually
regarding evidence it may require,
submission methods, and format of the
data listed in paragraphs (a) through (e)
of this section along with the due dates
for quarterly reporting.
■ 10. Revise § 223.9 to read as follows:
§ 223.9 Determination of financial
condition and other required information.
In determining the financial condition
of every company applying for a
certificate of authority or renewal of a
certificate of authority under this part,
Treasury will generally compute its
assets and liabilities in accordance with
paragraphs (a) through (f) of this section,
provided that Treasury may exercise
discretion in valuing the assets and
liabilities of such companies. While
paragraphs (a) through (f) of this section
specify how Treasury will value certain
classes of assets and liabilities and the
analysis that Treasury will perform,
they are not intended to be an
exhaustive list of all assets and
liabilities that Treasury may require to
be reported and may evaluate as part of
this analysis. Treasury will annually
publish supplemental guidance on the
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financial analysis performed by
Treasury, including applicable ratios
and acceptable ranges for ratios.
(a) Assets—(1) General criteria for
admissibility. The cash capital and other
funds included in the financial
statement must be safely invested in
accordance with the laws of the state in
which it is incorporated. Admissible
assets must be reported in U.S. Dollars
and are generally limited to investments
in cash, cash equivalents, short term
investments, mortgage loans (within
certain limits), and real property
necessary for the conduct of a
company’s business. In cases where an
investment (other than U.S. Government
securities and securities of affiliates or
subsidiaries) exceeds 10 percent of the
total admitted assets, Treasury may
require additional supporting
documentation as needed on a case-bycase basis in order for the asset to be
admissible. Additionally, Treasury
considers normal account balances
(such as, but not limited to, investment
income due and accrued, agents’
balances and premiums receivables,
reinsurance recoverables on paid losses,
and funds held by or deposited with
ceding reinsuring companies) to be
admissible provided they meet
Treasury’s standards. In order to be
admissible, normal account balances
may be evaluated for transactional
substance, quality, and liquidity. Some
assets that may be admissible under
codification and/or certain state
permitted practices may require
supporting documentation as needed on
a case-by-case basis in order to be
admissible under Treasury’s criteria.
Assets resulting from reinsurance
transactions must meet the credit for
reinsurance standards listed under
paragraph (c) of this section.
(2) Securities. Bonds, unaffiliated
common stocks, and unaffiliated
preferred stocks must be valued and
reported in accordance with the NAIC’s
Accounting Practices and Procedures
Manual (as updated or amended from
time to time) and the NAIC Securities
Valuation Office (SVO). Those with an
investment grade designation will be
admissible and those with a noninvestment grade designation will be
considered on a case-by-case basis.
(i) All other securities. The value of all
other securities should be valued as of
December 31 and reported in U.S.
Dollars. For securities that do not have
a SVO designation or have a SVO noninvestment grade designation and are
significant for Treasury purposes,
Treasury may consider, if it deems
appropriate, other relevant data (e.g.,
prospectus, marketability/liquidity
information, internal investment
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strategies/philosophies) and perform an
analysis to determine whether the
securities meet Treasury’s criteria for
admissibility.
(ii) Securities of controlled
companies. Investments in subsidiaries,
controlled entities, and affiliated
entities must be reported in accordance
with the NAIC Accounting Practices and
Procedures Manual (as updated or
amended from time to time).
(A) Other insurance companies.
Companies owning securities of other
insurance companies, which are under
the same direction and control as the
reporting company, must furnish copies
of the NAIC File Upload of the
subsidiaries. The assets of these
subsidiaries will be analyzed according
to the criteria set forth in this section.
(B) Non-insurance companies.
Companies owning securities of noninsurance companies, which are under
the same direction and control as the
reporting company, must furnish copies
of independently audited financial
statements of such companies as of the
reporting date.
(3) Real estate and mortgages. Only
real estate essential to the operating
needs of the company for conducting its
business, and conventional first
mortgage loans on unencumbered,
improved, or productive real estate
located within the United States, are
admissible. These must be reported in
accordance with the NAIC’s Accounting
Practices and Procedures Manual (as
updated or amended from time to time).
The real estate and mortgaged property
must be supported by an appraisal
report that includes the information and
computations normally used in arriving
at a competent appraised value. In
instances where the aggregate values
exceed 20 percent of the policyholders’
surplus, Treasury may, if it deems
appropriate, require additional
supporting documentation.
(b) Minimum bail reserve
requirements. Companies transacting
surety bail business must submit a
schedule showing bail premiums in
force, bail liability, and the amount of
any associated unearned premium
reserve.
(c) Reinsurance. (1) Companies are
required to submit Treasury Schedule F
(Treasury Form No. TFS 6314) reflecting
information in the company’s annual
statements. Credit for reinsurance may
be taken for reinsurance in all classes of
risk provided it is ceded to the
following companies:
(i) Companies holding a current
certificate of authority from Treasury;
(ii) Non-Treasury certified or
recognized parents, subsidiaries, and/or
affiliates if the parent, subsidiary, and/
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or affiliate participate in a pooling
agreement with the Treasury certified/
recognized company and Treasury
determines that the pool is financially
solvent;
(iii) Admitted reinsurers as defined
under § 223.12(h);
(iv) Complementary reinsurers as
defined under § 223.12(i);
(v) Alien reinsurers as defined under
§ 223.12(j), up to the extent credit is
given for reinsurance ceded to the alien
reinsurer by the ceding company’s state
of domicile (subject to paragraph (c)(3)
of this section); and
(vi) An instrumentality or agency of
the United States that is permitted by
Federal law or regulation to execute
reinsurance contracts.
(2) Treasury will give credit for
reinsurance not covered in paragraph
(c)(1) of this section, to the extent of
funds withheld or letters of credit or
trust agreements from unauthorized
companies, provided the company
advises Treasury of the amount of funds
held, letters of credit posted or funds
secured in trust for each company.
Treasury will also give credit for trust
account assets associated with multibeneficiary trust agreements established
and maintained in the United States by
overseas accredited or trusteed
reinsurers listed online at https://
www.fiscal.treasury.gov/surety-bonds/,
to the extent the unauthorized ceded
business is covered by these trust
account assets.
(3) If Treasury, after its review of the
financial documentation submitted by
an alien reinsurer recognized pursuant
to § 223.12(j) and of the financial
documentation submitted by the ceding
company, determines that either
company may be unable to carry out its
obligations, Treasury may require
additional collateral for the ceding
company to receive credit for
reinsurance to the extent credit is given
for reinsurance ceded to the Alien
Reinsurer by the ceding company’s state
of domicile.
(d) Risk based capital (RBC). Treasury
uses RBC in determining the financial
solvency of companies, together with
such companies’ overall financial
results, ratios, and trends. Companies
must maintain RBC results that fall
within acceptable ranges as established
by the NAIC or provide a satisfactory
explanation for results that do not.
(e) Financial ratios. Treasury uses the
NAIC IRIS ratios to measure companies’
solvency, profitability, and liquidity.
Companies must maintain results for
these ratios that fall within acceptable
ranges as established by the NAIC or
provide a satisfactory explanation for
results that do not.
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Federal Register / Vol. 87, No. 42 / Thursday, March 3, 2022 / Proposed Rules
(f) Financial results and trends.
Treasury analyzes financial results from
annual and quarterly financial
statements required under this part for
evidence of negative financial results or
trends. Treasury may require companies
to submit additional documentation or
explanation regarding financial
statements with evidence of negative
financial results or trends such as
decreasing policyholders’ surplus, large
underwriting losses, negative cashflows,
or unsatisfactory IRIS ratio results.
(g) Noncompliance. Noncompliance
with paragraphs (a) through (f) of this
section may result in Treasury denying
a company’s application for its
certificate of authority, or renewal of its
certificate, or in Treasury revoking a
company’s certificate.
■ 11. Revise § 223.10 to read as follows:
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§ 223.10
Limitation of risk.
(a) Except as provided in § 223.11, no
company holding a certificate of
authority shall underwrite any single
risk on any bond or policy on behalf of
any individual, firm, association, or
corporation, whether or not the United
States is interested as a party thereto,
the amount of which is greater than 10
percent of the paid-up capital and
surplus of such company, as determined
by Treasury. Such figure is hereinafter
referred to as the underwriting
limitation. For purposes of this part,
‘‘single risk’’ is defined as the total risk
under one bond or policy regardless of
the number of individual risks under
that bond or policy.
(b) In determining the underwriting
limitation, the full penalty of any surety
and fidelity obligation will be regarded
as the liability, and no offset will be
allowed on account of any estimate of
risk that is less than such full penalty,
except in the following cases:
(1) Appeal bonds; in which case the
liability will be regarded as the amount
of the judgment appealed from, plus 10
percent of said amount to cover interest
and costs;
(2) Bonds of executors,
administrators, trustees, guardians, and
other fiduciaries, where the penalty of
the bond or other obligation is fixed in
excess of the estimated value of the
estate; in which cases the estimated
value of the estate, upon which the
penalty of the bond was fixed, will be
regarded as the liability;
(3) Indemnifying agreements executed
by sole heirs or beneficiaries of an estate
releasing the surety from liability;
(4) Contract bonds given in excess of
the amount of the contract; in which
cases the amount of the contract will be
regarded as the liability; or
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(5) Bonds for banks or trust
companies as principals, conditioned to
repay moneys on deposit, whereby
pursuant to any law or decree of a court,
the amount to be deposited shall be less
than the penalty of the bond; in which
cases the maximum amount on deposit
at any one time will be regarded as the
liability.
■ 12. Revise § 223.11 to read as follows:
§ 223.11 Limitation of risk: Protective
methods.
The limitation of risk prescribed in
§ 223.10 may be complied with by the
following methods:
(a) Coinsurance. Two or more
companies may underwrite a single risk
on any bond or policy, the amount of
which does not exceed their aggregate
underwriting limitations. Each company
must limit its liability upon the face of
the bond or policy to an amount which
must be within its underwriting
limitation.
(b) Reinsurance—(1) Bonds running to
the United States. (i) With respect to all
bonds running to the United States, a
company writing such bonds must
reinsure liability in excess of the
underwriting limitation with one or
more companies holding a certificate of
authority from Treasury within 45 days
from the date of execution and delivery
of the bond. Such reinsurance shall not
be in excess of the underwriting
limitation of the reinsuring company.
Where reinsurance is contemplated,
Federal agencies may accept a bond
from the direct writing company in
satisfaction of the total bond
requirement even though it may exceed
the direct writing company’s
underwriting limitation. Within the 45day period, the direct writing company
shall furnish to the Federal agency any
requested reinsurance agreements.
However, a Federal agency may, in its
discretion, require that the direct
writing company obtain reinsurance
within a lesser period than 45 days, and
may require the direct writing company
to provide completely executed
reinsurance agreements before making a
final determination that any bond is
acceptable.
(ii) Direct writing companies may use
reinsurance to protect liability in excess
of their underwriting limitation for
bonds required to be furnished to the
United States by the Miller Act (40
U.S.C. 3131, as amended) covering
contracts for the construction,
alteration, or repair of any public
building or public work of the United
States, as well as other types of Federal
bonds. Use of reinsurance or
coinsurance to protect such bonds is at
the discretion of the direct writing
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12013
company. In addition to complying with
the requirements of paragraph (b)(1)(i)
of this section, the direct writing
company must execute the following
reinsurance agreement forms: Standard
Form 273 (Reinsurance Agreement for a
Bonds Statute Performance Bond),
Standard Form 274 (Reinsurance
Agreement for a Bonds Statute Payment
Bond), and Standard Form 275
(Reinsurance Agreement in Favor of the
United States). These forms are
available on the General Services
Administration website at www.gsa.gov.
(2) Bonds not running to the United
States. A company holding a certificate
of authority from Treasury writing risks
covered by bonds or policies not
running to the United States must
reinsure liability in excess of its
underwriting limitation within 45 days
from the date of execution and delivery
of the bond or policy with any of:
(i) One or more companies holding a
certificate of authority from Treasury;
(ii) One or more companies
recognized as a reinsurer in accordance
with § 223.12;
(iii) A pool, association, etc., to the
extent that it is composed of such
companies; or
(iv) An instrumentality or agency of
the United States that is permitted by
Federal law or regulation to execute
reinsurance contracts.
(3) Limitation. No certificate-holding
company may cede to a reinsuring
company recognized under § 223.12 any
single risk in excess of 10 percent of the
latter company’s paid-up capital and
surplus.
(c) Other methods. With respect to all
risks other than Miller Act performance
and payment bonds running to the
United States, which must be coinsured
or reinsured in accordance with
paragraph (a) or (b)(1)(ii) of this section
respectively, the excess liability may be
protected:
(1) By the deposit with the company
in pledge, or by conveyance to it in trust
for its protection, of assets admitted by
Treasury, the current market value of
which is at least equal to the liability in
excess of its underwriting limitation.
Assets used to protect excess liability
pursuant to this paragraph (c) cannot
also be used to obtain credit for
reinsurance pursuant to § 223.9(c); or
(2) If such obligation was incurred on
behalf of or on account of a fiduciary
holding property in a trust capacity, by
a joint control agreement providing that
the whole or a sufficient portion of the
property so held may not be disposed of
or pledged in any way without the
consent of the insuring company.
■ 13. Revise § 223.12 to read as follows:
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Recognition as reinsurer.
(a) Use of recognized reinsurers.
Companies holding a certificate of
authority may:
(1) Receive credit for reinsurance
ceded to a reinsurer recognized
pursuant to this section, as described in
§ 223.9(c), and
(2) Protect liability in excess of their
underwriting limit on risks not running
to the United States by reinsuring the
excess liability with a reinsurer
recognized pursuant to this section.
