Section 2509.81 - Collateral, Accounting and Credit Risk Requirements(a) In order to secure the deductible amount of any Workers' Compensation Deductible Policy, an insurer may collateralize the California Deductible Ultimate Receivables according to the collateral and security requirements specified in subdivision (b)(1) of this Section 2509.81. Another option that may be available to the Insurer is to collateralize the Multiline Deductible Ultimate Receivables according to the collateral and security requirements specified in subdivision (b)(2) of this section. However, if an Insurer issues a Workers' Compensation High Deductible Policy that insures against a potential California Worker's Compensation Claim, the Insurer shall, for as long as there remain any California Deductible Ultimate Receivables under the policy, comply with the provisions of either subdivision (a)(1) or subdivision (a)(2) of this section.
(1) The Insurer shall, for each Workers' Compensation High Deductible Policy that insures against a potential California Worker's Compensation Claim, report on its Financial Statements as required by subdivision (a)(1)(A) or subdivision (a)(1)(B), below: (A) In the event that the Insurer elects to comply with the requirements of this section by using California-dedicated workers'-compensation-only resources as specified in subdivision (b)(1) of this section, the Insurer shall report any portion of the California Deductible Ultimate Receivables that is not collateralized according to the collateral and security requirements specified in such subdivision (b)(1), as follows: 1. any portion of the California Deductible Recoverable that is not collateralized according to the collateral and security requirements specified in subdivision (b)(1) shall be reported as a non-admitted asset, and2. any portion of the California Deductible Reserves that is not collateralized according to the collateral and security requirements specified in subdivision (b)(1) shall be reported as a write-in liability on the balance sheet, or(B) In the event that the Insurer elects to comply with the requirements of this section by using the optional multistate, multiline alternative approach specified in subdivision (b)(2) of this section, the Insurer shall report any portion of the Multiline Deductible Ultimate Receivables that is not collateralized according to the collateral and security requirements specified in such subdivision (b)(2), as follows: 1. any portion of the Multiline Deductible Recoverable that is not collateralized according to the collateral and security requirements specified in subdivision (b)(2) shall be reported as a non-admitted asset, and2. any portion of the Multiline Deductible Loss Reserves that is not collateralized according to the collateral and security requirements specified in subdivision (b)(2) shall be reported as a write-in liability on the balance sheet; or(2) The Insurer shall satisfy the credit risk requirements set forth in subdivision (c) of this section.(b) Permissible Forms of Collateral or Security. (1) California-dedicated workers'-compensation-only resources. In order to satisfy the collateral and security requirements of this subdivision (b)(1) with respect to any Workers' Compensation Deductible Policy, an Insurer must ensure that the employer dedicates and sets aside funds for the exclusive purpose of collateralizing the California Deductible Ultimate Receivables under that policy, in one or a combination of the following forms, in an aggregate amount equal to the California Deductible Ultimate Receivables under the policy: (A) Assets held by the insurer, as one or a combination of the following: 1. Cash or other lawful money of the United States.2. Any of the investments described in Article 3 of Part 2 of Division 1 of the Insurance Code, commencing with Section 1170.(B) All or a separate and distinct portion, not to be used or relied on for any purpose other than to collateralize California Deductible Ultimate Receivables under the Workers' Compensation Deductible Policy in question, of the total amount of the credit available to the Insurer under a clean, unconditional, irrevocable, evergreen letter of credit issued by a Qualified United States Financial Institution.(C) Assets, in one or more of the forms specified in subdivisions (b)(1)(A)1. or (b)(1)(A)2. of this section, which the Insurer requires by contract with the employer to be held by the employer in a fiduciary account for the benefit of the Insurer, in a Qualified United States Financial Institution. In this case the insurer shall require by contract with the employer that: 1. The fiduciary account assets shall be held for the benefit of the Insurer, its assigns, and successors in interest;2. The fiduciary account shall be subject to examination by the commissioner; and3. The fiduciary account shall remain open for as long as there are California Deductible Ultimate Receivables under the policy.