Annual Letter A Annual Letter for Executive Officers

OMB No. 1530-0014(A)
Expiration Date: 10/31/2018
For Paperwork Reduction Act
Statement and Burden Estimate
Statement: See Last Page of Letter

December 31, 2017
Telephone (202) 874-6850
ANNUAL LETTER TO EXECUTIVE OFFICERS OF SURETY COMPANIES REPORTING TO
THE TREASURY:
PLEASE NOTE:
 This letter and all forms are available on our website:
http://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/surety_home.htm


Automated Treasury Schedule F posted on our website:
http://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/surety_home.htm



Section II: Reference to Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010.



Section III: Requirements for life insurance subsidiaries.

The 2017 Annual Statement NAIC File Upload (s.txt file only) of all companies holding a Treasury
Certificate of Authority must be filed with this Department no later than March 1, 2018.
Annual Statement NAIC File Upload (s.txt file only) should be filed for your company as well as for all
insurance company subsidiaries shown on Schedule D. The Annual Financial Statement Jurat
Page must be signed and sworn to by the Company’s President and Secretary and notarized
(facsimile signatures and notary seals are acceptable) for the reporting company and all insurance
company subsidiaries shown on Schedule D.
The NAIC File Upload (s.txt file only) must be in accordance with the NAIC Annual Statement Filing
Specifications. Please note that this Department must be notified if the Company's Annual Statement NAIC
File Upload (s.txt file only) is rejected by the NAIC or faulty in any way.
We provide all our forms on-line
(http://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/surety_home.htm)
that should be completed and made a part of the Company's filing. The filing should be
submitted with a completed checklist. The forms are, Schedule of Excess Risks (See Section
VIII in attached letter), state surety license form (See Section XIV), Treasury Schedule F (See
Section VII), and a form for reporting Federal bonds written and outstanding/or Federal bonds
assumed and outstanding (see paragraph below). Enclosed is a checklist of items to be
submitted with the annual filing. It is also posted on our website. One complete filing of all
documents due March 1 is requested, to assist us in accounting for all filings accurately and
expeditiously.

SURETY BOND BRANCH ~ 6505 BELCREST RD, RM. 345
FAX (202) 874-9978 ~ INTERNET ADDRESS www.fiscal.treasury.gov/fsreports/ref/suretyBnd/surety_home.htm

To assist this Department in analyzing the volume and types of Federal surety business that is written
and/or assumed by Treasury approved companies, note the following:



For Acceptable Sureties on Federal Bonds: make sure that the “Quarterly Report of
Federal Business Written and Outstanding” includes assumed business.
For Acceptable Reinsuring Companies: use the “Quarterly Report of Federal Business
Assumed and Outstanding.”

The form is to be submitted with your annual and quarterly filings. The most current version is
available on our website.
Treasury regulations at 31 C.F.R. 223.22 provide for collection of a fee of $5,450 applicable to renewal
of Certificates of Authority. The fee has not changed from last year. It is due February 16, 2018.
To pay your fee, go to our internet web site at
http://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/surety_home.htm
and click on “PAY ONLINE” (in the right hand column). You may pay online by credit card or ACH
Debit. We accept American Express, Discover, Visa and Master Card. If you choose to pay via ACH
debit, you must first make sure that there are no restrictions on debit activity for the bank
account you plan to use for your renewal fee payment. Checks are not accepted.
The timely submission of the required data in support of the annual reporting (e.g., financial statements
and related supporting documents of subsidiary companies, real estate appraisal reports, actuarial
opinions, NAIC Ratios, explanatory memoranda, etc.) is the responsibility of the reporting company.
DUE MARCH 1, 2018
ALL DOCUMENTS SHOULD BE EMAILED TO:
surety.bonds@fiscal.treasury.gov
(and/or to the financial analyst assigned to examine your company)
In the event that your Company is no longer writing or reinsuring Federal surety bonds, you are advised to
notify Treasury that you wish to withdraw from Treasury’s list of certified companies.
The Annual Calendar of Filings on pages 3 & 4 will be a convenient guide to all companies for reviewing filing
requirements and due dates at a glance. Annual and quarterly filing checklists are available on our website to
assist you in making complete filings by the specified due dates. The checklists should be returned to this
Department with your filings, as mentioned earlier.
Treasury has made changes to its instructions in recognition of the accomplishments made in the insurance
industry through the codification efforts, which has resulted in a more consistent and comprehensive basis of
accounting and reporting. While Treasury’s policies differ from the codified statutory accounting principles and
guidance in some instances, Treasury has and will continue to evaluate its policies to incorporate the codified
accounting principles and guidance where deemed appropriate.
Any questions regarding these instructions may be directed to the Surety Bond Branch at (202) 874-6850. We
would also appreciate any comments you may have relative to the services provided by this Section.
Melvin Saunders
Manager
Surety Bond Branch
Enclosures

