[Federal Register Volume 91, Number 26 (Monday, February 9, 2026)]
[Proposed Rules]
[Pages 5691-5694]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2026-02537]
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DEPARTMENT OF LABOR
Office of Workers' Compensation Programs
20 CFR Part 703
Division of Longshore and Harbor Workers' Compensation Guidance
for Insurance Carrier Security Deposit Requirements
AGENCY: Office of Workers' Compensation Programs.
ACTION: Notification of guidance.
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SUMMARY: The Office of Workers' Compensation Program is issuing this
guidance to clarify the securitization requirements for insurance
carriers authorized under the Longshore and Harbor Workers'
Compensation Act (LHWCA) and its extensions. This guidance establishes
a rubric which allows OWCP to adjust the insurance carriers'
obligations based on their fiscal stability and performance within the
Longshore industry and serves to establish a clear and standardized
process for determining the amount of collateral an authorized
insurance carrier must deposit to cover its potential liabilities. This
clarification benefits insurance carriers by providing predictability
which aids in capital planning and avoids arbitrary or unexpected
security adjustments. This also helps to standardize compliance across
the industry and ensures authorized carriers secure their critical
obligations.
This sub-regulatory guidance does not supersede existing
regulations and is intended to provide insurance carriers (carriers)
with clarification on the posting of security deposits to collateralize
liabilities.
DATES: February 9, 2026.
ADDRESSES: Division of Longshore and Harbor Workers' Compensation, U.S.
Department of Labor, 200 Constitution Avenue NW, Suite S-3524,
Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: You may contact Ryan Jansen, Acting
Director, Division of Longshore and Harbor Workers' Compensation, U.S.
Department of Labor, 200 Constitution Avenue NW, Suite S-3524,
Washington, DC 20210, at [email protected], or Lorynn Holloway,
Office of Public Affairs, 202-693-3435, [email protected].
SUPPLEMENTARY INFORMATION: As stated under 20 CFR 703.201, security
deposits provide compensation and medical
[[Page 5692]]
benefit payments when a carrier defaults on obligations incurred under
the Longshore and Harbor Workers' Compensation Act (LHWCA) and its
extensions.\1\ These security deposits also guarantee the payment of
benefits to injured workers when a carrier becomes insolvent and its
obligations are not otherwise fully secured by a State guaranty fund.
As 20 CFR 703.201 provides, ``any gap in State guaranty fund coverage
will have a direct effect on the amount of security'' the Office of
Workers' Compensation Program's (OWCP's) Division of Longshore and
Harbor Workers' Compensation (DLHWC) will require a carrier to post. 20
CFR 703.202 reinforces the role State guaranty funds play in
determining the security amount to be requested of carriers, and in
addition, lists factors the DLHWC can use when evaluating the extent to
which State guaranty funds secure carrier obligations. 20 CFR 703.202.
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\1\ The LHWCA extensions are--Defense Base Act (DBA), Non-
Appropriated Funds Instrumentalities Act (NAFIA), and Outer-
Continental Shelf Lands Act (OCSLA).
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Per 20 CFR 703.203, carriers can apply for initial authorization
and re-apply annually to write insurance policies under the LHWCA and
its extensions. Applications are processed through DLHWC's Branch of
Financial Management Insurance and Assessment (Branch). As part of the
application process, initial and annual, the Branch may consider
several factors in setting security deposit amounts as identified under
20 CFR 703.204(b)(1-6). Factors the Branch may consider include:
1. Financial strength of the carrier as determined by private
insurance rating organizations;
2. Financial strength of the carrier's insureds in the Longshore
industry;
3. Extent to which State guaranty funds secure the carrier's LHWCA
obligations in the event the carrier defaults on its obligations or
becomes insolvent;
4. Carrier's longevity in writing LHWCA or other workers'
compensation coverage;
5. Extent of carrier's exposure for LHWCA coverage; and
6. Carrier's payment history in satisfying its LHWCA obligations.
20 CFR 703.204(b)(1-6). Carriers may be eligible to avoid posting a
security deposit under Sec. 703.204(c)(1) if they receive the highest
rating from the three insurance rating services designated by the
Branch in the current and immediately preceding year, or under Sec.
703.204(c)(2), if their liabilities will be fully covered by a state
guaranty fund. For all other carriers that write more than an
insignificant amount of LHWCA insurance, Sec. 703.204(c)(3) affords
the Branch the ability to authorize a security deposit between 33\1/3\
and 100 percent of obligations not secured by a State guaranty fund.
The factors outlined in Sec. 703.204(b)(1-6) guide the Branch in
determining whether the evidence submitted by a carrier supports a
request to lower unsecured obligations within the range noted above.
