[39 Pa.B. 2293]
[Saturday, May 2, 2009]
[Continued from previous Web Page] (e) The applicant may request a conference with the Bureau to submit additional materials to support its application or the alteration of the conditions required in the initial decision, or to challenge the accuracy of underlying calculations made or data considered by the Bureau in its decision or conditions. The applicant may also notify the Bureau of its intention to submit these materials directly in writing without a conference. The Bureau must receive a request or notification within 20 days of the date of the Bureau's initial decision.
(1) Upon its receipt of the request or notification, the Bureau will schedule a conference. If a conference is not requested, the Bureau will establish a deadline, not to exceed 30 days from the Bureau's date of receipt of the notification, for the submission of the additional materials.
(2) The prior permit of a renewal applicant that has filed a timely request for a conference or notification of intent to submit additional materials will be automatically extended under the prior conditions established by the Bureau beyond the permit's original expiration date until the Bureau issues a reconsideration decision on the renewal application under subsection (f).
(f) [The applicant may request a conference with the Bureau upon receipt of the Bureau's preliminary approval notice or denial notice. A conference request shall be made in writing within 20 days after the receipt of the preliminary notice. At the conference, the applicant may present additional evidence or data to support its application or the alteration of the conditions required in the preliminary approval notice. The applicant may present that information to the Bureau in writing, or in person, or both] After a conference or the receipt of additional materials, the Chief of the Self-Insurance Division of the Bureau will review the entire record of the application and will issue a reconsideration decision on the application.
(1) The applicant shall have 30 days from its receipt of a reconsideration decision approving an application to comply with any conditions set forth by the Bureau in that decision.
(i) Unless a timely appeal is filed under subsection (g), when the applicant does not meet the conditions within this 30-day period, the application will be deemed denied.
(ii) A renewal applicant that does not meet the conditions within this 30-day period shall obtain workers' compensation insurance coverage effective the expiration of the compliance period and shall provide evidence of the coverage to the Bureau no later than the coverage's effective date, unless the applicant has timely initiated the procedures outlined in subsection (g).
(2) Upon the issuance of a reconsideration decision denying a renewal application, the renewal applicant shall obtain workers' compensation insurance coverage effective no later than 30 days after its receipt of the reconsideration decision and shall provide evidence of the coverage to the Bureau no later than the coverage's effective date unless the applicant has timely initiated the procedures outlined in subsection (g).
(g) [After a conference and the receipt of written submissions, the Chief of the Self-Insurance Division of the Bureau will promptly review the entire record of the application and will issue a reconsideration decision on the application.
(h)] An applicant shall have the right to appeal a reconsideration decision issued under subsection [(g) with the] (f). The Bureau must receive the appeal within 30 days of the [receipt] date of the reconsideration decision. The prior permit of a renewal applicant that filed a timely appeal shall be automatically extended under the prior conditions established by the Bureau beyond the permit's original expiration date, until a presiding officer issues a written decision on the appeal. Untimely appeals will be dismissed without further action by the Bureau.
(1) The Director of the Bureau will assign the appeal to a [hearing] presiding officer who will schedule a [de novo] hearing on the appeal from the [initial] reconsideration decision. [The applicant will receive reasonable] The presiding officer will provide notice to the parties of the hearing date, time and place.
(2) The hearing will be conducted [in a manner to provide the applicant and the Bureau the opportunity to be heard. The hearing officer will not be bound by strict rules of evidence. Relevant evidence of reasonably probative value may be received into evidence. Reasonable examination and cross-examination of witnesses will be permitted] under this subsection and 1 Pa. Code Part II (relating to General Rules of Administrative Practice and Procedure) to the extent not superseded in paragraph (6). The presiding officer will not be bound by strict rules of evidence.
(3) [Testimony will be recorded and a full record kept of the proceedings. The Bureau and the applicant will be provided the opportunity to submit briefs addressing issues raised] Hearings will be stenographically-recorded. The transcript of the proceedings will be part of the record.
(4) [Following the close of the record, the hearing officer will promptly issue a written decision and order. The decision will include relevant findings and conclusions, and state the rationale for the decision. The decision will be served upon the applicant, the Bureau and counsel of record. The decision will include a notification to the applicant and the Bureau of further appeal rights to Commonwealth Court] The presiding officer will issue a written decision and order under 1 Pa. Code Chapter 35, Subchapters G and H (relating to proposed reports; and agency action) to the extent not superseded in paragraph (6). The presiding officer will determine whether the Bureau abused its discretion or acted arbitrarily under this subchapter in the reconsideration decision. The applicant has the burden to prove that the Bureau abused its discretion or acted arbitrarily in the reconsideration decision.
(5) [The applicant or the Bureau,] A party aggrieved by a decision rendered [on an appeal] by the presiding officer, may [file a further] appeal the decision to Commonwealth Court.
(6) This subsection supersedes 1 Pa. Code §§ 35.131, 35.190, 35.201, 35.211--35.214 and 35.221.