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ANNUAL CALENDAR OF FILINGS IN 2018 FOR
COMPANIES HOLDING A TREASURY CERTIFICATE OF AUTHORITY
Due February 16
 Renewal Fee of $5,450 (Proof of payment to be emailed with the filing to the Surety Bond Branch)
Due March 1
(Refer also to the Checklist posted on our website)
 Annual Financial Statement Jurat Page signed and notarized for reporting company and all
insurance company subsidiaries shown on Schedule D.
 NAIC File Upload (s.txt file only) for reporting company and all insurance company
subsidiaries shown on Schedule D
 Schedule of Excess Risks – signed and notarized. Additionally, the Schedule of Excess Risks must be
submitted as an MS Excel document.*
 Treasury Schedule F * (ceded reinsurance only). The Treasury Schedule F should be submitted as an
MS Excel document. Note: The Schedule F included in the company’s Annual Statement reporting
assumed reinsurance is sufficient for Treasury rating purposes. However, if Schedule F – Part 1 of the
company’s Annual Statement showing their assumed reinsurance is not included in the company’s
Annual Statement filed by March 1, it can be submitted separately no later than April 1.*
 Treasury License Sheet *
 Report of Federal Business Written and Outstanding during the quarter * (4th quarter 2017)
For Certified Reinsurers: Federal Business Assumed and Outstanding* (4th quarter 2017)
 Annual checklist of items to be furnished (including contact person information and email address)*
>> Please note, we do not require the Insurance Expense Exhibit to be filed or
the PDF format of the Annual Financial Statement.
Due May 1
 IRIS Ratio Results (with explanations for unusual results) **
Due May 15
 Quarterly Financial Statement NAIC File Upload (s.txt file only) (1st qtr. 2018)



Schedule of Excess Risks * (1st qtr. 2018)



Report of Federal Business Written and Outstanding during the quarter * (1st qtr. 2018)
For Certified Reinsurers: Federal Business Assumed and Outstanding* (1st qtr. 2018)



Quarterly checklist of items to be furnished (including contact person information and email address)*

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Due August 15
 Quarterly Financial Statement NAIC File Upload (s.txt file only) (2nd qtr. 2018)


Schedule of Excess Risks * (2nd qtr. 2018)



Report of Federal Business Written and Outstanding during the quarter * (2nd qtr. 2018)
For Certified Reinsurers: Federal Business Assumed and Outstanding * (2nd qtr. 2018)



Quarterly checklist of items to be furnished (including contact person information and email address)*

Due November 15
 Quarterly Financial Statement NAIC File Upload (s.txt file only) (3rd qtr. 2018)


Schedule of Excess Risks * (3rd qtr. 2018)



Report of Federal Business Written and Outstanding during the quarter * (3rd qtr. 2018)
For Certified Reinsurers: Federal Business Assumed and Outstanding * (3rd qtr. 2018)



Quarterly checklist of items to be furnished (including contact person information and email address)*

Due Whenever Applicable
Miscellaneous:
 Biographical Sketches of New Officers/Directors
 Information on Changes in Reinsurance Agreements
 Information on Change in Ownership or Name Changes
 Any additional data requested by Treasury
Due When Released by State
 State Exam Report

FAILURE TO SUBMIT THIS AND/OR ANY ADDITIONALLY REQUESTED INFORMATION WHEN DUE AND/OR
REQUESTED MAY RESULT IN REVOCATION OF THE COMPANY’S CERTIFICATE OF AUTHORITY.

*Our forms are now available on-line at www.fiscal.treasury.gov/fsreports/ref/suretyBnd/forms.htm
** These items should be sent as early as possible.
Revised 12/2017

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INSTRUCTIONS RELATING TO THE SUBMISSION OF ANNUAL AND QUARTERLY FINANCIAL STATEMENTS OF
SURETY COMPANIES REPORTING TO THE TREASURY DEPARTMENT
These instructions are for the general guidance of surety companies seeking or holding a Treasury
Certificate of Authority. The guidelines set forth below are used by the Treasury Department for valuing
assets and liabilities in accordance with Department Circular No. 297, Sections 223.9 and 223.10 (31 CFR
Part 223).
Please be advised that there are areas of Treasury’s review that continues to be more conservative than
codification. This may result in a downward adjustment to a company’s policyholders’ surplus, especially if
the adjustments are found to be material to the company’s policyholders’ surplus or if the financial picture
of the company causes Treasury concern over the ultimate solvency of the company. A company will be
informed when adjustments are made to their policyholders’ surplus or when Treasury considers their
financial picture to be hazardous whereby Treasury will take action in accordance with 31 CFR 223.17.
I.