(b) Application. Every company
applying for recognition by Treasury as
one of the categories of reinsurers in
paragraphs (c) through (j) of this section,
or annual renewal of such recognition,
shall submit an application to Treasury,
c/o Surety Bonds Program, to the
location, and in the manner, specified
online at https://
www.fiscal.treasury.gov/surety-bonds/.
The applicant company must submit the
documentation and must meet the
requirements as outlined in this section
and in supplemental guidance
published by Treasury on its website.
(c) Treasury recognition. Recognition
by Treasury will be effective for a term
that expires on the last day of the
following October. A list of reinsuring
companies so recognized by Treasury
will be published online at https://
www.fiscal.treasury.gov/surety-bonds/.
(d) Notice to Treasury. Each company
recognized pursuant to this section shall
immediately notify Treasury if a U.S.
state takes action to suspend or revoke
the company’s license or its status or
eligibility as a Certified Reinsurer or
Reciprocal Jurisdiction Reinsurer, or if
the company notifies a U.S. state that a
supervisory authority in its domiciliary
jurisdiction takes regulatory action
against it for serious noncompliance
with applicable law (as determined by
the supervisory authority in its
domiciliary jurisdiction).
(e) Eligibility. A company is not
eligible for recognition under this
section if it only insures or reinsures
risks of its parent, affiliated, or
controlled unaffiliated business, or is
deemed by Treasury to be primarily
engaged in self-insurance.
(f) Guidance. Treasury may issue
supplemental guidance regarding the
timing, form, content, and its analysis of
the submissions required pursuant to
this section. Such guidance will be
posted on its website.
(g) Noncompliance. Noncompliance
with the requirements of this section
may result in a company’s application
for recognition, or for renewal of its
recognition, being denied.
(h) Admitted reinsurers—(1)
Application for recognition by U.S.
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company. Any company organized
under the laws of the United States or
of any state thereof, wishing to apply for
recognition as an admitted reinsurer of
surety companies doing business with
the United States, shall submit an
application to Treasury, c/o Surety
Bonds Program, to the location, and in
the manner, specified online at https://
www.fiscal.treasury.gov/surety-bonds/.
The company shall file the following
data with Treasury and shall transmit
therewith the fee in accordance with the
provisions of § 223.22:
(i) Receipt or proof of payment of the
application fee in accordance with the
provisions of § 223.22;
(ii) A written request for recognition
as an admitted reinsurer, signed by an
officer of the company. This request
must indicate:
(A) The reason for applying for
recognition;
(B) Whether the company has ever
previously applied for recognition as an
admitted reinsurer, whether Treasury
approved the application, and the
applicable dates; and
(C) If Treasury previously approved
the company for recognition as an
admitted reinsurer, the reason for
termination of its recognition and the
applicable date;
(iii) A certified copy of its charter or
articles of incorporation with all
amendments as of the date of
application showing the legal name of
the company and that it is authorized to
write reinsurance;
(iv) A listing of the names of the
company’s current officers and directors
as of the date of application, including
a biographical affidavit of each officer
and director per instructions online at
https://www.fiscal.treasury.gov/suretybonds/;
(v) A certified copy of a license from
any one state in which it has been
authorized to do business showing its
authority to write reinsurance and/or
other lines of insurance;
(vi) A copy of the latest available
report of its examination by its
domiciliary State Insurance Department
including a copy of company responses
to any significant findings or
recommendations;
(vii) Annual statements of its financial
condition, as of the close of the last two
years preceding the date of application,
on the annual statement form of the
NAIC with all Schedules and Exhibits
completed, showing that it has paid-up
capital of at least $250,000 in cash or its
equivalent, in the case of a stock
insurance company, or has net assets of
not less than $500,000 over and above
all liabilities, in the case of a mutual
insurance company. The Annual
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Financial Statement’s Jurat Page (only)
is to be signed (facsimile signatures are
acceptable) by the company President,
Secretary, and a Notary Public who
shall also affix a notary seal;
(viii) IRIS ratio results, and an
explanation for any ratios outside the
normal ranges as established by the
NAIC for the last two years preceding
the date of application;
(ix) A memorandum setting forth the
company’s method of operation,
including lines of business written and
the company’s underwriting and claims
philosophy;
(x) A completed Treasury Schedule F
(Form No. TFS 6314), as referenced in
§ 223.9(c) for two years preceding the
date of application;
(xi) A Statement of Actuarial Opinion
as of the close of the last two years
preceding the date of application
provided by an independent qualified
actuary, as defined by the NAIC, on the
adequacy of all loss reserves with the
scope and format of the statement also
conforming to the requirements of the
NAIC; and
(xii) Such other evidence as Treasury
may request to establish that the
company is solvent and able to meet the
continuing obligation to carry out its
contracts. Treasury will publish
supplemental guidance annually
regarding evidence it may require,
submission methods, and format of the
data listed in paragraphs (h)(1)(i)
through (xi) of this section.
(2) Application by a U.S. branch. A
U.S. branch of a non-U.S. company
applying for such recognition must file
the following data with Treasury, and
shall transmit therewith the fee in
accordance with the provisions of
§ 223.22:
(i) The submissions listed in
paragraphs (h)(1)(i) through (xii) of this
section, except that the financial
statement of such branch shall show
that it has net assets of not less than
$250,000 over and above all liabilities;
and
(ii) Evidence satisfactory to Treasury
to establish that it has on deposit in the
United States not less than $250,000
available to its policyholders and
creditors in the United States.
(3) Application for renewal of
recognition as an admitted reinsurer.
Any company recognized pursuant to
paragraphs (h)(1) or (2) of this section
wishing to apply for renewal of its
recognition shall submit an application
to Treasury, c/o Surety Bonds Program,
to the location, and in the manner,
specified online at https://
www.fiscal.treasury.gov/surety-bonds/.
The company must file the following
data with Treasury and shall transmit
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therewith the fee in accordance with the
provisions of § 223.22:
(i) Receipt or proof of payment of the
application fee in accordance with the
provisions of § 223.22;
(ii) A copy of the latest available
report of its examination by its
domiciliary State Insurance Department
including a copy of company responses
to any significant findings or
recommendations;
(iii) Annual statements of its financial
condition, as of the close of the
preceding year, on the annual statement
form of the NAIC with all Schedules
and Exhibits completed, showing that it
has paid-up capital of at least $250,000
in cash or its equivalent, in the case of
a stock insurance company, or has net
assets of not less than $500,000 over and
above all liabilities, in the case of a
mutual insurance company. The Annual
Financial Statement’s Jurat Page (only)
is to be signed (facsimile signatures are
acceptable) by the company President,
Secretary, and a Notary Public who
shall also affix a notary seal;
(iv) IRIS ratio results, and an
explanation for any ratios outside the
normal ranges as established by the
NAIC as of the close of the preceding
year;
(v) A completed Treasury Schedule F
(Form No. TFS 6314), as referenced in
§ 223.9(c) as of the close of the
preceding year;
(vi) A Statement of Actuarial Opinion
as of the close of the preceding year
provided by an independent qualified
actuary, as defined by the NAIC, on the
adequacy of all loss reserves with the
scope and format of the statement also
conforming to the requirements of the
NAIC;
(vii) A listing of the names of the
company’s current officers and directors
as of the close of the preceding year,
including a biographical affidavit of
each new officer and director per
instructions online at https://
www.fiscal.treasury.gov/surety-bonds/;
and
(viii) Such other evidence as Treasury
may request to establish that the
company is solvent and able to meet the
continuing obligation to carry out its
contracts. Treasury will publish
supplemental guidance annually
regarding evidence it may require,
submission methods, and format of the
data listed in paragraphs (h)(3)(i)
through (vii) of this section.
(i) Complementary reinsurers. Any
company may apply for recognition as
a complementary reinsurer or annual
renewal of such recognition provided
the company is licensed to write
reinsurance by and has its head office in
(or is domiciled in) a non-U.S.
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jurisdiction that is subject to an in-force
Covered Agreement entered into with
the United States pursuant to 31 U.S.C.
313–314, which Covered Agreement
addresses the elimination, under
specified conditions, of collateral
requirements as a condition for entering
into any reinsurance agreement with a
ceding insurer domiciled in a U.S. state
or for allowing the ceding insurer to
recognize credit for reinsurance. To
obtain such recognition, the company
must submit to Treasury the fee in
accordance with the provisions of
§ 223.22 and must:
(1) Meet and maintain all capital and
surplus, solvency, and market conduct
requirements under the applicable
Covered Agreement;
(2) Be recognized by at least one U.S.
state as a Reciprocal Jurisdiction
Reinsurer, as defined by the NAIC, and
submit proof of such recognition; and
(3) Submit to Treasury:
(i) For initial applications for
recognition, all information provided by
the company or by the supervisory
authority of the company’s domiciliary
jurisdiction to any U.S. state regulator in
the two most recently completed
calendar years.
(ii) For applications for renewal of
recognition, all semi-annual and annual
filing information provided by the
company or by the supervisory
authority of the company’s domiciliary
jurisdiction to any U.S. state regulator in
the most recently completed calendar
year.
(iii) Receipt or proof of payment of the
application fee in accordance with the
provisions of § 223.22.
(j) Alien reinsurers. Any company
may apply for recognition or annual
renewal of such recognition as an alien
reinsurer, provided it is licensed to
write reinsurance by, and has its head
office or domicile in, a non-U.S.
jurisdiction that is recognized by the
NAIC as a Qualified Jurisdiction or as a
Reciprocal Jurisdiction, provided that
the Reciprocal Jurisdiction is not party
to an in-force Covered Agreement as
described in paragraph (i) of this
section. To obtain such recognition, the
company must submit to Treasury the
fee in accordance with the provisions of
§ 223.22 and must:
(1) Be recognized by at least one U.S.
state as a ‘‘Certified Reinsurer’’ or a
‘‘Reciprocal Jurisdiction Reinsurer,’’ as
defined by the NAIC or state law, and
submit proof of such recognition;
(2) Meet and maintain all capital and
surplus, market conduct, and other
requirements for eligibility as a
‘‘Certified Reinsurer’’ or ‘‘Reciprocal
Jurisdiction Reinsurer’’ in accordance
PO 00000
Frm 00030
Fmt 4702
Sfmt 4702
with the law and regulation of any U.S.
state granting it such recognition; and
(3) Submit to Treasury:
(i) For initial applications for
recognition, all information provided to
any U.S. state regulator in the two most
recently completed calendar years.
(ii) For applications for renewal of
such recognition, all annual filing
information provided to any U.S. state
regulator in the most recently completed
calendar year.
(iii) Receipt or proof of payment of the
application fee in accordance with the
provisions of § 223.22.
§ 223.13
■
§ 223.14
■
■
[Removed and Reserved]
14. Remove and reserve § 223.13.
[Removed and Reserved]
15. Remove and reserve § 223.14.
16. Revise § 223.15 to read as follows:
§ 223.15 Paid-up capital and surplus for
Treasury rating purposes; how determined.
Treasury determines the amount of
paid-up capital and surplus of any
company holding or seeking a certificate
of authority or recognized (or seeking
recognition) as an admitted reinsurer
pursuant to § 223.12(h) on an insurance
accounting basis under the regulations
in this part, from the company’s
financial statements and other
information, or by such examination of
the company at its own expense as
Treasury may deem appropriate.
■ 17. Revise the first three sentences of
§ 223.16 to read as follows:
§ 223.16 List of certificate holding
companies.
A list of certificate holding companies
is published annually as of August 1 in
Department Circular No. 570,
Companies Holding Certificates of
Authority as Acceptable Sureties on
Federal Bonds and as Acceptable
Reinsuring Companies, with
information as to underwriting
limitations, areas in which listed
sureties are licensed to transact surety
business, and other details. If Treasury
shall take any exceptions to the
financial statements submitted by a
company, before issuing Department
Circular 570, Treasury shall give a
company due notice of such exceptions.
Copies of the Circular are available at
https://www.fiscal.treasury.gov/suretybonds/list-certified-companies.html, or
from the Surety Bonds Program, upon
request. * * *
■ 18. Amend § 223.17 by revising
paragraphs (b)(1)(iii) and (iv) to read as
follows:
§ 223.17 Acceptance and non-acceptance
of bonds.
*
E:\FR\FM\03MRP1.SGM
*
*
03MRP1
*
*
12016
Federal Register / Vol. 87, No. 42 / Thursday, March 3, 2022 / Proposed Rules
(b) * * *
(1) * * *
(iii) Provide the company with an
opportunity to rebut the stated reasons
or cause; and
(iv) Provide the company with an
opportunity to cure the stated reasons or
cause.
*
*
*
*
*
■ 19. Amend § 223.18 by revising
paragraphs (a) introductory text and
(a)(1) to read as follows:
§ 223.18
Revocation.
(a) Treasury may initiate a revocation
proceeding against a Treasury-certified
company in one of two ways:
(1) Treasury, of its own accord, under
§ 223.19, may initiate revocation
proceedings against the company when
it has reason to believe that the
company is not complying with 31
U.S.C. 9304–9308 and/or the regulations
under this part; or
*
*
*
*
*
■ 20. Amend § 223.19 by revising the
introductory text and paragraph (b)(2) to
read as follows:
Whenever Treasury has reason to
believe that a company is not complying
with the requirements of 31 U.S.C.
9304–9308 and/or the regulations under
this part, including but not limited to a
failure to satisfy corporate and financial
standards, Treasury shall:
*
*
*
*
*
(b) * * *
(2) The company responded, was
provided an opportunity to demonstrate
or achieve compliance, and failed to do
so.
