02-031 C.M.R. ch. 250, § II - Individual Self-Insurance Plans

A. Eligibility for Self-Insurance. An applicant employer is eligible to self-insure if the employer and any required guarantor furnishes proof to the satisfaction of the Superintendent of solvency and financial ability to pay compensation and benefits required under the Act, the employer meets all other requirements for eligibility as a self-insurer as required by the Act and this Rule, and the employer provides the security, as determined by the Superintendent, required under Section II(D). An applicant employer is eligible to self-insure if the subsidiary employer and parent corporation jointly file an application; if the parent corporation and subsidiary employer submit an irrevocable contract of assignment of the subsidiary employer's obligations incurred pursuant to the Act; if the parent corporation is solvent and demonstrates an ability to pay the compensation and benefits of the subsidiary employer; if the subsidiary employer meets all other requirements for eligibility as a self-insurer as required by the Act and this Rule; and if the employer provides the security, as determined by the Superintendent, required under Section II(D). The identity of an employer authorized to self-insure is determined by the ownership of the entity on the date on which its certificate of authorization is issued. An entity that is not currently self-insured which becomes controlled by an approved self-insurer is not automatically authorized to self-insure.

1. Financial Considerations. To qualify for self-insurance authority, the employer and any required guarantor or parent corporation must demonstrate to the satisfaction of the Superintendent, where applicable, that the applicant meets the following financialqualifications, considered in light of the level of retained workers' compensation losses:

a. An historical record of profits;

b. An historical record of liquidity;

c. An historical record of adequate working capital;

d. An historical record of an adequate degree of leverage;

e. An historical record of adequate coverage of outstanding debt and related interest expense; and

f. An historical record of positive net worth.

For the purposes of this subsection, adequate means sufficient for the ongoing operation of the business as evidenced either by a history of ongoing operations or equivalence to similar businesses that have operated viably over a comparable period of time.

2. Other Applicable Financial Considerations. In determining whether or not an applicant and any required guarantor qualifies for self-insurance authority and in determining the amount of security required, the Superintendent must consider, where applicable, the following:

a. The relative strength of the employer and overall financial strengths or weaknesses compared to employers in the same industry. This analysis includes a comparison of the applicant company with data for the relevant industry in which the company operates. The industry data may be based on a broad industry category, such as manufacturing, or a more narrow category, such as fabricated metal manufacturing, depending on the facts and circumstances of a particular company and within the available resources for such industry data; and

b. The absolute levels, and the recent changes in these levels, of sales, net income, tangible net worth, working capital, cash flows from operations and other conditions.

3. Discretionary Financial Considerations. In reviewing an employer's application for self-insurance and in determining whether the general financial requirements have been met, the Superintendent may consider ratios and financial factors, including, but not limited to, the following:

a. Current assets to current liabilities;

b. Quick assets to current liabilities;

c. Sales to working capital;

d. Total liabilities to tangible net worth;

e. Net income to total assets;

f. Net income to net sales;

g. Earnings before interest and taxes to interest expense;

h. Tangible net worth to self-insured retention;

i. Cash flow from operations;

j. Tangible net worth; and

k. Sales and net income.

4. Discretionary Non-financial Considerations. In reviewing the employer's application for self-insurance authority and in determining security, the Superintendent may consider the following non-financial factors:

a. Source and reliability of financial information;

b. Organizational structure;

c. Workers' compensation loss history for the most recent five (5) years;

d. Intrastate experience modification rating factor;

e. Number of employees;

f. Payroll by workers' compensation class for the most recent three (3) years;

g. Payroll by workers' compensation class for the prospective year;

h. Reinsurance program; and

i. Other relevant factors depending on the facts and circumstances of the applicant.

5. Public and nonprofit Applicants. In determining self-insurance eligibility for public and nonprofit employers, only those ratios and standards relevant to those employers will be applied.

6. Parental or Affiliate Guaranty Applicants. If the self-insurer applies for self-insurance authority based upon a parental or affiliate guaranty, the applicant must use the form of guaranty prescribed by the Superintendent. The form must provide that if the ownership of the self-insurer is transferred to a third party during the effective term of the guaranty, conditions acceptable to the Superintendent will be incorporated in any purchase or sales agreement to the end that the guarantor or any third party purchaser will satisfactorily assume any financial responsibility remaining pursuant to the terms of the guaranty.

B. Initial Application. Employers must make application to the Superintendent for authorization to self-insure on a form prescribed by the Superintendent and pay the appropriate application fee. The application must contain complete responses to all questions and must be signed by an authorized officer. The Superintendent must approve or deny the application within forty-five (45) days after the application is deemed complete. An application will not be considered complete until all requested data has been filed. The Superintendent must determine whether or not an initial filing is complete within thirty (30) days of its receipt and notify the applicant of the information needed to make the application complete. Applicants must provide the needed information within thirty (30) days from the notification or the application will be considered withdrawn, unless the applicant notifies the Superintendent in writing of the need for additional time to provide the information. Upon approval, the Superintendent shall issue a written certificate of authorization for a period not to exceed one year. Upon denial, the Superintendent shall issue a written notice identifying the reasons for the denial.