Assets – General Criteria for Admissibility:
For Treasury rating purposes, property-liability insurance companies generally are limited to investments in
cash items, marketable securities, mortgage loans (within certain limits), realty and computers necessary
for the conduct of the company’s business. Normal account balances such as Agents’ Balances are
only admissible if collectible within 90 days. Reinsurance recoverables, salvage, miscellaneous assets,
etc., are admissible if properly supported and if they meet the criteria outlined in the following instructions.
Each investment (other than U.S. Government securities and securities of affiliates or subsidiaries which
are valued in accordance with Instruction III) is limited to 10 percent of total admitted assets, net of the
item under consideration. Numerous deposits with one financial institution are also limited, in total,
to 10 percent of the total admitted assets, net of the item under consideration. For miscellaneous assets
shown in the Annual Statement, only those items, which are adequately supported as to both value and
convertibility within 90 days, shall be admissible for Treasury rating purposes. Goodwill and other
intangibles are not admissible assets for Treasury rating purposes.
Please be advised that specific assets, which are admissible under codification and/or certain state
permitted practices, will not necessarily be admissible under Treasury criteria.

II.

Securities:
In the Annual Financial Statement, securities owned by reporting companies should be valued and
reported using the following criteria:
(a) Bonds, Unaffiliated Common Stocks, and Preferred Stocks shall be valued and reported in
accordance with the NAIC’s Accounting Practices and Procedures Manual and in accordance with the
NAIC Valuations of Securities Manual, as prepared by the Securities Valuation Office (SVO).
(b) Notes, certificates and other evidences of indebtedness should be based upon market quotations
as of December 31.
When a stock, bond, or note (except securities of controlled or affiliated companies) is not rated or
valued by the SVO, the company should submit a prospectus for the non-SVO valued investment
to Treasury to support the quality and value of the investment(s). To be admissible, the investment
must be readily marketable within 90 days (see next paragraph for detail on what constitutes
marketability for Treasury-rating purposes). In addition, if the current reported value
of the stock, bond, or note exceeds 10% of the total policyholders’ surplus, the investment may be
considered non-admissible by the Treasury. Consistent with the Dodd-Frank Wall Street Reform

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and Consumer Protection Act of 2010, Public Law No. 111-203, § 939A, ratings and values of
Nationally Recognized Statistical Rating Organizations, including those registered with the U.S.
Securities and Exchange Commission, may not be used to substantiate the value and quality of
the investment.
A security is normally non-admissible unless it is readily marketable (may be liquidated within 90
days), as evidenced by it being actively traded on an active, reliable and continuous market (such as
would be achieved by trading on a national exchange or two or more regional exchanges).
Securities not rated as high quality by the NAIC (NAIC designations 3-6), may be non-admissible for
Treasury rating purposes. Securities purchased in a prior year which have been designated “Z” may also
be non-admitted for Treasury rating purposes. Additionally, securities designated “U”, may be nonadmitted unless evidence of their marketability can be demonstrated.
(c) Securities of controlled or affiliated companies should be valued in accordance with Instruction III
below.
(d) Investments in foreign stocks and foreign bonds will be permitted as long as they do not exceed a
combined value of 10% of the reporting company’s total admitted assets. Foreign investments should
be reported in U.S. dollars as of the date of the financial statement.
(e) Mutual Funds are considered admissible provided they are listed in the NAIC’s “List of Approved
Mutual Funds”.
(f) Investments reported as “other invested assets” are normally non-admissible for Treasury rating
purposes as their valuation and marketability have not been adequately supported. However, Treasury
will consider the admissibility of these investments on a case by case basis provided a prospectus for the
investment is submitted with the sections that support the investment’s marketability highlighted.
III.

Securities of Controlled Companies:
Investments in subsidiaries, controlled and affiliated entities should be reported in accordance with the
NAIC’s Accounting Practices and Procedures Manual. However, Treasury may make adjustments to the
valuations reported based on the criteria set forth by Treasury in this document.
Reporting companies owning securities of other insurance companies, which are under the same
direction and control as the reporting companies, should furnish copies of their NAIC File Upload (s.txt file
only) of such other companies. The NAIC File Upload (s.txt file only) must be in accordance with the NAIC
Annual Statement Filing Specifications.
The assets of the insurance subsidiary companies will also be analyzed according to the criteria
set forth by Treasury in this document. Should an analysis of the financial statement of the
subsidiary lead to a downward adjustment of any assets of the subsidiary, it will result in an
equivalent deduction from the Treasury listed parent company's surplus for Treasury rating
purposes. Each statement should be signed and sworn to by the President and Secretary of the
controlled company and be signed and sealed by a notary.
The common stock of insurance subsidiaries certified by Treasury, if held by other Treasury
certified companies, will be considered a non-admitted asset when determining the parent
company's Treasury underwriting limitation. This valuation method is effective for certifications dated
after December 31, 1988, and will be applied to new subsidiary relationships created by a
reorganization or by changes in the organizational structure of the group due to new acquisitions
or combinations.