■ 21. Amend § 223.20 by revising
paragraphs (b)(1) and (h)(8) and (9) to
read as follows:
§ 223.20 Revocation proceedings initiated
by Treasury upon receipt of an agency
complaint.
khammond on DSKJM1Z7X2PROD with PROPOSALS
*
*
*
*
(b) * * *
(1) The agency has determined,
consistent with agency authorities, the
principal is in default on the obligation
covered by the bond. Alternatively, if
the default has been litigated,
documentation indicating a court of
competent jurisdiction has determined
the principal is in default;
*
*
*
*
*
(h) * * *
(8) The formal adjudication standards
under the Administrative Procedure
Act, 5 U.S.C. 554, 556, and 557, do not
apply to the informal hearing or
adjudication process.
(9) Treasury may promulgate
additional procedural guidance
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16:46 Mar 02, 2022
Jkt 256001
§ 223.21
Reinstatement.
If, after one year from the date that
Treasury notifies the company of its
decision to decline to renew or revoke
the certificate of authority of a company
under this part, the company can
demonstrate that the basis for the nonrenewal or revocation has been cured, as
determined by Treasury in its
discretion, and that it can comply with,
and does meet, all continuing
requirements for certification under 31
U.S.C. 9304–9308 and this part, the
company may submit an application to
Treasury for reinstatement or reissuance
of a certificate of authority, which will
be granted without prejudice if all such
requirements are met. Treasury may
waive the one year waiting period for
good cause shown, as determined by
Treasury in its sole discretion.
■ 23. Revise § 223.22 to read as follows:
reinsurer, complementary reinsurer, or
alien reinsurer (see § 223.12).
(b) In a given year a uniform fee will
be collected from every company
requesting a particular category of
service, e.g., determination of a
company’s continuing qualifications for
annual renewal of its certificate of
authority. However, Treasury reserves
the right to redetermine the amounts of
fees annually. Fees are determined in
accordance with Office of Management
and Budget Circular A–25, as amended.
(c) Specific fee information may be
obtained from the Surety Bonds
Program, or online at https://
www.fiscal.treasury.gov/files/suretybonds/user-fees.pdf. In addition, a
notice of the amount of a fee referred to
in paragraphs (a)(1) through (6) of this
section will be published in the Federal
Register as each change in such fee is
made.
David A. Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2022–03937 Filed 3–2–22; 8:45 am]
BILLING CODE 4810–AS–P
§ 223.22 Fees for service of the Treasury
Department.
§ 223.19 Treasury-initiated revocation
proceedings.
*
governing the conduct of informal
hearings.
*
*
*
*
*
■ 22. Revise § 223.21 to read as follows:
(a) Fees shall be imposed and
collected, for the services listed in
paragraphs (a)(1) through (6) of this
section that are performed by Treasury,
regardless of whether the action
requested is granted or denied. An
online payment portal is provided at
https://www.fiscal.treasury.gov/suretybonds/. The amount of the fee will be
based on which of the following
categories of service is requested:
(1) Examination of a company’s
application for a certificate of authority
as an acceptable surety on Federal
bonds or for a certificate of authority as
an acceptable reinsuring company on
such bonds (see § 223.2(a));
(2) Examination of a company’s
application for recognition as an
admitted reinsurer of surety companies
doing business with the United States
(see § 223.12(h));
(3) Examination of a company’s
application for recognition as a
complementary reinsurer of surety
companies doing business with the
United States (see § 223.12(i));
(4) Examination of a company’s
application for recognition as an alien
reinsurer of surety companies doing
business with the United States (see
§ 223.12(j));
(5) Determination of a company’s
continuing qualifications for annual
renewal of its certificate of authority
(see § 223.2(b)); or
(6) Determination of a company’s
continuing qualifications for annual
renewal of its authority as an admitted
PO 00000
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ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R01–OAR–2021–0785; FRL–9591–01–
R1]
Air Plan Approval; New Hampshire;
Env-A 800 Testing and Monitoring
Procedures, Env-A 619.03 PSD
Program Requirements, and Env-A
1200 VOC RACT
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:
The Environmental Protection
Agency (EPA) is proposing to approve
State Implementation Plan (SIP)
revisions submitted by the State of New
Hampshire. These revisions amend
Testing and Monitoring Procedures for
sources of air pollution; revise New
Hampshire’s Prevention of Significant
Deterioration (PSD) permitting program
with respect to requirements for air
quality modeling; fully approve certain
infrastructure SIP requirements as they
related to PSD permitting requirements
for the 2015 Ozone and 2012 fine
particle matter (PM2.5) National Ambient
Air Quality Standards (NAAQS); and
amend Volatile Organic Compounds
(VOCs) Reasonably Available Control
Technology (RACT). This action is being
taken under the Clean Air Act (CAA).
DATES: Written comments must be
received on or before April 4, 2022.
SUMMARY:
E:\FR\FM\03MRP1.SGM
03MRP1
Agencies
- DEPARTMENT OF THE TREASURY
- Bureau of the Fiscal Service
[Federal Register Volume 87, Number 42 (Thursday, March 3, 2022)]
[Proposed Rules]
[Pages 12003-12016]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-03937]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Bureau of the Fiscal Service
31 CFR Part 223
RIN 1530-AA20
Surety Companies Doing Business With the United States
AGENCY: Bureau of the Fiscal Service, Treasury.
[[Page 12004]]
ACTION: Notice of proposed rulemaking with request for comments.
-----------------------------------------------------------------------
SUMMARY: The Department of the Treasury, Bureau of the Fiscal Service
(Treasury) administers the corporate Federal surety bond program (the
program). Treasury issues certificates of authority to qualified
sureties to underwrite and reinsure Federal surety bond obligations.
Treasury also recognizes qualified companies as admitted reinsurers who
can provide reinsurance to certified companies except on Federal surety
bonds. Treasury recognizes an admitted reinsurer for the purpose of
providing credit to a surety for non-Federal obligations ceded to an
admitted reinsurer when valuing the assets and liabilities of a surety
for Treasury certificate purposes, as appropriate. Treasury is
proposing to amend its regulations to allow for recognition of
additional companies as reinsurers that are excluded under the current
regulations. Additionally, Treasury proposes to amend its regulations
to incorporate requirements for surety companies to submit information
that Treasury uses to perform financial analysis of these companies,
which was previously published in supplemental guidance documents.
Treasury also proposes a reorganization of the existing regulations to
modernize and improve their structure.
DATES: Submit written comments on or before May 2, 2022.
ADDRESSES: You may submit comments, identified by docket number FISCAL-
2021-0006, using the following methods:
Federal eRulemaking Portal: (https://www.regulations.gov).
Follow the instructions on the website for submitting comments.
Mail: Surety Bond Branch, Bureau of the Fiscal Service,
200 Third Street, Room 110, Parkersburg, WV 26106.
Instructions: All submissions received must refer to Fiscal Service
and docket number FISCAL-2021-0006. In general, comments received will
be published on www.regulations.gov without change, including any
business or personal information provided. Do not disclose any
information in your comment or supporting materials that you consider
confidential or inappropriate for public disclosure. Comments will not
be edited to remove any identifying or contact information.
FOR FURTHER INFORMATION CONTACT: Melvin Saunders, at
[email protected] or 304-480-5108; Bobbi McDonald,
[email protected] or 304-480-7098; or David Crowe at
[email protected] or 304-480-8971.
SUPPLEMENTARY INFORMATION:
I. Background
Treasury's Bureau of the Fiscal Service is responsible for
administering the corporate Federal surety bond program under the
authority of 31 U.S.C. 9304-9308 and 31 CFR part 223 (part 223).
Treasury publishes supplemental guidance on its requirements in annual
letters posted to its website. Congress delegated to Treasury the
discretion to issue a certificate of authority to a surety company if
Treasury determines that: The surety's articles of incorporation
authorize it to engage in the business of surety; the company has the
requisite paid-up capital, cash, or equivalent assets; and the company
is able to carry out its contracts. Treasury issues a certificate of
authority to companies (``certified sureties'') to write or reinsure
Federal surety bonds. Additionally, Treasury recognizes certain
companies as admitted reinsurers, i.e., companies permitted by Treasury
to provide reinsurance to the certified sureties except on excess risks
that run to the United States. Treasury publishes annual lists of
companies holding a certificate of authority and of companies
recognized as admitted reinsurers.
Treasury published a Request for Information (RFI) on December 30,
2019.\1\ The RFI sought input from the public on a variety of topics
relating to Treasury's evaluation of surety companies, as well as the
operations of the corporate Federal surety bond program. These topics
included, among other things, Treasury's financial analysis
methodology, its rules regarding credit for reinsurance, and the
documentation it requires to perform its review of companies seeking
designation and renewal as certified sureties or admitted reinsurers.
The RFI closed for comments on February 13, 2020. The comments received
informed, in part, Treasury's decision to develop and propose this
rulemaking.
---------------------------------------------------------------------------
\1\ 84 FR 72138.
---------------------------------------------------------------------------
The Bureau of the Fiscal Service coordinated closely with
Treasury's Federal Insurance Office in developing both the RFI and the
following proposed regulations.
A. Reinsurance
Since the earliest days of the surety program, Treasury considered
an evaluation of reinsurance to be an important part of its review and
analysis of surety companies' abilities to carry out their contracts.
Treasury Circular 105, dated December 22, 1906, instituted a limitation
on surety companies that prevented them from underwriting any risk in
excess of 10 percent of their paid-up capital and surplus unless the
amount exceeding the 10 percent limitation was secured by ``reinsurance
to the satisfaction of this Department.'' This allowance for companies
with satisfactory reinsurance applied only to risks running to parties
other than the United States government; companies were not permitted
to underwrite any Federal risk in excess of the 10 percent limitation.
As Treasury's regulatory requirements for surety companies became
more thorough, so too did the requirements regarding reinsurance.
Treasury added a requirement in 1922 that such companies providing
reinsurance file financial statements with Treasury annually. In
addition to its list of certified surety companies, Treasury began
publishing different lists of acceptable reinsurance companies,
specifying which companies could reinsure Federal risks.
The limitation of risk, and the protection required when a risk
runs to the United States, endures in part 223 today. Sections 223.10
and 223.11 specify the 10 percent limitation (now referred to as the
underwriting limitation) and the available methods of protecting risk
in excess of that limitation. The regulations also require surety
companies to submit quarterly schedules showing their risks in excess
of the limitation and describing the protective methods they have taken
to cover their excess risks. A surety company may only use a company
holding a certificate of authority from Treasury to reinsure risks in
excess of its underwriting limitation where the United States is the
obligee. For a Treasury-certified surety to receive credit for an
excess risk on a non-Federal bond ceded to a reinsurer, the excess risk
must be reinsured either by another certified surety, or by an admitted
reinsurer.
Treasury examines a surety company's reinsurance to determine
compliance with the underwriting limitation provisions of part 223, and
as part of Treasury's analysis of whether the company is solvent and
able to carry out its contracts. The provision at 31 CFR 223.9 states
that Treasury may value the assets and liabilities of companies in its
discretion, and notes that credit for reinsurance will be allowed to
the surety company if the reinsurer holds a certificate of authority
from Treasury or is recognized by Treasury as an admitted reinsurer.
[[Page 12005]]
Additionally, Treasury allows credit for reinsurance ceded to
recognized pools or secured by trust accounts in certain circumstances.
For the surety company to receive credit for any other reinsurance,
Treasury requires the reinsurer's liability to be secured with approved
collateral.
Treasury has not significantly updated the requirements regarding
reinsurance in part 223 in many years. In that time, various changes
have taken place in the regulation of insurance that affect the
companies applying to Treasury for a certificate of authority or
renewal of their certificate. These include the completion and entry
into force of the Covered Agreements with the European Union and the
United Kingdom, providing for (among other things) the elimination of
collateral requirements, under specified conditions, for reinsurers
from those jurisdictions assuming business from United States ceding
insurers. Relatedly, in 2011 and 2019, the National Association of
Insurance Commissioners (NAIC) adopted significant amendments to its
Credit for Reinsurance Model Law and Model Regulation. These amendments
allow for United States insurers ceding reinsurance to certain foreign
reinsurers to receive credit for the ceded reinsurance with reduced or
eliminated collateral requirements. While these developments do not
directly require changes to the regulations in part 223, surety
companies have experienced increased difficulty in complying with
Treasury's requirements for collateral while also complying with their
state of domicile regulations and reducing collateral previously used
to secure non-U.S. reinsurance.
B. Financial Analysis
Prior to 1977, Treasury's regulations outlined requirements for how
it evaluated surety companies' financial statements, valued assets and
liabilities, reviewed investments, and performed its financial
analysis. In 1977, Treasury's approach changed. Treasury decided it
would only publish high-level requirements in its regulations and,
moving forward, would provide the more specific guidance regarding its
financial analysis in its annual letters or other guidance. Since then,
the letters have been issued on an annual basis, and modified from
time-to-time, to respond to program needs or to developments in the
insurance industry, as appropriate.
Over time, Treasury's annual letters have therefore become the
primary source for companies seeking information on the surety bond
program and the process for becoming certified or admitted to the
program. Treasury intends to amend its regulations to include the more
detailed information related to its financial analysis of surety
companies previously published in the annual letters.
Treasury would like to provide companies, trade associations, and
other members of the public the opportunity to formally comment on the
proposed changes to the financial analysis and credit for reinsurance
requirements in the surety bond regulations.