[(i)] (h) An applicant which has been denied self-insurance may reapply after an annual audit report is published subsequent to the latest one submitted with the denied application.
§ 125.7. Permit.
(a) A permit is issued for 1 year, except that the Bureau may shorten or extend the effective period of a permit by not more than 6 months to facilitate the filing of timely audit reports with the next renewal application.
(b) If the Bureau fails to issue [a] an initial decision with respect to a renewal application under § 125.6 (relating to decision on application) prior to the expiration of the permit for the prior year, the prior permit [shall] will be automatically extended under the prior conditions established by the Bureau beyond the permit's original expiration date, until a [final] decision on the renewal application is [made] issued by the Bureau. This automatic extension applies only in cases [where] when the renewal application has been timely filed under § 125.3 (relating to application) and the applicant has submitted or is submitting all data, information, explanation, corrections and missing items, or has corrected or is correcting inaccurate data, within the time period prescribed in writing by the Bureau.
(c) If a renewal applicant's permit for the prior year expires while the applicant is in the process of satisfying conditions set forth in an initial or reconsideration decision, the prior permit will be automatically extended beyond its original expiration date, pending satisfaction of the conditions within the time period prescribed in writing by the Bureau.
§ 125.8. [Denial of renewal application] (Reserved).
[The applicant shall immediately secure workers' compensation insurance coverage upon the preliminary denial of a renewal application unless the applicant has initiated the procedures outlined under § 125.6 (f)--(h) (relating to decision on application). The applicant shall provide to the Bureau a certificate of insurance evidencing workers' compensation coverage within 30 days following receipt of a final decision denying its renewal application.]
§ 125.9. Security requirements.
(a) This section applies to self-insured employers except the Commonwealth and political subdivisions. A private employer shall provide security in an amount as set forth in subsection (d). An instrumentality of the Commonwealth shall provide security in [the minimum] an amount [of the security constant] equal to the minimum security amount rounded upward to the nearest hundred thousand or in a greater amount as determined by the Bureau to protect [employes] employees and their dependents against temporary interruptions in the payment of benefits by the self-insurer. The security required in this section is not a substitute for the applicant demonstrating its financial ability to [pay compensation under the act and the Occupational Disease Act] self-insure. A self-insurer's security may be adjusted annually or more frequently as determined by the Bureau.
(b) The following forms of security are acceptable:
(1) A surety bond on a form prescribed by the Bureau issued by a company authorized to transact surety business in this Commonwealth by the Insurance Department.
(i) [The] At the time of the issuance of the bond, the surety company shall possess a current A. M. Best Rating of [B+] A- or better or a Standard [and] & Poor's insurer's financial strength rating [of claims paying ability] of A or better or a comparable rating by another NRSRO.
(ii) The self-insurer shall replace the bond with a new bond issued by a surety company with an acceptable rating or with another acceptable form of security if the surety company's highest rating falls below [the acceptable rating] an A. M. Best Rating of B+, a Standard & Poor's insurer's financial strength rating of A- or a comparable rating by another NRSRO after the bond is issued. If the bond is not replaced within [60] 45 days, the Bureau will have discretion to draw on the surety bond and deposit the proceeds with the State Treasurer to secure the self-insurer's liability and to revoke the current permit if the bond exclusively secures claims currently being incurred against the self-insurer.
(iii) An active self-insurer that does not post another bond or another acceptable form of security to cover claims currently being incurred against the self-insurer, after the surety of a bond that exclusively secures the claims provides notification of its intention to terminate the bond, shall obtain workers' compensation insurance coverage effective the bond's termination date. The self-insurer shall provide evidence of the coverage to the Bureau no later than the coverage's effective date.
(2) A security deposit held under a trust agreement prescribed by the Bureau and maintained for the benefit of [employes] employees of the self-insurer:
(i) The deposit [shall] must consist of cash; bonds or other evidence of indebtedness issued, assumed or guaranteed by the United States of America, or by an agency or instrumentality of the United States; investments in common funds or regulated investment companies which invest primarily in United States Government or Government agency obligations; or bonds or other security issued by the Commonwealth and backed by the Commonwealth's full faith and credit.
(ii) The securities [shall] must be held in a Commonwealth chartered bank and trust company or trust company as defined in section 102 of the Banking Code of 1965 (7 P. S. § 102) or a Federally-chartered bank or foreign bank with a branch office and trust powers in this Commonwealth.
(iii) The trustee shall maintain a standby arrangement with a claims service company for the administration and the payment of the self-insurer's claims on behalf of the trust in the event of the self-insurer's default on its liability. Evidence of the standby arrangement shall be provided annually to the Bureau.
(3) An irrevocable letter of credit using language required by the Bureau issued by and payable at a branch office of a commercial bank located in the continental United States[, Alaska or Hawaii]. The letter of credit [shall] must state that the terms of the letter of credit automatically renew annually unless the letter of credit is specifically nonrenewed by the issuing bank 60 days or more prior to the anniversary date of its issuance[:].
