No such company will be granted authority to do business under the provisions of the act referred to in § 223.1 unless it shall have and maintain on deposit with the Insurance Commissioner, or other proper financial officer, of the State in which it is incorporated, or of any other State of the United States, for the protection of claimants, including all its policyholders in the United States, legal investments having a current market value of not less than $100,000. [36 F.R. 9630, May 27, 1971]

(a) The company must engage in the business of fidelity insurance and suretyship, whether or not also making contracts of insurance in other classes of insurance, but shall not be engaged in any type or class of business not authorized by its charter or by 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 fidelity and surety bonds in favor of the United States.

(b) No bond is acceptable if it has been executed by a company or its agent in a State where it has not obtained that State's license to do a fidelity and surety business. However, bonds executed by any surety company at its home office or outside the boundaries of a State wherein it is not licensed for a principal residing in such State or for a contract to be performed therein are acceptable. [34 F.R. 20188, Dec. 24, 1969]

§ 223.6 Regulations applicable to surety

companies.

Every company now or hereafter authorized to do business under the act of Congress referred to in § 223.1 shall be subject to the regulations contained in §§ 223.7-223.18.

[Dept. Circ. 297, July 5, 1922]

§ 223.7 Investment of capital and assets.

The cash capital and other funds of every such company must be safely invested in accordance with the laws of the State in which it is incorporated, and

subject to the following general restrictions:

(a) No part of any said cash capital, or of any other assets or funds of any such company shall be invested in or loaned on its own stock. No part of said cash capital, or of any other assets or funds shall be loaned unless such loan shall be secured by mortgage on unencumbered improved or productive real estate within the United States, such loan not to exceed 60 percent of the current market value of the mortgaged premises; or by the pledge of bonds or stocks or other evidences of indebtedness, such loan at no time to be in excess of 90 percent of the current market value of the securities pledged; or by pledge of bonds or other evidences of indebtedness of the United States, the market value of which is equal to at least the amount loaned thereon. No part of the capital of any such company shall be or remain invested in or loaned upon any security or real estate subject to any prior lien.

(b) The general restrictions outlined in paragraph (a) of this section shall not apply to assets acquired as salvage, if they are being liquidated with reasonable promptness.

[Dept. Circ 297, July 5, 1922]

§ 223.8 Financial reports.

(a) Every such company will be required to file with the Secretary of the Treasury, on or before the last day of January of each year, a statement of its financial condition made up as of the close of the preceding calendar year upon the annual statement blank adopted by the National Association of Insurance Commissioners, signed and sworn to by its president and secretary. On or before the last days of April, July and October of each year, every such company will be required to file a financial statement with the Secretary of the Treasury as of the last day of the preceding month, on the form prescribed by the Secretary of the Treasury, and signed and sworn to by its president and secretary.

(b) Every such company shall furnish such other exhibits or information, and in such manner as the Secretary of the Treasury may at any time require.

[Dept. Circ. 297, Supp. 3, 10 F.R. 2348, Mar. 1, 1945]

and liabilities will be computed on the basis recommended by the National Association of Insurance Commissioners so far as practicable and consistent with the regulations in this part. However, the Secretary of the Treasury may, in his discretion, value the assets or other securities of such companies in accordance with the best information obtainable. Credit will be allowed for reinsurance in all classes of risks if the reinsuring company holds a certificate of authority from the Secretary of the Treasury, or has been recognized as an admitted reinsurer in accord with § 223.12.

[34 F.R. 20188, Dec. 24, 1969]

Except as provided in § 223.11, no company holding a certificate of authority shall underwrite any 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 the Secretary of the Treasury. That figure is hereinafter referred to as the underwriting limitation. [34 F.R. 20188, Dec. 24, 1969]

§ 223.11 Limitation of risk: Protective methods.

The limitation of risk prescribed in § 223.10 may be complied with by the following methods:

(a) Coinsurance. Two or more companies may underwrite a risk on any bond or policy, the amount of which does not exceed their aggregate underwriting limitations. Each company shall limit its liability upon the face of the bond or policy, to a definite specified amount which shall be within its underwriting limitation.

(b) Reinsurance. (1) In respect to ponds running to the United States, liability in excess of the underwriting limitation shall be reinsured within 45 days from the date of execution and delivery of the bond with a company holding a certificate of authority from the Secretary of the Treasury. Reinsurance is not permissable on bonds covering formal contracts with the United States for the construction of any building, or the prosecution and completion of any public work, or for repairs upon any public building or public work; such liability shall be protected in the man

ner set forth in paragraph (a) of this section; i.e., coinsurance.

