Minnesota Session Laws - 1999, Regular Session

                            CHAPTER 168-S.F.No. 2038 
                  An act relating to insurance; regulating workers' 
                  compensation self-insurance; providing reporting and 
                  financial requirements; amending Minnesota Statutes 
                  1998, sections 79A.21, subdivisions 2 and 3; 79A.22, 
                  subdivision 2; 79A.23; and 79A.24, subdivision 2. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  Minnesota Statutes 1998, section 79A.21, 
        subdivision 2, is amended to read: 
           Subd. 2.  [REQUIRED DOCUMENTS.] All applications must be 
        accompanied by the following: 
           (a) A detailed business plan including the risk profile of 
        the proposed membership, underwriting guidelines, marketing 
        plan, minimum financial criteria for each member, and financial 
        projections for the first year of operation.  
           (b) A plan describing the method in which premiums are to 
        be charged to the employer members.  The plan shall be 
        accompanied by copies of the member's workers' compensation 
        insurance policies in force at the time of application.  In 
        developing the premium for the group, the commercial 
        self-insurance group shall base its premium on the Minnesota 
        workers' compensation insurers association's manual of rules, 
        loss costs, and classifications approved for use in Minnesota by 
        the commissioner.  Each member applicant shall, on a form 
        approved by the commissioner, complete estimated payrolls for 
        the first 12-month period that the applicant will be 
        self-insured.  Premium volume discounts per the plan will be 
        permitted if they can be shown to be consistent with actuarial 
        standards.  
           (c) A schedule indicating actual or anticipated operational 
        expenses of the commercial self-insurance group.  No authority 
        to self-insure will be granted unless, over the term of the 
        policy year, at least 65 percent of total revenues from all 
        sources for the year are available for the payment of its claim 
        and assessment obligations.  For purposes of this calculation, 
        claim and assessment obligations include the cost of allocated 
        loss expenses as well as special compensation fund and 
        commercial self-insurance group security fund assessments but 
        exclude the cost of unallocated loss expenses. 
           (d) An indemnity agreement from each member who will 
        participate in the commercial self-insurance group, signed by an 
        officer of each member, providing for joint and several 
        liability for all claims and expenses of all of the members of 
        the commercial self-insurance group arising in any fund year in 
        which the member was a participant on a form approved by the 
        commissioner.  The indemnity agreement shall provide for 
        assessments according to the group's bylaws on an individual and 
        proportionate basis. 
           (e) A copy of the commercial self-insurance group bylaws. 
           (f) Evidence of the security deposit required under section 
        79A.24, accompanied by the actuarial certification study for the 
        minimum security deposit as required under section 79A.24.  
           (g) Each initial member of the commercial self-insurance 
        group shall submit to the commercial self-insurance group 
        accountant its most recent annual financial statement.  
        Financial statements for a period ending more than six months 
        prior to the date of the application must be accompanied by an 
        affidavit, signed by a company officer under oath, stating that 
        there has been no material lessening of the net worth nor other 
        adverse changes in its financial condition since the end of the 
        period.  Individual group members constituting at least 75 50 
        percent of the group's annual premium shall submit reviewed or 
        audited financial statements.  The remaining members may submit 
        compilation level statements.  Statements for a period ending 
        more than 12 months prior to the date of application cannot be 
        accepted. 
           (h) A compiled combined financial statement of all group 
        members prepared by the commercial self-insurance group's 
        accountant and a list of members included in such statements.  
           (i) A copy of each member's accountant's report letter from 
        the reports used in compiling the combined financial statements. 
           (j) A list of all members and the percentage of premium 
        each represents to the total group's annual premium for the 
        policy year.  
           Sec. 2.  Minnesota Statutes 1998, section 79A.21, 
        subdivision 3, is amended to read: 
           Subd. 3.  [APPROVAL.] The commissioner shall approve an 
        application for self-insurance upon a determination that all of 
        the following conditions are met: 
           (1) a completed application and all required documents have 
        been submitted to the commissioner; 
           (2) the financial ability of the commercial self-insurance 
        group is sufficient to fulfill all obligations that may arise 
        under this chapter or chapter 176; 
           (3) the annual premium of the commercial self-insurance 
        group to be charged to initial members is at least 
        $500,000 $400,000; 
           (4) the commercial self-insurance group has contracted with 
        a service company to administer its program; and 
           (5) the required securities or surety bond shall be on 
        deposit prior to the effective date of coverage for the 
        commercial self-insurance group. 