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Reporting companies owning securities of subsidiary companies other than insurance companies,
which are under the same direction and control as the reporting companies, should also furnish copies
of the financial statements of such companies as of the reporting date. These statements should be
either independently audited or be certified by an officer of the controlling company. The assets of these
subsidiary companies will also be analyzed according to the criteria set forth by Treasury in this
document. Should an analysis of the balance sheet of the subsidiary lead to a downward
adjustment of any assets of the subsidiary, it will result in an equivalent deduction from the
Treasury listed parent company's surplus for Treasury rating purposes. Accordingly, the assets
reported in such balance sheets should be supported in the same detail as required in the form
prescribed by the NAIC for insurance companies. As an example, if the balance sheet shows
mortgages owned, data supporting the value of such mortgages should be furnished in the same manner
called for in Schedule B of the NAIC form, including appraisals as covered in Instruction IV below.
The Treasury normally non-admits debt instruments of affiliated companies because such
instruments generally constitute a direct or indirect loan to a substantial stockholder (see
Instruction V).
IV.

Real Estate and Mortgages - Appraisals Required:
Values shown for these items in the Annual Financial Statement will be considered in accordance with the
following criteria:
(a) Real Estate - only realty essential to the operating needs of the company for conducting its business is
admissible for Treasury rating purposes i.e., realty that is reported as property or properties occupied by
the company on the company’s Annual Statement. However, the total of all realty that is reported as
occupied by the company on the company’s annual financial statement will be admissible only to the extent
that the total reported value does not exceed 20% of policyholders’ surplus, as of the date of the
financial statement, i.e., the realty that meets this standard is admissible to the extent of reported value, or
20% of policyholder surplus, whichever is less. Real Estate should be valued in accordance with the
NAIC’s Practices and Procedures Manual (generally at cost less depreciation and net of encumbrances).
The value of each parcel of real estate must be supported by an acceptable appraisal as defined in
item (c) of this Instruction. In the case of a home office being constructed, an acceptable appraisal will be
required upon completion of the construction.
Real Estate held solely as an investment is non-admissible for Treasury rating purposes (i.e. real
estate that is reported as property or properties held for the production of income on the Company's
Annual Statement). In addition, real estate that is reported as being held or listed for sale is considered
non-admissible; however, if the real estate reported as being held or listed for sale was reported in the
prior reporting period as a property occupied by the company for conducting its business and was
considered admissible by Treasury in the prior year, that property will be considered admissible for a
period of one year to allow for its disposition.
Improved or unimproved salvage realty is normally admissible (if supported by a competent appraisal)
for a period of two years to permit its disposition. Land contracts are normally non-admissible.
b) Mortgages - conventional first mortgage loans on unencumbered, improved, or productive real
estate located within the United States are admissible. Mortgage loans meeting this criteria should
be valued and reported in accordance with the NAIC’s Practices and Procedures Manual. Mortgage loans

7

considered to be impaired as defined by the NAIC’s Practices and Procedures Manual may be deemed nonadmissible for Treasury rating purposes. The mortgaged property should be supported by a competent
appraisal, as defined in item (c) of this Instruction and should be protected by adequate fire insurance. For
this purpose "improved" property means land on which there has been substantial building. Thus,
mortgage loans on undeveloped land, construction loans, and loans on properties not being used for
purposes for which they were valued are not admissible for Treasury rating purposes.
Chattel mortgages and related instruments, whether carried as mortgages, secured notes, or collateral
loans, are also normally non-admissible for Treasury rating purposes.
(c) Appraisals - An appraisal report which includes the information and computations normally used in
arriving at a competent appraisal value based upon: (1) the property's cost; (2) market value;
and/or (3) income-producing capability, as applicable, must be furnished to support the value of each
mortgage investment made and each new parcel of real estate acquired during the calendar year. If
an appraisal is furnished covering land purchased on which the company later constructs a company office
building, it is not necessary to submit a subsequent appraisal covering construction costs of the building.
Appraisals need not be furnished covering direct mortgage loans or participation certificates in
mortgages fully insured by the FHA, VA or other instrumentality of the United States. In such cases,
Schedule B of the Annual Financial Statement should specify which Federal agency is insuring the loan.
V.

