OAR 436-050-0260: Qualifications of a Self-Insured Employer Group

The director may certify five or more employers as a self-insured employer group if the employers, as a group, meet all the requirements of this rule. (1) Organization. The employer group must be organized as: (a) A corporation or cooperative under ORS chapter 60, 62, or 65; (b) An intergovernmental entity under ORS 190.003 to 190.110; or (c) A public entity self-insurance program under ORS 30.282(3). (2) Designation of responsible parties. The employers must designate: (a) A board of trustees; and (b) An administrator, subject to section (9) of this rule. (3) Group net worth requirements. The employers must demonstrate and maintain: (a) That the combined total of the individual members net worth is at least $3 million; and (b) For private employer groups, that each individual member’s net worth is at least $150,000. Private employer groups must obtain annual financial data from all members regarding their individual fiscal year-end net worth. (4) Excess insurance. The employers must obtain excess insurance coverage of the type and amounts approved by the director, including a self-insured retention of at least $300,000. (5) Claims processing staff. The employers must establish proof of an adequate staff qualified to process claims by: (a) Employing and retaining at each claims processing location, at least one claims examiner that is certified under OAR 436-055-0070 to process claims in this state, and is actually involved in the claims processing function; or (b) Contracting the services of one or more service companies that employ at each claims processing location in this state, at least one claims examiner that is certified under OAR 436-055-0070 to process claims in this state, and that is actually involved in processing the group’s claims. (6) Changes in group membership. The employers must develop a method approved by the director to notify the director of: (a) The commencement or termination of membership by employers in the group, and the effect on the remaining combined net worth of the employers in the group; and (b) If a member who terminates membership in the group will continue to be a subject employer, and if so, what arrangements have been made to continue coverage. (7) Safety and health loss prevention program. The employers must establish a safety and health loss prevention program as required by OAR 437-001, and demonstrate that accident prevention is likely to improve through self-insurance. (8) Commons claims fund. If applicable, the employers must create a common claims fund approved by the director under OAR 436-050-0300, or specify that the amount calculated under OAR 436-050-0300(3) or (6) is to be included in the self-insured employer group’s security deposit under OAR 436-050-0180. (9) Designation of administrative entity. The employers must designate an entity for the group responsible for centralized claims processing, payroll records, safety requirements, recording and submitting assessments and contributions and making such other reports as the director may require. (a) For groups consisting of private employer members, the designated entity may not be a member of the group or the group’s board, or a trustee for the group. (b) With the approval of the director, a self-insured employer group may use service companies as authorized by ORS 656.455 instead of establishing its own place of business in this state. To obtain approval or to change or add service locations, the employer group must: (A) File, with the director, a copy of the agreement entered into between the employer group and each company; and (B) Give the director notice of the location, mailing address, telephone number, email address, and any other contact information for each service company. (10) Proof of financial ability. Unless exempt under OAR 436-050-0185, the employers must establish proof of financial ability by: (a) Providing a security deposit that the director determines is acceptable under OAR 436-050-0165, and in an amount determined under OAR 436-050-0180; (b) Demonstrating financial viability based on factors including, but not limited to: (A) The group meeting the combined net worth requirements in (3)(a) of this rule; (B) For private employers that are members of a self-insured group, meeting the individual net worth requirements in (3)(b) of this rule; and (c) Demonstrating acceptable financial strength by maintaining a rating equal to “strong” or “moderate” as determined under section (11) and (12) of this rule. (11) Financial strength analysis. The financial reports submitted by the self-insured employer group under OAR 436-050-0175(1) must contain information sufficient to calculate the financial ratios described in this section. The points awarded for each ratio will be used to determine the self-insured employer group’s financial strength under section (12) of this rule. (a) For the purposes of calculating the financial ratios under this section: (A) The face value of a self-insured employer’s irrevocable standby letter of credit (ISLOC) used to satisfy the director’s requirement for a security deposit, may not be included in the self-insured employer group’s reported assets; (B) Current assets include all assets that may be reasonably expected to be converted into cash, or could become the equivalent of cash, within one year in the normal course of business; (i) Cash must include all readily available and unrestricted funds such as bills, coin, or checking account balances. Cash does not include funds held in special deposit or escrow accounts where some degree of legal constraint against their use exists; (ii) Current