(i) At the time of issuance of the letter of credit, the issuing bank or its holding company shall have a B/C or better rating or 2.5 or better credit evaluation score by Fitch Ratings, as successor to the rating services of Thomson BankWatch, or the issuing bank shall have a CD or long-term issuer credit rating of BBB or better or a short-term issuer credit rating of A-2 or better by Standard & Poor's [Corporation] or a comparable rating by another NRSRO.
(ii) The self-insurer shall replace the letter of credit with a new letter of credit issued by a bank with an acceptable credit rating or with another acceptable form of security if [a] the issuing bank's highest rating falls below the acceptable rating outlined in subparagraph (i) after the letter of credit is issued. If the letter of credit is not replaced within [60] 45 days, the Bureau will draw on the letter of credit and will deposit the proceeds to secure the self-insurer's liability.
(iii) The applicant shall execute and maintain a trust agreement on a form prescribed by the Bureau with a Commonwealth-chartered bank and trust company or trust company as defined in section 102 of the Banking Code of 1965 or a Federally-chartered bank or foreign bank with a branch office and trust powers in this Commonwealth. The bank and trust company or trust company shall have a nonprocurement registration number. The trust agreement will accommodate proceeds from a letter of credit drawn on by the Bureau. The Bureau may draw down on a letter of credit posted by a self-insurer to finance the maintenance of the trust arrangement if the self-insurer fails to maintain this arrangement.
(iv) The trustee of the trust agreement required under subparagraph (iii) shall maintain a standby arrangement with a claims service company for the administration and the payment of the self-insurer's claims on behalf of the trust in the event of the self-insurer's default on its liability and the deposit of the proceeds of the letter of credit in the trust fund. Evidence of the standby arrangement shall be provided annually to the Bureau.
(c) Affiliates included under a consolidated permit under § 125.4(a) (relating to application for affiliates and subsidiaries) must be included together under the forms of security provided. For purposes of this section, affiliates [included under a consolidated permit are considered to be one self-insurer] that are runoff self-insurers are considered to be active self-insurers if they were included under a consolidated permit with affiliates that remain active self-insurers.
(d) The amount of security required of [self-insured] private employers is determined as [described] set forth in paragraphs (1)--[(4)] (6).
(1) For a new self-insurer, the Bureau will determine the initial amount of security [. The initial security will], to be calculated as follows:
(i) An amount no less than two times the amount of the applicant's total greatest annual insured incurred workers' compensation losses in this Commonwealth during the last 3 [complete] completed policy years prior to its application [plus], or the minimum security [constant and rounded] amount, whichever is greater.
(ii) Discounted by the percentage outlined under subsection (i) for the applicant's highest current long-term credit or debt rating, if any.
(iii) Rounded upward to the nearest hundred thousand.
(2) For those active self-insurers who have been approved [for self-insurance] to self-insure for more than 1 year but less than 3 years, the amount of security is [the] calculated as follows:
(i) The greater of [that]:
(A) The amount outlined in paragraph (1) [or 100%].
(B) One hundred percent of the Bureau's calculation of the self-insurer's undiscounted outstanding liability based on loss development, net of workers' compensation excess insurance recoveries[, as adjusted by its history of loss development by the Bureau or as projected by an actuary, plus the security constant and rounded].
(ii) Discounted by the percentage outlined under subsection (l) for the applicant's highest current long-term credit or debt rating, if any.
(iii) Rounded upward to the nearest hundred thousand.
(3) For those active self-insurers who have been approved [for self-insurance] to self-insure for 3 or more years, the amount of security is [100%] calculated as follows:
(i) One hundred percent of the Bureau's calculation of the self-insurer's undiscounted outstanding liability based on loss development, net of workers' compensation excess insurance recoveries, [as adjusted by its history of loss development by the Bureau or as projected by an actuary, plus] or the minimum security [constant and rounded] amount, whichever is greater.
(ii) Discounted by the percentage outlined under subsection (l) for the applicant's highest current long-term credit or debt rating, if any.
(iii) Rounded upward to the nearest hundred thousand.
(4) [Notwithstanding this subsection, the Bureau may require security in an amount greater than outlined in this section if it finds that the security resulting from the description in paragraphs (1)--(3) would not be adequate to secure fully and guarantee the payment of incurred and future benefits to each self-insurer's employes.] When multiple affiliates are included under a consolidated permit, the required amount of security for the consolidated program is calculated as follows:
(i) The sum of each individual affiliate's required amount of security as calculated under the applicable paragraphs above but excluding the effects of any rounding or minimum applicable to the individual affiliates, or the minimum security amount, whichever is greater.
(ii) Discounted by the percentage outlined under subsection (l) for the applicant's highest current long-term credit or debt rating, if any.
(iii) Rounded upward to the nearest hundred thousand.
(5) For runoff self-insurers, the amount of security is calculated as follows:
(i) One hundred percent of the Bureau's calculation of the runoff's undiscounted outstanding liability based on loss development, net of workers' compensation excess insurance recoveries.
