02-031 C.M.R. ch. 250, § III - Group Self-Insurance Plans

A. Eligibility for Self Insurance. Two or more employers may apply to self-insure by forming a group and proving to the satisfaction of the Superintendent its financial ability to pay compensation for the employers in the group and its revenues, their source and assurance of continuance and by providing the security, as determined by the Superintendent, required under Section III(D). For the purposes of this section, each"employer" is a member.

1. Initial Member Qualifications. To qualify initially for self-insurance authority, the group must demonstrate to the satisfaction of the Superintendent, where applicable, that each initial member meets the following conditions, 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;

f. An historical record of positive net worth;

g. The level of retained workers' compensation losses

For the purposes of this subsection, adequate means sufficient for the ongoing operation of the group members 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. Considerations for Group Qualification. In determining whether or not an applicant group 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, and cash flows from operations and other conditions of the initial member employers.

3. Considerations for Member Application. In reviewing a member's application for participation in a group self-insurance program, 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. Net income to total assets;

e. Earnings before taxes 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 Considerations. In reviewing the member's and group's application for participation in a group self-insurance program and in determining security, the Superintendent may also consider the following:

a. Source and reliability of financial information;

b. Organizational structure;

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

d. Intrastate experience modification rating factor;

e. Number of employees;

f. Payroll by workers' compensation class for 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 employers.

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

B. Initial Application. The group of employers must file a complete group application on a form prescribed by the Superintendent and pay the appropriate application fee. Each member of the group must file a complete member application. Each application must contain complete responses to all questions and be signed by an officer, director, or trustee authorized to sign. The Superintendent must approve or deny the application within ninety (90) 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 an initial filing is complete within thirty (30) days of its receipt and advise the applicant of the information needed to make the application complete. The applicant must provide the necessary 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 (1) year. Upon denial of a group or any member, the Superintendent shall issue a written notice identifying the reasons for the denial.

1. Additional Filings Required. In addition to the completed application form, the initial application, as submitted by the governing body of the group, must include the following for the group as a whole:

a. A copy of the bylaws and other governance documents of the proposed program;

b. Evidence of the financial ability of the group to meet its obligations under the Act including a pro forma statement of operations for the group's initial year of operations;

c. A distribution of all projected administrative costs by class of expense for the upcoming fund year stated in dollar amount and as a proportion of projected premium income;

d. A composite listing of the estimated standard premium to be developed for each member individually and in total for the group. Such premium for the initial year must at least equal four times all expenses other than retained loss and loss adjustment expenses;

e. A description of proposed specific and aggregate reinsurance;

f. Copies of binders or cover notes evidencing effective specific and aggregate reinsurance, 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;

g. Designation of the initial governing body, including any officers, directors, trustees, general managers, or administrators, and a narrative description any responsibilities of the governing body which are delegated to an administrator, manager or other service agent. The duties of the governing body must be delineated and must include responsibility for approving applications of new members to the group and expelling members not in conformity with the group bylaws or other governing policies, or Title 39-A M.R.S.A. A majority of the officers, directors, and the governing body must be members of the group self-insurer;

h. Acceptable standards for the approval of new members and the group as a whole which must include financial and underwriting criteria for new and continuing members;

i. Proof of a fidelity bond adequate to protect the interests of any 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.;

j. Proof of adequate facilities and competent personnel to service its program in compliance with Section III(H) and a description of the safety plan maintained by the group for the prevention of injuries;

k. The name and license number of the adjuster or adjusters, licensed in Maine, who will be adjusting claims;

l. Proof of required security after determined by the Superintendent pursuant to Section III(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 III(D)(7);

m. An actuarial review and proposed funding model for the prospective fund year;

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

o. Proof that the person signing the application has authority to do so.

2. Additional Member Filings Required. The initial application, as submitted by each initial member, must include the following:

a. Audited or reviewed financial statements for the most recently completed fiscal year and for each of the two (2) immediately preceding fiscal year;

b. Payroll data for each of the three (3) preceding years by risk classification based on the classification plan of the principal advisory organization licensed in the State of Maine;

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

d. An executed indemnity agreement; and

e. Proof that the person signing the application has authority to do so.