1. Additional Filing Requirements. In addition to the completed application form, the initial application filing must include the following, except that a guarantor furnishing documentation to act as a guarantor for more than one (1) affiliate or subsidiary need not make duplicate filings:

a. Audited financial statements for the most recently completed fiscal year and for each of the two (2) immediately preceding fiscal years. If the applicant is requesting qualification for self-insurance authority on the basis of a parental or affiliate guarantee or on the basis of an irrevocable contract of assignment, the guarantor or parent corporation must provide audited financial statements for the most recently completed fiscal year and for each of the two (2) immediately preceding fiscal years. In the case of a self-insurer that qualifies on the basis of a financial guarantee or irrevocable contract of assignment, the Superintendent may accept an audited financial statement of the guarantor or parent corporation in satisfaction of this requirement if combining statements are provided in a consolidating schedule.

b. If a publicly traded company, a form 10-K and related proxy statements for both the applicant and any required guarantor;

c. A description of proposed specific and aggregate reinsurance;

d. Copies of binders or cover notes evidencing effective reinsurance contracts or a request for a waiver of the requirement with a justification. Each final reinsurance contract must be filed within ninety (90) days of the effective date of the contract;

e. Proof of adequate facilities and competent personnel to service its program in compliance with Section II(H) and a description of the safety plan maintained by the employer;

f. The name and license number of the licensed Maine adjuster who will be adjusting claims;

g. Proof of a fidelity bond adequate to protect the required funds, in a form and amount acceptable to the Superintendent, covering any person who will have access to the funds who is not otherwise licensed pursuant to Title 24-A M.R.S.A.;

h. Proof of required security after a determinationby the Superintendent pursuant to section II(D) on the Superintendent's prescribed forms, and proof that any financial institution issuing an irrevocable standby letter of credit meets the requirements of section II(D)(7)(b);

i. A current valuation of each security which is posted as part of a security deposit;

j. Proof that the person signing the application has authority to do so; and

k. The intrastate experience modification rating factor and supporting worksheets determined according to the principal workers' compensation advisory organization in this state and approved by the Superintendent. An intrastate experience modification rating factor must be determined annually on an intrastate basis on the same basis as if the employer were insured.

2. Discretionary Filings. The Superintendent may request the following when needed:

a. If a publicly-traded company, a form 10-Q;

b. Audited financial statements for a five (5) -year period; and

c. Any other information necessary for making a determination of self-insurance eligibility.

3. Financial Statement Presentations; Contact with Contractors. All financial statement presentations prepared must be in such detail as to facilitate application of the ratio analyses. In undertaking its review of the application, the Superintendent, with consent from the applicant, may contact individuals who have prepared, compiled, or submitted materials which are part of the application.

4. Employer Qualifying with Irrevocable Contract with Assignment from a Foreign Parent. An employer and foreign parent applying for self-insurance authority based upon an irrevocable contract of assignment from a foreign parent, must meet the following additional requirements:

a. Audited financial statements must be prepared by a certified public accountant licensed in a state in the United States according to United States generally accepted accounting principles (GAAP) or, if prepared according to another basis of accounting, accompanied by a reconciliation to United States GAAP;

b. Financial statements must be prepared in the English language;

c. An opinion from an attorney, whose qualifications are deemed satisfactory to the Superintendent that states that the foreign parent's country of domicile has substantially similar laws with respect to submission to the jurisdiction of the Board and the Courts of this State for the purposes of payment of workers' claims of the subsidiary employer;

d. A deposit of funds up to $100,000 cash in a United States financial institution in the name of the Treasurer of the State of Maine in a trust account in a form satisfactory to the Superintendent with an approved trustee bank for payment of the costs of enforcing payment of claims or other obligations of the self-insurer;

e. A stipulation, notwithstanding other rights, that all matters related to the self-insurance plan and to obligations under the Act will be resolved in Maine courts and according to Maine law;

f. Designation of a general agent for service of process in Maine; and

g. Payment, if necessary, to the Maine Attorney General's Office of any fees necessary to retain a consultant, acceptable to the Superintendent and the Attorney General's Office, to render legal opinions to initially or subsequently confirm that the entity qualifies for self-insured authority. The Superintendent must give the applicant prior notice if fees in excess of $50,000 are required.

C. Annual Renewal Application. Self-insurers must make a complete application for renewal of authorization to self-insure to the Superintendent on a form prescribed by the Superintendent, and pay the appropriate renewal fee, not less than twenty-one (21) days prior to the self-insurer's renewal date, except that evidence of reinsurance coverage may be submitted up to three (3) working days prior to renewal. An application will not be considered complete until all requested data has been filed. The application may be filed sixty (60) days in advance of the renewal date to allow for a determination of completeness. In that case, the Superintendent will notify the applicant within thirty (30) days of any deficiencies in the application. The application must contain complete responses to all questions and must be signed by an authorized officer of the employer. If the application shows that the self-insurer continues to meet the qualifications to self-insure, the Superintendent will issue a written certificate of authorization.