(ii) Discounted by the percentage outlined under subsection (l) for the runoff's highest current long-term credit or debt rating, if any.
(iii) Rounded upward to either:
(A) The nearest ten thousand if the Bureau's calculated undiscounted outstanding liability, net of workers' compensation excess insurance recoveries, discounted by the percentage outlined under subsection (l) for the runoff's highest current long-term credit or debt rating, if any, is $50,000 or less.
(B) The nearest hundred thousand.
(6) When multiple runoff self-insurers are included under one security instrument, the required amount of security is calculated as follows:
(i) The sum of each individual runoff self-insurer's required amount of security as calculated under paragraph (5) but excluding the effects of any rounding applicable to the individual runoff self-insurers.
(ii) Discounted by the percentage outlined under subsection (l) for the runoff self-insurers' highest current long-term credit or debt rating, if any.
(iii) Rounded upward to either:
(A) The nearest ten thousand if the Bureau's calculated undiscounted outstanding liability, net of workers' compensation excess insurance recoveries, discounted by the percentage outlined under subsection (l) for the runoffs' highest current long-term credit or debt rating, if any, is $50,000 or less.
(B) The nearest hundred thousand.
(e) [A self-insurer wishing to refute the Bureau's adjustment of its outstanding liability by its history of loss development may do so by providing a report prepared by an actuary.] The Bureau may consider the analyses and projections of a report prepared by an actuary retained by a self-insurer. The Bureau is not required to accept or use the actuary's analyses or projections in calculating its projection of the self-insurer's outstanding liability under subsection (d).
(f) [Only a projection of a self-insurer's outstanding liability prepared by an actuary may be discounted to present value. The present value discount rate will be no more than the current yield of a 30-year United States Treasury bond.] The Bureau may incorporate or use the overall Commonwealth's workers' compensation experience of insured or self-insured employers in the self-insurer's industry or of all insured or self-insured employers in its selection of loss development factors under subsection (d) if the claim volume or experience of the self-insurer is not sufficient to be considered fully credible based on generally accepted actuarial procedures. The loss development factors selected by the Bureau and its other judgments in its calculation of a self-insurer's outstanding liability will be sufficiently conservative to ensure the adequate provision of security.
(g) The Bureau may make any adjustments to the loss development procedures under subsection (d) it deems appropriate under the circumstances, or it may use methods other than loss development it determines to be reasonable to calculate the amount of the self-insurer's outstanding liability, if the Bureau believes that a self-insurer has changed its reserving methodology in such a way as to invalidate loss development factors based on past experience. [The Bureau may further require the self-insurer to obtain the services of an actuary to project its outstanding liability or require an appropriate party to conduct an audit of the self-insurer's claims reserves.]
(1) The Bureau may substitute the self-insurer's default multiplier-calculated security factor for the outstanding liability amount based on loss development in calculating the self-insurer's required amount of security if the Bureau believes that the paid, incurred or case reserve data reported under § 125.3 (relating to application) or under § 125.16 (relating to reporting by runoff self-insurer) is substantially inaccurate and cannot be accurately replaced within a reasonable period of time.
(2) In applying the default multiplier-calculated security factor, the Bureau may adjust a self-insurer's annual payout of benefits to correct any material underpayment of benefits the Bureau believes results from the self-insurer's failure to pay compensation for which it is liable during the evaluation period or if the Bureau finds that the factor would inadequately estimate the self-insurer's outstanding liability, including liability from a significant infusion of claims.
* * * * * (i) The Bureau may reduce the amount of security required of a self-insurer under subsection (d) to no less than the minimum security [constant] amount rounded upward to the nearest hundred thousand if the self-insurer establishes a funding trust to provide a source of funds for the payment of its liability. A self-insurer may elect to establish a funding trust or it may be required by the Bureau to establish a funding trust where the Bureau determines that a dedicated source of funds is needed to further ensure the timely payment of the self-insurer's liability. In either case, the following conditions shall be met:
(1) The trust agreement [shall] must be in a form prescribed by the Bureau.
(2) The trust assets [shall] must be held in a Commonwealth chartered bank and trust company or trust company as defined in section 102 of the Banking Code of 1965 or a Federally chartered bank or foreign bank with a branch office and trust powers in this Commonwealth.
(3) The value of the trust fund [shall] must be adjusted at least annually to the required funding level as determined by the Bureau [or an actuary].
(j) A self-insurer with security [as of October 14, 1995,] which is less than the level of security required by subsection (d) may be permitted to phase in the level of required security over a maximum of [3] 2 years. The Bureau will determine the terms of the phase-in period, including the length of time and the annual [adjustments] phase-in amounts.
