Section 2909.10  Applicability

 

This Part applies to every insurer as defined in Section 155.44(b) of the Code that issues "large deductible agreements" as defined in Section 155.44(c) of the Code and that does not meet the definition of "exempt insurer" (see Section 2909.30).

 

Section 2909.20  Purpose and Scope

 

Subject to Section 155.44 of the Code, the purpose of this Part is to set forth the requirements for maintaining collateral and underwriting large deductible workers' compensation insurance by nonexempt insurers.

 

Section 2909.30  Definitions

 

"Audited Financial Statement" means a financial statement audited by a certified public accountant based on the most recent fiscal year, but in no event no more than 15 months old, measured by the end of the audited period, at the time of application or renewal of the applicable large deductible agreement.

 

"Code" means the Illinois Insurance Code [215 ILCS 5].

 

"Collateral" shall have the meaning ascribed in Section 155.44(a)(1) of the Code.

 

"Department" means the Illinois Department of Insurance.

 

"Exempt insurer" means any insurer licensed to write workers' compensation business in Illinois that either has an A- or better rating from A.M. Best Company or has at least $200 million in surplus. If the insurer only has a group rating from A.M. Best Company, the group rating shall apply. Having no rating from A.M. Best Company is the equivalent of having less than an A- rating.

 

"Full collateralization" means the collateral required to secure to the 100% level the policyholder obligations described in this Part.

 

"Large deductible credit" means the amount of credit applied to standard premium due to a large deductible agreement.

 

"Large deductible agreement" shall have the meaning ascribed in Section 155.44(c) of the Code.

 

"Net worth" means the amount by which assets exceed liabilities based on an audited financial statement.  With respect to a public company, net worth is determined by shareholder equity.  A loan to the policyholder can be included in determining net worth as long as the loan is fully funded and repayment is subordinated below general creditors in the event of a bankruptcy of the policyholder.

 

"Non-exempt insurer" has the meaning ascribed to the term "insurer" by

 Section 155.44(b) of the Code.

 

"Standard premium" means the premium charged to a policyholder based on the nonexempt insurer's rates filed with the Department and before applying a large deductible credit.  Standard premium also includes any adjustment due to an expense rating factor.

 

Section 2909.40  Collateral Requirements

 

a)         Exempt insurers are not required to comply with the requirements of this Part.

 

b)         As provided in this Part, every nonexempt insurer writing workers' compensation policies that are subject to a large deductible agreement covering employees located in Illinois must require full collateralization of the policyholders' obligations under the agreement, including policyholder obligations for employees located in other states.

 

1)         The initial collateral:

 

A)        shall be determined by first computing the standard premium and then determining the amount by which the standard premium is reduced as a result of the large deductible credit; and

 

B)        shall be set at the amount of the large deductible credit subject to other adjustments based on the insured's financial status, anticipated payment pattern of losses, the existence and attachment point of an aggregate deductible limit, and the expected development above and below the deductible sufficient to secure the nonexempt insurer against the potential deductible reimbursement liability it is assuming.

 

2)         At least annually, the collateral shall be adjusted periodically pursuant to the large deductible agreement by first determining the amount of open case reserves on all claims reported under the policy plus the expense reserve for those expenses covered by the large deductible agreement and an allowance for incurred but not reported (IBNR) claims, limited by the per claim or aggregate cap as provided in the large deductible agreement. The collateral is then adjusted upward or downward based on the reserve amount as calculated in subsection (b)(1) compared to the collateral being held on the date of each adjustment.  If the large deductible agreement or any other law requires the collateral to be an amount higher than the amount required in Section 2909.50, then the higher amount shall apply.

 

c)         If the collateral is in the form of a surety bond, it shall be issued by a company that is authorized to transact business by the Department and whose strength and size ratings from A.M. Best Company are not less than "A" and "V", respectively, shall contain an evergreen clause and cannot be cancelled or nonrenewed without 60 days' notice to the nonexempt insurer. The nonexempt insurer shall require the policyholder to replace a cancelled or nonrenewed surety bond with collateral that meets the requirements of this Section.

 

d)         If the collateral is a letter of credit, it must be clean, irrevocable, contain an evergreen clause and be issued by a financial institution with an office physically located within Illinois and whose deposits are federally insured. The nonexempt insurer shall require the policyholder to replace any nonrenewed letter of credit with collateral that meets the requirements of this Section.

 

Section 2909.50  Large Deductible Amount

 

Each nonexempt insurer writing workers' compensation policies that are subject to a large deductible agreement that covers employees located in this State must require the policyholder to provide an audited financial statement during the underwriting process.  The per occurrence deductible amount under the large deductible agreement cannot exceed 20% of the policyholder's net worth as determined by the audited financial statement.  The aggregate limit of the policyholder under the large deductible agreement cannot exceed the net worth of the policyholder as determined by the audited financial statement.  A new audited financial statement is required for each successive policy year and shall apply to determine the per occurrence cap and aggregate limits of the renewal policy.

 

Section 2909.60  Annual Reporting

 

Every nonexempt insurer licensed to do business in Illinois that has issued a large deductible agreement must file an annual disclosure statement, as a supplement pursuant to 215 ILCS 5/136, with the Department by March 1 of each year using the format provided in Exhibit A.

 

Section  2909.70  Fines and Penalties

 

Any nonexempt insurer found to be in violation of any provision of this Part or of Section 155.44 of the Code shall be subject to fines and penalties as provided in Section 403A of the Code.

 

 

Section 2909.EXHIBIT A   Collateral Report

 

	COLLATERAL REPORT
Annual Disclosure	Large Deductible Supplement 215 ILCS 5/155.44 and 136 and 50 Ill. Adm. Code 2909.60	Due Date: March 1 each calendar year

 

 

 

 

(Company Name)
By:
(Signature)
Title:			Date:

 

Please enter the required information:

 

Policyholder Name	Net Worth	Per Claim Deductible	Open Reserves*	Collateral Held*
**

 

*    As calculated pursuant to Section 2909.40(b) of this Part.

**  Add additional rows, if needed, for each policy holder.