While each factor will be reviewed separately, any discount will be
reviewed in combination with other factors and in accordance with the
Insurance Carrier Security Deposit Requirements in 20 CFR 703.201-213.
Reduction in security deposits may not be applicable if a conflict
arises with any other part of these regulations.
If an applicant (carrier) disagrees with the Branch's decision, in
accordance with Sec. 703.204(d) it must request a hearing in writing
within 10 days of the Branch's decision. Factors and additional
guidance listed under Sec. 703.204 are discussed below.
(1) Financial Strength of the Carrier as Determined by Private
Insurance Rating Organizations
The following chart outlines maximum reductions in securitization
attributed to a carrier's liabilities not subject to State guaranty
funds, based on the carrier's ratings from three rating agencies.
Carriers able to provide ratings from the 3 authorized
rating agencies may be eligible for the maximum discount available,
contingent on the ratings; \2\
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\2\ A carrier capable of acquiring simultaneous highest ratings
from the 3 rating agencies designated by OWCP for both the current
and immediately preceding year will not require a security deposit.
See 20 CFR 703.204(c)(1).
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Carriers able to submit only two ratings will have an
automatic reduction of 1 discount tier, as shown in the chart below,
from their maximum rating discount; and
Carriers able to submit only 1 rating will have an
automatic reduction of 2 discount tiers from their maximum rating
discount.
If a carrier provides reports from more than one rating agency,
OWCP will use the lower rating to calculate the percentage.
OWCP utilizes the applicants' Long-term (LT) Issuer Credit Rating
(ICR) when determining the applicable `Discount Tier'. The LT ICR must
be from the carrier requesting a reduction of its security deposit.
OWCP will not accept the LT ICR from the applicant's parent company.
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\3\ Any company identified with LT ICR rating in Tier 9 will be
ineligible for any reductions defined in sections 2-6 of this
guidance.
Table 1--Securitization Discount Based on Carrier's Long-Term Issuer Credit Rating
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Max percent Securitization
S&P credit AM Best discount from requirement Discount
FITCH credit rating rating insurance 100% after discount tier \3\
credit rating securitization (%)
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AAA.......................... AAA............. aaa............ 66.67 33.33 1
AA+.......................... AA+............. aa+............ 50 50.00 2
AA........................... AA.............. aa............. 50 50.00 2
AA-.......................... AA-............. aa-............ 40 60.00 3
A+........................... A+.............. a+............. 40 60.00 3
A............................ A............... a.............. 33.33 66.67 4
A-........................... A-.............. a-............. 33.33 66.67 4
BBB+......................... BBB+............ bbb+........... 25 75.00 5
BBB.......................... BBB............. bbb............ 15 85.00 6
BBB-......................... BBB-............ bbb-........... 5 95.00 7
BB+.......................... BB+............. bb+............ 0 100.00 8
BB........................... BB.............. bb............. 0 100.00 8
BB-.......................... BB-............. bb-............ 0 100.00 8
B+........................... B+.............. b+............. 0 100.00 8
B............................ B............... b.............. 0 100.00 8
[[Page 5693]]
B-........................... B-.............. b-............. 0 100.00 8
CCC+......................... CCC+............ ccc+........... 0 100.00 9
CCC.......................... CCC............. ccc............ 0 100.00 9
CCC-......................... CCC-............ ccc-........... 0 100.00 9
CC........................... CC.............. cc............. 0 100.00 9
C............................ C............... c.............. 0 100.00 9
DDD.......................... DDD............. N/A............ 0 100.00 9
DD........................... DD.............. N/A............ 0 100.00 9
D............................ D............... N/A............ 0 100.00 9
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(2) Financial Strength of the Carrier's Insureds in the Longshore
Industry
For carriers submitting financial information related to the
financial strength of their insureds, the carrier's securitization
related to their non-state guaranteed liabilities can be reduced or
increased from the percentage calculated in factor 1 by the average
financial strength of the insureds covered by LHWCA policies. However,
for any insured with ratings at or below the 0% discount, the lowest
rating will govern this factor (2), resulting in no discount on the
carrier's overall securitization and up to 100% reduction of the
discounts calculated under other factors. For this factor to be used at
all, 100% of insureds with credit ratings must be submitted, and those
without credit ratings must include a statement explaining why a credit
rating was not available (i.e., privately held company).