II. Treasury's Proposed Changes
Treasury proposes to update part 223 in three respects:
1. Update 31 CFR 223.9, 223.11, 223.12, and 223.22 to add two new
categories of reinsurers eligible for recognition: Complementary
reinsurers and alien reinsurers.
2. Update 31 CFR 223.9 to provide more detail, previously provided
in the program's guidance, as to how Treasury conducts its financial
analysis of surety companies, including the valuation of assets and
liabilities.
3. Make updates to 31 CFR 223.1, 223.2, 223.3, 223.4, 223.5, 223.6,
223.7, 223.8, 223.9, 223.10, 223.11, 223.12, 223.13, 223.14, 223.15,
223.16, 223.17, 223.18, 223.19, 223.20, 223.21, and 223.22. These
changes mostly reflect Treasury's effort to reorganize part 223 and to
ensure it includes more detailed information for companies applying for
a certificate of authority or recognition as an admitted reinsurer, or
renewal thereof. As a part of this reorganization, Sec. Sec. 223.4,
223.6, 223.13, and 223.14 will be reserved. These changes also include
technical revisions, such as updating terminology and website
addresses. Additionally, some of these changes clarify longstanding
Treasury policies that may have been unclear in the current regulations
or in the annual letters.
A. New Categories of Recognized Reinsurance Companies
Treasury proposes to add two new categories of companies that can
receive recognition from Treasury, provided they apply for recognition
and meet Treasury's requirements. The first would be known as
complementary reinsurers. Complementary reinsurers must be based in a
non-U.S. jurisdiction that is subject to an in-force Covered Agreement
addressing the elimination, under specified conditions, of collateral
requirements and must meet other requirements defined in the proposed
regulations. Certified sureties ceding reinsurance to companies
recognized as complementary reinsurers would receive credit for the
ceded reinsurance without it being secured by collateral. The second
category would be known as alien reinsurers. These companies must be
based in a jurisdiction that the NAIC recognizes as a Qualified
Jurisdiction or a Reciprocal Jurisdiction, provided that the Reciprocal
Jurisdiction is not party to an in-force Covered Agreement. These
companies must also meet other requirements defined specifically in the
proposed regulations. Certified sureties ceding reinsurance to
companies recognized as alien reinsurers would be eligible to receive
credit for the ceded reinsurance to the extent allowed by the ceding
company's state of domicile.
In addition to receiving credit for reinsurance ceded to
complementary or alien reinsurers, certified sureties could rely on
complementary reinsurers or alien reinsurers to reinsure excess risks
not running to the United States.
Treasury believes these new categories of reinsurers reflect, and
are informed by, developments and risk management practices that have
occurred or been implemented internationally or at the state level
since it last significantly updated its requirements. Treasury's
current collateral requirements were imposed due to the importance to
the Federal Government of ensuring that certified sureties have
reliable reinsurance. While it remains essential that those companies
providing reinsurance to certified sureties be steadfast in their
ability and willingness to pay when called upon, Treasury has
determined that a risk-based approach (rather than an approach strictly
favoring U.S.-based reinsurers)) to credit for reinsurance and
collateral requirements provides sufficient protection to the Federal
Government. Some insurance trade associations and companies responding
to Treasury's RFI pointed out that there have not been adverse effects
for United States ceding insurers (or their policyholders) since the
U.S. states began implementing revised NAIC model law and regulation
provisions allowing reduced collateral for some non-U.S. reinsurance in
2011. Supporting this assertion, one company pointed to data from the
NAIC showing that there has not been an increase in the amount of
uncollectible reinsurance in the United States since 2010. The changes
that have taken place in the regulation of reinsurance collateral at
the state level demonstrate that it is appropriate to evaluate
reinsurance companies based on the financial strength and market
conduct of the companies themselves, provided they are from
jurisdictions with sufficient prudential and market conduct
[[Page 12006]]
regulatory regimes. There is thus little increased risk to the Federal
Government of allowing Treasury-certified sureties to cede reinsurance
to companies from these jurisdictions with reduced or eliminated
collateral that satisfy the qualifications specified in the revised
rule. Treasury's proposed changes will still ensure that companies able
and willing to pay when called upon will be recognized as being able to
provide reinsurance for certified surety companies, but the proposed
regulations acknowledge that limiting recognition to only United States
domiciled companies (and requiring 100 percent collateral from all
other reinsurers) is no longer the best way to do so.
Treasury's current collateral requirements and local presence
requirements are not in alignment with industry trends and no longer
provide sufficient benefit to the Federal Government to justify their
restrictiveness. Many companies and insurance trade associations
responding to the RFI stated that companies have had difficulty
complying with Treasury's continued imposition of 100% collateral
requirements on ceding companies' non-U.S. reinsurance, even as the
ceding companies' state regulators began modernizing risk-based
collateral requirements. Treasury has long considered an evaluation of
a surety company's entire portfolio of reinsurance, not just the
reinsurance used to protect Federal risks, to be critical to its
analysis of the surety's solvency and ability to carry out its
contracts. Thus, Treasury's current requirements essentially give
sureties the choice of reserving capital as collateral to comply with
its requirements or reducing collateral (as allowed by their state
regulator) with attendant risk of losing their Treasury-certified
status. Accordingly, Treasury's proposal to recognize these two new
categories of reinsurers will ease the regulatory and financial burden
on certified surety companies without significantly increasing the
financial risk to the Federal Government.
B. Update to Financial Analysis Methodology
Treasury proposes amending 31 CFR 223.9 to describe in greater
detail the type of financial analysis it performs and incorporate
certain requirements regarding the valuation of companies' assets and
liabilities, credit for reinsurance, financial ratios, and other
aspects of the financial analysis. These revisions to 31 CFR 223.9
reflect requirements previously published in the annual letters and
supplemental guidance. Treasury expects that publishing these
requirements will give companies greater clarity as to Treasury's
requirements and policies moving forward.
C. Reorganization of Part 223 and Other Changes
As part of its effort to update and modernize the surety
regulations, Treasury proposes a reorganization of the provisions
contained in part 223. Current part 223's structure is largely
unchanged since it was originally codified into the Code of Federal
Regulations from Treasury circulars. The current part 223 has similar
requirements, such as baseline eligibility requirements for obtaining a
certificate of authority, scattered across sections. A company seeking
information about the requirements for applying for a certificate of
authority would need to review at least five different sections in
current part 223 as well as guidance on the surety program's website,
for example. Treasury proposes reorganizing part 223 to group similar
or related requirements together and to make the sections of part 223
flow in a more logical order. Under these revisions, part 223 would
list the requirements for an application for a certificate of authority
in one section. This proposed reorganization moves requirements in part
223 without substantive change. These changes would also add to part
223 some existing guidance and instructions from the program's website,
ensuring that part 223 could be the primary source of information for
companies seeking information about the program's requirements.
Treasury also proposes changes throughout part 223 that are mostly
technical in nature. These changes include updating organizational
references, contact addresses, and website addresses, and updating
terminology that may be outdated or confusing. Finally, some of the
changes clarify or state longstanding Treasury policies that may have
been unclear or unstated in the current part 223, the annual letters,
or elsewhere on the program's website.
One such change concerns Treasury's policy that any company engaged
in only insuring or reinsuring business of its parent, affiliated, or
controlled unaffiliated business is not eligible to obtain a
certificate of authority or recognition as a reinsurer. Such companies
have historically not been able to provide Treasury with the financial
documentation it requires to ensure that they are solvent and able to
carry out their contracts. The proposed regulations would codify this
longstanding policy.
Another change concerns Treasury's issuance of certificates of
authority to certain reinsurers. Treasury historically has allowed
companies to apply for certificates of authority to act only as
reinsurers on Federal surety bonds, provided that such reinsurers meet
all of the requirements of certified surety companies, including the
statutory requirements that the reinsurers be incorporated in the
United States and submit quarterly financial reports. Because Treasury
has historically required the reinsurers seeking a certificate of
authority to comply with all of the requirements, including the
statutory requirements, applicable to other certified companies,
Treasury intends to amend its regulations to codify its longstanding
interpretation that certificate-holding reinsurers must meet the
requirements of the surety statutes.
III. Section by Section Analysis
Section 223.1
Current Sec. 223.1 provides information about the scope of the
regulations regarding the issuance, renewal, and revocation of
certificates of authority. Proposed Sec. 223.1 adds a baseline
requirement to be eligible for a certificate of authority, that a
company that exists primarily to insure or reinsure business of its
parent, affiliated company, or controlled unaffiliated business, is not
eligible for a certificate of authority.
Section 223.2
Current Sec. 223.2 provides information as to how a company can
apply for a certificate of authority. Proposed Sec. 223.2 provides an
overview of the information Treasury requires in an application package
for a new certificate of authority or renewal of an existing
certificate of authority.
Section 223.3
Current Sec. 223.3 discusses the criteria for the issuance of a
certificate of authority. Proposed Sec. 223.3 adjusts the timing of
the annual renewal of certificates of authority, from July to August.
Proposed Sec. 223.3 would also codify Treasury's longstanding
interpretation, in view of the statutory requirement that companies
underwriting Federal surety bonds must be incorporated in the United
States, that only companies incorporated in the United States can
obtain a certificate of authority as a reinsuring company on Federal
bonds. Finally, proposed Sec. 223.3
[[Page 12007]]
updates unclear terminology and phrasing throughout.
Section 223.4
We propose moving the requirement in existing Sec. 223.4 to Sec.
223.2 as a requirement for applicants for certificates of authority.
Section 223.4 will be reserved.
Section 223.5
Current Sec. 223.5(a) requires that companies applying for
authority to write surety bonds must be actively engaged in surety
business. We propose moving this requirement to Sec. 223.1 as a
baseline eligibility requirement, with a modification that it applies
to companies engaged in the business of writing fidelity contracts as
well as surety contracts. Proposed Sec. 223.5 also updates the list of
U.S. territories where sureties may be licensed.
Section 223.6
We propose that Sec. 223.6 be reserved, as the current provision
is superfluous.
Section 223.7
Current Sec. 223.7 contains a requirement regarding the
investments of companies seeking or holding a certificate of authority.
We propose moving this requirement to Sec. 223.9(a), as it is a
requirement regarding the assets on a company's financial statements.
Proposed Sec. 223.7 would now codify provisions from the program's
annual guidance regarding instances where companies must notify
Treasury of changes that may have a significant impact on the
companies' financial statements or solvency.
Section 223.8
Current Sec. 223.8 requires that companies holding a certificate
of authority must submit annual and quarterly financial statements on
the forms utilized by the NAIC. We propose moving some of existing
Sec. 223.8 to Sec. 223.2 as an application requirement. Proposed
Sec. 223.8 contains more detailed information regarding certified
companies' quarterly reporting requirements.
Section 223.9
Current Sec. 223.9 states that Treasury may value the assets and
liabilities of companies in its discretion. It states that credit for
reinsurance will be granted for business ceded to other certified
companies or admitted reinsurers. Proposed Sec. 223.9 would be
retitled ``Determination of financial condition and other required
information'' and provides greater detail into how Treasury conducts
its financial analysis than is currently provided in Sec. 223.9.
Treasury will still issue supplemental guidance as needed, but proposed
Sec. 223.9 would become the primary source for information as to
Treasury's current requirements regarding admissibility of assets,
treatment of securities and investments, ratios, financial trends, and
other important items from a company's financial statements. These
changes to Sec. 223.9 largely reflect policies that have been
published for many years in Treasury's annual letter. Proposed Sec.
223.9 also highlights the changes to Treasury's approach to credit for
reinsurance, in allowing credit for the two new categories of
recognized reinsurers (in addition to admitted reinsurers) discussed in
proposed Sec. 223.12, below.
Section 223.10
Current Sec. 223.10 defines the limitation of risk, known as the
underwriting limitation. Proposed Sec. 223.10 would also contain a
requirement moved from Sec. 223.13 regarding how Treasury determines
the underwriting limitation. Proposed Sec. 223.10 also clarifies
Treasury's definition of the term ``single risk.''
Section 223.11
Current Sec. 223.11(b) provides the requirements for how a surety
company can use reinsurance to protect excess risks. Proposed Sec.
223.11(b) is updated to note that excess risks not running to the
United States can be protected by the recognized reinsurers in proposed
Sec. 223.12, below. Proposed Sec. 223.11(b) updates form titles and
terminology. Proposed Sec. 223.11(c) codifies in regulation a
longstanding Treasury policy previously published in the annual letters
that collateral used to secure amounts in excess of a company's
underwriting limitation cannot also be used to secure reinsurance not
authorized by Treasury to obtain credit for reinsurance under Sec.
223.9. Proposed Sec. 223.11 also breaks out and renumbers the
paragraphs in Sec. 223.11(b) for ease of reading and clarity. Proposed
Sec. 223.11 also updates unclear language and terminology throughout.
Section 223.12
Section 223.12 establishes the application requirements and
standards for a company to be recognized by Treasury as an admitted
reinsurer for surety companies doing business with the United States.
Proposed Sec. 223.12 maintains the standards for recognition as an
admitted reinsurer, while clarifying some existing terminology and
adding the timeframe for applications. Proposed Sec. 223.12 adds two
new categories of reinsurers eligible for recognition: Complementary
reinsurers and alien reinsurers.
To obtain recognition as a complementary reinsurer, a company must
be from a non-U.S. jurisdiction that is subject to an in-force Covered
Agreement. The company must also be recognized by at least one U.S.
state as a Reciprocal Jurisdiction Reinsurer, as defined by the NAIC
Credit for Reinsurance Model Law and Model Regulation.