1. Additional Filing Requirements. In addition to the renewal application form, the renewal application must include the following:

a. Current audited financial statements, if not previously filed, accompanied by the appropriate fee;

b. A current intrastate experience modification rating factor. Supporting worksheets must be made available to the Superintendent if requested. The self-insurer may request, and the Superintendent will accept, the intrastate experience modification rating factor directly from a qualified third party;

c. Estimated payrolls by classification for the most recently completed year and a projection for the upcoming year, by workers' compensation classification code;

d. The reinsurance contract, binder or cover note from the insurer, or a request for a waiver with justification;

e. If the applicant secures, or proposes to secure, its program by using an actuarially determined fully funded trust to satisfy any or all of the required security amount, a complete and final actuarial review, which values losses at the required confidence levels for all completed plan years and values the current year losses based on not less than nine (9) months of claims experience , a proposed funding schedule, and a request for release of surplus, reduction in funding, or transfer of surplus among complete plan years, if applicable;

f. For all programs not utilizing an actuarially determined fully funded trust, an actuarial review limited to ultimate undischarged claims and claims settlement liabilities, if notified by the Superintendent prior to the renewal date that an actuarial review is required;

g. A current valuation of each security which is posted as part of a security deposit;

h. Identification of the location of the complete and accurate payroll and claims records;

i. Summary loss reports for the complete period of self-insurance, including (i) losses, by accident year, separately displayed for medical, indemnity and claim expense, for each self-insured plan year; and (ii) losses separately displayed as to paid amounts and reserve amounts;

j. Proof that any financial institution issuing an irrevocable standby letter of credit meets the requirements of section II(D)(7);and

k. Any other materials requested in advance by the Superintendent or required as a condition of the certificate of authority.

D. Security. A qualified self-insurer must provide security either by depositing with the State Treasurer through the Workers' Compensation Board, on or before the date of operation of its plan of self-insurance, funds as permitted under Title 39-A M.R.S.A. §403(9), a surety bond, or a letter of credit, or by establishing an actuarially determined fully funded trust with an approved trustee bank. A self-insurer may select the security type as long as approval of the Superintendent is obtained. After a self-insurance plan has been approved, a self-insurer may modify the method of providing security only after written approval by the Superintendent.

1. Determination of Security Amount. Except for self-insureds securing a program with an actuarially determined fully funded trust, the required security amount will be determined by the Superintendent based upon the greater of:

a. The loss and loss adjustment expense provision of the standard premium for the prospective coverage period, determined by applying the advisory loss costs for each workers' compensation classification to the payroll for that classification, summing for all classifications, and multiplying that sum by the intrastate experience modification rating factor for the current year calculated using the experience rating plan approved for the principal workers' compensation advisory organization; or

b. The outstanding self-insured loss reserves less any recoveries for reinsurance and subrogation plus 31.25 % of the loss and loss adjustment expense provision of the annual standard premium for the prospective period; or

c. $50,000.

2. Working capital offset. Except in the case of an individual insurer who is qualifying based on a parental or affiliate guaranty, the working capital may be used to reduce the security amount. The Superintendent may use the working capital of a qualified parent corporation to reduce the security amount of an employer if the employer and parent corporation have a certificate of authority based upon Title 39-A M.R.S.A. §403(3)(G). The amount of the offset applied to the security amount shall not exceed the amount of working capital in the current audited statement of financial condition as of the end of its most recent fiscal year of the employer or of a qualified parent under § 403(3)(G). The offset cannot reduce the required security amount to an amount less than $100,000. The self-insurer must meet the following criteria, based on audited financial statements, to allow the Superintendent to reduce the security amount otherwise required by this section:

a. Net worth equal to or in excess of $10 million;

b. Positive net earnings in three (3) of the five (5) latest fiscal years including one (1) of the two (2) most recent fiscal years; and

c. Mean annual net earnings for the five (5) latest fiscal years greater than or equal to the normal annual standard premium for the prospective fiscal coverage period.

3. Public Employer. Any bond, security deposit, or letter of credit required of a public employer having a state-assessed valuation equal to or in excess of $300,000,000 and either a bond rating equal to or in excess of the 2nd highest standard as set by a national bond rating organization or a net worth equal to or in excess of $25,000,000 may not exceed $50,000.

4. Deteriorated Financial Condition. If the Superintendent determines that the self-insurer has experienced a deterioration in financial condition that adversely affects the self-insurer's ability to pay obligations under the Act, the security amount may be in excess of the amount prescribed by this formula.