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

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

b. Audited or reviewed financial statements for a five (5) year period;

c. A resume of professional qualifications for each member of the Governing Body; and

d. Any other agreements, contracts, or pertinent documents relating to the organization of the employers in the group.

4. Employer Qualifying with guarantee. A member seeking approval on the basis of a guarantee from a parent or affiliate must submit documents for both the applicant member and the guarantor. In the case where more than one subsidiary is applying based on a guarantee from the same parent, the parent need not make duplicate filings of information.

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

C. Annual Renewal Application. Group 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 group 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, a renewal application for a group self-insurer must include the following:

a. 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;

b. 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 eight (8) months of claims experience, except for groups in continuous operation for three (3) or more years at renewal, not less than six (6) months of claims experience, a proposed funding schedule, and the identity of any reduction in funding or transfer of surplus among complete plan years, if applicable;

c. Current intrastate experience modification rating factor. The group self-insurer may request, and the Superintendent will accept, a calculation of the experience rating directly from a qualified third party;

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

e. A current valuation of each security which is posted as part of a security deposit with the State Treasurer;

f. A report of the results of application of the group financial and underwriting criteria as approved by the Superintendent;

g. A rating plan for the group;

h. Proof that any financial institution issuing an irrevocable standby letter of credit meets the requirements of Section III(D)(7).

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

D. Security. A group 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) or a surety bond, or by establishing an actuarially determined fully funded trust with an approved trustee bank. A group self-insurer may select the type of security if approved by the Superintendent. After a self-insurance plan has been approved, a group self-insurer may modify the method of providing security only after written approval by the Superintendent.

1. Basis for Security Amount. For a group self-insurer, the amount of security will be determined based upon an actuarial review. The self-insurer must provide the actuary with complete and accurate information necessary for completion of the actuarial review. If the Superintendent determines that the group 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 in the actuarial review.

2. Funding. Initial funding for each group 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 seventy-five percent (75%) confidence level provided that a year considered for reduction is completed, and the supporting actuarial review includes an evaluation of the completed year experience with claims evaluated not less than six (6) months from the end of the plan year, or in the case of a group self-insurer in existence for at least thirty-six (36) months, not less than four (4) months from the end of the plan year. For the purposes of determining the confidence level, all completed years at the same confidence level may be aggregated.

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

b. Funding Schedule for Trust. For group self-insurers utilizing an actuarially determined fully funded trust, twenty-five percent (25%) of the required funding amount must be deposited upon the first day of approval for a new plan. The remaining balance, adjusted for discounting, must be deposited either 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. After the initial authorization the funding schedule may be deposited pro-rata throughout the year, unless another schedule has been approved by the Superintendent.

c. 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 an authorized officer of the governing body of the group self-insurer or in the case of a group self-insurer which has filed for bankruptcy, by the Workers' Compensation Board.

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

3. 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.

4. 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.

5 . 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 III(F). An irrevocable standby letter of credit may be utilized by a group self-insurer that maintains a trust account actuarially funded to the confidence level required by the Superintendent as follows: only in an amount not greater than the difference between the funding to the required confidence level and funding to the confidence level reduced by 10 percentage points; only as long as the trust assets are not used as collateral for the letter of credit; and only as long as the value of trust assets, excluding the value of the letter of credit, are at least equal to the present value of ultimate expected incurred claims, claims settlement costs and, if determined necessary by the Superintendent, administrative costs. Obligations secured by a letter of credit must be on an undiscounted basis. 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 qualified financial institution is one that at all times, meets the following qualifications:

a. 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;

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

c. 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.

