Florida Regulations 69O-190.061

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§ 69O-190.061 Excess Insurance Requirements - Self-Insurers Funds.

(1) When used in this rule, the following words or terms shall have the meaning as described herein:

(a) Loss fund – the retention under the terms of an aggregate excess contract, or if no aggregate excess is purchased, the amount remaining from normal premium in each fund year after all necessary expenses are paid. For the purposes of Rule 4-190.061(8)(b) and (c), F.A.C., no loss fund shall be less than 70 percent of earned normal premium without the approval of the Division. (b) Aggregate loss – the amount of all claims incurred, including reserves for loss development and IBNR, which exceeds the loss fund. (2) All self-insurers funds shall maintain specific excess insurance with a limit or not less than $1,000,000 or 5 times the policy retention whichever is greater. This amount shall not include the retention amount. Self-insurers funds containing businesses with a high risk of multiple injury from a single accident may be required to maintain higher limits. In determining whether to require such higher limits, the Division shall consider the likelihood of serious multiple injuries occurring in a single accident and the financial condition of the fund. (3) The maximum retention allowed for a fund's specific excess policy shall be in accordance with the following schedule unless a waiver is granted pursuant to subsections (4), (5), (6) and (7): (a) For funds with a loss fund of less than $3,000,000 the maximum retention shall be $225,000. (b) For funds with a loss fund greater than or equal to $3,000,000 and less than $4,000,000, the maximum retention shall be $230,000. (c) For funds with a loss fund greater than or equal to $4,000,000 and less than $5,000,000, the maximum retention shall be $240,000. (d) For funds with a loss fund greater than or equal to $5,000,000 and less than $6,000,000, the maximum retention shall be $250,000. (e) For funds with a loss fund greater than or equal to $6,000,000, and less than $7,000,000, the maximum retention shall be $260,000. (f) For funds with a loss fund greater than or equal to $7,000,000 and less than $8,000,000, the maximum retention shall be $270,000. (g) For funds with a loss fund greater than or equal to $8,000,000 and less than $9,000,000, the maximum retention shall be $280,000. (h) For funds with a loss fund greater than or equal to $9,000,000 and less than $10,000,000, the maximum retention shall be$290,000. (i) For funds with a loss fund greater than or equal to $10,000,000 and less than $50,000,000, the maximum retention shall be 3 percent of the fund's loss fund. (j) For funds with a loss fund greater than or equal to $50,000,000 and less than $100,000,000, the maximum retention shall be 3.5 percent of the fund's loss fund. (k) For funds with a loss fund greater than or equal to $100,000,000 the maximum retention shall be 4 percent of the fund's loss fund. (l) Regardless of any maximum contained in this paragraph, no fund shall secure a retention which is not actuarially sound. Upon the request of the Division, a fund shall submit evidence of the actuarial soundness of its desired retention in a report prepared by its actuary. In the event that the fund does not have its own actuary, the Division shall prepare its own report on the actuarial soundness of the retention. After evaluating all evidence the Division shall determine if the desired retention is actuarially sound. In the event the desired retention is not actuarially sound, the Division shall not approve the desired retention. (4) If a fund wishes to secure a specific excess policy with a retention greater than the maximum allowed by subsection (3), then the fund shall comply with the procedure described in subsections (5), (6) and (7). (5) Funds which have been in operation at least 60 months may request permission to secure a retention higher than that authorized by subsection (3). A fund shall submit a feasibility study prepared by a qualified actuary which analyzes the impact on the fund of the higher retention. The study shall be in writing and shall be submitted to the Division at least 90 days prior to the beginning of the fund year for which the higher retention is requested. The Division shall advise the fund of its decision on allowing the higher retention no later than 45 days prior to the beginning of the fund year in question. If the fund has elected to make application for establishing an aggregate reserve, the specific excess feasibility study may be combined with the aggregate excess feasibility study. If the two studies are combined, the actuary shall specify the intent for the report to satisfy both requirements. (6) The specific excess study shall analyze the past 5 fund years and illustrate the effect on the fund had the higher retention been in place during the past 5 fund years. The study shall also examine the impact of the higher retention on the fund for the next fund year. The report of the actuary shall also describe the method by which the additional reserves due to the higher retention will be funded. Monies used to fund the higher retentions shall be allocated from premium earned during the year the loss was incurred, from investment earnings from the year in which the loss was incurred or from future investment earnings on the specific loss reserve. (7) The Division shall deny the use of a higher retention if it finds that the higher retention will adversely affect fund solvency or if the fund is unable to establish reserves using monies authorized by subsection (6). (8) Each self-insurers fund shall provide security for liabilities in