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DOL Establishes First Risk-Based Framework for Longshore Insurance Security Deposits

DOL published guidance creating a structured methodology for calculating security deposit requirements for insurance carriers under the Longshore and Harbor Workers' Compensation Act, implementing relief provisions that existed in statute but were never previously applied.

onthelaborfront

onthelaborfront

— 3 min read
DOL Establishes First Risk-Based Framework for Longshore Insurance Security Deposits

The U.S. Department of Labor's Office of Workers' Compensation Programs published guidance on February 9, 2026, establishing a formalized rubric for determining security deposit requirements for insurance carriers authorized to write policies under the Longshore and Harbor Workers' Compensation Act (LHWCA) and its extensions. The guidance, published in the Federal Register, implements a six-factor assessment framework that allows OWCP's Division of Longshore and Harbor Workers' Compensation to adjust collateral requirements based on carrier financial strength and performance metrics.

Under existing regulations at 20 CFR 703.204, the Branch of Financial Management Insurance and Assessment may consider multiple factors when setting security deposit amounts, including carrier financial ratings, insured employer financial strength, state guaranty fund coverage, carrier longevity, LHWCA exposure levels, and claims payment history. While the LHWCA has statutorily permitted risk-based reductions in security requirements since its enactment, the Department acknowledged this represents the first formal implementation of such relief measures.

The guidance establishes discount tiers based on long-term issuer credit ratings from three designated rating agencies—Fitch, Standard & Poor's, and AM Best. Carriers with the highest ratings (AAA/aaa) may qualify for up to 66.67% reduction from the baseline 100% securitization requirement, while carriers rated BB+ or below receive no discount. Additional adjustments apply based on the financial strength of insured employers, carrier longevity in the workers' compensation market (ranging from a 10% discount for carriers operating over 30 years to a 100% penalty for carriers with 0-5 years experience), portfolio concentration (with discounts for carriers where LHWCA represents a smaller portion of total liabilities), and claims payment timeliness.

According to DOL, the formalized approach provides carriers with enhanced predictability for capital planning while standardizing compliance requirements across the industry. The guidance applies to carriers writing coverage under the LHWCA's core provisions as well as its statutory extensions: the Defense Base Act (covering contractors working on U.S. government contracts abroad), the Outer Continental Shelf Lands Act (covering offshore oil and gas operations), and the Nonappropriated Fund Instrumentalities Act (covering certain Department of Defense civilian employees).

Secretary of Labor Lori Chavez-DeRemer stated the guidelines will "protect workers while creating a fairer environment for businesses that do vital work for our country." The action aligns with the administration's April 9, 2025, Executive Order 14269, "Restoring America's Maritime Dominance," which directed a comprehensive review of regulations affecting domestic commercial maritime operations and shipbuilding capacity. The Executive Order's Section 20 specifically mandated agencies to identify deregulatory opportunities to reduce costs and remove barriers to emerging technologies in the maritime sector.

The LHWCA, enacted in 1927, provides federal workers' compensation coverage for maritime workers including longshoremen, harbor workers, shipbuilders, and ship repairers. The statute requires employers to secure coverage either through authorized private insurance carriers or self-insurance arrangements. Insurance carriers must provide security deposits to guarantee payment of benefits in cases where a carrier defaults on obligations or becomes insolvent and state guaranty funds do not provide full coverage. The February 2026 publication constitutes sub-regulatory guidance that clarifies existing regulatory requirements at 20 CFR 703.201-213 rather than new rulemaking.

Key Points

  • Formalized Assessment Framework: DOL established a six-factor rubric for calculating insurance carrier security deposit requirements under LHWCA, with adjustments ranging from a 66.67% discount to a 100% penalty based on performance metrics
  • Credit Rating Tiers: Carriers with AAA/aaa ratings from Fitch, S&P, and AM Best may qualify for maximum discounts, while carriers rated BB+ or below receive no discount from baseline securitization requirements
  • Longevity Adjustments: Carriers operating for more than 30 years receive a 10% discount, while carriers with 0-5 years experience face a 100% penalty on calculated discounts
  • Payment History Criteria: Carriers with 91-100% timely payment rates qualify for up to 10% additional discount, while carriers below 30% timely payment face a 100% penalty
  • First Implementation: While LHWCA regulations have permitted risk-based security deposit reductions since the statute's enactment, DOL acknowledged this represents the first formal application of such relief provisions
  • Policy Alignment: The guidance supports Executive Order 14269's directive to reduce regulatory costs for domestic shipbuilding and maritime operations
  • Affected Industries: The framework applies to insurance carriers covering maritime workers, shipbuilders, offshore energy operations, and defense contractors working on U.S. government contracts abroad

Primary Source Author: Office of Workers' Compensation Programs, U.S. Department of Labor

Primary Source: Office of Workers' Compensation Programs, U.S. Department of Labor

Primary Source Link: https://www.dol.gov/newsroom/releases/owcp/owcp20260206

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