Miscellaneous Assets:
Complete information must be furnished relative to any salvage or miscellaneous assets included in the
balance sheet, and the value of such items must be satisfactorily supported, otherwise, such items will not
be allowed as admitted assets for rating purposes. Salvage, if satisfactorily supported, is normally
admissible for a period of two years to permit its disposition. Direct or indirect loans to officers,
directors, substantial stockholders (corporate or individual), or members of their families, whether
secured or not, will not be considered as admitted assets for rating purposes. Loans secured by the
company's own stock are also non-admissible.

VI.

Minimum Bail Reserve Requirements:
Companies transacting surety bail business should establish a minimum reserve (utilizing company
funds) for unearned premiums sufficient to reinsure such business in the event of insolvency. This reserve
should equal the lesser of 35 percent of bail premiums in force or $7 per $1,000 of bail liability. Bail
premiums in force are those relating to the December 31 outstanding bail liability whether or not the
premiums are recorded as earned when the bond is written, but are not intended to include bail agents'
fees. A schedule showing bail premiums in force and bail liability and the associated unearned
premium reserve should be submitted with the Annual Statement NAIC Upload File (s.txt file only).

VII.

Reinsurance:
Treasury Schedule F (Treasury Form No. TFS 6314) lists the companies, pools and associations, which
are recognized by the Treasury. It is requested that the information reflected in Schedule F of the
company's annual statement be reported on the Treasury form in accordance with instructions on the
schedule.
You can download this form from our website at
http://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/forms.htm.
The Schedule F is a spreadsheet that contains all formulas in the worksheet and automatically transfers
data to the appropriate summary pages. Companies must simply enter their data and totals and data
transfer between sections will occur automatically. All companies are reminded that the summary page of
Schedule F should be included and be accurately completed. Companies are required to submit the

8

Treasury Schedule F as a MS Excel document. However, if errors are found in the document, the applicable
financial analyst will request to have it accurately completed.
Questions or comments on the Schedule F can be directed to the Surety Bond Branch at the following email
address "surety.bonds@fiscal.treasury.gov" (and/or to the financial analyst assigned to your company).
Please indicate in the subject line: Treasury Schedule F Comments/Suggestions.
Credit may be taken for reinsurance ceded to non-Treasury authorized/recognized parents, subsidiaries
and/or affiliates (Section II (A) of Treasury Schedule F), if the parent, subsidiary and/or affiliate
participate in a pooling agreement (as outlined in Footnote 26 of the Annual Financial Statement) with the
Treasury authorized/recognized company and Treasury determines the parents, subsidiaries and/or
affiliates are solvent in accordance with the criteria set forth in this letter. However, reinsurance ceded to
a parent, subsidiary or affiliated company that is not recognized by Treasury should be listed under
Section II of the Schedule as Other Treasury Authorized Companies.
Companies may receive credit for unauthorized reinsurance to the extent of funds withheld or letters of
credit or trust agreements from unauthorized companies, provided that the Treasury is advised as to the
amount of funds held, letters of credit posted or funds secured in trust for each company.
Reinsurance payables, i.e., ceded (premium) balances payable as would be reported for the
cessions on statutory statement Schedule F, Part 3, Column 16, are allowed as offsets for
Treasury rating purposes provided there is a legal right of offset.
Credit may also be taken, with prior approval from this Department, for trust accounts assets associated
with multi-beneficiary trust agreements established and maintained in the United States by overseas
accredited or trusteed reinsurers, to the extent the unauthorized ceded business is covered by these trust
account assets.
Please note that companies recognized by the NAIC as overseas accredited trusteed reinsurers
are considered to be unauthorized by Treasury. Business ceded to these reinsurers which is not
covered by the aforementioned trust account assets, and not otherwise offset by other funds held, will
continue to be included in any applicable Schedule F penalty. In addition, please be advised that these
trust account assets cannot be used to protect excess risks reported on FMS form 285A, Treasury’s
Schedule of Excess Risks.
Credit for funds held may be accomplished by including necessary information relative to the unauthorized
reinsurance in Treasury Schedule F, Part 2. When reserves are not provided for reinsurance ceded to
unauthorized companies, the company's surplus will be adjusted for Treasury rating purposes to
provide such reserves.
Letters of credit issued to surety companies and reported in Schedule F, Part 2 of a company's financial
statement, may be recognized as an offset to reinsurance recoverables and unearned premiums for
reinsurance ceded to companies not recognized by the Treasury for reinsurance purposes. Such letters
of credit should be in U.S. currency and be valid for a period of not less than one year, with an
option to renew thereafter, and must be clean, irrevocable, unconditional letters of credit, (See
page 14), issued by any of the banks on NAIC’s current list of “Banks Meeting Credit Standards for Issuing
Letters of Credit.” If such LOC’s are issued by more than one bank, the LOC should specify how the
funds are to be drawn on. Treasury does not accept LOC’s with multiple beneficiaries. Copies must be
provided of Letters of Credit, Trust Agreements and Trust Account balances as of year-end in support of
the 3 largest amounts reported on the Treasury Schedule F, Part 2, Cols. B and C.