(k) [The Bureau will not grant a request for a reduction in or release of security by a runoff self-insurer until at least 1 year has passed since the termination of its self-insurance status or the runoff self-insurer provides a certificate of insurance evidencing that its self-insurance liability has been assumed by an authorized workers' compensation carrier. Requests shall be supported by a report prepared by an actuary projecting the runoff self-insurer's outstanding workers' compensation obligation, a claims reserves analysis prepared by an appropriate party or a certificate of insurance evidencing assumption of self-insurance liability. The Bureau will consider but is not bound by the findings of the reports in deciding security reduction or release requests.] The Bureau may release a runoff self-insurer of its obligation to provide security if either of the following occurs:
(1) The runoff self-insurer provides evidence that its liability was assumed under a self-insurance loss portfolio transfer policy.
(2) If the runoff self-insurer made no payments on its liability over the past 2 years, all claims against the runoff self-insurer are closed and the runoff self-insurer presents evidence acceptable to the Bureau that it is unlikely that any new claims will be filed or that any closed claims will be reopened.
(l) The [amount of security required of a self-insurer under subsection (d) shall be discounted by 40% and rounded upward to the nearest hundred thousand if the] following discount percentages shall be applied in calculating a self-insurer's required amount of security under subsection (d) based on the highest long-term credit or debt rating of the self-insurer or of the affiliate guarantying the self-insurer's liability: [is rated Aaa or Aa by Moody's Investors Services or AAA or AA by Standard & Poor's Corporation. The amount of security required of a self-insurer under subsection (d) shall be discounted by 20% and rounded upward to the nearest hundred thousand if the debt of the self-insurer or of the affiliate guarantying the self-insurer's liability is rated A or Baa by Moody's Investors Services or A or BBB by Standard & Poor's Corporation. A self-insurer receiving one of the discounts outlined in this subsection shall increase its security to the amount required under subsection (d) as limited by this subsection, if applicable, if the debt rating of the self-insurer or of its guarantying affiliate is downgraded to below the rating qualifying it for the discount.]
Security Discount Table
Moody's Investors Service Standard & Poor's, Fitch Ratings, or Dominion Bond Rating Service Security Discount Aaa AAA 75% Aa1 AA+ 65% Aa2 AA 60% Aa3 AA- 55% A1 A+ 45% A2 A 40% A3 A- 35% Baa1 BBB+ 25% Baa2 BBB 20% Baa3 BBB- 15% Ba1 and lower BB+ and lower 0% (m) [Termination of self-insurance status may not relieve a runoff self-insurer from the obligation to provide security under this section, including the obligation to provide additional security due to increases in the value of its outstanding liability.] The Bureau may revise the table in subsection (l) through publication of a notice in the Pennsylvania Bulletin, to assign security discount rates for revisions to the long-term credit or debt ratings of the outlined NRSROs or for the long-term credit or debt ratings of other NRSROs.
§ 125.10. Funding by public employers.
(a) A self-insured public employer shall establish and maintain a [trust fund] dedicated asset account to provide a source of funds for the payment of benefits and other obligations and expenses relating to its self-insurance program. [The trust agreement shall be in a form prescribed by the Bureau.] This section does not apply to [the Commonwealth] a runoff self-insured public employer whose average annual payout of benefits on self-insurance claims over its last 3 completed calendar years, net of workers' compensation excess insurance recoveries, is less than the current Statewide average weekly wage multiplied by 100.
(b) [For a public employer whose self-insurance status began or begins on or after October 14, 1995, the funding level of the trust fund established under subsection (a) shall be maintained at a level which is at least equal to the self-insurer's outstanding liability.] For a new self-insured public employer and for an active self-insured public employer that has been self-insured for less than 3 consecutive years, the required asset level of the dedicated asset account established under subsection (a) is calculated as follows:
(1) An amount greater than or equal to 20% of the public employer's modified manual premium calculated in accordance with § 125.202 (relating to definitions) or the minimum funding amount, whichever is greater.
(2) Discounted by the percentage outlined under § 125.9(l) (relating to security requirements) for the self-insurer's highest current long-term credit or debt rating, if any.
(3) The dedicated asset account must equal the above prescribed asset level no later than 30 days before the effective date of the public employer's initial permit and may not be reduced below this asset level for the first 3 years of self-insurance.
(c) For an active self-insured public employer that has been self-insured for more than 3 consecutive years but less than 7 consecutive years, the required asset level of the dedicated asset account established under subsection (a) is calculated as follows:
(1) An amount greater than or equal to the greater of the following:
(i) The self-insurer's greatest annual payout of benefits since its initial approval to self-insure, net of workers' compensation excess insurance recoveries, plus 20% of that annual payment amount.
(ii) The minimum funding amount.
(2) Discounted by the percentage outlined under § 125.9(l) for the self-insurer's highest current long-term credit or debt rating, if any.
(3) The dedicated asset account must be equal to or exceed the prescribed asset level 120 days before the beginning of the self-insurer's next fiscal year or at a later date agreed to by the Bureau.
(4) The Bureau may adjust the self-insurer's greatest annual benefit payout amount to correct any material underpayment of benefits the Bureau believes is the result of the self-insurer's failure to pay compensation for which it is liable during the evaluation period.