           Sec. 3.  Minnesota Statutes 1998, section 79A.22, 
        subdivision 2, is amended to read: 
           Subd. 2.  [FINANCIAL STANDARDS.] Commercial self-insurance 
        groups shall have and maintain: 
           (1) combined net worth of all of the members in an amount 
        at least equal to 15 12 times the group's selected retention 
        level of the workers' compensation reinsurance association; 
           (2) sufficient assets and liquidity in the group's common 
        claims fund to promptly and completely meet all obligations of 
        its members under this chapter and chapter 176. 
           Sec. 4.  Minnesota Statutes 1998, section 79A.23, is 
        amended to read: 
           79A.23 [COMMERCIAL SELF-INSURANCE GROUP REPORTING 
        REQUIREMENTS.] 
           Subdivision 1.  [REQUIRED REPORTS TO COMMISSIONER.] Each 
        commercial self-insurance group shall submit the following 
        documents to the commissioner.  
           (a) An annual report shall be submitted by April 1 showing 
        the incurred losses, paid and unpaid, specifying indemnity and 
        medical losses by classification, payroll by classification, and 
        current estimated outstanding liability for workers' 
        compensation on a calendar year basis, in a manner and on forms 
        available from the commissioner.  In addition each group will 
        submit a quarterly interim loss report showing incurred losses 
        for all its membership. 
           (b) Each commercial self-insurance group shall submit 
        within 45 days of the end of each quarter:  
           (1) a schedule showing all the members who participate in 
        the group, their date of inception, and date of withdrawal, if 
        applicable; 
           (2) a separate section identifying which members were added 
        or withdrawn during that quarter; and 
           (3) an internal financial statement and copies of the 
        fiscal agent's statements supporting the balances in the common 
        claims fund. 
           (c) The commercial self-insurance group shall submit an 
        annual certified financial audit report of the commercial 
        self-insurance group fund by April 1 of the following year.  The 
        report must be accompanied by an expense schedule showing the 
        commercial self-insurance group's operational costs for the same 
        year including service company charges, accounting and actuarial 
        fees, fund administration charges, reinsurance premiums, 
        commissions, and any other costs associated with the 
        administration of the group program. 
           (d) An officer of the commercial self-insurance group 
        shall, under oath, attest to the accuracy of each report 
        submitted under paragraphs (a), (b), and (c).  Upon sufficient 
        cause, the commissioner shall require the commercial 
        self-insurance group to submit a certified audit of payroll and 
        claim records conducted by an independent auditor approved by 
        the commissioner, based on generally accepted accounting 
        principles and generally accepted auditing standards, and 
        supported by an actuarial review and opinion of the future 
        contingent liabilities.  The basis for sufficient cause shall 
        include the following factors: 
           (1) where the losses reported appear significantly 
        different from similar types of groups; 
           (2) where major changes in the reports exist from year to 
        year, which are not solely attributable to economic factors; or 
           (3) where the commissioner has reason to believe that the 
        losses and payroll in the report do not accurately reflect the 
        losses and payroll of the commercial self-insurance group.  
        If any discrepancy is found, the commissioner shall require 
        changes in the commercial self-insurance group's business plan 
        or service company recordkeeping practices. 
           (e) Each commercial self-insurance group shall submit by 
        September 15 a copy of the group's annual federal and state 
        income tax returns or provide proof that it has received an 
        exemption from these filings. 
           (f) With the annual loss report each commercial 
        self-insurance group shall report to the commissioner any 
        worker's compensation claim where the full, undiscounted value 
        is estimated to exceed $50,000, in a manner and on forms 
        prescribed by the commissioner. 
           (g) Each commercial self-insurance group shall submit by 
        May 1 a list of all members and the percentage of premium each 
        represents to the total group's premium for the previous 
        calendar year.  
           (h) Each commercial self-insurance group shall submit by 
        May 1 October 15 the following documents prepared by the group's 
        certified public accountant:  
           (1) a compiled combined financial statement of group 
        members and a list of members included in this statement; and 
           (2) a report that the statements which were combined have 
        met the requirements of subdivision 2.  
