GENERAL ASSEMBLY OF NORTH CAROLINA

SESSION 1997

H	1 

HOUSE BILL 1588

Short Title:  Revise Insurer Assessments.	(Public)

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Sponsors: Representatives Dockham; and Hardaway.

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Referred to:  Insurance, if favorable, Appropriations.

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May 28, 1998

A BILL TO BE ENTITLED
AN ACT TO APPROPRIATE FUNDS TO AMEND THE WORKERS' COMPENSATION ACT AND THE INSURANCE LAWS TO REVISE THE METHOD BY WHICH INSURANCE COMPANIES ARE ASSESSED.
The General Assembly of North Carolina enacts:
Section 1.  G.S. 58-47-65(f)(3) reads as rewritten:
"(3)	An individual application, under G.S. 58-47-125, of each member applying for coverage in the proposed group on the inception date of the proposed group, with a current GAAP financial statement of each member.  The financial statements are confidential, but the Commissioner may use them in any judicial or administrative proceeding."
Section 2.  G.S. 58-47-85(2)(c)2. reads as rewritten:
"2.	Once every year files with the group the member's most recent year-end balance sheet, which, at a minimum, is compiled by an independent certified public accountant.  The balance sheet shall demonstrate that the member's financial position does not show a deficit equity and is appropriate for membership in the group.  At the request of the Commissioner, the group shall make these filings available for review. These filings shall be kept confidential; provided that the Commissioner may use that information in any judicial or administrative proceeding."
Section 3.  G.S. 58-47-120(f)(11) reads as rewritten:
"(11)	Qualifications for group membership, including underwriting guidelines and procedures to identify any member that is in a hazardous financial condition."
Section 4.  G.S. 97-133 reads as rewritten:
"§ 97-133.  Powers and duties of the Association.
(a)	The Association shall:
	(2)	Assess each member of the Association as follows:
a.	Each individual member self-insurer shall be annually assessed an amount equal to one-quarter of one percent (0.25%) of the annual gross premiums, as determined under G.S. 105-228.5(b), (b1), and (c), that would have been paid by that member self-insurer for workers' compensation insurance during the prior calendar year; and payment to the Association shall be made no later than June 15 following the close of that calendar year. Where any such assessment is paid based in whole or in part upon estimates of annual gross premiums for the prior calendar year, there shall be made in the next year's assessment an adjustment of the assessment of such prior year based on actual audited annual gross premium. Each group member self-insurer shall be annually assessed an amount equal to one-quarter of one percent (0.25%) of the gross premiums, as determined under G.S. 105-228.5(b), (b1), and (c), of the group member self-insurer during the prior calendar year; and payment to the Association shall be made no later than June 15 following the close of that calendar year. Regardless of the size of the Fund, during its first 12 months of membership, no member self-insurer may discount or reduce this one-quarter of one percent (0.25%) assessment. Assessments paid by members pursuant to this subdivision shall be credited toward the tax paid by self-insurers under Article 8B of Chapter 105 of the General Statutes.  For the purpose of making the assessments authorized by this subsection and subsections (c) and (d) of this section, the Secretary of Revenue shall provide to the Association the self-insurer premium and payroll information received by the Secretary under G.S. 105-228.5(e) and the Commissioner shall provide to the Association the group self-insurer premium information reported to the Commissioner under G.S. 58-47-75 and G.S. 58-2-165.
b.	Each member self-insurer shall be notified of the assessment no later than 30 days before it is due.
c.	If a self-insurer is a member of the Association for less than a full calendar year, the annual gross premiums shall be adjusted by that portion of the year the self-insurer is not a member of the Association.
d.	If application of the contribution rates referenced in sub-subdivision a. of this subdivision would produce an amount in excess of the five million dollar ($5,000,000) limits of the fund, an equitable proration may be made; provided that every self-insurer that becomes a member of the Association shall pay an initial assessment, in an amount established by the Board, regardless of the size of the fund at the time the member joins the Association.
