The Department of Labor's Office of Workers' Compensation Programs (OWCP) issued new guidance on February 9, 2026, clarifying security deposit requirements for insurance carriers authorized under the Longshore and Harbor Workers' Compensation Act (LHWCA) and its extensions. This sub-regulatory document, published in the Federal Register, introduces a structured rubric to determine the collateral carriers must post to cover potential liabilities in case of default or insolvency. Effective immediately, the guidance aims to standardize processes, enhance predictability for carriers, and safeguard benefits for injured workers in maritime and related industries. By addressing gaps in existing regulations, it responds to the need for consistent application of security measures amid varying state guaranty funds and carrier profiles. This development is significant as it balances industry stability with worker protections, potentially influencing how carriers manage capital and comply with federal oversight.
Background and Regulatory Context
The LHWCA, enacted in 1927 and codified at 33 U.S.C. 901-950, provides compensation and medical benefits to workers injured in maritime employment, including longshore workers and harbor workers. Its extensions cover specific sectors: the Defense Base Act (DBA) for overseas defense contractors, the Non-Appropriated Funds Instrumentalities Act (NAFIA) for certain federal employees, and the Outer Continental Shelf Lands Act (OCSLA) for offshore energy workers. Under implementing regulations at 20 CFR Part 703, OWCP requires authorized carriers to post security deposits to ensure benefit payments if a carrier defaults.
These deposits address scenarios where state guaranty funds fall short, as noted in 20 CFR 703.201. The guidance builds on this framework by detailing how OWCP's Division of Longshore and Harbor Workers' Compensation (DLHWC) evaluates factors under 20 CFR 703.204(b) to set deposit amounts. It does not alter existing rules but provides interpretive clarity, responding to industry calls for transparency. Key players include OWCP Director James R. Macy, who signed the document, and DLHWC Acting Director Ryan Jansen, listed as a contact. Carriers apply annually through DLHWC's Branch of Financial Management Insurance and Assessment, with appeals possible under 20 CFR 703.204(d).
Key Factors in Determining Security Deposits
The guidance outlines six factors from 20 CFR 703.204(b) that DLHWC uses to adjust security requirements, allowing deposits between 33.33 percent and 100 percent of unsecured obligations for most carriers. Carriers with top ratings from three designated agencies—Fitch, S&P, and AM Best—may avoid deposits entirely if ratings are the highest for two consecutive years, per 20 CFR 703.204(c)(1). Otherwise, discounts are tiered based on long-term issuer credit ratings. For example, an AAA rating across agencies permits a 66.67 percent discount, reducing securitization to 33.33 percent, while lower ratings like BBB- yield only a 5 percent discount.
If carriers submit fewer than three ratings, discounts are reduced: one tier for two ratings, two tiers for one. The guidance specifies using the lowest rating if multiple are provided, and it rejects parent company ratings, focusing on the carrier itself. This approach draws from established practices in insurance regulation, similar to how the National Association of Insurance Commissioners assesses solvency.
Additional factors build on this base. The financial strength of a carrier's insureds in the Longshore industry can adjust discounts up to 33.33 percent positively for top-rated insureds or negatively up to 100 percent for low-rated ones. Carriers must submit ratings for all insureds or explain absences, ensuring comprehensive review.
State guaranty fund coverage, per 20 CFR 703.202, applies only to LHWCA liabilities (not extensions) and varies by state, with discounts detailed on OWCP's website. Longevity in writing workers' compensation coverage offers additive discounts, such as 10 percent for over 30 years, but penalties for under 10 years, reflecting risk assessments in precedents like state insurance solvency cases.
Exposure to LHWCA coverage relative to a carrier's portfolio allows up to 20 percent discounts for low exposure (0-20 percent), but only for carriers with at least 11 years in the program. Payment history, measuring timely fulfillment of obligations, provides 5-10 percent discounts for excellent records (81-100 percent timely) or reductions up to 100 percent for poor performance (0-30 percent).
Implications and Perspectives
This rubric introduces predictability, aiding carriers in capital planning and reducing arbitrary adjustments, as stated in the guidance: 'This clarification benefits insurance carriers by providing predictability which aids in capital planning and avoids arbitrary or unexpected security adjustments.' Short-term, carriers may see adjusted deposit requirements during annual renewals, potentially lowering costs for financially strong entities and increasing them for riskier ones.
Long-term, the guidance could standardize compliance, minimizing defaults and ensuring uninterrupted benefits, aligning with LHWCA's core purpose. Industry groups, such as the American Property Casualty Insurance Association, have historically advocated for clear guidelines to avoid over-securitization, viewing this as a step toward efficiency. Worker advocates, including unions representing longshore workers, emphasize robust protections, arguing that any discounts must not compromise solvency.
Regulators like OWCP benefit from a defensible, evidence-based process, reducing litigation risks in appeals. However, challenges arise if carriers dispute ratings or factor applications, as appeals must be filed within 10 days. The guidance's sub-regulatory nature means it could evolve without formal rulemaking, raising questions about adaptability to economic shifts.
Different perspectives highlight tensions: carriers seek minimal deposits to free capital, while policymakers prioritize worker security, informed by past insolvencies like those in the 1980s that prompted regulatory enhancements. No single view dominates, but the guidance aims for balance.
In summary, OWCP's guidance refines security deposit calculations under LHWCA, promoting fairness and stability. Potential next steps include carriers reviewing ratings for applications, while OWCP may update state guaranty discounts. Ongoing debates center on balancing industry flexibility with robust worker safeguards, with future challenges possibly involving economic volatility or legal challenges to the rubric's application. Monitoring implementation will be key for stakeholders.