(d) For an active self-insured public employer that has been self-insured for 7 or more consecutive years, the required asset level of the dedicated asset account established under subsection (a) is calculated as follows:
(1) An amount greater than or equal to the greater of the following:
(i) The self-insurer's average annual payout of benefits over its three most recent completed calendar years, net of workers' compensation excess insurance recoveries, plus 20% of that average payment amount.
(ii) The minimum funding amount.
(2) Discounted by the percentage outlined under § 125.9(l) for the self-insurer's highest current long-term credit or debt rating, if any.
(3) For good cause shown, the Bureau may permit an active self-insurer, who is self-insured on ______ (Editor's Note: The blank refers to the effective date of adoption of this proprosed rulemaking.) and whose existing workers' compensation account or trust fund is funded below the required level under subparagraphs (i) and(ii), to phase-in compliance with the required funding amount of this subsection within a time period prescribed by the Bureau. The following also apply to this arrangement:
(i) The phase-in must not diminish the injured workers' guaranty of benefits or provide inadequate funding for the proper administration of the self-insurer's claims or for the timely payment of other obligations relating to the self-insurance program.
(ii) The self-insurer shall make annual deposits into the dedicated asset account in the minimum amount of 5% of its payout of benefits in the prior calendar year, or $100,000, whichever is greater.
(iii) During the phase-in period, the self-insurer may not withdraw any assets from the dedicated asset account without the approval of the Bureau until the required funding level of the account under paragraphs (1) and (2) is met.
(iv) If the asset level of the self-insurer's dedicated asset account remains below the required level under paragraphs (1) and (2) after six annual deposits under clause (A), thereafter the required asset level of the account established under subsection (a) is calculated as follows:
(A) The actual asset value of the dedicated asset account at the time of the sixth annual deposit under clause A divided by the amount required under paragraphs (1) and (2) at that time.
(B) Multiplied by the amount required to be in the designated asset account under subpara- graphs (1) and (2) for the current year.
(4) The dedicated asset account must equal or exceed the prescribed asset level 120 days before the beginning of the self-insurer's next fiscal year or at a later date agreed to by the Bureau.
(5) The Bureau may adjust the self-insurer's average annual payout of benefits to correct any material underpayment of benefits the Bureau believes is the result of the self-insurer's failure to pay compensation for which it is liable during the evaluation period.
(e) For a runoff self-insured public employer, the asset level of the dedicated asset account established under subsection (a) is that outlined under subsection (d), except that the minimum funding amount does not apply.
[(c) For a public employer whose self-insurance status began prior to October 14, 1995, the funding level of the trust fund established under subsection (a) shall be maintained at a level which is at least equal to the difference between the self-insurer's outstanding liability as of a date determined by the Bureau following October 14, 1995, and its current outstanding liability or at a level which is greater than this amount as determined by the Bureau due to the financial condition or the workers' compensation loss experience or funding history of the self-insurer.] (f) If a public employer self-insurer does not possess an investment grade long-term credit or debt rating, the Bureau may require that the asset level of its dedicated asset account established under subsection (a) be greater than that outlined under subsection (b), (c) or (d), in any amount which the Bureau determines will guaranty that the self-insurer will have sufficient funding to meet fully its claims payments and other obligations and expenses relating to its self-insurance program as they come due over the self-insurer's next fiscal year.
§ 125.11. [Specific excess insurance and aggregate excess] Excess insurance.
(a) [A self-insured private employer with quick assets of less than the Statewide average weekly wage multiplied by 200,000 or with cash and cash equivalents of less than the Statewide average weekly wage multiplied by 100,000 or a self-insured public employer with general fund quick assets of less than the Statewide average weekly wage multiplied by 50,000 shall obtain specific excess insurance with a liability limit acceptable to the Bureau and a retention amount or cash flow protection amount which is less than 10% of its quick assets. The Bureau may waive this requirement upon written request if the self-insurer demonstrates that it has sufficient financial strength and liquidity to assure that all obligations under the act and the Occupational Disease Act will be promptly met without the protection of an excess insurance policy.] An applicant whose catastrophic loss estimation is greater than its maximum quick assets exposure amount shall obtain aggregate excess insurance or specific excess insurance with a retention amount that is no more than its authorized retention amount and a liability limit acceptable to the Bureau to provide an adequate level of protection to cover the losses from a catastrophic event.
(b) [Aggregate excess insurance may be obtained by a self-insurer. The Bureau will not recognize a contract or policy of aggregate excess insurance in considering the ability of an applicant to fulfill its financial obligations under the act and the Occupational Disease Act unless the contract or policy complies with subsection (c).
(c) The] A contract or policy of [aggregate] excess insurance [or specific excess insurance, or both, shall] must comply with the following:
(1) [It shall be issued by an excess insurer which possesses an A. M. Best Rating of B+ or better or a Standard and Poor's rating of claims paying ability of A or better.
