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79A.03 SELF-INSURANCE APPLICATIONS.
    Subdivision 1. Procedure. Each employer desiring to self-insure individually shall apply to
the commissioner on forms available from the commissioner. The commissioner shall grant or
deny the application within 60 days after a complete application is filed. The time limit may be
extended for another 30 days upon 15 days' prior notice to the applicant. Any grant of authority to
self-insure shall continue in effect until revoked by order of the commissioner or until such time
as the employer becomes insured.
    Subd. 2. Certified financial statement. Each application for self-insurance shall be
accompanied by a certified financial statement. Certified 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. The
commissioner may require additional financial information necessary to carry out the purpose
of this chapter.
    Subd. 3. Net worth. Each individual self-insurer's net worth, as presented on its audited
balance sheet filed with the Department of Commerce, shall equal at least ten percent of the
entity's total assets and shall equal at least ten times the retention level selected with the Workers'
Compensation Reinsurance Association.
    Subd. 4. Assets, net worth, and liquidity. (a) Each individual self-insurer shall have and
maintain sufficient assets, net worth, and liquidity to promptly and completely meet all of its
obligations that may arise under chapter 176 or this chapter. In determining whether a self-insurer
meets this requirement, the commissioner shall consider the self-insurer's current ratio; its
long-term and short-term debt to equity ratios; its net worth; financial characteristics of the
particular industry in which the self-insurer is involved; any recent changes in the management
and ownership of the self-insurer; any excess insurance purchased by the self-insurer from a
licensed company or an authorized surplus line carrier, other than excess insurance from the
Workers' Compensation Reinsurance Association; any other financial data submitted to the
commissioner by the self-insurer; and the self-insurer's workers' compensation experience for the
last four years. Notwithstanding any other provision of this chapter, the commissioner may deny
an application for self-insurance authority or terminate existing self-insurance authority if the
applicant or self-insurer does not have sufficient assets, net worth, and liquidity to promptly and
completely meet all of its self-insurance obligations.
(b) An individual self-insurer must have had positive net income as shown on audited
income statements filed with the Department of Commerce during three of the last five years and
cumulatively over the five-year period. If the self-insurer has been in existence less than five years,
it must have had cumulative net income during the period of existence and in the most recent year.
(c) An individual self-insurer must have had cash generated from operations as shown on the
audited statements of cash flows filed with the Department of Commerce during three of the last
five years and cumulatively over the five-year period. If the self-insurer has been in existence
less than five years, it shall have had cumulative cash generated from operations during the
period of existence and in the most recent year.
(d) No entity shall be admitted as an individual self-insurer, or be allowed to continue its
self-insurance authority, if the audit report for the most recent year includes an explanatory
paragraph stating that the auditor has concluded that there is substantial doubt about the entity's
ability to continue as a going concern.
    Subd. 4a. Exceptions. Notwithstanding the requirements of subdivisions 3 and 4, the
commissioner, pursuant to a review of an existing self-insurer's financial data, may continue a
self-insurer's authority to self-insure for one year if, in the commissioner's judgment based on
all factors relevant to the self-insurer's financial status, the self-insurer will be able to meet its
obligations under this chapter for the following year. The relevant factors to be considered must
include, but must not be limited to, the liquidity ratios, leverage ratios, and profitability ratios of
the self-insurer. Where a self-insurer's authority to self-insure is continued under this subdivision,
the self-insurer may be required to post security in the amount equal to two times the amount of
security required under section 79A.04, subdivision 2.
    Subd. 5. Guarantee by affiliates. Where an employer seeking to self-insure fails to meet
the financial requirements set forth in subdivisions 3 and 4, the commissioner shall grant
authority to self-insure provided that an affiliated company, whose financial statement is filed
with the commissioner and meets the requirements set forth in subdivisions 3 and 4, provides
a written guarantee adopted by resolution of its board of directors that it will pay all workers'
compensation claims incurred by its affiliate, and that it will not terminate the guarantee under
any circumstances without first giving the commissioner and its affiliate 30 days' written notice. If
said guarantee is withdrawn or if the guarantor ceases being an affiliate, the affiliate shall give
written notice to the commissioner and the self-insured. The self-insured's authority to self-insure
shall automatically terminate upon expiration of the 30-day notice period.