5. Security Deposit. Funds held by the Treasurer of State as a security deposit shall be accompanied by appropriate legal instruments to effectively assign right, title and interest in such assets to the Treasurer solely for the purpose of meeting obligations incurred under the Act on forms approved by the Superintendent.

a. Each security held by the Treasurer as part of a security deposit shall be valued at market value. If market value for a security accepted for deposit is not readily available, the Superintendent shall assign a value. In the event market value is less than the required deposit value as of the date of valuation, the Superintendent may require that additional securities or other assets be posted by the self-insurer. If at any time the market value exceeds deposit value, the self-insurer may recover the excess value by the substitution of acceptable securities or other acceptable assets of a value not less in the aggregate than the amount of the required deposit.

b. Securities held by the Treasurer of State may be exchanged or replaced by the depositor with other qualifying securities of a current market value which is equal to or greater than the deposit value as long as the self-insurer is solvent and not in bankruptcy.

c. If a security held by the Treasurer no longer meets the requirements of Title 39-A M.R.S.A. §403(9), the self-insurer shall notify the Superintendent within ten (10) days from the date the self-insurer had knowledge that the security no longer meets the requirements, and shall provide substitute deposit funds.

d. No release shall be effectuated under any circumstances until replacement securities or bonds approved by the Superintendent have been substituted.

6. Surety Bond. The surety bond must be issued on the form prescribed by the Superintendent by a licensed surety company which is authorized by the Superintendent to transact surety business in the State of Maine. Any surety bond may be replaced by a self-insurer with another surety bond which meets the requirements of law and this rule after a forty-five (45) day notice to the Superintendent and the Workers' Compensation Board and after approval by the Superintendent. The forty-five (45) day notice requirement may be waived only with written consent of the Superintendent.

7. Letter of Credit. The letter of credit must be on a form approved by the Superintendent and must be issued by a qualified financial institution. The form must include all provisions required by the Act, a provision that requires the financial institution to notify the Superintendent of any supervisory agreement with its primary bank regulator or of any regulatory action taken against it which results in an adverse impact on its financial condition, a provision that contemplates that the letter of credit may be called by the Superintendent if not renewed by the financial institution or self-insurer, and a provision confirming the interest of the State of Maine in proceeds upon call.

a. An individual self-insurer may not use a letter of credit to fund an actuarially determined fully funded trust, in whole or in part.

b. A financial institution issuing a letter of credit must, at all times, meet the following qualifications:

i. Is organized, or in the case of a United States branch or agency office of a foreign banking organization, licensed under the laws of the United States or any state of the United States and has been granted authority to operate with fiduciary powers;

ii. Is regulated, supervised and examined by federal or state authorities having regulatory authority over banks and trust companies; and

iii. Maintains a long-term unsecured debt rating of at least A with either Moody's Investors Service, Inc. or Standards and Poor's Corporation or with commercial paper within the 3 highest short-term rating categories established by Moody's Investors Service, Inc. or Standard and Poor's Corporation.

8. Actuarially Determined Fully Funded Trust. A trust must be established by utilizing forms prescribed by the Superintendent Assets used to fund the trust shall comply with relevant requirements of Section II(F).

a. The required security amount shall be calculated based upon actuarial review, as approved by the Superintendent. The self-insurer must provide the actuary with complete and accurate information necessary for completion of the actuarial review. For a new plan, twenty-five percent (25%) of the funding amount must be deposited upon the first day of approval. The remaining balance, adjusted for discounting, must be deposited over eleven (11) equal monthly payments due on the first of each month following the initial deposit or at a minimum distributed pro rata throughout the year, unless another payment plan is approved by the Superintendent. If the Superintendent determines that the self-insurer has experienced a deterioration in financial condition that adversely affects the self-insurer's ability to pay obligations under the Act, the security amount may be in excess of the minimum required.

b. Funding. Initial funding for each plan year must be maintained at the 90th or higher confidence level. Funding after the completion of the initial plan year may be established no lower than the 75th confidence level provided that:

i. A year considered for reduction is completed;

ii. The supporting actuarial review includes an evaluation of the completed year experience with the valuation based upon at least 18 months experience; and

iii. Prior approval from the Superintendent is obtained.

c. For the purposes of determining the funding level, all completed years at the same confidence level may be aggregated. Funds may not be released from the trust or transferred among plan years except as approved by the Superintendent.

d. Funding after five years. Depending upon the financial condition of the self-insurer, and if approved by the Superintendent, a self-insurer that has maintained an actuarially determined fully funded trust for a period of 5 or more consecutive years may fund all years, including the prospective plan year, in the aggregate at the 75% or higher confidence level.

e. Application of funds to discharge obligations. Funds required to discharge obligations under the Act as they become due may be applied from trust assets if appropriately authorized by a principal officer of the self-insurer or in the case of a self-insurer which has become the subject of a bankruptcy, receivership, or an arrangement for the benefit of creditors, by the Workers' Compensation Board.

f. Funding of a deficit. Knowledge by the self-insurer, or notice by the Superintendent, of a shortfall below the aggregate confidence level for all years as required and approved by the Superintendent must be funded within sixty (60) days from the date of the Superintendent's notice.

E. Request to Reduce Funding and Declaration and Release of Surplus from an Actuarially Determined Fully Funded Trust. Surplus releases and transfers among plan years are only permitted for completed plan years. An individual self-insurer may not reduce funding, release surplus, or transfer funds among years except in compliance with this subsection.