(D) A surety bond naming the Insurer as the obligee, provided that: 1. No more than twenty percent (20%) of the California Deductible Ultimate Receivables under the Workers' Compensation Deductible Policy in question are collateralized by means of surety bond;2. The Surety maintains a company rating of at least an A.M. Best Company rating of A-; a Standard & Poor's rating of A-; a Moody's Investors Service rating of A3; or a Fitch Ratings rating of A-.3. The Surety is not affiliated with the Insurer issuing the Workers' Compensation Deductible Policy in question; and4. The surety bond instrument contains, in substance, the following provisions: a. The Surety, and the insured under the Workers' Compensation Deductible Policy in question, shall be jointly and severally bound to the Insurer to pay the Insurer, on demand by the Insurer, the full amount stated on the bond.b. The Surety shall, within a period of no more than ten (10) working days after receiving a written demand for payment by the Insurer, pay the full amount specified by the Insurer in the demand, up to the full amount stated on the bond.c. The Surety's obligation to pay the Insurer the funds specified in the Insurer's written demand, up to the full amount of the bond, shall be unconditional, unqualified and not contingent upon any accounting for the disposition of the bond proceeds by the Insurer after they have been paid by the Surety, or upon the Surety's obtaining a property interest or other security or indemnification, or upon any other circumstance which absent this provision might allow the Surety to avoid timely paying the demand.d. The Surety shall, to the fullest extent permissible by applicable law, waive any right to contest its obligation to pay the full amount of any written demand under the surety bond, up to the full amount stated on the bond, and any right to reimbursement for, restitution of or recovery of funds paid to the Insurer under the bond.e. The surety bond shall be automatically renewable, and the Surety shall not cancel the bond except upon ninety (90) days' written notice to the Insurer.f. If the Surety cancels or non-renews the bond and the Insurer has not, at least thirty (30) days from the effective date of the cancellation or nonrenewal, received from the insured under the Workers' Compensation Deductible Policy in question replacement security that is satisfactory to the Insurer, then the Surety will, upon demand by the Insurer, pay to the Insurer any amounts not previously paid to the Insurer, up to the full amount of the bond.(2) Optional multistate, multiline alternative approach. In order to satisfy the collateral and security requirements of this subdivision (b)(2) with respect to any Workers' Compensation Deductible Policy that includes coverage for California Workers' Compensation Claims, an Insurer must ensure that the employer dedicates and sets aside funds for the exclusive purpose of collateralizing the Multiline Deductible Ultimate Receivables, in one or a combination of the following forms, in an aggregate amount equal to the Multiline Deductible Ultimate Receivables:(A) Assets held by the insurer, as one or a combination of the following: 1. Cash or other lawful money of the United States.2. Any of the investments described in Article 3 of Part 2 of Division 1 of the Insurance Code, commencing with Section 1170.(B) A clean, unconditional, irrevocable, evergreen letter of credit that is issued by a Qualified United States Financial Institution and is not to be used or relied on for any purpose other than to collateralize the Multiline Deductible Ultimate Receivables.(C) Assets as described in, and satisfying the requirements set forth in, subdivision (b)(1)(C) of this section.(D) A surety bond naming the Insurer as the obligee and which satisfies the requirements set forth in subdivision (b)(1)(D) of this section.(c) Credit Risk Requirements. In order to satisfy the credit risk requirements of this subdivision (c):
(1) The Insurer must maintain at least an A.M. Best Company rating of A-, a Standard and Poor's rating of A-, a Moody's Investors Service rating of A3, or a Fitch Ratings rating of A-, or be a member of a holding company group that maintains such a rating; and(2)(A) The Insurer must maintain a sum of paid-in capital as defined in Insurance Code section 36, plus surplus as defined in Insurance Code section 700.02, of at least five hundred million dollars ($500,000,000), or(B)1. The Insurer must have entered into an intercompany pooling agreement with its affiliated insurers in the holding company group to which the Insurer belongs, which agreement requires that the loss experience of all the members of the holding company group be 100% pooled, and2. The holding company group to which the Insurer belongs must maintain a sum of paid-in capital as defined in Insurance Code section 36, plus surplus as defined in Insurance Code section 700.02, of at least five hundred million dollars ($500,000,000).Cal. Code Regs. Tit. 10, § 2509.81
1. New section filed 11-29-2018; operative 1-1-2019 (Register 2018, No. 48). Note: Authority cited: Section 11736.5, Insurance Code. Reference: Section 11736.5, Insurance Code.
1. New section filed 11-29-2018; operative 1/1/2019 (Register 2018, No. 48).