           (i) If any group member comprises over 25 percent of total 
        group premium, that member's financial statement must be 
        reviewed or audited, and, at the commissioner's option, must be 
        filed with the department of commerce by May 1 October 15 of the 
        following year. 
           (j) Each commercial self-insurance group shall submit a 
        copy of each member's accountant's report letter from the 
        reports used in compiling the combined financial statements.  
           Subd. 2.  [REQUIRED REPORTS FROM MEMBERS TO GROUP.] Each 
        member of the commercial self-insurance group shall, by April 
        1 September 15, submit to the group its most recent annual 
        financial statement, together with other financial information 
        the group may require.  These financial statements submitted 
        must not have a fiscal year end date older than January 15 of 
        the group's calendar year end.  Individual group members 
        constituting at least 50 25 percent of the group's annual 
        premium shall submit to the group reviewed or audited financial 
        statements.  The remaining members may submit compilation level 
        statements.  
           Subd. 3.  [OPERATIONAL AUDIT.] (a) The commissioner, prior 
        to authorizing surplus distribution of a commercial 
        self-insurance group's first fund year or no later than after 
        the third anniversary of the group's authority to self-insure, 
        shall conduct an operational audit of the commercial 
        self-insurance group's claim handling and reserve practices as 
        well as its underwriting procedures to determine if they adhere 
        to the group's business plan.  The commissioner may select 
        outside consultants to assist in conducting the audit.  After 
        completion of the audit, the commissioner shall either renew or 
        revoke the commercial self-insurance group's authority to 
        self-insure.  The commissioner may also order any changes deemed 
        necessary in the claims handling, reserving practices, or 
        underwriting procedures of the group. 
           (b) The cost of the operational audit shall be borne by the 
        commercial self-insurance group. 
           Subd. 4.  [UNIT STATISTICAL REPORT.] Each commercial 
        self-insurance group will annually file a unit statistical 
        report to the Minnesota workers' compensation insurers 
        association. 
           Sec. 5.  Minnesota Statutes 1998, section 79A.24, 
        subdivision 2, is amended to read: 
           Subd. 2.  [MINIMUM DEPOSIT.] The minimum deposit is 150 125 
        percent of the commercial self-insurance group's estimated 
        future liability for the payment of compensation as determined 
        by an actuary.  If all the members of the commercial 
        self-insurance group have submitted reviewed or audited 
        financial statements to the group's accountant, this minimum 
        deposit shall be 110 percent of the commercial self-insurance 
        group's estimated future liability for the payment of workers' 
        compensation as determined by an actuary.  The group must file a 
        letter with the commissioner from the group's accountant which 
        confirms that the compiled combined financial statements were 
        prepared from members reviewed or audited financial statements 
        only before the lower security deposit is allowed.  Each 
        actuarial study shall include a projection of future losses 
        during a one-year period until the next scheduled actuarial 
        study, less payments anticipated to be made during that time.  
        Deduction should be made for the total amount which is estimated 
        to be returned to the commercial self-insurance group from any 
        specific excess insurance coverage, aggregate excess insurance 
        coverage, and any supplementary benefits which are estimated to 
        be reimbursed by the special compensation fund.  Supplementary 
        benefits will not be reimbursed by the special compensation fund 
        unless the special compensation fund assessment pursuant to 
        section 176.129 is paid and the required reports are filed with 
        the special compensation fund.  In the case of surety bonds, 
        bonds shall secure administrative and legal costs in addition to 
        the liability for payment of compensation reflected on the face 
        of the bond.  In no event shall the security be less than the 
        group's selected retention limit of the workers' compensation 
        reinsurance association.  The posting or depositing of security 
        under this section shall release all previously posted or 
        deposited security from any obligations under the posting or 
        depositing and any surety bond so released shall be returned to 
        the surety.  Any other security shall be returned to the 
        depositor or the person posting the bond. 
           Sec. 6.  [EFFECTIVE DATE.] 
           Sections 1 to 5 are effective the day following final 
        enactment. 
           Presented to the governor May 13, 1999 
           Signed by the governor May 17, 1999, 4:32 p.m.