(2) ] It [shall] must state that it is not cancelable or nonrenewable unless written notice by registered or certified mail is given to the other party to the policy and to the Bureau at least 45 days before termination by the party desiring to cancel or not renew the policy.
[(3)] (2) It [shall] must state that if a self-insurer is unable to make benefit payments under the act and the Occupational Disease Act due to insolvency or bankruptcy, the excess carrier shall make payments to other parties involved in the paying of the self-insurer's liability, as directed by the Bureau, subject to the policy's retentions and limits.
[(4)] (3) It [shall] must state that the following apply toward reaching the retention amount in the excess contract:
* * * * * [(5)] (4) It [shall] must state that it applies to any losses of a self-insurer under the act and the Occupational Disease Act[; it]. It may not exclude coverage for any categories of injuries or diseases compensable under the act and the Occupational Disease Act.
[(d)] (c) A certificate of the excess insurance obtained by the self-insurer [shall] must be filed with the Bureau together with a certification that the policy fully complies with subsection [(c)] (b).
§ 125.12. Payment, handling and adjusting of claims.
* * * * * (c) A self-insurer shall notify the Bureau when it changes arrangements for the handling or adjusting of its claims, including the initiation, modification or termination of self-administration arrangements or the initiation, termination, expiration or modification of services with a registered claims services company. Upon the Bureau's request, the self-insurer shall forward to the Bureau a summary of data on its claims, such as cumulative payments sorted by year of loss, in a Bureau-prescribed format and in a time-frame agreed to by the Bureau if the Bureau determines that this data is necessary to maintain the integrity of past data on the claims filed or to rectify or explain discrepancies or questions raised by the data summary.
§ 125.13. Special funds assessments.
(a) A self-insurer is responsible for the payment of assessments to maintain funds under the act, including:
* * * * * (5) The Uninsured Employers Guaranty Fund.
* * * * * (c) A self-insurer shall keep accurate records of compensation paid on a calendar year basis, including payment for disability of all types, death benefits, medical benefits and funeral expenses, for the purposes of assessments under the act and the Occupational Disease Act. The records [shall] must be available for audit or physical inspection by Bureau [employes] employees or other designated persons, whether in the possession of the self-insurer or a service company. If the Bureau has a reasonable basis to question the annual compensation payments reported by the self-insurer, it may require the self-insurer to retain the services of the self-insurer's licensed certified public accounting firm to audit the data reported to provide confirmation or make necessary adjustments.
§ 125.15. Workers' compensation liability.
(a) Notwithstanding the terms of a guarantee and assumption agreement executed under § 125.4(b) (relating to application for affiliates and subsidiaries), a self-insurer or a runoff self-insurer remains liable for workers' compensation on injuries or disease exposures occurring during its period of self-insurance. With application to and permission from the Bureau, liability can be transferred to another employer. Liability also may be transferred [to a company authorized to write workers' compensation insurance in this Commonwealth if the employer gives written notice to the Bureau within 10 days of the transfer] through a self-insurance loss portfolio transfer policy.
(b) A self-insurer which liquidates or dissolves shall transfer its liability to a third party, subject to the approval of the Bureau, or shall [insure its liability with a company authorized to write workers' compensation insurance in this Commonwealth] obtain a self-insurance loss portfolio transfer policy covering the liability.
(c) If a self-insurer sells or divests a part of itself, self-insurance coverage ends for the separated parts on the date of separation. The self-insurer remains [responsible] liable for claims incurred against the separated part occurring up to the date of separation unless the Bureau approves [an alternative arrangement for the payment of] a request to transfer the self-insurer's liability to another entity.
§ 125.16. Reporting by runoff self-insurer.
(a) A runoff self-insurer shall file an annual report with the Bureau by a date prescribed by the Bureau on a prescribed form.
(b) The runoff report [shall] must include a [list of the runoff self-insurer's open cases, the reserves on those cases, the administrator of those cases and the runoff self-insurer's payout for workers' compensation benefits in the preceding calendar year] listing in a Bureau-prescribed electronic format of the runoff's Pennsylvania workers' compensation claims, including all claims currently in litigation, and information such as payments and reserves on each claim. The listing must include all opens claims at the time of submission and, if available, all claims closed in the past. If a listing of all claims closed in the past is not available, the listing must at least include all claims closed on or after ____ (Editor's Note: The blank refers to the effective date of adoption of this proprosed rulemaking.). Case reserves provided in the listing must be established according to the Bureau's instructions. This report [shall] must be filed until all cases incurred during the runoff self-insurer's period of self-insurance are closed for at least 2 years.
(c) A runoff self-insurer that is a private employer shall make any request for the adjustment of its amount of security in writing when it submits its runoff report. If the runoff self-insurer disagrees with the Bureau's decision on the request, it may request reconsideration of this decision under § 125.6(e) (relating to decision on application).
§ 125.17. Claims service companies.