1. Required Filings. Every request for surplus release, transfer of funds, or reduction in the funding schedule must be filed by the individual self-insurer and must contain the following:

a. A complete and final actuarial review containing a valuation of losses valued at the required confidence levels for all completed plan years. In the case of a request filed with a renewal application, the valuation of the current year must be included and must be based on not less than 9 months of claims experience;

b. Notice of the method of distribution, including the distribution date; and

c. A schedule by plan year, on a form prescribed by the Superintendent, calculating the amount of surplus proposed for release or transfer among completed plan years.

2. Request with a Renewal Application. While a renewal application is pending, funding must continue based on the higher of the previous year's funding schedule or the funding proposal in the actuarial review. Unless the Superintendent has not notified the self-insurer that a request to reduce funding has been denied, a self-insurer that has filed a timely application and has been notified by the Superintendent that the renewal application is complete may reduce funding on the renewal date to conform to the funding proposal in the actuarial review, except to the extent that the funding involves a transfer of surplus among plan years or a surplus distribution.

3. Request not in Connection with a Renewal Application. A self-insurer must request authorization from the Superintendent for reduction in funding, release of surplus, or transfer of funds among completed plan years at least thirty (30) days in advance of the desired disbursement date. The Superintendent will approve or disapprove the request within thirty (30) days of receipt of the request, unless the self-insurer is notified by the Superintendent of the need for additional information to make the decision, in which case the Superintendent will approve or disapprove the request within thirty (30) days from the date all necessary information is received.

4. Funding Schedule Subject to Adjustment. Any funding schedule modified pursuant to this subsection without written approval by the Superintendent is subject to adjustment after review and notice by the Superintendent.

F. Qualifying Trust Assets and Deposit Funds.

1. Acceptable Assets. The assets acceptable to the Superintendent to fund an actuarially determined fully funded trust or security deposit shall conform to the requirements of Title 39-A M.R.S.A. §403(9).

2. Exceptions. Exceptions to the requirements of § 403(9) of the Act will be considered by the Superintendent upon submission of a written proposal at least sixty (60) days prior to the desired implementation date. Approval must be granted by the Superintendent before implementation.

3. Diversification Required. Investments must be diversified in a prudent manner to ensure that funds are maintained at a sufficient level to discharge workers' compensation obligations incurred by the employer pursuant to this Title as those obligations become due and payable.

G. Reinsurance Contracts and Standards.

1. Reinsurance Contracts.

a. In order to qualify as a reinsurer pursuant to Title 39-A M.R.S.A. §403(11) for the purposes of assuming reinsurance from a workers' compensation self-insurer, an insurer or reinsurer must be approved by the Superintendent pursuant to Rule Chapter 730.

b. In addition to the requirements of Rule Chapter 730 and any other requirement applicable to reinsurance contracts imposed by law or rule, no contract or policy of reinsurance shall be recognized by the Superintendent in considering the ability of a self-insurer to fulfill its financial obligations under the Workers' Compensation Act unless such contract or policy:

i. Is not cancelable except upon at least sixty (60) days written notice by registered or certified mail to the insured and to the Superintendent;

ii. Is automatically renewable at the expiration of the policy period unless written notice of intent to nonrenew is given to the insured and the Superintendent at least sixty (60) days prior to such expiration by registered or certified mail;

iii. Provides, if it contains any type of commutation clause, (1) that any commutation effected thereunder shall not relieve the reinsurer of further liability with respect to claims and expenses unknown at the time of such commutation or in regard to claims apparently closed but which may be subsequently revived by or through a competent authority or a court, and (2) that in the event the reinsurer proposes to redeem any future undischarged obligations payable as compensation for injuries occurring during the term of the policy by the payment of a lump sum or other settlement to be fixed pursuant to the commutation clause of the policy, such commutation is to comply with the applicable requirements of the Workers' Compensation Board, pursuant to Section 352 of the Act;

iv. Contains a provision that, in the event of default in the timely payment of claims by the self-insurer, the reinsurer will continue to provide information to the Superintendent, a bank trustee, the Treasurer of Maine, any trustee in bankruptcy or to any statutory successor which has responsibility as a guarantor of the self-insurer's obligations and will provide, directly or through a service agent, timely claims settlement services; and

v. Names the Maine Self-Insurance Guaranty Association as a coinsured if required by law.

c. Only persons affiliated with a self-insurer may be covered by any contract or policy of reinsurance. An individual self-insurer may include, in addition to a principal named insured, a named subsidiary, controlled affiliate corporation or other related entity that is an approved self-insurer provided that the Superintendent determines that the policy limits are adequate to cover the exposure of all entities named as insureds under the policy.

2. Reinsurance Standards.

a. Specific and aggregate reinsurance. The amount of reinsurance required will be determined by the Superintendent based upon the self-insurer's tangible net worth, financial condition and exposure to loss with consideration given to current market conditions. Self-insurers with a high risk of multiple injury from a single occurrence may be required to maintain higher levels of specific reinsurance.

b. A waiver of the reinsurance requirement may be granted by the Superintendent after written request from the self-insurer. The Superintendent will notify the Maine Self-Insurance Guarantee Association of any waiver of specific or aggregate reinsurance.

c. No specific or aggregate reinsurance may be required of any individual public employer who is self-insured and has a state-assessed valuation equal to or in excess of $300,000,000 and either a net worth equal to or in excess of $25,000,000 or a bond rating equal to or in excess of the 2nd highest standard as set by a national bond rating organization, provided that, if the self-insurer relying on a bond rating is county, city or town, it shall value or cause to be valued its unpaid workers' compensation claims pursuant to sound accepted actuarial principles. This value must be incorporated in the annual audit of the county, city or town together with disclosure of funds appropriated to discharge incurred claims expenses.