To obtain recognition as an alien reinsurer, a company must be from
a non-U.S. jurisdiction that is recognized by the NAIC as a Qualified
Jurisdiction or as a Reciprocal Jurisdiction, provided the Reciprocal
Jurisdiction is not party to an in-force Covered Agreement. The company
must also be recognized by at least one state as a Certified Reinsurer
or Reciprocal Jurisdiction Reinsurer, as those terms are defined by the
NAIC, to obtain recognition by Treasury as an alien reinsurer. Proposed
Sec. 223.12, taken in concert with proposed Sec. 223.11, would thus
allow a certified surety to rely on one or more admitted reinsurers,
complementary reinsurers, and/or alien reinsurers to provide
reinsurance for the surety's excess risks not running to the United
States, in addition to the other acceptable methods already described
in Sec. 223.11. Additionally, proposed Sec. 223.12, in concert with
proposed Sec. 223.9, would recognize that certified surety companies
may obtain credit for reinsurance for amounts ceded to other certified
companies, admitted reinsurers, complementary reinsurers, or alien
reinsurers. Under current Sec. Sec. 223.12 and 223.9, amounts ceded to
other certified companies and admitted reinsurers are eligible for full
credit without the posting of collateral. Under proposed Sec. 223.12,
in concert with Proposed Sec. 223.9, amounts ceded to complementary
reinsurers would also be eligible for full credit without the posting
of collateral, provided the amounts were ceded after the complementary
reinsurer has been recognized by at least one U.S. state regulator as a
Reciprocal Jurisdiction Reinsurer from a jurisdiction that is subject
to an in-force Covered Agreement. Under proposed Sec. Sec. 223.12 and
223.9, amounts ceded to alien reinsurers would be eligible for credit
to the extent such credit is authorized by the surety's state of
domicile regulator. Because some alien reinsurers may be eligible for
full credit for reinsurance under state law, proposed Sec. 223.12
would also allow amounts ceded to those reinsurers to be eligible for
full credit without the posting of collateral.
[[Page 12008]]
In reviewing applications for recognition as an alien reinsurer (or
renewal of such recognition), Treasury will consider all relevant
financial data to determine if it is appropriate to grant credit for
reinsurance to the full extent allowed by the ceding company's state of
domicile. Additionally, proposed Sec. 223.9 contains a provision that
states that if Treasury determines that either the alien reinsurer or
the certified surety may be unable to carry out its obligations,
Treasury may require additional collateral for ceding companies to
receive credit for reinsurance to the extent allowed by the state.
Proposed Sec. 223.12 also codifies Treasury's policy that
companies that exist to only reinsure business of their parent,
affiliated, or controlled unaffiliated business are not eligible for
recognition as a reinsurer under the program.
Section 223.13
Current Sec. 223.13 requires that when applying a certified surety
company underwriting limitation, the full penalty of the obligation
will be regarded as the liability, and lists exceptions to that general
rule. We propose moving this requirement to Sec. 223.10 to group
requirements regarding the underwriting limitation together in the same
section. We propose reserving this section.
Section 223.14
Current Sec. 223.14 requires certified surety companies to report
to Treasury on their excess risks and protective measures taken. We
propose moving this requirement to Sec. 223.8 so it is grouped with
other ongoing, quarterly reporting requirements for certified
companies. We propose reserving this section.
Section 223.15
Section 223.15 explains how Treasury determines a company's paid-up
capital and surplus. Proposed Sec. 223.15 clarifies that this
provision applies to companies holding or seeking a certificate of
authority or to companies recognized or seeking to be recognized as
admitted reinsurers.
Section 223.16
Section 223.16 describes Treasury's list of companies holding
certificates of authority. Proposed Sec. 223.16 updates terminology
and website addresses, and also changes the publication date of the
list from July to August.
Section 223.17
Section 223.17 describes the circumstances under which an agency
official can decline to accept a bond underwritten by a certified
surety. Proposed Sec. 223.17 updates unclear language.
Section 223.18
Section 223.18 describes the ways in which Treasury may initiate
revocation proceedings against a certified company. Proposed Sec.
223.18 updates some phrasing to enhance clarity.
Section 223.19
Section 223.19 describes Treasury-initiated revocation proceedings.
Proposed Sec. 223.19 updates some phrasing to enhance clarity.
Section 223.20
Section 223.20 describes agency-initiated revocation proceedings.
Proposed Sec. 223.20 updates unclear phrasing in Sec. 223.20(b)(1)
and (h)(8). Proposed Sec. 223.20 also updates section 223.20(h)(9) by
removing references to the Treasury Financial Manual and the Annual
Letter to Executive Heads of Surety Companies.
Section 223.21
Section 223.21 describes how a company may become reinstated after
non-renewal or revocation of its certificate of authority. Proposed
Sec. 223.21 updates unclear language and codifies Treasury's practice
of allowing a waiver of the one-year waiting period in limited
instances where a company demonstrates exigent circumstances that
warrant such a waiver.
Section 223.22
Section 223.22 describes the categories of fees that Treasury
charges companies applying for certification or recognition, or renewal
of their status. Proposed Sec. 223.22 adds that fees will be charged
for new applications and applications for renewal of recognition as a
complementary or alien reinsurer.
Distribution Chart for Revised Part 223
------------------------------------------------------------------------
Old section New section
------------------------------------------------------------------------
223.3(a)(1)(i)............................ 223.2(a)(3) and (a)(8).
223.4..................................... 223.2(a)(10).
223.5(a).................................. 223.1(b).
223.6..................................... Removed.
223.7..................................... 223.9(a)(1).
223.8(a).................................. 223.2(a)(8), 223.2(b)(4).
223.8(b).................................. 223.8(a)(5).
223.13.................................... 223.10(b).
223.14.................................... 223.8(a)(2).
------------------------------------------------------------------------
IV. Procedural Analysis
Request for Comment
Treasury welcomes comments on all aspects of this proposed
rulemaking, but particularly on the specific questions below:
1. Does Treasury's proposal to recognize two new classes of
reinsurers benefit the surety industry without significantly increasing
risks?
2. Should Treasury consider alternative approaches to credit for
reinsurance than those proposed in Sec. Sec. 223.9, 223.11, and
223.12?
3. In Sec. Sec. 223.2, 223.7, 223.8, and 223.9, Treasury proposes
publishing, without substantive change, several requirements that have
been previously contained in annual guidance or on the surety program's
website. Should Treasury consider modifying these regulations or not
codifying them in the regulations?
4. Does the proposed reorganization of part 223 make the
regulations clearer and easier to follow, and would additional changes
more effectively accomplish this goal?
5. Are there additional changes Treasury should consider to better
help the surety program accomplish its mission of evaluating and
approving surety companies to do business with the United States?
Regulatory Planning and Review
The proposed rule does not meet the criteria for a ``significant''
regulatory action under Executive Order 12866. Therefore, the
regulatory review procedures contained therein do not apply.
Regulatory Flexibility Act Analysis
It is hereby certified that the proposed rule will not have a
significant economic impact on a substantial number of small entities.
The proposed changes allowing for recognition of additional reinsurance
companies would not increase any regulatory burden or have an economic
impact on small entities. The proposed rule adopts criteria for
recognition outlined in the Covered Agreements and in the NAIC Credit
for Reinsurance Model Law. Accordingly, by the time these proposed
rules are published and become effective, reinsurance companies from
relevant non-U.S. jurisdictions seeking to assume business from U.S.
ceding insurers will already be complying with similar financial
requirements. Additionally, adherence to these requirements is only
required for companies seeking recognition by Treasury; participation
in the program is voluntary. The proposed rule changes
[[Page 12009]]
regarding Treasury's financial analysis mainly codify existing
requirements and policies of which Treasury-certified sureties were
already aware. Therefore, this proposed rule will not have a
significant economic impact on a substantial number of small entities
and a regulatory flexibility analysis under the Regulatory Flexibility
Act is not required.
Unfunded Mandates Act of 1995
Section 202 of the Unfunded Mandates Reform Act of 1995, 2 U.S.C.
1532, requires agencies to prepare budgetary impact statements before
promulgating any rule likely to result in a Federal mandate that may
result in the expenditure by state, local, and tribal governments, in
the aggregate, or by the private sector, of $100 million or more in any
one year. If a budgetary impact statement is required, section 205 of
the Unfunded Mandates Reform Act also requires the agency to identify
and consider a reasonable number of regulatory alternatives before
promulgating the rule. This proposed rule will not result in
expenditures by state, local, and tribal governments, or by the private
sector, of $100 million of more in any one year. Accordingly, Treasury
has not prepared a budgetary impact statement or specifically addressed
any regulatory alternatives.
Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (Act) requires that collections
of information prescribed in the proposed rules be submitted to the
Office of Management and Budget (OMB) for review and approval.\2\ In
accordance with that requirement, Treasury has submitted the collection
of information contained in this notice of proposed rulemaking for
review. Under the Act, an agency may not conduct or sponsor, and a
person is not required to respond to, a collection of information
unless it displays a valid OMB control number. Comments on the
collection of information may be submitted electronically to
[email protected], or may be mailed to the Office of
Information and Regulatory Affairs, Office of Management and Budget,
Attention: Desk Officer for Department of the Treasury, Washington, DC
20503; and to the Surety Bond Branch, Bureau of the Fiscal Service, at
the address specified at the beginning of this document.
---------------------------------------------------------------------------
\2\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------
The collection of information in the proposed amendments is
contained in proposed Sec. 223.12(i) and (j). The proposed amendments
require companies applying for initial recognition as a complementary
reinsurer to submit to Treasury all information provided by the company
or by the supervisory authority of the company's domiciliary
jurisdiction to any U.S. state regulator in the two most recently
completed calendar years. For renewal of such recognition, companies
will submit all semi-annual and annual filing information provided by
the company or by the supervisory authority of the company's
domiciliary jurisdiction to any U.S. state regulator in the most
recently completed calendar year. Companies applying for initial
recognition as an alien reinsurer will submit to Treasury all
information provided to any U.S. state regulator in the two most
recently completed calendar years. For renewal of such recognition,
companies will submit all annual filing information provided to any
U.S. state regulator in the most recently completed calendar year.
Treasury invites further comments on: (1) Whether the proposed
collection of information is necessary for the proper performance of
Treasury's functions, including whether the information has practical
utility; (2) the accuracy of Treasury's estimate of the burden; (3)
enhancement of the quality, utility, and clarity of information to be
collected; and (4) minimizing the information collection burden on
respondents, including through the use of automated collection
techniques or other forms of information technology.
Estimated total annual reporting burden: 400 hours.
Estimated annual number of respondents: 100.
Estimated annual frequency of response: 1.
Proposed Regulations
List of Subjects in 31 CFR Part 223
Financial analysis, Reinsurance, Surety bonds.
For the reasons set forth in the preamble, we propose to amend 31
CFR part 223 as set forth below:
PART 223--SURETY COMPANIES DOING BUSINESS WITH THE UNITED STATES
0
1. The authority citation for part 223 continues to read as follows:
Authority: 5 U.S.C. 301; 31 U.S.C. 9304-9308.
0
2. Revise Sec. 223.1 to read as follows:
Sec. 223.1 Certificate of authority.
(a) The regulations in this part govern the issuance, renewal, and
revocation by the Secretary of the Treasury, acting through the U.S.
Department of the Treasury, Bureau of the Fiscal Service (Treasury), of
certificates of authority to bonding companies to do business with the
United States as sureties on, or reinsurers of, Federal surety bonds
(hereinafter ``bonds'' or ``obligations'') under the authority of 31
U.S.C. 9304-9308 and this part, and the acceptance of such obligations.
(b) A company applying for authority to write surety bonds in favor
of the United States must be engaged in the business of writing surety
or fidelity contracts at the time of its application to Treasury,
whether or not also making contracts in other classes of insurance, but
shall not be engaged in any type or class of business not authorized by
its charter or the laws of the state in which the company is
incorporated. It must be the intention of the company to engage
actively in the execution of surety bonds or fidelity contracts in
favor of the United States.
(c) A company is not eligible for a certificate of authority if it
only insures or reinsures risks of its parent, affiliated, or
controlled unaffiliated business, or is deemed by Treasury to be
primarily engaged in self-insurance.
0
3. Revise Sec. 223.2 to read as follows:
Sec. 223.2 Application for certificate of authority.