Table 2--Securitization Discount Based on Insureds' Long-Term Issuer Credit Rating
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AM Best insurance Max percent adjustment from
FITCH credit rating S&P credit rating credit rating 100% securitization
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AAA................................ AAA................... aaa................... 33.33
AA+................................ AA+................... aa+................... 33.33
AA................................. AA.................... aa.................... 25
AA-................................ AA-................... aa-................... 25
A+................................. A+.................... a+.................... 20
A.................................. A..................... a..................... 20
A-................................. A-.................... a-.................... 15
BBB+............................... BBB+.................. bbb+.................. 15
BBB................................ BBB................... bbb................... 10
BBB-............................... BBB-.................. bbb-.................. 5
BB+................................ BB+................... bb+................... 0
BB................................. BB.................... bb.................... 0
BB-................................ BB-................... bb-................... -10
B+................................. B+.................... b+.................... -15
B.................................. B..................... b..................... -20
B-................................. B-.................... b-.................... -30
CCC+............................... CCC+.................. ccc+.................. -40
CCC................................ CCC................... ccc................... -50
CCC-............................... CCC-.................. ccc-.................. -60
CC................................. CC.................... cc.................... -70
C.................................. C..................... c..................... -80
DDD................................ DDD................... N/A................... -90
DD................................. DD.................... N/A................... -100
D.................................. D..................... N/A................... -100
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(3) Extent to Which State Guaranty Funds Secure the Carrier's LHWCA
Obligations in the Event the Carrier Defaults on Its Obligations or
Becomes Insolvent
This factor is only relevant to liabilities subject to coverage by
State guaranty funds and therefore does not apply to Defense Base Act
and other extensions' liabilities. OWCP will apply the discounts
outlined at: https://www.dol.gov/agencies/owcp/dlhwc/LS-276information.
These factors will apply on a state-by-state basis and only impact the
portion of liabilities directly related to the state guaranteed portion
of their liabilities.
(4) Carrier's Longevity in Writing LHWCA or Other Workers' Compensation
Coverage
Longevity is counted as either an additive discount to the
securitization percentage determined in prior factors, or a reduction
to those prior discounts. Longevity factors are as follows:
[[Page 5694]]
Table 3--Securitization Discount Based on Carrier's Number of Years
Writing Workers' Compensation Coverage
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Number of years writing workers' Max percent adjustment from
compensation coverage 100% securitization
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>30....................................... 10
21-30 Years............................... 5
11-20 Years............................... 0
6-10 Years................................ -50
0-5 Years................................. -100
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(5) Extent of Carrier's Exposure for LHWCA Coverage
This factor addresses a carrier's exposure to LHWCA coverage in
comparison to other exposures across the company's portfolio. Any
discount will decrease in relation to the percentage its LHWCA exposure
compares to its other workers' compensation coverage. Only companies
with 11 years or more writing policies under the LHWCA and its
extensions may qualify for this factor.
Table 4--Securitization Discount Based on Carrier's Total Liabilities
with LHWCA
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Percentage of carrier's total liabilities Max percent discount from
with LHWCA 100% securitization
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0-20...................................... 20
21-30..................................... 15
31-40..................................... 10
41-50..................................... 5
>50....................................... 0
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(6) Carrier's Payment History in Satisfying Its LHWCA Obligations
Securitization is intended to ensure that there is no interruption
of injured workers' compensation and medical benefits assumed by a
carrier authorized under the LHWCA and its extensions. A carrier's
ability to pay its obligations timely is indicative of sound
administrative and financial management. A carrier with an excellent
payment history may qualify for a 5 to 10 percent discount. However,
discounts earned for other factors may be negatively impacted if a
carrier underperforms by paying untimely.
Table 5--Securitization Discount Based on Carrier's Payment History
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Max percent adjustment from
Carrier's payment history (%) 100% securitization
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91-100.................................... 10
81-90..................................... 5
71-80..................................... 0
61-70..................................... -5
51-60..................................... -10
41-50..................................... -25
31-40..................................... -50
21-30..................................... -75
0-30...................................... -100
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As initially indicated, this sub-regulatory guidance does not
supersede existing regulations and is intended to provide carriers with
clarification on how the Office of Workers' Compensation Programs
interprets the regulatory requirements and effectuates them for the
posting of security deposits to collateralize liabilities.
Authority
The Longshore and Harbor Workers' Compensation Act (LHWCA) and its
extensions, 33 U.S.C. 901-950: Defense Base Act (DBA), 42 U.S.C. 1651-
1654; Non-Appropriated Funds Instrumentalities Act (NAFIA), 5 U.S.C.
8171-73; and Outer-Continental Shelf Lands Act (OCSLA), 43 U.S.C. 1331-
1356; implementing insurance regulations, 20 CFR 703.201-213. Longshore
Notice No. 209, January 2026, posted at www.dol.gov/agencies/owcp/dlhwc/lsindustrynotices/lsindustrynotices.
Signed in Washington, DC, February 4, 2026.
James R. Macy,
Director, Office of Workers' Compensation Programs.
[FR Doc. 2026-02537 Filed 2-6-26; 8:45 am]
BILLING CODE 4510-CR-P