H. Servicing Requirements.

1. Competent Service Providers Required. Each self-insurer must provide proof of its ability to operate a program of self-insurance, either through in-house capabilities or by retaining service companies. The self-insurer must utilize competent persons to service its program in the areas of loss control, safety engineering services, underwriting, and administration.

a. Each contract with a service company must be filed with the Superintendent if requested. With prior consent of the self-insurer, the Superintendent may contact servicing companies directly for information regarding the self-insured plan. Each self-insurer electing to change service agents must file information regarding the new plan with the Superintendent which describes how the transition will take place thirty (30) days in advance of the proposed change.

b. Each self-insurer must set forth a safety engineering plan, which describes the range of services and the schedule upon which services will be delivered either through in-house services or by contracting with a third party. Every contract entered into by a self-insurer with a service agent for safety engineering service, must contain a provision requiring the provider of the safety engineering services to file a report annually with the self-insurer that describes the effectiveness of the program. This report need not be automatically filed with the Superintendent, but must be made available to the Superintendent upon request.

c. Each self-insurer shall utilize one or more claims adjusters licensed in Maine empowered to investigate claims, sign agreements for the payment of compensation, and issue drafts or checks in payment of obligations under the Act. Every contract entered into by a self-insurer with an adjuster must contain a provision requiring the adjuster to file with the self-insurer a report of the status of outstanding claims files activity not less frequently than quarterly or more frequently as otherwise requested by the self-insurer or the Superintendent.

i. The Superintendent may hold a hearing to determine whether a self-insurer or its service agent has engaged in improper claims handling activities. Repeated and unreasonable controverting of claims or other improper claims handling shall constitute grounds for revocation or non-renewal of authorization to self-insure.

d. Each self-insurer which contracts with an individual or entity for the purpose of receiving or collecting charges, contributions or premiums must contract only with a person licensed as a third party administrator pursuant to Title 24-A M.R.S.A. Chapter 18, unless that person is exempted from license requirements pursuant to Title 24-A M.R.S.A. §1901(1).

I. Records Retention. Each self-insurer must maintain copies of all records sufficient in type and quantity to verify the accuracy and completeness of all reports and documents submitted to the Superintendent or otherwise required by law or rule. A self-insurer's records or records held by its service agents must be open to inspection by representatives of the Superintendent during regular business hours and must be produced within 14 days from a written request of the Superintendent. All records shall be retained for periods of time sufficient to ensure their availability for audit purposes. All payroll records, including audits, shall be kept for a minimum of six (6) years. Claim records must be kept a minimum of six (6) years after the date the claim is closed.

J. Confidentiality of Filings. All applications and reports filed with the Superintendent in connection with a self-insured plan are confidential to the extent prescribed in Title 39-A M.R.S.A. §403(15). This paragraph is not intended to limit the Superintendent's ability to obtain information which is relevant to the performance of self-insurance regulatory responsibilities. All required reports submitted by a service company for any self-insurer it services shall be treated as if they are submitted by the self-insurer directly.

K. Interim Reports.

1. Interim financial statements. Interim financial statements may be required by the Superintendent at the end of any monthly or quarterly fiscal period whenever the Superintendent believes there has been a deterioration in financial condition of the self-insurer which adversely affects the self-insurer's ability to pay obligations under the act.

2. Payroll Audit. An audit of the payroll of the employer may be required by the Superintendent within 120 days following the close of the plan year. If required, the audit must be performed by an organization which is qualified to perform these services and which is acceptable to the Superintendent. This audit must verify that the payrolls are reported in the proper amounts and are in the proper rate classifications.

3. Actuarial Review. An actuarial review of the reserves and liabilities of a self-insurer may be required by the Superintendent when necessary.

4. Renewal Filings. Any reports, audits, or other filings required to be filed with a renewal application may be filed earlier when available.

L. Requests for Extension of Time for Filings. If a self-insurer requires additional time to file a required report, a request for an extension of time for filing must be made in writing by the self-insurer or its service company no later than five (5) working days prior to the filing deadline. Extensions, if granted, shall be in writing with notice mailed to the self-insurer and any service company authorized to file reports respecting the self-insurer. Such extension will establish a new onetime due date.