(2) In respect to risks covered by bonds or policies not running to the United States, liability in excess of the underwriting limitation shall be reinsured within 45 days from the date of execution and delivery of the bond or policy with:

(i) Any company holding a certificate of authority from the Secretary of the Treasury, or

(ii) Any company recognized as an admitted reinsurer in accord with

§ 223.12, or

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

company

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

(c) Other methods. Excess liability may otherwise be protected:

(1) By the deposit with the company in pledge, or by conveyance to it in trust for its protection, of property the current market value of which is at least equal to the liability in excess of its underwriting limitation, 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 which provides that the whole or a sufficient portion of the propery so held may not be disposed of or pledged in any way without the consent of the insuring company.

[34 F.R. 20188, Dec. 24, 1969]

§ 223.12 Recognition as reinsurer.

(a) Application 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 (except on excess risks running to the United States) of surety companies doing business with the United States, shall file with the Assistant Comptroller (Chief Auditor):

(1) A certified copy of its charter or articles of incorporation, and

(2) A certified copy of a license from any State in which it has been authorized to do business, and

(3) A copy of the latest available report of its examination by a State Insurance Department, and

(4) A statement of its financial condition, as of the close of the preceding calendar year, on the annual statement

form of the National Association of Insurance Commissioners, signed and sworn to by two qualified officers of the company, showing that it has a capital stock paid up in cash of not less than $250,000, 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, and

(5) Such other evidence as the Secretary of the Treasury may determine necessary to establish that it is solvent and able to keep and perform its contracts.

(b) Application by a U.S. branch. A U.S. branch of an alien company applying for such recognition shall file with the Assistant Comptroller (Chief Auditor):

(1) The submissions listed in subparagraphs (1) through (5) of paragraph (a) 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

(2) Evidence satisfactory to the Secretary of the 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.

(c) Financial reports. Each company recognized as an admitted reinsurer shall file with the Assistant Comptroller (Chief Auditor) on or before the first day of March of each year its financial statement and such additional evidence as the Secretary of the Treasury determines necessary to establish that the requirements of this section are being met. [34 F.R. 20189, Dec. 24, 1969] § 223.13 Full penalty of the obligation

regarded as the liability; exceptions.

In determining the limitation prescribed in this part, the full penalty of the obligation will be regarded as the liability, and no offset will be allowed on account of any estimate of risk which is less than such full penalty, except in the following cases:

(a) 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.

(b) 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.

(c) Credit will also be allowed for indemnifying agreements executed by sole heirs or beneficiaries of an estate releasing the surety from liability.

(d) 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.

(e) Bonds for banks or trust companies as principals, conditioned to repay moneys on deposit, whereby 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. [Dept. Circ. 297, July 5, 1922]

§ 223.14 Schedules of single risks.

During the months of January, April, July, and October of each year every company will be required to report to the Secretary of the Treasury every obligation which it has assumed during the 3 months immediately preceding, the penal sum of which is greater than 10 percent of its paid up capital and surplus, together with a full statement of the facts which tend to bring it within the provisions of this part, on a form suitable for the purpose.

[Dept. Circ. 297, July 5, 1922]

§ 223.15

Paid up capital and surplus; how determined.

The amount of paid up capital and surplus of any such company shall be determined from the financial and other statements of such company filed with the Secretary of the Treasury as provided in this part, or by reports of examinations made by the Insurance Departments of the several States, or by such examination of such company, at its own expense, as the Secretary of the Treasury may deem necessary or proper. [Dept. Circ. 297, July 5, 1922]

§ 223.16 List of certificate holding companies.

A list of qualified companies is published annually as of July 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 licensed to transact a fidelity and surety business and other details. If the Secretary of the Treasury

shall take any exceptions to the annual financial statement submitted by a company, he shall, before issuing Department Circular 570, give a company due notice of such exceptions. Copies of the Circular are available from the Assistant Comptroller (Chief Auditor) upon request. Selection of a particular qualified company from among all companies holding certificates of authority is discretionary with the principal required to furnish bond.

[34 F.R. 20189, Dec. 24, 1969] § 223.17

Performance of obligations.

(a) Every company shall honor its obligations to Federal agencies promptly. If an agency's demand upon a company for payment of a claim against it is not settled to the agency's satisfaction, and the agency's review of the situation thereafter establishes that the default is clear and the company's refusal to pay is not based on adequate grounds, the agency may make a report to the Secretary of the Treasury, including the basis for the claim against the company; a chronological resume of efforts to obtain payment; a statement of all reasons offered for nonpayment, and a statement of the agency's views on the matter.

(b) On receipt of such report from the Federal agency the Secretary will, if the circumstances warrant, notify the company concerned that the agency report may demonstrate that the company is not keeping and performing its contracts and that, in the absence of satisfactory explanation, the company's default may preclude the renewal of the company's certificate of authority, or warrant prompt revocation of the existing certificate. This notice will provide opportunity to the company to demonstrate its qualification for a continuance of the certificate of authority.

