KRS 304.17A-812: Initial and continuing financial solvency requirements.

(1) This section applies to a group applying for and holding a certificate of filing as a

self-insured employer-organized association group.

(2) To obtain and to maintain its certificate of filing, a self -insured employer-organized

association group shall have sufficient financial strength to pay all public or

professional liabilities covered by the group, including known claims and expenses

and incurred but unreported claims and expenses.

(3) The commissioner shall require the following of a self -insured employer-organized

association group:

(a) An actuarial certification by a member of the American Academy of Actuaries

of the adequacy of the proposed rates funding arrangements of the group;

(b) Specific reinsurance ensuring the solvency of the funding arrangement;

(c) A demonstration of capital and surplus as follows:

1. Initial financial requirements. Every self -insured employer -organized

association shall demonstrate initial capital and surplus equal to the

greater of:

a. Five hundred thousand dollars ($500,000);

b. Two percent (2%) of projected annual contribution revenues on the

first one hundred fifty million dollars ($150,000,000) of

contributions and one percent (1%) of projected annual

contributions on the contributions in excess of one hundred fifty

million dollars ($150,000,000); or

c. An amount equal to the sum of eight percent (8%) of projected

annual health care expenditures except those paid on a capitated

basis or managed hospital payment basis and four percent (4%) of

projected annual hospital expenditures paid on a managed hospital

payment basis, except the initial capital and surplus shall not be

required to exceed the deductibility limits provided under 26

U.S.C. secs. 419 and 419A, as amended.

2. Continuing financial requirements. Every self -insured employer -

organized association shall demonstrate ongoing capital and surplus

equal to the greater of:

a. Five hundred thousand dollars ($500,000);

b. Two percent (2%) of annual contribution revenues, as reported on

the most recent annual financial statement filed with the

commissioner, on the first one hundred fifty million dollars

($150,000,000) of contributions and one percent (1%) of annual

premiums on the contributions in excess of one hundred fifty

million dollars ($150,000,000); or

c. An amount equal to the sum of eight percent (8%) of projected

annual health care expenditures except those paid on a capitated

basis or managed hospital payment basis and four percent (4%) of

annual hospital expenditures paid on a managed hospital payment

basis, as reported on the most recent financial statement filed with

the commissioner, except the continuing capital and surplus shall

not be required to exceed the d eductibility limits provided under

26 U.S.C. secs. 419 and 419A, as amended; and

(d) A fidelity bond for the administrator and a fidelity bond for the service

company in forms and amounts prescribed by the commissioner.

(4) The commissioner, if not satisfi ed with the financial strength of a self -insured

employer-organized association group, may require any or all of the following of a

self-insured employer-organized association group:

(a) Security in the form and amount prescribed by the commissioner as follows:

1. A surety bond issued by a corporate surety authorized to transact

business in the Commonwealth of Kentucky; or

2. Any financial security endorsement issued as part of an acceptable

excess insurance contract issued by an authorized insurer, which m ay be

used to meet all or part of the security requirement.

The bond or financial security endorsement shall be solely for the benefit of

the insured creditors to pay claims and associated expenses and shall be

payable upon the failure of the group to pay professional or public liability

claims the group is legally obligated to pay. The commissioner may establish

and adjust the requirements for the amount of security based on differences

among groups in their size, types of business, years in existence, or other

relevant factors.

(b) Specific and aggregate excess insurance in a form and amount issued by an

insurer acceptable to the commissioner.