assets include, but are not limited to, cash, accounts receivable, inventory, prepaid expenses, and investments, marketable securities and bonds that mature within one year or may be converted to cash without penalties or fees; and (iii) Current assets must not include fixed assets, accumulated depreciation, intangible assets, or investments, marketable securities, or bonds with maturity dates of one year or longer; (C) Current liabilities are debts and obligations expected to be due within the next year; (i) Examples of such liabilities include accounts payable, notes payable, accrued taxes, and wages and salaries owed to workers; and (ii) Current liabilities do not include debts or claims on assets that will be due a year or more in the future or long-term liabilities intended to provide more permanent funds for the business, including bank loans and long-term bonds; (D) Earned contributions are the net revenues from group members’ contributions; (i) Financial statements and reports may otherwise refer to this component as net premium, member contributions, or operating revenue; and (ii) At the director’s discretion, excess insurance premiums may be deducted from earned contributions when there is a reasonable likelihood of performance by the excess insurance carrier; and (E) Adjusted net worth is the net worth reported in the financial statement of the self-insured employer group less disallowed assets; (i) Disallowed assets are prepaid expenses, inventory, and accounts receivable over 90 days old; and (ii) Financial statements and reports may otherwise refer to adjusted net worth as net position, net assets, surplus, owner’s equity, or shareholders’ equity. The adjusted net worth is the total assets minus the sum of the total liabilities and the disallowed assets. (b) The current ratio is calculated by dividing current assets by current liabilities. A maximum of six points are possible for the current ratio, to be awarded as follows: Ratio ---------- Points At least 2 = 6 points At least 1.75 = 5 points At least 1.6 = 4 points At least 1.4 = 3 points At least 1.25 = 2 points At least 1 = 1 point Less than 1 = 0 points (c) The cash ratio is calculated by dividing cash by current liabilities. A maximum of six points are possible for the cash ratio, to be awarded as follows: Ratio ---------- Points At least 50% = 6 points At least 40% = 5 points At least 30% = 4 points At least 25% = 3 points At least 20% = 2 points At least 10% = 1 point At least 5% = 0 points (d) The premium-to-surplus ratio is calculated by dividing earned contributions by the group’s adjusted net worth. A maximum of six points are possible for the premium-to-surplus ratio, to be awarded as follows: Ratio ---------- Points Less than 1 = 6 points Less than 1.5 = 5 points Less than 2 = 4 points Less than 2.25 = 3 points Less than2.5 = 2 points Less than 2.75 = 1 point 2.75 or more = 0 points (12) Rating of financial strength. The self-insured employer group’s financial strength will be rated based on the sum of the points awarded under section (11) of this rule. (a) A sum of 13 to 18 points is equal to a strong rating: (A) The director will approve initial or continued self-insured group certification if the group meets all the requirements of this rule; and (B) The group’s security deposit amount will be determined based on OAR 436-050-0180(1) or (3); (b) A sum of 7 to 12 points is equal to a moderate rating: (A) The director will approve initial or continued self-insured group certification if the group meets all the requirements of this rule; and (B) The group’s security deposit amount will be determined based on OAR 436-050-0180(1) and (2), or (3); and (c) A sum of 0 to 6 points is equal to a weak rating: (A) The director may not approve the application for initial self-insured employer group certification; (B) For an existing certified self-insured employer group, the director may: (i) Provide the group notice of the director’s intent to revoke its self-insurance certification under OAR 436-050-0340; (ii) Increase the security deposit calculated in OAR 436-050-0180 by an amount based on factors including, but not limited to, the considerations identified in OAR 436-050-0180(4); (iii) Allow the amount of the security deposit to be determined based on a certified actuarial study under OAR 436-050-0180(3); or (iv) Request that the group submit a financial correction plan that demonstrates the group’s ability to improve its rating, in a reasonable time period, without hampering the group’s ability to pay compensation and other amounts due under ORS chapter 656; and (C) The director may request additional information or financial reports to verify the employer’s financial strength. (13) Compliance with rules. The employer group must comply with the requirements of ORS chapter 656 and OAR chapter 436. (14) Claims processing location. The self-insured employer group must maintain at least one place of business in this state where the member’s claims will be processed and written records of claims and other records kept as required by OAR 436-050-0210 and 436-050-0220. (15) Failure to maintain qualifications. The employer group and its members must maintain the qualifications required under this rule. (a) If a private employer that is a member of a self-insured employer group fails to maintain individual net worth of at least $150,000, the group must cancel that member’s participation in the group under OAR 436-050-0290. (b) If a certified self-insured employer group fails to maintain the qualifications required in this rule, the director will revoke the self-insured employer group’s certification under OAR 436-050-0340.