E. Request to Reduce Funding and Declaration and Release of Surplus from an Actuarially Determined Fully Funded Trust.

1. Determination of surplus funds. For the purpose of determining whether an actuarially determined fully funded trust has a surplus of funds in excess of that required by the Act and this Rule, the Superintendent shall consider, based upon the group's audit for all completed years, only the following assets held outside the trust account: cash up to $10,000; accounts receivable, limited to amounts collected and deposited in the trust account by the date of the surplus distribution; accrued interest on trust account assets that will be collected and deposited in the trust account within 6 months from the date of the surplus determination; tangible assets that will be converted to cash and deposited in the trust account prior to the distribution date of any surplus; and a letter of credit to be used to partially fund the trust to the extent allowed under the Act and this Rule, as supported in the actuarial review. The Superintendent will consider cash held outside the trust account in excess of $10,000 if the self-insurer provides, to the superintendent's satisfaction documentation regarding why the money is being held outside the trust account. If reserves are valued as of a date subsequent to the date of the group's most recent audit, reserves shall be reconciled to the audit date.

2. Request to Reduce Funding Included 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 report. However, if the group self-insurer has filed a timely application and has been notified by the Superintendent that the renewal application is complete, funding may be reduced to conform to the funding proposal in the actuarial report on the renewal date if the Superintendent has not notified the self-insurer that a request to reduce funding has been denied. Any funding schedule modified pursuant to this paragraph without written approval by the Superintendent is subject to adjustment after review and notice by the Superintendent.

3. Declaration or distribution of surplus. The governing body of a group self-insurer may at any time declare a surplus of funds above the required confidence level, but may only release funds or transfer funds among completed plan years after the completion of any plan year. The Superintendent may request information regarding any such declaration. Any distribution of surplus, including transfers of funds among completed plan years, must be based upon an actuarial review of all outstanding obligations for all completed plan years, an audited financial statement of the group for completed plan years, and a surplus distribution worksheet for all completed plan years on a form approved by the Superintendent. If the distribution is made more than six (6) months after the fiscal year audited and if either the valuation or trust assets date elected by the group is later than the closing date of the last fiscal year audited, the group self-insurer must file quarterly financial statements, or other reliable financial information relevant to changes since the audit. The group self-insurer must provide the required information within 10 days after the distribution or transfer. Any surplus declared, transferred or distributed pursuant to this paragraph is subject to adjustment after review by the Superintendent within 60 days of the receipt of the required information. Any deficit below the required confidence level, as determined by the Superintendent, that results from a distribution under this paragraph must be funded within 45 days from the date of the notice by the Superintendent.

4. Termination of Membership. If a member leaves a group for any reason whatsoever, that member shall fund the member's proportionate share of the group's liabilities and obligations of the program to the 95th confidence level. The proportionate share shall be measured based on that member's standard premium as compared to the entire group's standard premium. For each year, or portion thereof, that the departing member participated in the group, the percentage of that member's standard premium bears to the entire standard premium of the group shall be calculated. The sum of these values for all years is the required additional security for the departing member. If for any reason the departing member fails to fund the member's proportionate share of the trust's exposure to the 95th confidence level, then the remaining members of the group shall make the additional contribution no later than the anniversary date of the program as required to fund the departing member's exposure in accordance with this provision.

5. Default of Group Self-Insurer. In case of any default of a group self-insurer, the Workers' Compensation Board, with advice and approval of the Superintendent, may sell securities or collect such amounts adequate to pay benefits and compensation awarded. "Default", under this section, means the failure to make timely payments of any awards or other disbursements required pursuant to the Act or the self-insurer's bankruptcy, receivership, or any arrangement for the benefit of its creditors.

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 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 group 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 members of a group self-insurer may be covered by any contract or policy of reinsurance.

2. Reinsurance Standards.

a. Specific and aggregate reinsurance. The amount of reinsurance required will be determined by the Superintendent based upon the group self-insurer's tangible net worth, financial condition and exposure to loss with consideration given to current market conditions. Group 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 group self-insurer with justification. The Superintendent will notify the Maine Self-Insurance Guarantee Association of any waiver of specific or aggregate reinsurance.

H. Servicing Requirements.

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

2. Contracts and Communications with Service Providers. 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 group 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.