M. Reportable Events. A self-insurer must report the occurrence of events as required by this subsection.

1. Forty-five Days Advance Notice Required. In order for the Superintendent to make a determination as to whether the occurrence of an event results in a termination of an individual employer's self-insured plan or results in a need for modification of the terms and conditions of the plan, an approved self-insurer must report any of the following events to the Superintendent at least 45 days in advance of the event's occurrence, if known, or no later than 10 days after the event's occurrence, if not known in advance:

a. the sale of 20 % or more of the common stock or net assets of the self-insurer;

b a division of the business;

c. a spin-off of the business;

d. a leveraged buyout of the business;

e. a reorganization of the business;

f. a change in legal entity;

g. an acquisition by or merger of the business with another entity;

h. a significant change in a partnership agreement;

i. a change in the membership or managers of a limited liability company;

j. dissolution of a partnership or a limited liability company;

k. cessation of business in the State;

l. any other event affecting the ownership of the business or the structure of the business as identified in rules adopted by the Superintendent; or

m. the self-insurer has become the subject of a bankruptcy, receivership, or an arrangement for the benefit of creditors.

2. Thirty Days Advance Notice Required. Whenever any of the following events will occur, the self-insurer must notify the Superintendent thirty (30) days in advance of the occurrence of the event:

a. Any change in servicing agents; and

b. Any proposed change in the approved reinsurance program, including, but not limited to, retention or attachment point, limits of coverage, carrier, policy forms, or endorsements. Notice must also be given to the Maine Self-Insurance Guarantee Association, if the self-insurer is required to be a member.

3. Notice Required Within Ten Days of the Event. Whenever any of the following events occur the self-insurer must notify the Superintendent within ten (10) days of the occurrence of the event:

a. Expanded operations where payrolls and exposures were increased twenty (20) or more percent when compared to the most recent information used for calculating security;

b. The self-insurer's bond obligations are downgraded below investment grade as assigned by a national bond rating agency;

c. Revocation or suspension of self-insurance license or authority in another jurisdiction;

d. Changes in the names and addresses of the self-insurer, guarantor, or parent corporation; and

e. Changes in officers or directors of the self-insurer, guarantor, or parent corporation.

4 . Penalty for Failure to Notify. If at any time the Superintendent determines that a self-insurer has failed to notify the Superintendent of the occurrence of any of the events identified in this subsection, the self-insurer may be subject to penalties pursuant to Title 24-A, section 12-A if it is determined by the Superintendent that the occurrence of the event had a substantial negative impact on the financial condition of the employer. As soon as the Superintendent notifies the self-insurer that the Superintendent has determined that the self-insurer failed to notify the Superintendent of the occurrence of any of these events, the self-insurer must comply with this subsection and any other applicable laws or rules.

N. Termination of Self-Insurance Option-Application for Continuing Authority. A self-insurance plan may be terminated in the following ways: voluntary termination, termination as a result of the occurrence of a reportable event, non-renewal by the Superintendent, or revocation by the Superintendent. A self-insurer may apply for continuing self-insurance authority if a reportable event occurs that would otherwise result in termination of the plan.

1. Voluntary Termination. If a self-insured employer elects to terminate its self-insurance program or a portion of its program, it must submit written notice and a written termination plan to the Superintendent of Insurance at least 30 days in advance of the proposed termination date. In the event that a self-insurer elects to terminate its approval in this State without filing a plan acceptable to the Superintendent, the Superintendent shall issue an order prescribing the terms and conditions of the termination.

2. Termination Due to Occurrence of an Event; Application for Continuing Authority. Upon the occurrence of an event in subsection M, the Superintendent must make a determination as to whether the self-insurance plan terminates. A self-insurer may make application for continuing authority to self-insure subject to the requirements of this subsection. In order to qualify to file for continuing self-insurance authority, a successor employer must assume 100% of the liabilities of the predecessor self-insured employer and must show that the business in the State remains substantially the same. The Superintendent may make a determination that an employer's authority to self-insure has terminated in accordance with this subsection or may grant approval of an application for continuing self-insurance authority. For the purposes of this subsection, an employer includes a successor employer assuming all workers' compensation liabilities of an approved self-insured employer as a result of the occurrence of one of the events in paragraph A.

a. Notwithstanding any other provision of this Section, an employer and any successor employer that elects to apply to continue to self-insure must notify the Superintendent 45 days in advance of the event's occurrence and must file a notice of intent to continue to self-insure and an application for continuing authority to self-insurer with the Superintendent 30 days in advance of the event's occurrence. At the discretion of the Superintendent, and if good cause is shown, an employer may submit an application to continue to self-insurer less than 30 days in advance of the event's occurrence.

b. Within 7 days of receipt by the Superintendent of the application to continue to self-insurer, the employer and any successor employer must provide all information requested by the Superintendent to allow the Superintendent to make a determination under this subsection, including the application fee as required in Title 24-A, section 601. While the application is pending and during the 30-day period following a denial of an application for continuing self-insurance authority, the employer and any successor employer must maintain the security and reinsurance as required by the employer's certificate of authority, must continue to comply with all other provisions of the employer's certificate of authority and must provide any additional security determined by the Superintendent to be necessary under the circumstance. While the application is pending, the self-insurance authority of the employer continues consistent with the terms and conditions of the employer's certificate of authority. Failure to provide information when requested by the Superintendent and failure to comply with the terms and conditions of the employer's certificate of authority or with any additional conditions prescribed by the Superintendent will result in automatic termination of the employer's authority to self-insure and the issuance of an order by the Superintendent that prescribes the terms and conditions of a termination plan.