(a) Application for issuance of certificate of authority. Every
company not currently holding a certificate of authority wishing to
apply for a certificate of authority shall submit an application to
Treasury, c/o Surety Bonds Program, to the location, and in the manner,
specified online at https://www.fiscal.treasury.gov/surety-bonds/. The
company shall file the following data with Treasury, and shall transmit
therewith the fee in accordance with the provisions of Sec. 223.22:
(1) Receipt or proof of payment of the application fee in
accordance with the provisions of Sec. 223.22;
(2) A written request for a certificate of authority, signed by an
officer of the company. This request must indicate:
(i) Whether the company has previously applied for a certificate of
authority from Treasury and, if so, the date of the previous
application; and
(ii) Whether Treasury has ever previously issued the company a
certificate of authority, the reason for termination of its certificate
of authority, and the applicable dates;
(3) A certified copy of its charter or articles of incorporation
showing that it is duly authorized to conduct the business referenced
under 31 U.S.C. 9304(a)(2) and a statement from an officer of the
company certifying that:
[[Page 12010]]
(i) The company is authorized to transact surety business; and
(ii) If granted a certificate of authority, there are no
restrictions upon the company preventing it from being able to execute
and guarantee bonds and undertakings in judicial proceedings, and
guarantee contracts to which the United States is a party;
(4) A listing of the names of the company's current officers and
directors as of the date of application, including a biographical
affidavit of each officer and director per instructions online at
https://www.fiscal.treasury.gov/surety-bonds/;
(5) A memorandum setting forth:
(i) A comprehensive statement of the company's method of operation,
including, but not limited to, underwriting guidelines, claims
adjustment procedures, reinsurance philosophy, and control over
collateral;
(ii) The classes of business in which it engages;
(iii) Any special underwriting agreements, management agreements,
or pooling agreements in force. Copies of agreements must be included
with the memorandum; and
(iv) Present plans of the company as to the types of Federal bonds
it intends to write, the anticipated annual premium volume of the
Federal bonds, and the geographical areas in which it intends to write
the Federal bonds;
(6) A certified copy of a license from its state of incorporation
and a completed Surety License Form (Form No. FS 2208);
(7) A copy of the latest available report of its examination by its
domiciliary State Insurance Department including a copy of company
responses to any significant findings or recommendations;
(8) A statement of its financial condition, as of the close of the
last two years preceding the date of application, on the annual
statement form of the National Association of Insurance Commissioners
(hereinafter referred to in this part as NAIC) with all Schedules and
Exhibits completed, showing that it has paid-up capital of at least
$250,000 in cash or its equivalent, in the case of a stock insurance
company, or has net assets of not less than $500,000 over and above all
liabilities, in the case of a mutual insurance company. The annual
financial statement's Jurat Page (only) is to be signed (facsimile
signatures are acceptable) by the company President, Secretary, and a
Notary Public who shall also affix a notary seal;
(9) The Insurance Regulatory Information System (hereinafter
referred to in this part as IRIS) ratio results, and an explanation for
any ratios outside the normal ranges as established by the NAIC for the
last two years preceding the date of application;
(10) A written statement signed by the Insurance Commissioner or
other proper financial officer of any state attesting that the company
maintains on deposit legal investments having a current market value of
not less than $100,000 for the protection of claimants, including all
of its policyholders in the U.S.;
(11) A completed Treasury Schedule F (Form No. TFS 6314), as
referenced in Sec. 223.9(c) for the last two years preceding the date
of application;
(12) Copies of all reinsurance treaties currently in force along
with a completed Summary of Reinsurance Treaties, per instructions
provided online at https://www.fiscal.treasury.gov/surety-bonds/;
(13) A completed Schedule of Excess Risks form (Form No. FS 285-A)
as of the date of the application;
(14) A Statement of Actuarial Opinion as of the close of the last
two years preceding the date of application provided by an independent
qualified actuary, as defined by the NAIC, on the adequacy of all loss
reserves with the scope and format of the statement also conforming to
the requirements of the NAIC; and
(15) Such other evidence as Treasury may request to establish that
the company is solvent, willing, and able to meet the continuing
obligation to carry out its contracts. Treasury will publish
supplemental guidance annually regarding evidence it may require,
submission methods, and format of the data listed in paragraphs (a)(1)
through (14) of this section.
(b) Applications for renewal of certificate of authority. Every
company wishing to apply for the annual renewal of its certificate of
authority shall submit an application to Treasury, c/o Surety Bonds
Program, to the location, and in the manner, specified online at
https://www.fiscal.treasury.gov/surety-bonds/. The company shall file
the following data with Treasury, and shall transmit therewith the fee
in accordance with the provisions of Sec. 223.22:
(1) Receipt or proof of payment of the application fee in
accordance with the provisions of Sec. 223.22;
(2) A completed Surety License Form (Form No. FS 2208) and a
certified copy of the licenses from any states indicated on the Surety
License Form that were not indicated on the company's most recent form;
(3) A copy of the latest available report of its examination by its
domiciliary State Insurance Department including a copy of company
responses to any significant findings or recommendations;
(4) A statement of its financial condition, as of the close of the
preceding year, on the annual statement form of the NAIC with all
Schedules and Exhibits completed, showing that it has paid-up capital
of at least $250,000 in cash or its equivalent, in the case of a stock
insurance company, or has net assets of not less than $500,000 over and
above all liabilities, in the case of a mutual insurance company. The
Annual Financial Statement's Jurat Page (only) is to be signed
(facsimile signatures are acceptable) by the company President,
Secretary, and a Notary Public who shall also affix a notary seal;
(5) IRIS ratio results, and an explanation for any ratios outside
the normal ranges as established by the NAIC, as of the close of the
preceding year;
(6) A completed Treasury Schedule F (Form No. TFS 6314), as
referenced in Sec. 223.9(c) as of the close of the preceding year;
(7) A completed Schedule of Excess Risks form (Form No. FS 285-A)
as of the close of the preceding year;
(8) A Statement of Actuarial Opinion as of the close of the
preceding year provided by an independent qualified actuary, as defined
by the NAIC, on the adequacy of all loss reserves with the scope and
format of the statement also conforming to the requirements of the
NAIC;
(9) A listing of the names of the company's current officers and
directors as of the close of the preceding year, including a
biographical affidavit of any new officer and director for whom a
biographical affidavit was not previously provided, per instructions
online at https://www.fiscal.treasury.gov/surety-bonds/;
(10) A Report of Federal Business Written/or Assumed and
Outstanding as of the close of the preceding year, per instructions
provided online at https://www.fiscal.treasury.gov/surety-bonds/; and
(11) Such other evidence as Treasury may request to establish that
the company is solvent, willing, and able to meet the continuing
obligation to carry out its contracts. Treasury will publish
supplemental guidance annually regarding evidence it may require,
submission methods, and format of the data listed in paragraphs (b)(1)
through (10) of this section.
0
4. Revise Sec. 223.3 to read as follows:
Sec. 223.3 Issuance of certificates of authority.
(a) In determining whether to issue or renew a certificate of
authority,
[[Page 12011]]
Treasury will evaluate the whole application package under Sec. 223.2,
the financial condition of the company as determined under Sec. 223.9,
the past history of the company, and any further evidence or
information that Treasury may require the company to submit (at the
company's expense).
(b) A certificate of authority will be effective for a term that
expires on the last day of the next July. All such statutory
requirements and regulatory requirements under this part are continuing
obligations, and any certificate issued is expressly subject to
continuing compliance with such requirements. The certificate of
authority will be renewed annually on the first day of August, provided
the company remains qualified under the law, the regulations in this
part, and other pertinent Treasury requirements, and the company
submits the fee required under Sec. 223.22 by March 1st of each year.
(c) If a company meets the requirements for a certificate of
authority as an acceptable surety on Federal bonds in all respects
except it is limited to reinsure business only, it may be issued a
certificate of authority as a reinsuring company on Federal bonds. The
fees for initial application and renewal of a certificate as a
reinsuring company will be the same as the fees for a certificate of
authority as an acceptable surety on Federal bonds.
Sec. 223.4 [Removed and Reserved]
0
5. Remove and reserve Sec. 223.4.
0
6. Revise Sec. 223.5 to read as follows:
Sec. 223.5 Business.
A company holding a certificate of authority, or its agent, may
only execute (sign or otherwise validate) a surety bond in favor of the
United States in a state where it is licensed to do surety business. It
need not be licensed in the state or other area in which the principal
resides or where the contract is to be performed. The term other area
includes the District of Columbia, American Samoa, Guam, the Northern
Mariana Islands, Puerto Rico, and the U.S. Virgin Islands.
Sec. 223.6 [Removed and Reserved]
0
7. Remove and reserve Sec. 223.6.
0
8. Revise Sec. 223.7 to read as follows:
Sec. 223.7 Notification of changes.
(a) Every company certified under this part or recognized as an
admitted reinsurer pursuant to Sec. 223.12(h) must notify Treasury of
changes that have a significant impact on its financial statements or
solvency. The following is not intended to be an exhaustive list of all
changes that Treasury may require to be reported and may evaluate as
part of this analysis of the company. Treasury will publish
supplemental guidance on additional information that may be required.
Every company certified under this part or recognized as an admitted
reinsurer pursuant to Sec. 223.12(h) must notify Treasury of the
following:
(1) Capital changes. Companies must forward to Treasury, when
available, approvals by the insurance authorities of the company's lead
state regulator when changes in paid-up capital or contributions/
withdrawals to surplus have occurred;
(2) Changes in stock ownership. Stock insurance companies must
provide a statement signed and sworn to by the Secretary or Assistant
Secretary and by the Treasurer or Assistant Treasurer of the company
each time any person (whether an individual, corporation, or
organization of any kind) becomes owner of more than 5 percent of any
class of outstanding stock issued by the company;
(3) Mergers, transfer, assumption, and group/pool restructuring.
Companies must notify Treasury at least six months prior to any merger,
consolidation, transfer, assumption, material group or pool
restructuring, or name changes in which the reporting company is
involved. The company must furnish to Treasury copies or agreements or
documents pertaining to the same, as approved by the insurance
authorities of the company's lead state regulator; and
(4) Charters and bylaws amendments. Whenever a company amends its
charter or bylaws it must submit a certified copy of the amended
charter or bylaws to Treasury.
(b) Noncompliance with this section may result in Treasury denying
a company's application for its certificate of authority, its
recognition as an admitted reinsurer, renewal of its certificate of
authority, renewal of its recognition as an admitted reinsurer, or in
Treasury revoking a company's certificate of authority or recognition
as an admitted reinsurer.
0
9. Revise Sec. 223.8 to read as follows:
Sec. 223.8 Quarterly financial reporting requirements.
Every company certified under this part is required to file the
following quarterly with Treasury, c/o Surety Bonds Program, to the
location, and in the manner, specified online at https://www.fiscal.treasury.gov/surety-bonds/:
(a) A statement of its financial condition, as of the close of the
preceding quarter, on the quarterly statement form of the NAIC with all
Schedules and Exhibits completed, showing that it has paid-up capital
of at least $250,000 in cash or its equivalent, in the case of a stock
insurance company, or has net assets of not less than $500,000 over and
above all liabilities, in the case of a mutual insurance company. The
Quarterly Financial Statement's Jurat Page (only) is to be signed
(facsimile signatures are acceptable) by the company President,
Secretary, and a Notary Public who shall also affix a notary seal;
(b) A completed Schedule of Excess Risks form (Form No. FS 285-A)
as of the close of the preceding quarter;
(c) A Report of Federal Business Written/or Assumed and Outstanding
as of the close of the preceding quarter, per instructions provided
online at https://www.fiscal.treasury.gov/surety-bonds/;
(d) A copy of the latest available report of its examination by its
domiciliary State Insurance Department including a copy of company
responses to any significant findings or recommendations;
(e) A listing of the names of the company's current officers and
directors as of the close of the preceding quarter, including a
biographical affidavit of each new officer and director per
instructions online at https://www.fiscal.treasury.gov/surety-bonds/;
and
(f) Such other evidence as Treasury may request to establish that
the company is solvent, willing, and able to meet the continuing
obligation to carry out its contracts. Treasury will publish
supplemental guidance annually regarding evidence it may require,
submission methods, and format of the data listed in paragraphs (a)
through (e) of this section along with the due dates for quarterly
reporting.
0
10. Revise Sec. 223.9 to read as follows:
Sec. 223.9 Determination of financial condition and other required
information.
In determining the financial condition of every company applying
for a certificate of authority or renewal of a certificate of authority
under this part, Treasury will generally compute its assets and
liabilities in accordance with paragraphs (a) through (f) of this
section, provided that Treasury may exercise discretion in valuing the
assets and liabilities of such companies. While paragraphs (a) through
(f) of this section specify how Treasury will value certain classes of
assets and liabilities and the analysis that Treasury will perform,
they are not intended to be an exhaustive list of all assets and
liabilities that Treasury may require to be reported and may evaluate
as part of this analysis. Treasury will annually publish supplemental
guidance on the
[[Page 12012]]
financial analysis performed by Treasury, including applicable ratios
and acceptable ranges for ratios.
(a) Assets--(1) General criteria for admissibility. The cash
capital and other funds included in the financial statement must be
safely invested in accordance with the laws of the state in which it is
incorporated. Admissible assets must be reported in U.S. Dollars and
are generally limited to investments in cash, cash equivalents, short
term investments, mortgage loans (within certain limits), and real
property necessary for the conduct of a company's business. In cases
where an investment (other than U.S. Government securities and
securities of affiliates or subsidiaries) exceeds 10 percent of the
total admitted assets, Treasury may require additional supporting
documentation as needed on a case-by-case basis in order for the asset
to be admissible. Additionally, Treasury considers normal account
balances (such as, but not limited to, investment income due and
accrued, agents' balances and premiums receivables, reinsurance
recoverables on paid losses, and funds held by or deposited with ceding
reinsuring companies) to be admissible provided they meet Treasury's
standards. In order to be admissible, normal account balances may be
evaluated for transactional substance, quality, and liquidity. Some
assets that may be admissible under codification and/or certain state
permitted practices may require supporting documentation as needed on a
case-by-case basis in order to be admissible under Treasury's criteria.
Assets resulting from reinsurance transactions must meet the credit for
reinsurance standards listed under paragraph (c) of this section.
(2) Securities. Bonds, unaffiliated common stocks, and unaffiliated
preferred stocks must be valued and reported in accordance with the
NAIC's Accounting Practices and Procedures Manual (as updated or
amended from time to time) and the NAIC Securities Valuation Office
(SVO). Those with an investment grade designation will be admissible
and those with a non-investment grade designation will be considered on
a case-by-case basis.