9

Treasury considers reinsurance recoverables on paid losses, which are over 90 days past due, to
be non-admitted assets. If such recoverables are of a material nature, the reduction of loss
reserves for the associated unpaid recoverables and IBNR will be disallowed.
To prevent an adjustment to surplus, Treasury should be provided with detailed information concerning
collection practices, corrective measures being taken, and/or other relevant information.
Treasury should also be provided an explanation for material amounts classified as "in dispute".
The IBNR reported on Treasury Schedule F should agree with the IBNR reported on page 10 of the
financial statement.
VIII.

Excess Risks and Quarterly Financial Statements:
Treasury regulations provide that no company authorized to do business with the United States may
expose itself on a single risk in an amount exceeding 10 percent of its combined capital and surplus, as
established by the Treasury, unless the excess liability is protected by one of the several means
authorized in 31 CFR Part 223.11 (Treasury Circular 297). Each company should report quarterly to the
Treasury every risk, which it has underwritten, either directly or through assumed reinsurance, during the
preceding three months, in excess of its Treasury underwriting limitation. These requirements are
not limited to surety risks but apply to bonds or policies in all lines of business (e.g. fire, marine,
commercial liability, etc.), whether or not the United States is a party to the risk.
Quarterly reports of such excess risks should be made on Treasury Form TFS 285-A, Schedule of
Excess Risks as an MS Excel document. If there are no excess risks to report, a letter to this effect is
sufficient along with the same signatures as required on the form.
When an excess risk running to the United States is reinsured, reinsurance agreement forms required
by 31 CFR 223.11 should be executed and filed in accordance with the instructions given on the forms.
Use Standard Form 273 for Miller Act Performance Bonds, Standard Form 274 for Miller Act Payment
Bonds and Standard Form 275 for all other Federal bonds. Should any standard form be signed by an
attorney-in-fact instead of an officer of the company, a power of attorney issued by the Company
authorizing the attorney-in-fact should be attached to the Schedule of Excess Risks with the relevant form.
Please be advised that letters of credit are not considered an acceptable method of protecting excess
risks. In addition, assets held in trust that are reported as an offset to the unauthorized reinsurance
penalty on the Company’s Treasury Schedule F cannot be used to protect excess risks reported on the
Company’s Schedule of Excess Risks. Separate trusteed assets that meet Treasury’s admissibility
requirements may be used for this purpose.
Quarterly NAIC File Upload (s.txt file only) must be in accordance with the NAIC Annual Statement
Filing Specifications for the s.txt file. The Quarterly Financial Statement’s Jurat Page and Schedule of
Excess Risks should be signed and sworn to by the company's President and Secretary and signed and
sealed by a notary.

IX. Capital Changes:
Where there have been changes in paid-up capital and/or contributions to surplus, there should be
forwarded, if available, certificates by the insurance supervisory authorities of the company's State of
incorporation, certifying to the verification of such transactions.

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X.

Changes in Stock Ownership:
The Treasury requires each stock surety company to furnish a list of stockholders in support of its
application. It is required that each such company submit a statement signed and sworn to by the
Secretary or Assistant Secretary and by the Treasurer or Assistant Treasurer of the reporting company,
each time in the future any person becomes owner of more than 5 percent of any class of
outstanding stock issued by the company, within 10 days after such change in ownership. Any such
changes which have occurred subsequent to the submission of the original list and which have not been
reported to date should be forwarded with the Annual Financial Statement. Also, whenever the record of
ownership of a stockholder increases or decreases by 5 percent or more of any class of outstanding
capital stock issued by the company, either in one transaction or in a series of transactions from time to
time, the company should file such changes within 10 days from the date as of which such changes
aggregate 5 percent or more.
If details related to the change in ownership raise material concerns, the Company's certification may be
suspended until such time as these concerns are adequately addressed. To ensure that the Company's
certification continues without interruption, it is recommended that change in ownership details be
provided to Treasury prior to affecting the change.
For purposes of these Instructions, "person" is not limited to natural persons but also includes
corporations, partnerships, pension funds, profit sharing funds, and any organization of whatever nature.

XI.

