Current through Register Vol. 56, No. 24, December 18, 2024
(a) Consistent
with N.J.A.C. 11:15-4.6(a)6,
each fund providing primary or underlying coverage on a self-insured or
commercially insured basis shall secure excess insurance or reinsurance in a
form, in an amount and by an insurer, or other entity authorized to provide
such coverage in this State pursuant to law, acceptable to the Commissioner, if
commercially available and not unreasonably priced, as determined by the
trustees for each fund year, and as approved by the Department.
1. Any approval by the Department pursuant to
(a) above shall be for a period not to exceed either the longer of 12 months
from the date of approval or the end of the current fund year. Any fund seeking
to extend the period of the approval shall notify the Department not later than
45 days prior to the expiration of the term of the approval. The notification
shall specify the basis upon which the trustees have determined that excess
insurance or reinsurance required pursuant to (a) above is not commercially
available or is not reasonably priced, and shall include all actions taken by
the fund to obtain required excess insurance or reinsurance.
(b) The policies of excess
insurance and/or reinsurance issued by an insurer to a fund shall provide
single accident (single occurrence) excess insurance, and aggregate excess
insurance, in accordance with this subsection.
1. Each fund shall maintain a minimum cap for
aggregate excess insurance in the appropriate amount depending upon the fund's
specific per occurrence retention and the size of the fund's cumulated budgeted
losses as determined in accordance with Exhibit F in the Appendix incorporated
herein by reference. To the extent the fund has different specific per
occurrence retentions for different lines, the fund shall utilize the highest
specific occurrence retention. To the extent the specific per occurrence
retention is not specified in Exhibit F, the fund shall utilize the next
highest applicable specific per occurrence retention set forth
therein.
2. The fund's aggregate
self-insured retention for the fund year shall be no greater than 125 percent
of its budgeted losses.
(c) Certificates of excess insurance and/or
reinsurance showing policy limits, specific and aggregate retentions, and other
information shall be available for the inspection of each member and shall be
filed with the Commissioner.
(d)
Losses in excess of the established self-insurance retention shall be borne by
the excess carrier(s) according to the terms and conditions of the excess
contract(s).
(e) Any proposed
change in the terms or limits of excess insurance and/or reinsurance shall be
submitted to the Department for approval at least 30 days prior to the
effective date of the proposed change.
(f) Notwithstanding the requirements in (a)
through (e) above:
1. A fund shall not be
required to maintain single accident (single occurrence) excess insurance if
the fund's single accident (single occurrence) limit of liability as set forth
in its approved risk management program is equal to or less than its single
accident (single occurrence) self-insured retention as approved by the
Department.
2. In lieu of
maintaining aggregate excess insurance as provided in (a) through (e) above, a
fund may establish and provide for the funding of an aggregate excess loss
contingency fund. The fund shall make annual contributions to the loss
contingency fund, the amount of which shall be based on the fund's cumulated
budgeted losses and specific per occurrence retention, and determined in
accordance with Exhibit G in the Appendix incorporated herein by reference. The
required contribution for the current fund year shall be the current fund
year's budgeted losses, multiplied by the appropriate factor in Appendix
Exhibit G. To the extent the fund has different specific per occurrence
retentions for different lines, the fund shall utilize the highest specific
occurrence retention. To the extent the specific per occurrence retention is
not specified in Exhibit G, the fund shall interpolate the appropriate
percentage from the percentages indicated. For any fund year, the loss
contingency fund shall include the required annual contribution for the current
fund year and for the fund year immediately preceding. Such contingency fund
may be utilized solely for the replenishment of a claim or loss retention fund
account for losses in excess of budgeted losses for a fund year. A fund shall
notify the Department within 30 days of the transfer of monies from the
aggregate excess loss contingency fund to a claim or loss retention fund
account. Annual contributions for the second preceding fund year, and fund
years prior to the second preceding fund year, which have not been utilized to
replenish a claim or loss retention fund account, may be released without
restriction. The fund, however, shall notify the Department in writing within
30 days of any release of prior contributions.
3. A fund may obtain aggregate excess
insurance in accordance with (a) through (e) above for some lines of coverage
for a particular fund year. For lines of coverage that are not covered by
aggregate excess insurance, the fund shall provide a loss contingency fund
pursuant to (f) above. For purposes of determining the annual contribution, the
fund shall utilize its cumulated budget losses for all lines to determine the
appropriate factor in Appendix Exhibit G, and shall multiply that factor by the
budgeted losses only for those lines of coverage for which the loss contingency
fund is established.
4. If a fund
seeks to purchase aggregate excess insurance, but such coverage is only
available at a retention greater than 125 percent, the fund shall establish a
modified loss contingency fund at an amount determined as follows:
i. 125 percent shall be subtracted from the
attachment point of the aggregate excess insurance purchased;
ii. 125 percent shall be subtracted from the
minimum reinsurance cap required for the fund determined pursuant to Appendix
Exhibit F;
iii. The dollar amount
of a loss contingency fund, as if established and determined pursuant to (f)2
above, shall be multiplied by 125 percent; and
iv. The amount of the loss contingency fund
required shall be equal to amount obtained by multiplying the result in (f)4iii
above by the result in (f)4i above, and dividing that result by the result in
(f)4ii above. In no event shall the modified loss contingency fund required by
(f)4 above be required to be greater than that required to be established
pursuant to (f)2 and 3 above.
(g) For purposes of this section:
1. "Budgeted losses" means the amount
established in the fund's budget for losses anticipated for a particular fund
year, as annually certified by fund's actuary; and
2. "Cumulated budgeted losses" means the
fund's budgeted losses for the current fund year plus the four fund years
immediately preceding. For a fund in existence for less than three years,
cumulated budgeted losses shall be based on an estimate of three years budgeted
losses pro rata for that period. For example, a newly formed fund would
multiply its cumulated budgeted losses by three, a fund with two years
experience would multiply its cumulated budgeted losses by 1.5, and so on. Any
fund with three years or more of experience shall base its cumulated budgeted
losses on its actual years of experience, not to exceed five years.
(h) Any fund approved by the
Commissioner prior to June 17, 1996 shall secure specific and aggregate excess
insurance coverage in accordance with (a) through (e) above, or provide for
aggregate excess losses pursuant to (f) above, to be effective no later than
July 1, 1997. Such funds shall file an amendment to their bylaws or risk
management program for approval pursuant to
N.J.A.C. 11:15-4.5 to provide a plan for
specific and aggregate excess insurance or reinsurance pursuant to
N.J.A.C. 11:15-4.6(a)6.
The amendments to the fund's bylaws or risk management program as set forth
herein shall be filed with the Commissioner within 10 days of such amendment
but not later than 30 days prior to the effective date of the plan.
(i) Nothing in this section shall be
construed as prohibiting a fund from establishing an aggregate excess insurance
cap or a loss contingency fund, as applicable, in amounts greater than that
required by this section.