(i) All other securities. The value of all other securities should
be valued as of December 31 and reported in U.S. Dollars. For
securities that do not have a SVO designation or have a SVO non-
investment grade designation and are significant for Treasury purposes,
Treasury may consider, if it deems appropriate, other relevant data
(e.g., prospectus, marketability/liquidity information, internal
investment strategies/philosophies) and perform an analysis to
determine whether the securities meet Treasury's criteria for
admissibility.
(ii) Securities of controlled companies. Investments in
subsidiaries, controlled entities, and affiliated entities must be
reported in accordance with the NAIC Accounting Practices and
Procedures Manual (as updated or amended from time to time).
(A) Other insurance companies. Companies owning securities of other
insurance companies, which are under the same direction and control as
the reporting company, must furnish copies of the NAIC File Upload of
the subsidiaries. The assets of these subsidiaries will be analyzed
according to the criteria set forth in this section.
(B) Non-insurance companies. Companies owning securities of non-
insurance companies, which are under the same direction and control as
the reporting company, must furnish copies of independently audited
financial statements of such companies as of the reporting date.
(3) Real estate and mortgages. Only real estate essential to the
operating needs of the company for conducting its business, and
conventional first mortgage loans on unencumbered, improved, or
productive real estate located within the United States, are
admissible. These must be reported in accordance with the NAIC's
Accounting Practices and Procedures Manual (as updated or amended from
time to time). The real estate and mortgaged property must be supported
by an appraisal report that includes the information and computations
normally used in arriving at a competent appraised value. In instances
where the aggregate values exceed 20 percent of the policyholders'
surplus, Treasury may, if it deems appropriate, require additional
supporting documentation.
(b) Minimum bail reserve requirements. Companies transacting surety
bail business must submit a schedule showing bail premiums in force,
bail liability, and the amount of any associated unearned premium
reserve.
(c) Reinsurance. (1) Companies are required to submit Treasury
Schedule F (Treasury Form No. TFS 6314) reflecting information in the
company's annual statements. Credit for reinsurance may be taken for
reinsurance in all classes of risk provided it is ceded to the
following companies:
(i) Companies holding a current certificate of authority from
Treasury;
(ii) Non-Treasury certified or recognized parents, subsidiaries,
and/or affiliates if the parent, subsidiary, and/or affiliate
participate in a pooling agreement with the Treasury certified/
recognized company and Treasury determines that the pool is financially
solvent;
(iii) Admitted reinsurers as defined under Sec. 223.12(h);
(iv) Complementary reinsurers as defined under Sec. 223.12(i);
(v) Alien reinsurers as defined under Sec. 223.12(j), up to the
extent credit is given for reinsurance ceded to the alien reinsurer by
the ceding company's state of domicile (subject to paragraph (c)(3) of
this section); and
(vi) An instrumentality or agency of the United States that is
permitted by Federal law or regulation to execute reinsurance
contracts.
(2) Treasury will give credit for reinsurance not covered in
paragraph (c)(1) of this section, to the extent of funds withheld or
letters of credit or trust agreements from unauthorized companies,
provided the company advises Treasury of the amount of funds held,
letters of credit posted or funds secured in trust for each company.
Treasury will also give credit for trust account assets associated with
multi-beneficiary trust agreements established and maintained in the
United States by overseas accredited or trusteed reinsurers listed
online at https://www.fiscal.treasury.gov/surety-bonds/, to the extent
the unauthorized ceded business is covered by these trust account
assets.
(3) If Treasury, after its review of the financial documentation
submitted by an alien reinsurer recognized pursuant to Sec. 223.12(j)
and of the financial documentation submitted by the ceding company,
determines that either company may be unable to carry out its
obligations, Treasury may require additional collateral for the ceding
company to receive credit for reinsurance to the extent credit is given
for reinsurance ceded to the Alien Reinsurer by the ceding company's
state of domicile.
(d) Risk based capital (RBC). Treasury uses RBC in determining the
financial solvency of companies, together with such companies' overall
financial results, ratios, and trends. Companies must maintain RBC
results that fall within acceptable ranges as established by the NAIC
or provide a satisfactory explanation for results that do not.
(e) Financial ratios. Treasury uses the NAIC IRIS ratios to measure
companies' solvency, profitability, and liquidity. Companies must
maintain results for these ratios that fall within acceptable ranges as
established by the NAIC or provide a satisfactory explanation for
results that do not.
[[Page 12013]]
(f) Financial results and trends. Treasury analyzes financial
results from annual and quarterly financial statements required under
this part for evidence of negative financial results or trends.
Treasury may require companies to submit additional documentation or
explanation regarding financial statements with evidence of negative
financial results or trends such as decreasing policyholders' surplus,
large underwriting losses, negative cashflows, or unsatisfactory IRIS
ratio results.
(g) Noncompliance. Noncompliance with paragraphs (a) through (f) of
this section may result in Treasury denying a company's application for
its certificate of authority, or renewal of its certificate, or in
Treasury revoking a company's certificate.
0
11. Revise Sec. 223.10 to read as follows:
Sec. 223.10 Limitation of risk.
(a) Except as provided in Sec. 223.11, no company holding a
certificate of authority shall underwrite any single risk on any bond
or policy on behalf of any individual, firm, association, or
corporation, whether or not the United States is interested as a party
thereto, the amount of which is greater than 10 percent of the paid-up
capital and surplus of such company, as determined by Treasury. Such
figure is hereinafter referred to as the underwriting limitation. For
purposes of this part, ``single risk'' is defined as the total risk
under one bond or policy regardless of the number of individual risks
under that bond or policy.
(b) In determining the underwriting limitation, the full penalty of
any surety and fidelity obligation will be regarded as the liability,
and no offset will be allowed on account of any estimate of risk that
is less than such full penalty, except in the following cases:
(1) Appeal bonds; in which case the liability will be regarded as
the amount of the judgment appealed from, plus 10 percent of said
amount to cover interest and costs;
(2) Bonds of executors, administrators, trustees, guardians, and
other fiduciaries, where the penalty of the bond or other obligation is
fixed in excess of the estimated value of the estate; in which cases
the estimated value of the estate, upon which the penalty of the bond
was fixed, will be regarded as the liability;
(3) Indemnifying agreements executed by sole heirs or beneficiaries
of an estate releasing the surety from liability;
(4) Contract bonds given in excess of the amount of the contract;
in which cases the amount of the contract will be regarded as the
liability; or
(5) Bonds for banks or trust companies as principals, conditioned
to repay moneys on deposit, whereby pursuant to any law or decree of a
court, the amount to be deposited shall be less than the penalty of the
bond; in which cases the maximum amount on deposit at any one time will
be regarded as the liability.
0
12. Revise Sec. 223.11 to read as follows:
Sec. 223.11 Limitation of risk: Protective methods.
The limitation of risk prescribed in Sec. 223.10 may be complied
with by the following methods:
(a) Coinsurance. Two or more companies may underwrite a single risk
on any bond or policy, the amount of which does not exceed their
aggregate underwriting limitations. Each company must limit its
liability upon the face of the bond or policy to an amount which must
be within its underwriting limitation.
(b) Reinsurance--(1) Bonds running to the United States. (i) With
respect to all bonds running to the United States, a company writing
such bonds must reinsure liability in excess of the underwriting
limitation with one or more companies holding a certificate of
authority from Treasury within 45 days from the date of execution and
delivery of the bond. Such reinsurance shall not be in excess of the
underwriting limitation of the reinsuring company. Where reinsurance is
contemplated, Federal agencies may accept a bond from the direct
writing company in satisfaction of the total bond requirement even
though it may exceed the direct writing company's underwriting
limitation. Within the 45-day period, the direct writing company shall
furnish to the Federal agency any requested reinsurance agreements.
However, a Federal agency may, in its discretion, require that the
direct writing company obtain reinsurance within a lesser period than
45 days, and may require the direct writing company to provide
completely executed reinsurance agreements before making a final
determination that any bond is acceptable.
(ii) Direct writing companies may use reinsurance to protect
liability in excess of their underwriting limitation for bonds required
to be furnished to the United States by the Miller Act (40 U.S.C. 3131,
as amended) covering contracts for the construction, alteration, or
repair of any public building or public work of the United States, as
well as other types of Federal bonds. Use of reinsurance or coinsurance
to protect such bonds is at the discretion of the direct writing
company. In addition to complying with the requirements of paragraph
(b)(1)(i) of this section, the direct writing company must execute the
following reinsurance agreement forms: Standard Form 273 (Reinsurance
Agreement for a Bonds Statute Performance Bond), Standard Form 274
(Reinsurance Agreement for a Bonds Statute Payment Bond), and Standard
Form 275 (Reinsurance Agreement in Favor of the United States). These
forms are available on the General Services Administration website at
www.gsa.gov.
(2) Bonds not running to the United States. A company holding a
certificate of authority from Treasury writing risks covered by bonds
or policies not running to the United States must reinsure liability in
excess of its underwriting limitation within 45 days from the date of
execution and delivery of the bond or policy with any of:
(i) One or more companies holding a certificate of authority from
Treasury;
(ii) One or more companies recognized as a reinsurer in accordance
with Sec. 223.12;
(iii) A pool, association, etc., to the extent that it is composed
of such companies; or
(iv) An instrumentality or agency of the United States that is
permitted by Federal law or regulation to execute reinsurance
contracts.
(3) Limitation. No certificate-holding company may cede to a
reinsuring company recognized under Sec. 223.12 any single risk in
excess of 10 percent of the latter company's paid-up capital and
surplus.
(c) Other methods. With respect to all risks other than Miller Act
performance and payment bonds running to the United States, which must
be coinsured or reinsured in accordance with paragraph (a) or
(b)(1)(ii) of this section respectively, the excess liability may be
protected:
(1) By the deposit with the company in pledge, or by conveyance to
it in trust for its protection, of assets admitted by Treasury, the
current market value of which is at least equal to the liability in
excess of its underwriting limitation. Assets used to protect excess
liability pursuant to this paragraph (c) cannot also be used to obtain
credit for reinsurance pursuant to Sec. 223.9(c); or
(2) If such obligation was incurred on behalf of or on account of a
fiduciary holding property in a trust capacity, by a joint control
agreement providing that the whole or a sufficient portion of the
property so held may not be disposed of or pledged in any way without
the consent of the insuring company.
0
13. Revise Sec. 223.12 to read as follows:
[[Page 12014]]
Sec. 223.12 Recognition as reinsurer.
(a) Use of recognized reinsurers. Companies holding a certificate
of authority may:
(1) Receive credit for reinsurance ceded to a reinsurer recognized
pursuant to this section, as described in Sec. 223.9(c), and
(2) Protect liability in excess of their underwriting limit on
risks not running to the United States by reinsuring the excess
liability with a reinsurer recognized pursuant to this section.
(b) Application. Every company applying for recognition by Treasury
as one of the categories of reinsurers in paragraphs (c) through (j) of
this section, or annual renewal of such recognition, shall submit an
application to Treasury, c/o Surety Bonds Program, to the location, and
in the manner, specified online at https://www.fiscal.treasury.gov/surety-bonds/. The applicant company must submit the documentation and
must meet the requirements as outlined in this section and in
supplemental guidance published by Treasury on its website.
(c) Treasury recognition. Recognition by Treasury will be effective
for a term that expires on the last day of the following October. A
list of reinsuring companies so recognized by Treasury will be
published online at https://www.fiscal.treasury.gov/surety-bonds/.
(d) Notice to Treasury. Each company recognized pursuant to this
section shall immediately notify Treasury if a U.S. state takes action
to suspend or revoke the company's license or its status or eligibility
as a Certified Reinsurer or Reciprocal Jurisdiction Reinsurer, or if
the company notifies a U.S. state that a supervisory authority in its
domiciliary jurisdiction takes regulatory action against it for serious
noncompliance with applicable law (as determined by the supervisory
authority in its domiciliary jurisdiction).
(e) Eligibility. A company is not eligible for recognition under
this section if it only insures or reinsures risks of its parent,
affiliated, or controlled unaffiliated business, or is deemed by
Treasury to be primarily engaged in self-insurance.
(f) Guidance. Treasury may issue supplemental guidance regarding
the timing, form, content, and its analysis of the submissions required
pursuant to this section. Such guidance will be posted on its website.
(g) Noncompliance. Noncompliance with the requirements of this
section may result in a company's application for recognition, or for
renewal of its recognition, being denied.