Mergers, Transfers and Assumptions, Etc.:
The Treasury should be promptly advised regarding proposed or effected mergers, consolidations,
transfers and assumptions, name changes, etc., in which the reporting company is involved. Copies of
agreements or documents pertaining thereto, as approved by the insurance department of the company's
domiciliary State, should be furnished so that the Treasury may take timely action and advise Federal bondapproving officers accordingly, where necessary.

XII.

Charter & Bylaws Amendments:
In the event that the charter or bylaws of a company have been amended during the period, a certified
copy of such amendment or amended charter or amended bylaws should be submitted, unless these
papers have been previously filed with the Treasury.

XIII.

Actuarial Opinion and Explanatory Memoranda - Loss Reserves, Etc.:
A statement of actuarial opinion on the adequacy of all loss reserves of the company should be provided by
an independent “qualified actuary” as defined by the NAIC. The scope, format and opinion of the report
should also conform to the requirements of the NAIC Annual Statement Instructions for Property and
Casualty Companies.
In the event that a company has taken significant action in any area of operation which would not be
evident from a review of the company's financial statements, such action should be explained fully in a
supporting memorandum. For example, if during the year the company has increased loss reserves to
compensate for inadequate prior years' reserves, the circumstances and amount involved should be
explained (including specific advice as to the extent the incurred losses shown in Schedule P were
adjusted, on the basis of a review of unpaid losses as contrasted with the payment of losses). Where a
pooling arrangement exists, an actuarial opinion on the reserve adequacy of the pool should be
provided, along with a worksheet showing the percentage participation and reserves allocated to
each of the individual pool members.

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Should the Treasury's review reveal that reserves for losses incurred in prior years were
substantially inadequate in light of subsequent developments, the company's reported surplus will
be adjusted accordingly (unless the company furnishes confirmation satisfactory to the Treasury, from a
CPA firm, independent actuary or State insurance department, that its reserves are adequate at
December 31). Accordingly, companies filing annual statements which show material adverse reserve
development may wish to make plans to obtain such confirmation. If adverse development continues to
appear, such confirmation may not be accepted from the same person (CPA firm, actuary, etc.) two
consecutive years. However, if the development of the reserves is not adverse, an actuarial opinion
provided by a “qualified actuary” employed by the company will suffice.
Other actions, which might require explanatory memoranda, would be the discontinuance of unprofitable
lines, special reinsurance arrangements, and items of a similar nature.
XIV. State License Data:
Each company holding a Certificate of Authority should furnish updated surety license information
each year. Surety license information will be published in the forthcoming July 1 revision of Treasury
Department Circular 570.
The license sheet is available on line. You can now download and print this form from our
website at http://www.fiscal.treasury.gov/fsreports/ref/suretyBnd/forms.htm. It should be
completed and submitted with all current information.
XV. State Examination Reports:
If a company has been examined during the year by a State Insurance Department, a copy of the
examination report, if available, should be forwarded with the Annual Financial Statement (provided
that the Treasury has not already been furnished a copy). Copies of such reports should normally be
furnished to the Treasury within 10 days after receipt by each reporting company. If recommendations or
areas of concern are noted in the examination report by the examiners, the company should provide
Treasury a copy of the company’s response to the examiners which outlines the corrective actions that the
company is taking with respect to the recommendations or areas of concern.
XVI.

Contingent liabilities:
Contingent liabilities are normally deducted from policyholders' surplus for Treasury rating purposes.

XVII.

Claims - Prompt Payments:
The Treasury expects companies to honor valid Federal claims promptly (see 31 CFR 223.18-20). In
addition, 31 U.S.C. 9307 provides that a final judgment on a Federal claim (from which no appeal or
supersedes has been taken) must be satisfied within 30 days. Failure to do so may result in
termination of a company's Certificate of Authority.

XVIII. Surplus in Excess of Capital:
A company must maintain sufficient surplus in excess of capital, to preclude the possibility of capital
impairment, for Treasury rating purposes, in order for it to continue as an acceptable surety of Federal
bonds. The Treasury will consider surplus in excess of capital to be insufficient unless, after
adjustment for Treasury rating purposes, it is equal to 100 percent of capital. The surplus
requirement must be maintained at all times during the year; failure to do so may result in
termination of a company's Certificate of Authority.

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For mutual companies and United States branches, the legally required surplus or guaranty fund,
which equates to capital under the laws of the company's domiciliary state, will be equated to capital
for Treasury rating purposes. Therefore, mutual companies and United States branches should supply
information to show the legally required surplus or guaranty fund.
XIX. Financial Results and Trends:
If a Company’s Annual or Quarterly Financial Statements show a deterioration in financial results as
evidenced by decreasing policyholders’ surplus, large underwriting or net losses, unsatisfactory ratio
results, negative cash flows, etc., Treasury may take action to revoke the Company’s Certificate of
Authority in accordance with 31 C.F.R. 223.17.
XX.

