KRS 304.40-050: Policies issued by association -- Cancellation -- Rate -- Nonprofit group

retrospective rating plan -- Deficit -- Contributions by members.

(1) All policies issued by the association shall be written for the term of one (1) year.

The directors of the association may elect to issue policies on an occurrence basis or

a claims made basis. No policy form shall be used by the association unless it has

been filed with the commissioner and either (a) the commissioner has approved it,

or (b) thirty (30) days has lapsed and the commissioner has not disapproved it in

accordance with KRS Chapter 304, Subtitle 14.

(2) Cancellation of the association's policies shall be governed by the laws and

regulations governing the cancellation of other policies of casualty i nsurance,

except that the association may also cancel any of its policies in the event of

nonpayment of any stabilization reserve fund charged, by mailing or delivering to

the insured at the address shown on the policy, written notice stating when not less

than ten (10) days thereafter cancellation shall be effective.

(3) The rates, rating plans, rating rules, rating classifications and territories applicable

to the insurance written by the association and statistics relating thereto shall be

subject to Cha pter 304, Subtitle 13 of the Kentucky Revised Statutes, giving due

consideration to the past and prospective loss and expense experience for medical

malpractice insurance written and to be written in this state, trends in the frequency

and severity of loss es, the investment income of the association, and such other

information as the commissioner may require. All rates shall be on an actuarially

sound basis, giving due consideration to the group retrospective rating plan and the

stabilization reserve fund, and shall be calculated to be self -supporting. The

commissioner shall make available to the association the loss and expense

experience of insurers previously writing medical malpractice insurance in this

state.

(4) All policies issued by the association s hall be subject to a nonprofit group

retrospective rating plan to be approved by the commissioner, under which the final

premium for all policyholders of the association as a group will be equal to the

administrative expenses, loss and loss adjustment expe nses and taxes, plus a

reasonable allowance for contingencies and servicing. Policyholders shall be given

full credit for all investment income, net of expenses and a reasonable management

fee on policyholder supplied funds. The standard premium before ret rospective

adjustment for each policy issued by the association shall be established on the basis

of the association's rates, rating plans, rating rules, rating classifications, and

territories then in effect. The maximum final premium for all policyholder s of the

association as a group shall be limited as provided in KRS 304.40 -060(4). Since the

business of the association is subject to the nonprofit group retrospective rating plan

required by this subsection, there shall be a presumption that the rates fi led and

premiums for the business of the association are not excessive.

(5) The commissioner shall examine the business of the association as often as he or

she deems appropriate to assure that the group retrospective rating plan is being

operated in a man ner consistent with this section. If he or she finds that it is not

being so operated, he or she shall issue an order to the association, specifying in

what respects its operation is deficient and stating what corrective action shall be

taken.

(6) The asso ciation shall certify to the commissioner the estimated amount of any

deficit remaining after the stabilization reserve fund has been exhausted in payment

of the maximum final premium for all policyholders of the association. Within sixty

(60) days after s uch certification, the commissioner shall authorize the members of

the association to commence recoupment of their respective shares of the deficit by

applying a surcharge to be determined by the association at a rate not to exceed two

percent (2%) of the annual premiums on future policies affording those kinds of

insurance which form the basis for their participation in the association under

procedures established by the association. The association shall amend the amount

of its certification of deficit to the commissioner as the values of its incurred losses

become finalized, and the members of the association shall amend their recoupment

procedure accordingly.

(7) In the event that sufficient funds are not available for the sound financial operation

of the association, pending recoupment as provided in subsection (6) of this section,

all members shall, on a temporary basis, contribute to the financial requirements of

the association in the manner provided for in KRS 304.40 -080. Any such

contribution shall be reimbursed to the members by recoupment as provided in

subsection (6) of this section.