    Subd. 6. Applications for group self-insurance. (a) Two or more employers may apply
to the commissioner for the authority to self-insure as a group, using forms available from the
commissioner. This initial application shall be accompanied by a copy of the bylaws or plan of
operation adopted by the group. Such bylaws or plan of operation shall conform to the conditions
prescribed by law or rule. The commissioner shall approve or disapprove the bylaws within 60
days unless a question as to the legality of a specific bylaw or plan provision has been referred to
the Attorney General's Office. The commissioner shall make a determination as to the application
within 15 days after receipt of the requested response from the Attorney General's Office.
(b) After the initial application and the bylaws or plan of operation have been approved by
the commissioner or at the time of the initial application, the group shall submit the names of
employers that will be members of the group; an indemnity agreement providing for joint and
several liability for all group members for any and all workers' compensation claims incurred by
any member of the group, as set forth in Minnesota Rules, part 2780.9920, signed by an officer of
each member; and an accounting review performed by a certified public accountant. A certified
financial audit may be filed in lieu of an accounting review.
(c) When a group has obtained its authority to self-insure, additional applicants who wish to
join the group must apply for approval by submitting, at least 45 days before joining the group:
(1) an application; (2) an indemnity agreement providing for joint and several liability as set forth
in Minnesota Rules, part 2780.9920, signed by an officer of the applicant; and (3) a certified
financial audit performed by a certified public accountant. An accounting review performed by a
certified public accountant may be filed in lieu of a certified audit.
New diminutive applicants to the group, as defined in section 79A.01, subdivision 11,
applying for membership in groups in existence longer than one year, who have a combined
equity of all group members in excess of 15 times the last retention limit selected by the group
with the Workers' Compensation Reinsurance Association, and have posted 125 percent of the
group's total estimated future liability, must submit the items in this paragraph at least ten days
before joining the group.
If the cumulative total of premium added to the group by diminutive new members is greater
than 50 percent in a fiscal year of the group, all subsequent new members' applications must be
submitted at least 45 days before joining the group.
In all cases of new membership, evidence that cash premiums equal to not less than 20
percent of the current year's modified premium of each applicant have been paid into a common
claims fund, maintained by the group in a designated depository, must be filed with the department
at least ten days before joining the group.
    Subd. 7. Financial standards. A self-insurer group shall have and maintain:
(a) A combined net worth of all of the members of an amount at least equal to the greater
of ten times the retention selected with the Workers' Compensation Reinsurance Association or
one-third of the current annual modified premium of the members.
(b) Sufficient assets, net worth, and liquidity to promptly and completely meet all obligations
of its members under chapter 176 or this chapter. In determining whether a group is in sound
financial condition, consideration shall be given to the combined net worth of the member
companies; the consolidated long-term and short-term debt to equity ratios of the member
companies; any excess insurance other than reinsurance with the Workers' Compensation
Reinsurance Association, purchased by the group from an insurer licensed in Minnesota or
from an authorized surplus line carrier; other financial data requested by the commissioner or
submitted by the group; and the combined workers' compensation experience of the group for the
last four years.
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, and insurance premiums for stop loss coverage. For purposes of this
calculation, claim and assessment obligations include the cost of allocated loss expenses as
well as special compensation fund and self-insurers' security fund assessments but exclude the
cost of unallocated loss expenses.
    Subd. 8. Processing application. The commissioner shall grant or deny the group's
application to self-insure within 60 days after a complete application has been filed, provided that
the time may be extended for an additional 30 days upon 15 days' prior notice to the applicant. The
commissioner shall grant approval for self-insurance upon a determination that the financial ability
of the self-insurer's group is sufficient to fulfill all joint and several obligations of the member
companies that may arise under chapter 176 or this chapter; the gross annual premium of the group
members is at least $300,000; the group has established a fund pursuant to Minnesota Rules, parts
2780.4100 to 2780.5000; the group has contracted with a licensed workers' compensation service
company to administer its program; and the required securities or surety bond shall be on deposit
prior to the effective date of coverage for any member. Approval shall be effective until revoked
by order of the commissioner or until the employer members of the group become insured.
    Subd. 9. Filing reports. (a) Incurred losses, paid and unpaid, specifying indemnity and
medical losses by classification, payroll by classification, and current estimated outstanding
liability for workers' compensation shall be reported to the commissioner by each self-insurer
on a calendar year basis, in a manner and on forms available from the commissioner. Payroll
information must be filed by April 1 of the following year.