Ratio Results:
Each company should email a copy of its IRIS ratio results (calculated by the NAIC) as soon as they
are available. If a company's results are not calculated by the NAIC, Treasury should be so notified by
March 1, 2018.
In those instances where a company ceded a substantial portion of its premiums to an affiliated
company, the ratios for the consolidated statements of the company and its affiliates shall also be
emailed. To continue as an acceptable surety of Federal bonds, a company will be expected to
maintain usual results for the following ratios:

UNUSUAL VALUES
EQUAL TO OR
RATIO
OVER UNDER
900
-1. Gross Premiums Written to Policyholders’ Surplus
2. Net Premiums Written to Policyholders’ Surplus
300
-3. Change in Net Writings
33
-33
4. Surplus Aid to Policyholders’ Surplus
15
-5. Two-Year Overall Operating Ratio
100
-6. Investment Yield
6.5
3.0
7. Gross Change in Policyholders’ Surplus
50
-10
8. Net Change in Adjusted Policyholders’ Surplus
25
-10
9. Liabilities to Liquid Assets
105
-10. Gross Agents’ Balances to Policyholders’ Surplus
40
-11. One-Year Reserve Development to Policyholders’ Surplus
20
-12. Two-Year Reserve Development to Policyholders’ Surplus
20
-13. Estimated Current Reserve Deficiency to Policyholders’ Surplus
25

In those instances where a company's ratio results do not fall within the usual ranges, Treasury may notify
the company of its concern over the company's financial condition. The company will be afforded an
opportunity to respond to Treasury's concern. The risk-based capital (RBC) ratio should be
maintained at 200% or more at all times.
If information submitted by the company is not sufficient to satisfy the Treasury of the company's
continued ability to keep and perform its contracts, Treasury will commence proceedings to
terminate the company's Certificate of Authority. (See 31 CFR 223.17.)

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Paperwork Reduction Act Statement
By authority of 31 U.S.C. 9304-9308, 31 CFR, Part 223, the information requested in this letter is required to retain a benefit and to enable
the Assistant Commissioner, Management, Bureau of the Fiscal Service, Department of the Treasury, to determine if your company is
maintaining compliance with the requirements of the Department of the Treasury in order for your company to remain qualified and
acceptable as a surety or reinsurer of Federal bonds. Certified companies are required to file this information with Treasury once each year
on March 1. Failure to provide this information will result in non-compliance with Treasury regulations and may result in revocation of your
Company's authority.
Burden Estimate Statement
The estimated average burden associated with this collection is 39.75 hours per respondent or record keeper, depending on individual
circumstances. Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed
to the Bureau of the Fiscal Service, Division of Business Integration, Records Management Branch, Room 345, 6505 Belcrest Rd, Hyattsville,
MD 20782. THIS ADDRESS SHOULD ONLY BE USED FOR COMMENTS AND/OR SUGGESTIONS CONCERNING THE AMOUNT OF
TIME SPENT TO COLLECT THIS DATA. DO NOT SEND THE COMPLETED PAPERWORK TO THE ADDRESS ABOVE FOR
PROCESSING.

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NOTE: FORMAT OF LETTER OF CREDIT TO BE USED BY SURETY COMPANIES DOING
BUSINESS WITH THE UNITED STATES, IF APPLICABLE.
In order to be admissible for financial statement purposes, any letter of credit shall be in the format given
below.
(References: 31 CFR 223.9 and 223.11 (c) (1); Treasury's Current Annual Letter to Executive Officers of
Surety Companies Reporting to the Treasury, Instruction VII and VIII)
LETTERHEAD OF BANK
(Bank Must be Listed on NAIC’s “Banks Meeting Credit Standards for Issuing Letters of Credit”)

NAME OF BENEFICIARY:
REF: IRREVOCABLE CLEAN LETTER OF CREDIT NO.
Gentlemen:
At the request of

we have established our clean, Irrevocable Credit No.

in your favor as

stated below:
AMOUNT:
EXPIRING ON:
If we receive here at our office, on or before the expiry hereof, your sight draft on us, mentioning
our reference number, for all or part of this credit, we will promptly honor the draft. It is a
condition of this Letter of Credit that it will be automatically extended for periods of one year from
the then relevant expiry date unless thirty (30) days prior to that relevant expiry date the issuer, by
written notice to the beneficiary, elects not to extend this Letter of Credit. Except as stated herein,
this undertaking is not subject to any conditions or qualifications whatsoever. Should you have
any occasion to communicate with us regarding this credit, kindly direct your communications to
the attention of
.
Sincerely,

TELEPHONE:
EMAIL ADDRESS:

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