Current through Reg. 50, No. 187; September 24, 2024
(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 paragraphs
69O-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
Office.
(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 Office 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 Office, 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 Office shall prepare its own report on the actuarial soundness of
the retention. After evaluating all evidence the Office shall determine if the
desired retention is actuarially sound. In the event the desired retention is
not actuarially sound, the Office 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 Office
at least 90 days prior to the beginning of the fund year for which the higher
retention is requested. The Office 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
Office 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 69O-190.035, 69O-190.036 and
69O-190.061, F.A.C.,
(b) Upon approval by the Office, pursuant to
subsection 69O-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 Office,
pursuant to subsections
69O-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 Office if the resulting contingent
liability can be guaranteed by a cash security deposit.
(10) If the option in paragraph
69O-190.061(8)(a),
F.A.C., is selected, the self-insurers fund, upon written approval of the
Office, 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 paragraph 69O-190.061(8)(b)
and subsection (12), F.A.C., shall be used by the Office 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
Office shall grant permission to post the cash security deposit in lieu of the
fund purchasing an aggregate excess policy, if the Office 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
69O-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
paragraph 69O-190.061(8)(c),
F.A.C., is selected, the fund shall make application to the Office, 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 Office 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 paragraph
69O-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
paragraph 69O-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
Office 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 paragraphs
69O-190.061(14)(a) and
(c), F.A.C. Written approval of the plan by
the Office 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 paragraph
69O-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 paragraph 69O-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 paragraph
69O-190.066(8)(k),
F.A.C.
(17) The Office
shall:
(a) Reject an actuarial report or
financial report which does not comply with the requirements of subsection
69O-190.061(16),
F.A.C. If this occurs, the Office 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 Office'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 69O-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.
Rulemaking Authority 440.38(2)(b), 624.4621 FS. Law
Implemented 440.38(2)(b), (3), 624.4621
FS.
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,
4-190.061.