3. Safety Engineering. Each group self-insurer must set forth a safety engineering plan which describes the range of services and the schedule upon which services will be delivered. Every contract entered into by a group self-insurer with a service agent for safety engineering service, must contain a provision requiring 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.

4. Claims Handling. Each group self-insurer shall utilize one or more licensed claims adjusters 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 group self-insurer with an adjuster must contain a provision requiring the adjuster to file with the group 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.

a. The Superintendent may hold a hearing to determine whether a group 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.

5. Third Party Administrators. Each group self-insurer utilizing 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.

1. Maintenance of Records. Each group 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. The following documents must be maintained and made available for examination by the Superintendent within 14 days from a written request:

a. Supporting worksheets for the current intrastate experience modification rating factor for each member;

b. Service agreements;

c. Payrolls for the most recently completed year and projections for the upcoming year by workers' compensation classification code for each member and for the group and evidence of a payroll audit, completed within 120 days of the close of the plan year;

d. Copies of all approved minutes of Governing Body's minutes;

e. Records of compliance with the group's investment policy, which should include the following: the overall goal of the investment policy; the objectives for at least the areas of liquidity, return, risk, maturity and investment mix; specific guidelines that address the issues in the objectives; and other appropriate matters, such as investment decision responsibilities and communication of loss payment patterns and other relevant instructions to the Trustee Bank. The following example of an investment policy meets the requirements of this paragraph:

Investment policy

Goal:

To invest the funds collected as premium and other contributions to the trust so that the assets deposited in the trust together with the earnings thereon shall be sufficient to meet all the obligations of the approved self-insurer under the Act and/or assumed under a self-insurance plan.

Objectives:

Liquidity - To provide the liquidity needed to pay when due, all of the obligations required or authorized by law and/or assumed under a self-insured plan.

Return - To maximize the return on investments within the constraints of the liquidity, risk and maturity objectives.

Risk - To provide an acceptable level of financial risk to which trust assets are exposed within the constraints of the liquidity, return and maturity objectives.

Maturity - The maximum maturity of any individual investment in the portfolio shall be ten (10) years. The maximum maturity of any individual investment may be fifteen (15) years with the prior written approval of the Superintendent and cash flow that is adequate to meet all obligations required or authorized under the Act.

Investment Mix - The mix of investments in the portfolio shall limit the use of higher risk investments to a portion of those funds that will not be needed to pay near-term obligations. Investment mix must also consider maturity, portfolio risk, duration and portfolio diversification.

Guidelines:

Discretion of Trustee Bank. Within the guidelines established by this policy the Trustee Bank will safeguard/protect and invest trust assets in holdings that are allowed under Title 39-A M.R.S.A. or are otherwise approved by the Superintendent. This should include a description of how the fund will provide the Trustee Bank with information to determine appropriate liquidity and maturity requirements.

Investment Restrictions. A listing of permitted investments, including any limitations on the portion of the investment portfolio that may be invested in any particular class.

Liquidity Requirements. A general description of liquidity requirements.

Maturity Restrictions. A listing of maturity restrictions.

f. All legal documents including bylaws, trust documents, and indemnity agreements;

g. A documented system of accounting and internal control which safeguards program assets and provides for financially sound operation of the program;

h. Member reports on safety and loss control;

i. Verification of computation and collection of premiums, including payroll audits;

j. Member claims reporting records;

k. The group's financial statements;

l. A reconciliation of all bank accounts to trust statements;

m. Records of any funds kept on hand; and

n. A payroll audit for each member as required by section III(K)(2).

2. Records Open to Inspection; Timing. A group 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. All records shall be retained for periods of time sufficient to ensure their availability for audit and review purposes. All payroll records 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 Audits or Reports.

1. Annual Group Financial Statements and Actuarial Review. Audited financial statements and an actuarial review must be submitted to the Superintendent within six (6) months after the close of the plan year, unless this deadline is extended by the Superintendent.