* * * * * (c) The claims service company shall employ at least one person on a full-time basis who has the knowledge and experience necessary to service claims properly under the act and the Occupational Disease Act. A resume covering that person's background [shall] must be attached to the registration form of the claims service company.
(d) A claims services company whose engagement to handle or adjust the claims of a self-insurer is terminating or expiring, or has terminated or expired, shall provide reasonable assistance to the self-insurer and the Bureau in providing data and information on the claims serviced to maintain the integrity of past data on the claims filed with the Bureau, to rectify or explain discrepancies or questions on the claims data raised by the Bureau, or to address other related issues identified by the Bureau.
§ 125.19. Additional powers of Bureau and orders to show cause.
[In addition to the powers enumerated elsewhere in this subchapter, the act and the Occupational Disease Act, the Bureau will have the authority, after notice and opportunity for hearing, to suspend a self-insurer's permit, to issue cease and desist orders and to order corrective actions if a self-insurer is in violation of this subchapter, the act or the Occupational Disease Act.] (a) If the Bureau has reason to question whether a self-insurer continues to maintain the financial ability to self-insure during the pendency of a permit, authorized under section 305(a)(3) of the act (77 P. S. § 501(a)(3)) and under section 305 of the Occupational Disease Act (77 P. S. § 1405), it may issue a letter to the self-insurer noting the reasons for its concerns and outlining the documents, data and information upon which the Bureau's concerns are based. The following also apply:
(1) The Bureau's letter is treated for procedural purposes as if it were an initial decision denying a renewal application under § 125.6(d) (relating to decision on application).
(2) When the Bureau determines that the self-insurer no longer possesses the financial ability to self-insure, the self-insurer's current permit will be revoked, unless the self-insurer timely initiates the procedures outlined under § 125.6(e)--(g).
(3) The self-insurer shall obtain workers' compensation insurance coverage effective no later than 30 days after its receipt of a notice of revocation by the Bureau and provide evidence of the coverage to the Bureau no later than the coverage's effective date.
(b) The Department may serve upon a self-insurer an order to show cause why its self-insurance status should not be suspended or revoked under section 441(b) of the act (77 P. S. § 997(b)) for unreasonably failing to pay compensation for which it is liable, or for failing to submit any report or to pay any assessment made under the act.
(1) The order to show cause proceedings are governed by provisions in Chapter 121 (relating to general provisions), found in § 121.27 (relating to orders to show cause).
(2) The self-insurer shall obtain workers' compensation insurance coverage effective no later than 30 days after its receipt of an order revoking or suspending its self-insurance status and provide evidence of the coverage to the Department no later than the coverage's effective date.
§ 125.20. Computation of time.
[Unless otherwise provided, reference to the term ''days'' in this subchapter means calendar days. For purposes of determining timeliness of filing and receipt of documents transmitted by mail, 3 days shall be presumed added to the prescribed period. If the last day for filing a document is a Saturday, Sunday, legal holiday or a day on which the Bureau's offices are closed, the time for filing shall be extended to the next business day. Transmittal by mail shall mean by first-class mail.] Except as otherwise provided by law, in computing a period of time prescribed or allowed by this chapter, the day of the act, event or default after which the designated period of time begins to run may not be included. The last day of the period so computed shall be included, unless it is Saturday, Sunday or a legal holiday in this Commonwealth, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday nor a holiday. A part-day holiday shall be considered as other days and not as a holiday. Intermediate Saturdays, Sundays and holidays shall be included in the computation.
§ 125.21. Self-insurance loss portfolio transfer policy.
A self-insurance loss portfolio transfer policy must comply with all of the following:
(1) The insurance carrier must be a workers' compensation insurer.
(2) The policy must provide statutory coverage limits and state that the insurer is responsible to defend, adjust and handle all open, reopened and incurred but not reported claims against the self-insurer for the period of time covered by the policy.
(3) The policy must be retrospective, providing coverage for a consecutive period of time of self-insurance.
(4) The policy must be noncancelable by either the insurance carrier or the self-insurer for any reason.
(5) The amount of annual compensation paid by the insurance carrier on any claims assumed under the policy must be included as compensation paid on the data reports filed with the Insurance Department.
(6) The insurance carrier must include the premium received on the policy in the amount of net written workers' compensation premium it annually reports to the Insurance Department or to the National Association of Insurance Commissioners.
(7) The insurance carrier must notify existing claimants with injuries or diseases covered by the policy that it has assumed liability for the payment and handling of their claims.
(8) The insurance carrier must file the policy with a rating organization approved by the Insurance Commissioner and identify it as a special self-insurance loss portfolio transfer policy. The insurance carrier should not report statistical information on claims assumed under the policy to the rating organization.
(9) The insurance carrier must enter an appearance with the appropriate workers' compensation judge, the Workers' Compensation Appeal Board and any appellate court on each pending claim in adjudication against the self-insurer for injuries or disease exposures occurring during the time period covered by the policy.
[Pa.B. Doc. No. 09-832. Filed for public inspection May 1, 2009, 9:00 a.m.]
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