[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]


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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.

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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:
    <bullet> Federal eRulemaking Portal: (https://www.regulations.gov). 
Follow the instructions on the website for submitting comments.
    <bullet> 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 
<a href="/cdn-cgi/l/email-protection#573a323b213e3979243622393332252417313e2434363b79232532362422252e79303821"><span class="__cf_email__" data-cfemail="e8858d849e8186c69b899d868c8d9a9ba88e819b8b8984c69c9a8d899b9d9a91c68f879e">[email protected]</span></a> or 304-480-5108; Bobbi McDonald, 
<a href="/cdn-cgi/l/email-protection#aeccc1ccccc780c3cdcac1c0cfc2caeec8c7ddcdcfc280dadccbcfdddbdcd780c9c1d8"><span class="__cf_email__" data-cfemail="4f2d202d2d2661222c2b20212e232b0f29263c2c2e23613b3d2a2e3c3a3d3661282039">[email protected]</span></a> or 304-480-7098; or David Crowe at 
<a href="/cdn-cgi/l/email-protection#1a7e7b6c737e347968756d7f5a7c7369797b76346e687f7b696f6863347d756c"><span class="__cf_email__" data-cfemail="177376617e7339746578607257717e6474767b39636572766462656e39707861">[email protected]</span></a> 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.
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    \1\ 84 FR 72138.
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    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
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                Old section                          New section
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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 
<a href="/cdn-cgi/l/email-protection#e38c8a9182cd9096818e8a90908a8c8da38c8e81cd868c93cd848c95"><span class="__cf_email__" data-cfemail="9af5f3e8fbb4e9eff8f7f3e9e9f3f5f4daf5f7f8b4fff5eab4fdf5ec">[email protected]</span></a>, 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


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