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

3. Payroll and Claims Audits. Each group self-insurer's payroll and claims records may be audited at the discretion of the Superintendent, for cause. Audits must be performed by independent accountants, actuaries, claims examiners, payroll auditors, or other appropriate professionals acceptable to the Superintendent. The cost of such audits shall be borne by the party examined. The Superintendent must give thirty (30) days notice prior to the audit, unless, in the opinion of the Superintendent, there has been a change in financial condition of the self-insurer that could impact its claims paying ability. In such a case, the Superintendent may proceed without giving notice.

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

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

6. On-site Reviews. An examination of the affairs, transactions, accounts, records and assets of each group self-insurer and of any person as to any matter relevant to the affairs of the group self-insurer may be conducted annually or as often as the Superintendent determines advisable. In lieu of an on-site examination, and with the approval of the Superintendent, the group self-insurer may agree to forward all required documents to the Superintendent for review at the Bureau of Insurance. The Superintendent will give the group self-insurer thirty (30) days advance notice of the examination, unless the Superintendent has evidence of noncompliance with statute or rule. The expense of examination of a group self-insurer must be borne by the group that is examined.

L. Requests for Extension of Time for Filings. If a group 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. Whenever any of the following events will occur, the group self-insurer must notify the Superintendent thirty (30) days prior to the occurrence of the event or as soon as the group self-insurer knows or should have known of the occurrence of the event:

1. Reduction in membership. Coverage revenue to the group is reduced by more than twenty-five percent (25%) as a result of discontinued membership, whether by expulsion of members or otherwise, or by reduction in members' payrolls;

2. Failure to Renew Reinsurance. Failure to obtain renewal of reinsurance coverage consistent with the funding model applicable to the relevant fund year;

3. Change in Service Providers. A change in service providers;

4. Change in Reinsurance. 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;

5. Merger of Members. Consolidation, merger, or combined treatment of two (2) or more members as one (1); and

6. Addition of New Members. The addition of any participating employer or employers.

N. Termination of Self-Insurance Option. A group self-insurance plan may be terminated in the following ways: voluntary termination, non-renewal by the Superintendent, or revocation by the Superintendent.

1. Voluntary Termination. A group may voluntarily terminate its self-insurance program, in whole or in part, by submitting a termination plan to the Superintendent of Insurance at least forty-five (45) days before terminating its program. The plan must comply with the requirements of law and this section.

2. 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 group self-insurer non-renewed by the Superintendent may request a hearing pursuant to Title 24-A M.R.S.A. section229. Any Non-Renewal Order issued by the Superintendent will prescribe terms and conditions of a termination plan.

3. 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.

4. Termination Plan. A termination plan submitted under § 403(14) 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(1) 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(2) payment to the Bank Trustee 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 group 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 resident 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 group 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.

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

O. Group Administration and Operations.

1. The Governing Body. The governing body of each group self insurer is solely responsible for all operations of the group self-insurer, including responsibilities delegated to service providers. The governing body is responsible for safeguarding group assets, providing for the orderly functioning of the program and hiring or contracting for the performance of services which allow for smooth operations of the group.

a. The governing body must be held to account, in a fiduciary relationship, for any misuse or bad faith misapplication of funds. All funds of any type must remain under the control of the governing body or its authorized bonded representative, except that a licensed service agent's imprest account for payment of compensation benefits and expenses may be established for use by a service company.

b. The governing body must collect delinquent accounts resulting from any unpaid premiums by members and must invest available funds in acceptable investments as provided in Title 39-A M.R.S.A. §403(9). The governing body shall be restricted from making any type of investment with the intent to trade, dispose or sell the security on margin, to pledge or hypothecate assets so held or to engage in arbitrage respecting any securities. The governing body shall submit to the Superintendent for approval any plans to borrow money in the name of the group self-insurer.

c. The governing body may not use a premium discount plan different from that approved for the principal workers' compensation advisory rating organization in this State unless the Superintendent determines that it is actuarially sound and notifies the self-insurer in writing of the determination.

d. Each approved group shall have a rating plan that is reviewed and approved annually by the Superintendent. Any request for an adjustment to a rating plan to be effective at other than the annual renewal date shall be filed with the Superintendent not less than sixty (60) days before the proposed effective date. Such request must be accompanied by sufficient evidence, including certification by a qualified actuary, that the proposed rate for each payroll classification is adequate to cover expected losses and expenses for that payroll classification.

