Current through Register Vol. 54, No. 44, November 2, 2024
(a) A
private employer shall provide security in an amount as set forth in subsection
(d). The security required in this section is not a substitute for the
applicant demonstrating its financial ability to 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 and available upon request from the Bureau issued by a
company authorized to transact surety business in this Commonwealth by the
Insurance Department.
(i) At the time of the
issuance of the bond, the surety company shall possess a current A. M. Best
Rating of A- or better or a Standard & Poor's insurer's financial strength
rating 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 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 45 days of the
self-insurer's receipt of written notification of the rating decline from the
Bureau, 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, such as a certificate of insurance, to the Bureau no later
than the coverage's effective date.
(2) A security deposit held under a trust
agreement prescribed by and available upon request from the Bureau and
maintained for the benefit of employees of the self-insurer:
(i) The deposit 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 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.
(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. The letter of credit 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 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 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 45 days, the Bureau will draw on the letter of credit
and will deposit the proceeds to secure the self-insurer's
liability.
(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 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
private employers is determined as set forth in paragraphs (1)-(6).
(1) For a new self-insurer, the Bureau will
determine the initial amount of security, 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 completed policy
years prior to its application, 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.
(2) For those
active self-insurers who have been approved to self-insure for more than 1 year
but less than 3 years, the amount of security is calculated as follows:
(i) The greater of:
(A) The amount outlined in paragraph
(1).
(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.
(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 to self-insure for 3 or more years,
the amount of security is 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, 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.
(4) 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 self-insurer'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 self-insurer's or its
guarantor'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 self-insurer's or its guarantor'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' or their guarantor'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 self-insurers' or their guarantor's 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.
(f) The
Bureau will incorporate the overall Pennsylvania 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 will make adjustments to the loss development procedures under
subsection (d) it deems appropriate under the circumstances 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.
(h) The Bureau may
reduce the amount of security required of a self-insurer under subsection (d)
if the self-insurer confirms that liabilities under the act and the
Occupational Disease Act are funded through a Black Lung Benefits Trust
established under section 501(c)(21) of the Internal Revenue Code of 1986
(26 U.S.C.A. §
501(c)(21)).
(i) The Bureau may reduce the amount of
security required of a self-insurer under subsection (d) to no less than the
minimum security 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 must be in a form prescribed by the Bureau.
(2) The trust assets 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 must be adjusted at least annually to the required funding level as
determined by the Bureau.
(j) A self-insurer with security which is
less than the level of security required under subsection (d) may be permitted
to phase in the level of required security over a maximum of 2 years. The
Bureau will determine the terms of the phase-in period, including the length of
time and the annual phase-in amounts.
(k) 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 and all
claims against the runoff self-insurer are closed.
(l) The following discount percentages shall
be applied in calculating a self-insurer's required amount of security under
subsection (d) based on the highest current long-term credit or debt rating of
the self-insurer or of its guarantor:
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)
The Bureau may revise the table in subsection (l) through publication of a
notice in the Pennsylvania Bulletin to assign security
discount rates for any organization receiving designation as a NRSRO after
September 11, 2010.
The provisions of this §125.9 amended under sections
305(a) and 435(a) of the Workers' Compensation Act (77 P. S. §§
501 and
991(a)) and section 2205 of
The Administrative Code of 1929 (71 P. S. §
565).
This section cited in 34 Pa. Code §
125.6 (relating to decision on
application); and 34 Pa. Code §
125.10 (relating to funding by
public employers).