(b) Each self-insurer shall, under oath, attest to the accuracy of each report submitted
pursuant to paragraph (a). Upon sufficient cause, the commissioner shall require the self-insurer
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: where
the losses reported appear significantly different from similar types of businesses; where major
changes in the reports exist from year to year, which are not solely attributable to economic
factors; or where the commissioner has reason to believe that the losses and payroll in the report
do not accurately reflect the losses and payroll of that employer. If any discrepancy is found,
the commissioner shall require changes in the self-insurer's or workers' compensation service
company record-keeping practices.
(c) An annual status report due August 1 by each self-insurer shall be filed in a manner
and on forms prescribed by the commissioner.
(d) Each individual self-insurer shall, within four months after the end of its fiscal year,
annually file with the commissioner its latest 10K report required by the Securities and Exchange
Commission. If an individual self-insurer does not prepare a 10K report, it shall file an annual
certified financial statement, together with such other financial information as the commissioner
may require to substantiate data in the financial statement.
(e) Each member of the group shall, within six months after the end of each fiscal year for
that group, submit to a certified public accountant designated by the group, the most recent annual
financial statement, reviewed by a certified public accountant in accordance with the Statements
on Standards for Accounting and Review Services, Volume 2, the American Institute of Certified
Public Accountants Professional Standards, or audited in accordance with generally accepted
auditing standards, together with such other financial information the commissioner may require.
In addition, the group shall file with the commissioner, within seven months after the end of each
fiscal year for that group, combining financial statements of the group members, compiled by a
certified public accountant in accordance with the Statements on Standards for Accounting and
Review Services, Volume 2, the American Institute of Certified Public Accountants Professional
Standards. The combining financial statements shall include, but not be limited to, a balance sheet,
income statement, statement of changes in net worth, and statement of cash flow. Each combining
financial statement shall include a column for each individual group member along with a total
column. Each combined statement shall have a statement from the certified public accountant
confirming that each member has submitted the required financial statement as defined in this
section. The certified public accountant shall notify the commissioner if any statement is qualified
or otherwise conditional. The commissioner may require additional financial information from
any group member.
Where a group has 50 or more members, the group shall file, in lieu of the combining
financial statements, a combined financial statement showing only the total column for the entire
group's balance sheet, income statement, statement of changes in net worth, and statement of cash
flow. Additionally, the group shall disclose, for each member, the total assets, net worth, revenue,
and income for the most recent fiscal year. The combining and combined financial statements
may omit all footnote disclosures.
(f) In addition to the financial statements required by paragraphs (d) and (e), interim financial
statements or 10Q reports required by the Securities and Exchange Commission may be required
by the commissioner upon an indication that there has been deterioration in the self-insurer's
financial condition, including a worsening of current ratio, lessening of net worth, net loss of
income, the downgrading of the company's bond rating, or any other significant change that may
adversely affect the self-insurer's ability to pay expected losses. Any self-insurer that files an 8K
report with the Securities and Exchange Commission shall also file a copy of the report with the
commissioner within 30 days of the filing with the Securities and Exchange Commission.
    Subd. 10. Annual audit and refunds. (a) The accounts and records of the group
self-insurer's fund shall be audited annually. Audits shall be made by certified public accountants,
based on generally accepted accounting principles and generally accepted auditing standards,
and supported by actuarial review and opinion of the future contingent liabilities, in order to
determine the solvency of the self-insurer's fund. All audits required by this subdivision shall be
filed with the commissioner 90 days after the close of the fiscal year for the group self-insurer.
The commissioner may require a special audit to be made at other times if the financial stability of
the fund or the adequacy of its monetary reserves is in question.
(b) One hundred percent of any surplus money for a fund year in excess of 125 percent of the
amount necessary to fulfill all obligations under chapter 176 for that fund year may be declared
refundable to a member at any time after 18 months following the end of such fund year. There
can be no more than one refund in any 12-month period. When all claims of any one fund year
have been fully paid, as certified by an actuary, all surplus money from that fund year may be
declared refundable.
    Subd. 11. Joint and several liability. All members of a private self-insurer group shall be
jointly and severally liable for the obligations incurred by any member of the same group under
chapter 176.
    Subd. 12. Commissioner review. The commissioner shall annually review the documents
and reports filed by the private self-insurer.
    Subd. 13. Annual requirements. The financial requirements set forth in subdivisions 3,
4, 5, and 7 must be met on an annual basis.
History: 1988 c 674 s 3; 1992 c 510 art 5 s 3-6; 1995 c 231 art 2 s 23; 1995 c 258 s 61;
1999 c 177 s 77-81; 2001 c 215 s 37; 2005 c 132 s 29

Official Publication of the State of Minnesota
Revisor of Statutes