In the case of risks otherwise in excess of a company's limitation of risk prescribed in § 223.10, compliance may be achieved by the following methods:

(a) Coinsurance. Two or more companies holding a certificate of authority 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 respective underwriting limitation.

(b) Reinsurance—(1) Bonds running to the United States. (i) With respect to all bonds running to the United States to the extent that its excess liability is not addressed through another protective method specified in this section, 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. 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) For bonds required to be furnished to the United States by the Miller Act (40 U.S.C. 3131, as amended), 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, to the extent that its excess liability is not addressed through another protective method specified in this section, must reinsure liability in excess of its underwriting limitation within 45 days from the date of execution and delivery of the bond or policy with any of:

(i) One or more companies holding a certificate of authority from Treasury;

(ii) One or more companies recognized as a reinsurer in accordance with § 223.12, except for any reinsurer who is required by a U.S. state to post 100 percent collateral;

(iii) A pool, association, etc., to the extent that it is composed of such companies; or

(iv) An instrumentality or agency of the United States that is permitted by Federal law or regulation to execute reinsurance contracts.

(3) Limitation. No certificate-holding company may cede to a reinsuring company recognized under § 223.12 any single risk in excess of 10 percent of the latter company's paid-up capital and surplus.

(c) Other methods. With respect to all risks other than bonds required to be furnished to the United States by the Miller Act (40 U.S.C. 3131, as amended), which must be either 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. Treasury may, on a case-by-case basis, consider a letter of credit provided by a financial institution to be adequate security under this paragraph (c) if Treasury can verify that the assets referenced in the letter of credit are pledged exclusively to secure the excess risk, and if the letter of credit meets other requirements Treasury might prescribe. Assets used to protect excess liability pursuant to this paragraph (c) cannot also be used to obtain credit for reinsurance pursuant to § 223.9(c).; or

(2) If such obligation was incurred on behalf of or on account of a fiduciary holding property in a trust capacity, by a joint control agreement providing that the whole or a sufficient portion of the property so held may not be disposed of or pledged in any way without the consent of the insuring company.

[89 FR 48834, June 10, 2024]