2. Bylaws. The bylaws must be filed with the Superintendent and provide for the following:

a. Qualifications for group membership, including financial and underwriting criteria for initial membership as well as continuing membership;

b. The method for selecting the governing body, including the term of office of each officer;

c. The method for amending the bylaws;

d. A process for defining delinquent premium payments and any other debts and appropriate penalties;

e. The procedures for cancellation or termination of members, including, but not limited to cancellation for nonpayment of charges, for adverse loss experience and for failure to comply with the group management manual;

f. The responsibilities and duties delegated to any administrator, manager, or other service provider;

g. A mechanism for resolving disputes between members and the group self-insurer; and

h. A description of the basis for distributing any surplus funds among members and the basis for assessing group members to make up any deficit.

3. Admission of New Members. Prospective new members of a group self-insurer must submit an application for membership to the governing body, on a form approved by the Superintendent. The governing body may approve the application for membership pursuant to the established admission standards of the group self-insurer that are on file with the Superintendent. Copies of the application for membership, the indemnity agreement, on the Superintendent's prescribed form, and proof that the person signing the application for membership has the authority to do so must then be filed with the Superintendent. Each group self-insurer shall be prohibited from accepting as a member any employer who has any incurred but undischarged debt relating to workers' compensation obligations under the Act. A valid cancellation for reason of nonpayment of premium constitutes sufficient proof of such debt. If, after acceptance of an employer as a member, a group self-insurer obtains evidence that such employer has an outstanding debt relating to workers' compensation obligations under the Act, the governing body must issue a 30-day notice of cancellation to the employer. Upon satisfactory payment of all outstanding debt, the employer may be reinstated by the group self-insurer.

a. Members shall receive a certificate of coverage from the governing body on a form acceptable to the Superintendent.

4. Termination of Members. Individual members may elect to terminate their participation in a self-insurance group program pursuant to the group bylaws. Members may be expelled by the governing body for reasons designated in the group's bylaws. Prior to any termination or cancellation, not less than thirty (30) days notice shall be given to the member and at least ten (10) days notice shall be given to the Superintendent and the Workers' Compensation Board.

a. Requirements at Termination. When a member leaves a group, a payroll audit for the terminating member shall be performed. The governing body will collect any additional premium due or refund premium overpayment. An adjustment of funding to the 95th confidence level for the departing member will be made consistent with the provisions of subsection E(4) of this Rule. The governing body will provide timely notice to the departing member of its continued obligations under the indemnity agreement.

b. The governing body of a group self-insurer, upon receipt of notice of the filing of a petition for voluntary or involuntary bankruptcy of a member employer of the group shall take, at a minimum, the following actions:

i. determine the amount, if any, of premiums receivable, unpaid assessments or other deferred and uncollected balances owed by the member and so advise any trustee in bankruptcy thereof; and

ii. initiate those steps necessary to terminate prospective coverage for the member employer as permitted by order of the bankruptcy court. If a trustee in bankruptcy arranges for prepayment of coverage for the member in any proceeding under chapter 11 of the United States Bankruptcy Code, as now or hereafter amended, coverage may be continued for such period of prepayment provided that a safety margin respecting the member is maintained at the 95th confidence level consistent with the provisions of subsection III(E)(4) of this rule.

6. Member changes. Each member of a group self-insurance plan shall be responsible for promptly reporting to the group in which it participates changes in the names, addresses, organizational structure, majority ownership, as well as any additions or deletions of businesses or subsidiaries which participate in the program. Such changes shall be reported to the governing body by letter within ten (10) days following the effective date of the change. The governing body will in turn report such changes to the Superintendent within five (5) days of receipt of notification by the member.

Notes

02-031 C.M.R. ch. 250, § III