c. The Superintendent shall notify the employer in writing within 30 days of receipt of all requested information whether the employer's application for continuing self-insurance authority is approved or denied. The superintendent's notice must specify the reasons for the denial or must specify the terms and conditions for continuing self-insurance authority as prescribed by this section and any rules adopted by the Superintendent. In the superintendent's determination, the Superintendent must consider, among other things, whether the successor employer has assumed 100% of the workers' compensation liabilities of the employer, whether the successor employer qualifies for self-insurance authority pursuant to subsection II, and whether the successor employer maintains substantially the same business operations as the predecessor self-insured employer. The Superintendent may also consider, among other things, whether the successor employer employs substantially the same number of employees as the predecessor employer.

d. If the Superintendent denies the application, the effective date of the termination is 30 days from the date of the superintendent's notice, unless stayed by order of the Superintendent. The self-insurer may request a hearing on this decision within 30 days from the date of the notice, but there is no automatic stay of the superintendent's decision. Prior to the effective date of the termination, the employer must file a termination plan consistent with this subsection. A successor employer that does not qualify for continuing self-insurance authority under this subsection may file a new application for authority to self-insure workers' compensation obligations pursuant to the Act and rules adopted by the Superintendent.

3. Non-renewal of self-insurance authority. The Superintendent may refuse to renew self-insurance approval for any reason listed in Title 39-A M.R.S.A. §403(6) or 403(13). Any self-insurer non-renewed by the Superintendent may request a hearing pursuant to Title 24-A M.R.S.A. §229. Any Non-Renewal Order issued by the Superintendent will prescribe terms and conditions of a termination plan.

4. Revocation of self-insurance authority. The Superintendent may revoke self-insurance approval for any reason listed in Title 39-A M.R.S.A. §403(6) or 403(13) only after a hearing held in accordance with the requirements of Title 5 M.R.S.A. Chapter 375 Subchapter IV and Title 24-A .M.R.S.A. Chapter 3. Any Revocation Order issued by the Superintendent will prescribe terms and conditions of a termination plan.

5. Enforcement of Superintendent's Order. Any order issued pursuant to this subsection, including an order directing a self-insurer to produce relevant information, may be enforced as provided by Title 24-A, section 214.

6. Termination Plan. A termination plan must include the following provisions:

a. A description of the proposed type of security to be posted for the purpose of discharging claims liabilities and other obligations under the Workers' Compensation Act including an agreement that the security must be maintained until all claims are paid and that the amount is subject to adjustment by the Superintendent, not less frequently than annually, based upon actuarial review.

b. If a Trust Fund is to be utilized for security, a plan which makes provision for i.) payment of fees and related expenses for claims adjustment, including defense attorney fees, other attorney fees as may be required by law, and such other incidental costs and expenses as may be necessary to administer and operate the Trust Fund; and ii.) payment to the Bank Trustee of such reasonable expenses as approved by the Superintendent and as agreed upon in writing by the self-insurer and the Bank Trustee, including, but not limited to, counsel, actuarial and accounting fees incurred by the Bank Trustee in the administration of the Trust Fund until such time as all obligations of the self-insurer under the Workers' Compensation Act are paid in full.

c. A plan identifying how claims administration will be handled and an agreement that the self-insurer is under a continuing obligation to notify the Superintendent of any changes in contracts with service agents. The plan may include a proposal to contract with a third party administrator licensed in the State of Maine for the purpose of handling the administration of all claims and must include the name of the Maine licensed claims adjuster who will be adjusting the claims. The plan must describe the procedure in place that will assure the payment of claims obligations including identification of specific time periods for which claims handling administration is being delegated.

d. An agreement that the self-insurer will provide the following when required by the Superintendent:

i. An actuarial review of estimated outstanding loss and loss adjustment expense reserves, evaluated at the ninety percent (90%) confidence level, unless another confidence level is required by the Superintendent, for the self-insured liability period for which the plan is being proposed performed by a qualified actuary and an annual review thereafter;

ii. Complete loss runs for the self-insured period being terminated. The loss runs must show paid and reserved amounts for medical, indemnity and expenses for each policy period including the number of open claims, reopened claims, and closed claims;

iii. The identity and amount of those claims reimbursed by the reinsurer or total expected to be reimbursed;

iv. A list of all open claims for which benefits are being paid; a description of each injury; the current status, including whether contested or uncontested, degree of permanent impairment, and degree of incapacity, of the claim; the current weekly benefit being paid; and the age of the claimant; and

v. The current reserve on each open claim and a description of how the reserve amount was determined.

e. An agreement that the self-insurer will continue to be subject to informational filings respecting financial condition and actuarial evaluations of claims and claim expense reserves and loss transfers when requested by the Superintendent to ensure that claims are adequately secured.

7. Termination Without Approved Plan. If the employer attempts to terminate its plan without an approved plan, the Superintendent will issue an order prescribing the terms and conditions of the termination.

Notes

02-031 C.M.R. ch. 250, § II