excess of its loss fund in each fund year by selecting one of the following alternatives: (a) Purchasing an acceptable aggregate excess policy as defined in Rules 4-190.035, 4-190.036 and 4-190.061, F.A.C., (b) Upon approval by the Division, pursuant to Rule 4-190.061(12), F.A.C., post a separate cash security deposit in the amount of $1,000,000 or 20 percent (20%) of annual standard premium, whichever is greater, or (c) Upon written approval of the Division, pursuant to Rule 4-190.061(13), (14), and (15), F.A.C., establish a reserve for aggregate excess losses in accordance with this rule. A fund shall have been in operation for at least 60 months before this option may be selected. (9) The insured aggregate limit for a self-insurers fund shall not be less than $1,000,000. Subject to this minimum, the self-insurers fund shall secure an aggregate limit of at least 20 percent (20%) of the annual standard premium of the fund for the term of the policy. The limit so determined shall be rounded to the nearest $100,000. The retention of an aggregate policy is limited to the highest retention that can be funded from normal premium in the fund year without developing a contingent liability. A higher retention than can be funded from normal premium may be allowed by the Division if the resulting contingent liability can be guaranteed by a cash security deposit. (10) If the option in Rule 4-190.061(8)(a), F.A.C., is selected, the self-insurers fund, upon written approval of the Division, may self-insure part of its aggregate limit by posting as a separate cash security deposit for the amount which is self-insured. The procedures set out in Rule 4-190.061(8)(b) and (12), F.A.C., shall be used by the Division to determine whether the aggregate may be partially funded by posting a cash security. (11) No aggregate excess policy shall be acceptable if it contains a provision for a minimum retention or loss fund which is greater than the product of the aggregate excess retention percentage and the fund's estimated annual normal premium for the term of the policy, unless the fund has sufficient unencumbered surplus to guarantee the resulting contingent liability. (12) The Division shall grant permission to post the cash security deposit in lieu of the fund purchasing an aggregate excess policy, if the Division determines that based upon a comparison of the assets and liabilities of the fund, the fund has a surplus equal to or greater than the total security deposits required by Rule 4- 190.060, F.A.C., including the cash security to be posted in lieu of purchase of the aggregate excess policy. (13) If the option in Rule 4-190.061(8)(c), F.A.C., is selected, the fund shall make application to the Division, in the manner prescribed herein, at least 90 days prior to the beginning of the first fund year for which permission is requested to establish an aggregate reserve to provide security for aggregate losses. The Division shall render a decision on the application no less than 45 days prior to the beginning of that first fund year. Thereafter, application shall be filed as set out at Rule 4-190.061(16)(a), F.A.C., for each year for which permission is sought to establish an aggregate reserve. The time periods set out in this rule shall not apply to applications submitted within the first 90 days after the effective date of this rule. (14) An application under Rule 4-190.061(8)(c), F.A.C., shall be in writing and shall include the following information: (a) A plan for the first year of operation with a reserve account which establishes the proposed funding of the reserve account. The plan shall set forth the assumptions upon which the funding of the aggregate reserve is based. The plan shall use current rate levels and reasonable estimates of premium income, expenses, and investment rates of return. The plan may also include alternative analyses using anticipated rate level changes, and various assumptions regarding premium income, investment income, and expenses. (b) A feasibility study by a qualified actuary which evaluates the last 5 fund years. This study must illustrate the effect of using the assumptions contained in the plan applied to the past 5 fund years. In making this study, the rules, as hereinafter provided, governing the funding of the aggregate reserve account shall be used in determining the feasibility of the plan. (c) A statement by the actuary that, in his opinion, the proposed plan is an actuarially sound method of providing security for aggregate losses on a retrospective and prospective basis. Furthermore, the actuary shall state that the report is complete and accurate and that, in his opinion, the techniques and assumptions used are reasonable and meet the requirements and intent of this rule. (15) The application shall be rejected if the Division determines that the proposed plan to fund aggregate losses does not comply with this rule. (16) If a fund receives permission to fund its aggregate losses by establishing an aggregate reserve, the fund shall comply with the following requirements: (a) At least 60 days prior to the beginning of each policy year for which an aggregate reserve will be established, the fund shall submit a plan for that year as prescribed in Rule 4-190.061(14)(a) and (c), F.A.C. Written approval of the plan by the Division shall be required before an aggregate reserve may be established for the next policy year. (b) Within 6 months after the end of each fund year, the fund shall submit an actuarial report, by a qualified actuary, of its aggregate reserve for each fund year whose aggregate losses are guaranteed by the reserve. Fund years more than 4 years old may be consolidated for the report. All other years must