(h) Admitted reinsurers--(1) Application for recognition by U.S.
company. Any company organized under the laws of the United States or
of any state thereof, wishing to apply for recognition as an admitted
reinsurer of surety companies doing business with the United States,
shall submit an application to Treasury, c/o Surety Bonds Program, to
the location, and in the manner, specified online at https://www.fiscal.treasury.gov/surety-bonds/. The company shall file the
following data with Treasury and shall transmit therewith the fee in
accordance with the provisions of Sec. 223.22:
(i) Receipt or proof of payment of the application fee in
accordance with the provisions of Sec. 223.22;
(ii) A written request for recognition as an admitted reinsurer,
signed by an officer of the company. This request must indicate:
(A) The reason for applying for recognition;
(B) Whether the company has ever previously applied for recognition
as an admitted reinsurer, whether Treasury approved the application,
and the applicable dates; and
(C) If Treasury previously approved the company for recognition as
an admitted reinsurer, the reason for termination of its recognition
and the applicable date;
(iii) A certified copy of its charter or articles of incorporation
with all amendments as of the date of application showing the legal
name of the company and that it is authorized to write reinsurance;
(iv) A listing of the names of the company's current officers and
directors as of the date of application, including a biographical
affidavit of each officer and director per instructions online at
https://www.fiscal.treasury.gov/surety-bonds/;
(v) A certified copy of a license from any one state in which it
has been authorized to do business showing its authority to write
reinsurance and/or other lines of insurance;
(vi) A copy of the latest available report of its examination by
its domiciliary State Insurance Department including a copy of company
responses to any significant findings or recommendations;
(vii) Annual statements of its financial condition, as of the close
of the last two years preceding the date of application, on the annual
statement form of the NAIC with all Schedules and Exhibits completed,
showing that it has paid-up capital of at least $250,000 in cash or its
equivalent, in the case of a stock insurance company, or has net assets
of not less than $500,000 over and above all liabilities, in the case
of a mutual insurance company. The Annual Financial Statement's Jurat
Page (only) is to be signed (facsimile signatures are acceptable) by
the company President, Secretary, and a Notary Public who shall also
affix a notary seal;
(viii) IRIS ratio results, and an explanation for any ratios
outside the normal ranges as established by the NAIC for the last two
years preceding the date of application;
(ix) A memorandum setting forth the company's method of operation,
including lines of business written and the company's underwriting and
claims philosophy;
(x) A completed Treasury Schedule F (Form No. TFS 6314), as
referenced in Sec. 223.9(c) for two years preceding the date of
application;
(xi) A Statement of Actuarial Opinion as of the close of the last
two years preceding the date of application provided by an independent
qualified actuary, as defined by the NAIC, on the adequacy of all loss
reserves with the scope and format of the statement also conforming to
the requirements of the NAIC; and
(xii) Such other evidence as Treasury may request to establish that
the company is solvent and able to meet the continuing obligation to
carry out its contracts. Treasury will publish supplemental guidance
annually regarding evidence it may require, submission methods, and
format of the data listed in paragraphs (h)(1)(i) through (xi) of this
section.
(2) Application by a U.S. branch. A U.S. branch of a non-U.S.
company applying for such recognition must file the following data with
Treasury, and shall transmit therewith the fee in accordance with the
provisions of Sec. 223.22:
(i) The submissions listed in paragraphs (h)(1)(i) through (xii) of
this section, except that the financial statement of such branch shall
show that it has net assets of not less than $250,000 over and above
all liabilities; and
(ii) Evidence satisfactory to Treasury to establish that it has on
deposit in the United States not less than $250,000 available to its
policyholders and creditors in the United States.
(3) Application for renewal of recognition as an admitted
reinsurer. Any company recognized pursuant to paragraphs (h)(1) or (2)
of this section wishing to apply for renewal of its recognition shall
submit an application to Treasury, c/o Surety Bonds Program, to the
location, and in the manner, specified online at https://www.fiscal.treasury.gov/surety-bonds/. The company must file the
following data with Treasury and shall transmit
[[Page 12015]]
therewith the fee in accordance with the provisions of Sec. 223.22:
(i) Receipt or proof of payment of the application fee in
accordance with the provisions of Sec. 223.22;
(ii) A copy of the latest available report of its examination by
its domiciliary State Insurance Department including a copy of company
responses to any significant findings or recommendations;
(iii) Annual statements of its financial condition, as of the close
of the preceding year, on the annual statement form of the NAIC with
all Schedules and Exhibits completed, showing that it has paid-up
capital of at least $250,000 in cash or its equivalent, in the case of
a stock insurance company, or has net assets of not less than $500,000
over and above all liabilities, in the case of a mutual insurance
company. The Annual Financial Statement's Jurat Page (only) is to be
signed (facsimile signatures are acceptable) by the company President,
Secretary, and a Notary Public who shall also affix a notary seal;
(iv) IRIS ratio results, and an explanation for any ratios outside
the normal ranges as established by the NAIC as of the close of the
preceding year;
(v) A completed Treasury Schedule F (Form No. TFS 6314), as
referenced in Sec. 223.9(c) as of the close of the preceding year;
(vi) A Statement of Actuarial Opinion as of the close of the
preceding year provided by an independent qualified actuary, as defined
by the NAIC, on the adequacy of all loss reserves with the scope and
format of the statement also conforming to the requirements of the
NAIC;
(vii) A listing of the names of the company's current officers and
directors as of the close of the preceding year, including a
biographical affidavit of each new officer and director per
instructions online at https://www.fiscal.treasury.gov/surety-bonds/;
and
(viii) Such other evidence as Treasury may request to establish
that the company is solvent and able to meet the continuing obligation
to carry out its contracts. Treasury will publish supplemental guidance
annually regarding evidence it may require, submission methods, and
format of the data listed in paragraphs (h)(3)(i) through (vii) of this
section.
(i) Complementary reinsurers. Any company may apply for recognition
as a complementary reinsurer or annual renewal of such recognition
provided the company is licensed to write reinsurance by and has its
head office in (or is domiciled in) a non-U.S. jurisdiction that is
subject to an in-force Covered Agreement entered into with the United
States pursuant to 31 U.S.C. 313-314, which Covered Agreement addresses
the elimination, under specified conditions, of collateral requirements
as a condition for entering into any reinsurance agreement with a
ceding insurer domiciled in a U.S. state or for allowing the ceding
insurer to recognize credit for reinsurance. To obtain such
recognition, the company must submit to Treasury the fee in accordance
with the provisions of Sec. 223.22 and must:
(1) Meet and maintain all capital and surplus, solvency, and market
conduct requirements under the applicable Covered Agreement;
(2) Be recognized by at least one U.S. state as a Reciprocal
Jurisdiction Reinsurer, as defined by the NAIC, and submit proof of
such recognition; and
(3) Submit to Treasury:
(i) For initial applications for recognition, all information
provided by the company or by the supervisory authority of the
company's domiciliary jurisdiction to any U.S. state regulator in the
two most recently completed calendar years.
(ii) For applications for renewal of recognition, all semi-annual
and annual filing information provided by the company or by the
supervisory authority of the company's domiciliary jurisdiction to any
U.S. state regulator in the most recently completed calendar year.
(iii) Receipt or proof of payment of the application fee in
accordance with the provisions of Sec. 223.22.
(j) Alien reinsurers. Any company may apply for recognition or
annual renewal of such recognition as an alien reinsurer, provided it
is licensed to write reinsurance by, and has its head office or
domicile in, a non-U.S. jurisdiction that is recognized by the NAIC as
a Qualified Jurisdiction or as a Reciprocal Jurisdiction, provided that
the Reciprocal Jurisdiction is not party to an in-force Covered
Agreement as described in paragraph (i) of this section. To obtain such
recognition, the company must submit to Treasury the fee in accordance
with the provisions of Sec. 223.22 and must:
(1) Be recognized by at least one U.S. state as a ``Certified
Reinsurer'' or a ``Reciprocal Jurisdiction Reinsurer,'' as defined by
the NAIC or state law, and submit proof of such recognition;
(2) Meet and maintain all capital and surplus, market conduct, and
other requirements for eligibility as a ``Certified Reinsurer'' or
``Reciprocal Jurisdiction Reinsurer'' in accordance with the law and
regulation of any U.S. state granting it such recognition; and
(3) Submit to Treasury:
(i) For initial applications for recognition, all information
provided to any U.S. state regulator in the two most recently completed
calendar years.
(ii) For applications for renewal of such recognition, all annual
filing information provided to any U.S. state regulator in the most
recently completed calendar year.
(iii) Receipt or proof of payment of the application fee in
accordance with the provisions of Sec. 223.22.
Sec. 223.13 [Removed and Reserved]
0
14. Remove and reserve Sec. 223.13.
Sec. 223.14 [Removed and Reserved]
0
15. Remove and reserve Sec. 223.14.
0
16. Revise Sec. 223.15 to read as follows:
Sec. 223.15 Paid-up capital and surplus for Treasury rating
purposes; how determined.
Treasury determines the amount of paid-up capital and surplus of
any company holding or seeking a certificate of authority or recognized
(or seeking recognition) as an admitted reinsurer pursuant to Sec.
223.12(h) on an insurance accounting basis under the regulations in
this part, from the company's financial statements and other
information, or by such examination of the company at its own expense
as Treasury may deem appropriate.
0
17. Revise the first three sentences of Sec. 223.16 to read as
follows:
Sec. 223.16 List of certificate holding companies.
A list of certificate holding companies is published annually as of
August 1 in Department Circular No. 570, Companies Holding Certificates
of Authority as Acceptable Sureties on Federal Bonds and as Acceptable
Reinsuring Companies, with information as to underwriting limitations,
areas in which listed sureties are licensed to transact surety
business, and other details. If Treasury shall take any exceptions to
the financial statements submitted by a company, before issuing
Department Circular 570, Treasury shall give a company due notice of
such exceptions. Copies of the Circular are available at https://www.fiscal.treasury.gov/surety-bonds/list-certified-companies.html, or
from the Surety Bonds Program, upon request. * * *
0
18. Amend Sec. 223.17 by revising paragraphs (b)(1)(iii) and (iv) to
read as follows:
Sec. 223.17 Acceptance and non-acceptance of bonds.
* * * * *
[[Page 12016]]
(b) * * *
(1) * * *
(iii) Provide the company with an opportunity to rebut the stated
reasons or cause; and
(iv) Provide the company with an opportunity to cure the stated
reasons or cause.
* * * * *
0
19. Amend Sec. 223.18 by revising paragraphs (a) introductory text and
(a)(1) to read as follows:
Sec. 223.18 Revocation.
(a) Treasury may initiate a revocation proceeding against a
Treasury-certified company in one of two ways:
(1) Treasury, of its own accord, under Sec. 223.19, may initiate
revocation proceedings against the company when it has reason to
believe that the company is not complying with 31 U.S.C. 9304-9308 and/
or the regulations under this part; or
* * * * *
0
20. Amend Sec. 223.19 by revising the introductory text and paragraph
(b)(2) to read as follows:
Sec. 223.19 Treasury-initiated revocation proceedings.
Whenever Treasury has reason to believe that a company is not
complying with the requirements of 31 U.S.C. 9304-9308 and/or the
regulations under this part, including but not limited to a failure to
satisfy corporate and financial standards, Treasury shall:
* * * * *
(b) * * *
(2) The company responded, was provided an opportunity to
demonstrate or achieve compliance, and failed to do so.
0
21. Amend Sec. 223.20 by revising paragraphs (b)(1) and (h)(8) and (9)
to read as follows:
Sec. 223.20 Revocation proceedings initiated by Treasury upon
receipt of an agency complaint.
* * * * *
(b) * * *
(1) The agency has determined, consistent with agency authorities,
the principal is in default on the obligation covered by the bond.
Alternatively, if the default has been litigated, documentation
indicating a court of competent jurisdiction has determined the
principal is in default;
* * * * *
(h) * * *
(8) The formal adjudication standards under the Administrative
Procedure Act, 5 U.S.C. 554, 556, and 557, do not apply to the informal
hearing or adjudication process.
(9) Treasury may promulgate additional procedural guidance
governing the conduct of informal hearings.
* * * * *
0
22. Revise Sec. 223.21 to read as follows:
Sec. 223.21 Reinstatement.
If, after one year from the date that Treasury notifies the company
of its decision to decline to renew or revoke the certificate of
authority of a company under this part, the company can demonstrate
that the basis for the non-renewal or revocation has been cured, as
determined by Treasury in its discretion, and that it can comply with,
and does meet, all continuing requirements for certification under 31
U.S.C. 9304-9308 and this part, the company may submit an application
to Treasury for reinstatement or reissuance of a certificate of
authority, which will be granted without prejudice if all such
requirements are met. Treasury may waive the one year waiting period
for good cause shown, as determined by Treasury in its sole discretion.
0
23. Revise Sec. 223.22 to read as follows:
Sec. 223.22 Fees for service of the Treasury Department.
(a) Fees shall be imposed and collected, for the services listed in
paragraphs (a)(1) through (6) of this section that are performed by
Treasury, regardless of whether the action requested is granted or
denied. An online payment portal is provided at https://www.fiscal.treasury.gov/surety-bonds/. The amount of the fee will be
based on which of the following categories of service is requested:
(1) Examination of a company's application for a certificate of
authority as an acceptable surety on Federal bonds or for a certificate
of authority as an acceptable reinsuring company on such bonds (see
Sec. 223.2(a));
(2) Examination of a company's application for recognition as an
admitted reinsurer of surety companies doing business with the United
States (see Sec. 223.12(h));
(3) Examination of a company's application for recognition as a
complementary reinsurer of surety companies doing business with the
United States (see Sec. 223.12(i));
(4) Examination of a company's application for recognition as an
alien reinsurer of surety companies doing business with the United
States (see Sec. 223.12(j));
(5) Determination of a company's continuing qualifications for
annual renewal of its certificate of authority (see Sec. 223.2(b)); or
(6) Determination of a company's continuing qualifications for
annual renewal of its authority as an admitted reinsurer, complementary
reinsurer, or alien reinsurer (see Sec. 223.12).
(b) In a given year a uniform fee will be collected from every
company requesting a particular category of service, e.g.,
determination of a company's continuing qualifications for annual
renewal of its certificate of authority. However, Treasury reserves the
right to redetermine the amounts of fees annually. Fees are determined
in accordance with Office of Management and Budget Circular A-25, as
amended.
(c) Specific fee information may be obtained from the Surety Bonds
Program, or online at https://www.fiscal.treasury.gov/files/surety-bonds/user-fees.pdf. In addition, a notice of the amount of a fee
referred to in paragraphs (a)(1) through (6) of this section will be
published in the Federal Register as each change in such fee is made.
David A. Lebryk,
Fiscal Assistant Secretary.
[FR Doc. 2022-03937 Filed 3-2-22; 8:45 am]
BILLING CODE 4810-AS-P