N.J. Admin. Code § 11:15-7.23

Current through Register Vol. 56, No. 21, November 4, 2024

Section 11:15-7.23 - Excess insurance and/or reinsurance

(a) Consistent with 11:15-7.6(a)6, each group 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 the longer of 12 months from the date of approval or the end of the current fund year. Any group 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 group to obtain required excess insurance or reinsurance.

(b) The policies of excess insurance and/or reinsurance issued by an insurer to a group shall provide single accident (single occurrence) excess insurance, and aggregate excess insurance, in accordance with this subsection.

1. Each group shall maintain a minimum cap for aggregate excess insurance in the appropriate amount depending upon the group's specific per occurrence retention and the size of the group's cumulated budgeted losses as determined in accordance with the specifications set forth in Exhibit F in the chapter Appendix incorporated herein by reference. To the extent the group has different specific per occurrence retentions for different lines, the group shall utilize the highest specific occurrence retention. To the extent the specific per occurrence retention is not specified in chapter Appendix Exhibit F, the group shall utilize the next highest applicable specific per occurrence retention set forth therein.

2. The group'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 group shall not be required to maintain single accident (single occurrence) excess insurance if the group'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 group 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 chapter 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 chapter Appendix Exhibit G. To the extent the group has different specific per occurrence retentions for different lines, the group shall utilize the highest specific occurrence retention. To the extent the specific per occurrence retention is not specified in chapter Appendix Exhibit G, the group 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 group 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 group, however, shall notify the Department in writing within 30 days of any release of prior contributions.

3. A group 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 group shall provide a loss contingency fund pursuant to (f) above. For purposes of determining the annual contribution, the group shall utilize its cumulated budget losses for all lines to determine the appropriate factor in chapter 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 group seeks to purchase aggregate excess insurance, but such coverage is only available at a retention greater than 125 percent, the group 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 group determined pursuant to chapter 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 group's budget for losses anticipated for a particular fund year, as annually certified by group's actuary; and

2. "Cumulated budgeted losses" means the group's budgeted losses for the current fund year plus the four fund years immediately preceding. For a group 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 group would multiply its cumulated budgeted losses by three, a group with two years experience would multiply its cumulated budgeted losses by 1.5, and so on. Any group 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) Nothing in this section shall be construed as prohibiting a group from establishing an aggregate excess insurance cap or a loss contingency fund, as applicable, in amounts greater than those required by this section.

N.J. Admin. Code § 11:15-7.23