KRS 304.50-050: Security deposits -- Dividends on and exchange of assets -- Collection by

commissioner -- Release -- Commissioner to approve custodian bank or trust

company for security deposits -- Qualifications for approval.

(1) The group shall provide security deposits to the commissioner on a form prescribed

by the commissioner in an amount not less than two hundred fifty thousand dollars

($250,000), ten percent (10%) of the annual premium, or ten percent (10%) of the

reserve requirement as established in the m ost recent audited statement of financial

condition on file with the commissioner, whichever is greater.

(2) The trustees may file cash, cash equivalents, or United States Treasuries as security

deposit or a bank letter of credit on a form or forms prescri bed by the

commissioner, in satisfaction of the security deposit requirement. Notwithstanding

any other provision of law to the contrary, the deposit required under this section

shall be under trust agreements to which depositories, a self -insured group, and the

commissioner are parties. The commissioner may at any time inventory assets on

deposit for any self -insured group. Assets shall not be removed or deposited in or

from the bank or trust company in which the assets are deposited, except upon a

written order, approved by the commissioner, of at least two (2) officers authorized

for such purpose by the workers' compensation group self -insurance fund's board of

directors or other governing body, except that assets may be deposited or removed

under the dir ection and upon the order of a court of competent jurisdiction, and in

the presence of the commissioner. Deposit assets shall be valued at market.

(3) (a) Unless a fund fails to cure a deficiency, is insolvent, subject to a delinquency

proceeding, or is in default as to taxes or other charges due under state law, a

group self-insurance fund shall be entitled:

1. To collect and receive interest, dividends, and payments accruing upon

assets held on deposit for its account.

2. From time to time, to exchange an d substitute for any such assets, other

assets eligible for deposits.

(b) If the group self -insurance fund fails to cure a deficiency when required, is

insolvent, subject to delinquency proceedings, or is in default as to taxes or

other charges due to the Commonwealth under law, the commissioner shall

collect such interest, dividends, and payments and add them to the group self -

insurance fund's deposit.

(4) (a) Any required deposit shall be released, in addition to circumstances already

provided for in the following instances only:

1. Upon extinguishment of substantially all liabilities of the group self -

insurance fund for the security for which the deposit is held;

2. If the deposit is no longer required under this subtitle; or

3. Upon proper order of a cou rt of competent jurisdiction, the deposit shall

be released to the receiver, conservator, rehabilitator, or liquidator of the

group self-insurance fund.

(b) No release of a deposit shall be made except on application to and written

order of the commissione r made upon proof satisfactory to the commissioner

of the existence of one (1) of the grounds required in paragraph (a) of this

subsection. The commissioner shall not have any personal liability for any

such release of any deposit or part thereof so ordere d by the commissioner in

good faith.

(5) (a) A proposed custodian bank or trust company for security deposits shall be

approved by the commissioner and shall be under a custodial agreement

approved by the commissioner.

(b) An approved custodian bank or trust company shall possess the following

qualifications:

1. The custodian bank or trust company's custodial functions for the self -

insured group shall be carried out under its trust department;

2. The custodian bank or trust company shall be audited annually by

independent certified public accountants, and the audit report, related

financial statements, and report on internal controls shall be available to

the self-insured group and the commissioner;

3. The custodian bank or t rust company shall be organized under the laws

recognizing that the custodied securities are special deposits rather than

general deposits, remain the specific property of the self -insured group,

and are not subject to any creditor relationship of the cust odian bank or

trust company;

4. The custodian bank or trust company shall maintain blanket coverage

relating to its custodial functions with limits to or exceeding those

suggested by the American Bankers Association;

5. The custodian bank or trust company' s capital and surplus shall equal or

exceed twenty -five million dollars ($25,000,000) unless it is licensed

and regulated by the Commonwealth of Kentucky, in which case its

capital and surplus shall equal or exceed ten million dollars

($10,000,000); and

6. The custodian bank or trust company has demonstrated sufficient

experience in handling custodial accounts.

(6) The commissioner shall publish a list of banks or trust companies for the security

deposits or letter of credit as proposed by the group self-insurance fund.