be evaluated separately. (c) The actuarial report shall evaluate the losses, estimate loss development and establish a reserve for losses incurred but not reported (IBNR). The report shall provide a single best estimate of ultimate loss for each year evaluated separately and a single best estimate for all years more than 4 years old which are grouped together. (d) Along with the actuarial report, the fund shall provide financial information which sets forth the financial position of the aggregate reserve. The financial report shall indicate whether the reserve account, including reserves for losses, loss development and IBNR, can be funded from the premium income of the fund. If the monies allocated to the loss fund are insufficient to satisfy the requirements of the aggregate reserve, then the fund shall provide a plan for funding the amounts necessary to make the aggregate reserve actuarially sound. (e) In developing a plan for funding the aggregate reserve, the actuary shall estimate the amount of time it will take for the fund to pay out the cash currently remaining in its loss fund in each fund year. The plan shall set forth an actuarially sound procedure for allocating money to the aggregate reserve to insure that the fund will have, at any point in the future, sufficient money to meet all its claims payments. At a point in time no later than 4 years from the end of each fund year, the fund shall have fully funded the aggregate reserve for that year, so that taking into account investment earnings, no further contributions will be necessary to fund all future claims liabilities. Failure to meet the requirement for having made all necessary contributions within 4 years shall be good cause for finding that the aggregate reserve is actuarially unsound for purposes of Rule 4-190.039(2)(a), F.A.C. (f) The actuarial report shall also estimate the unfunded liability for each year with an aggregate reserve requirement and determine the ability of the fund to pay its future liabilities under the assumption that no further premium income will be available after the end of the current fund year. The financial report shall review the fund's liquidity and determine if the fund will have sufficient cash available under the assumption that no further premium income will be earned after the end of the current fund year. Failure to demonstrate that the fund will have sufficient cash to meet its claims obligations or eliminate its unfunded liability without the contribution of additional earned premium from subsequent fund years shall be good cause for finding that the aggregate reserve is actuarially unsound for purposes of Rule 4-190.039(2)(a), F.A.C. (g) In actuarially determining the amount of ultimate loss, the fund and its actuary may take into account current or future recoveries from any aggregate or specific excess contract, if such contract complies with these rules. (h) Any fund with an approved preferred payment plan shall have its actuary determine the necessary amount of additional premium to be paid by the preferred payment plan participants so that all potential funding deficits in the loss fund will be eliminated. Funds which charge this additional premium shall be excused from the requirement to allocate surplus to the loss fund to fund the deficit as required by Rule 4- 190.066(8)(k), F.A.C. (17) The Division shall: (a) Reject an actuarial report or financial report which does not comply with the requirements of Rule 4-190.061(16), F.A.C. If this occurs, the Division shall conduct its own actuarial or financial review or upon request of the fund allow the fund to submit another actuarial or financial report within sixty (60) days subject to the Division's approval of the party preparing the report. (b) For good cause, order a fund to cease using an aggregate reserve for securing its aggregate losses. Good cause shall include a finding that the aggregate reserve is actuarially unsound, that the fund is insolvent, that the fund will lack sufficient liquidity to run off its claims without reliance on future premium income, or that the fund has failed to comply with the provisions of this rule. (c) In the event that the fund's aggregate reserve, or reserves, is actuarially unsound, order the fund to take such corrective action as necessary to make the reserve actuarially sound. (18) In consideration of approval of its plan to use an aggregate reserve to fund its aggregate losses, the fund agrees to the following: (a) Payment of dividends from premium in a fund year shall not be requested or approved for that fund year as long as any claims reserves, reserves for loss development or reserves for IBNR are unfunded by actual cash reserves. (b) No dividends shall be requested or approved from investment earnings unless the aggregate reserves for all years are actuarially sound, taking into account future contributions. (c) That advance premium discounts and all expenses unnecessary for the fund to meet its obligations under the law will be reduced or eliminated, if necessary, to provide funds to make an aggregate reserve actuarially sound. (d) That the amounts actuarially determined to be necessary for the reserves for loss development shall be in addition to the fund's security deposit requirement as specified in Rule 4- 190.060, F.A.C. (e) That no premium from a year prior to the year for which the aggregate reserve is established may be allocated to fund an aggregate reserve until 12 months after the close of the prior year. Specific Authority 440.38(2)(b), 440.57 FS. Law Implemented 440.38(2)(b), (3), 440.57 FS. History-New 10-1-82, Amended 12-25-84, 12-17-85, Formerly 38F-5.61, Amended 3-11-87, 2-3-88, 12-19-93, Formerly 38F-5.061.