[34 F.R. 20189, Dec. 24, 1969]

requirements. The Secretary shall revoke a company's certificate of authority with advice to it if (1) the company does not respond satisfactorily to his notification of noncompliance, or (2) the company, provided an opportunity to demonstrate or achieve compliance, fails to do so. [34 F.R. 20189, Dec. 24, 1969]

PART 224-FEDERAL PROCESS AGENTS OF SURETY COMPANIES

Sec.

224.1 Statutory provision.

224.3

224.2 Appointment of process agents. Powers of attorney appointing process agents; with whom filed. Power of attorney; form.

224.4 224.5

to

Surety companies shall forward certificates of acknowledgment Treasury; form of certificate. 224.6 Index cards (Form No. 366) should be furnished by the company. 224.7 Process agents; termination of authority; notice.

224.8 United States district courts; location of divisional offices.

AUTHORITY: The provisions for this Part 224 issued under sec. 7, 61 Stat. 648, 80 Stat. 379; 6 U.S.C. 7, 5 U.S.C. 301, unless otherwise noted.

SOURCE: The provisions of this Part 224 contained in Department Circular Letter 4, Nov. 15, 1930, unless otherwise noted.

NOTE: For redesignation of Department Circular Letter 4 of Nov. 15, 1930 as Department Circular 901 of March 20, 1952, see 17 F.R. 2605, Mar. 26, 1952.

§ 224.1 Statutory provision.

The rules and regulations in this part are prescribed for carrying into effect section 1 of the act approved July 30, 1947 (61 Stat. 646; 6 U.S.C., Sup., 7). § 224.2 Appointment of process agents.

(a) Generally. Companies should especially note that the law prohibits the doing of business under the provisions of this act beyond the State under whose laws it was incorporated and in which its principal office is located until an agent is appointed to accept Federal process on behalf of the company. An agent for the service of Federal process should be appointed: (1) In the district where the principal resides; (2) in the district where the obligation is to be undertaken and performed; and (3) also in the District of Columbia where the bond is returnable and filed. The appointment of process agents pursuant to a local State statute is not compliance

with the Federal law. Although one and the same agent may serve under both the State and Federal appointments, he must, nevertheless, be especially designated to accept Federal process. It should also be noted that the agent so designated must reside within the jurisdiction of the court for the judicial district wherein such suretyship is to be undertaken, and must be citizen of the State, Territory, or District of Columbia in which such court is held. Consequently an agent residing in the northern district of New York could not at the same time serve as the company's Federal process agent for the southern district of that State.

(b) Agent required in District of Columbia. Every company must, immediately upon receipt of its initial authority from the Secretary of the Treasury, appoint a suitable person resident in the District of Columbia on whom may be served all lawful process issued by the Federal Courts in said district. This appointment is required whether or not the company contemplates the writing of bonds in favor of the United States to be undertaken within the District of Columbia.

(c) Agent not required in State of incorporation where principal office is located. The law does not require the appointment of Federal process agents for the State under whose laws the company is incorporated, and in which its principal office is located.

[Dept. Circ. 901, 17 F.R. 2605, Mar. 26, 1952]

§ 224.3 Powers of attorney appointing process agents; with whom filed.

The clerk of the United States district court at the main office in each judicial district must be furnished with a sufficient number of authenticated copies of the power of attorney appointing an agent for the service of process to enable him to file a copy in his office, and at each other place where a divisional office of the court is located within the judicial district for which the process agent has been appointed. Such copies may be authenticated at the home office of the company by its officers duly authorized, and sworn to before an officer legally authorized to administer oaths. Where the charter of bylaws of the corporation do not confer authority on its executive officers to give such powers of attorney the authenticated copy filed with the

clerk of the court must be accompanied by a certified copy of the resolution duly adopted by its board of directors or other governing body showing that the officer making the appointment had authority to do so.

[Dept. Circ. 901, 17 F.R. 2606, Mar. 26, 19521 § 224.4 Power of attorney; form.

In making such appointments a power of attorney should be used substantially in the following form:

Know all men by these presents, that the a corporation existing under and by virtue of the laws of the State of and having its principal office at desiring to comply with section 1 of the act approved July 30, 1947 (61 Stat. 646; 6 U.S.C., Sup., 7), hereby constitutes and appoints

of

attorney and agent

its true and lawful

in and for the Judicial district of upon whom all lawful process in any action or proceeding against the company in said district may be served in like manner and with the same effect as if the company existed therein, and who is authorized to enter an appearance in its behalf.

In witness whereof the said company, pursuant to proper authority of its board of directors or other governing body, has caused these presents to be subscribed by its president and its corporate seal to be affixed hereto this A. D. 19

day of