(3)	Administer a fund, to be known as the North Carolina Self-Insurance Guaranty Fund, which shall receive the assessments required in subdivision (2) of this subsection. Once the Fund reaches five million dollars ($5,000,000), no further assessments shall be made except initial assessments of new member self-insurers that are required to be made in subdivision (2)d. of this subsection. Assessments may be subsequently made only to maintain the Fund at a level of five million dollars ($5,000,000). In its discretion, the Board may determine that the assets of the Fund should be segregated, or, that a separate accounting shall be made, in order to identify that portion of the Fund which represents assessments paid by individual self-insurers and that portion of the Fund which represents assessments paid by group self-insurers. If the Board determines to segregate the Fund in this manner, the Association shall thereafter pay covered claims against individual member self-insurers from that portion of the Fund which represents assessments against individual self-insurers and shall thereafter pay covered claims against group member self-insurers from that portion of the Fund which represents assessments against group self-insurers. The cost of administration incurred by the Association shall be borne by the Fund and the Association is authorized to secure reinsurance and bonds and to otherwise invest the assets of the Fund to effectuate the purpose of the Association, subject to the approval of the Commissioner. All earnings from investment of Fund assets shall be placed in or credited to the Fund.
		The Association may purchase primary excess insurance from an insurer licensed by the Commissioner for the appropriate lines of authority to defray its exposure to loss occasioned by the default of one of its members. The terms of any excess insurance so purchased shall be limited to providing coverage of liabilities which exceed the Fund's assets after the payment by member self-insurers of the maximum post-insolvency assessment provided in subdivision (c)(1) of this section herein and the Association shall fund any such purchase by levying a special assessment on its members for this purpose or by application of any unencumbered earnings of the Fund or any other available funds. The Association may obtain from each member any information the Association may reasonably require in order to facilitate the securing of this primary excess insurance. The Association shall establish reasonable safeguards designed to insure that information so received is used only for this purpose and is not otherwise disclosed;
(4)	Be obligated to the extent of covered claims occurring prior to the determination of the member self-insurer's insolvency, or occurring after such determination but prior to the obtaining by the self-insurer of workers' compensation insurance as otherwise required under this Chapter. The Association shall pay claims against a self-insurer that are not or have not been paid as a result of a determination of insolvency or the institution of bankruptcy or receivership proceedings that occurred prior to the effective date of this Article.
(5)	After paying any claim resulting from a self-insurer's insolvency, be subrogated to the rights of the injured employee and dependents and be entitled to enforce liability against the self-insurer by any appropriate action brought in its own name or in the name of the injured employee and dependents;
(6)	Assess the Fund in an amount necessary to pay only:
a.	The obligations for the Association under this Article subsequent to an insolvency;
b.	The expenses of handling covered claims subsequent to an insolvency;
c.	The cost of examinations under G.S. 97-137; and
d.	Other expenses authorized by this Article;
(7)	Investigate claims brought against the Association and adjust, compromise, settle, and pay covered claims to the extent of the Association's obligation; and deny all other claims. The Association may review settlements to which the insolvent self-insurer was a party to determine the extent to which such settlements may be properly contested;
(8)	Notify such persons as the Commissioner directs under G.S. 97-136;
(9)	Handle claims through its employees or through one or more self-insurers or other persons designated as servicing facilities. Designation of a servicing facility is subject to the approval of the Commissioner, but designation of a member self-insurer as a servicing facility may be declined by such self-insurer;
(10)	Reimburse each servicing facility for obligations of the Association paid by the facility and for expenses incurred by the facility while handling claims on behalf of the Association;
(11)	Pay the other expenses of the Association authorized by this section; and
(12)	Establish in the Plan a mechanism to calculate the assessments required by subdivisions (2) and (3) of this subsection by a simple and equitable means to convert from policy or fund years that are different from a calendar year.
(b)	The Association may:
(1)	Employ or retain such persons as are necessary to handle claims and perform other duties of the Association;
(2)	Borrow funds necessary to effect the purposes of this Article in accord with the Plan;
(3)	Sue or be sued;
(4)	Negotiate and become a party to such contracts as are necessary to carry out the purpose of this section; and
(5)	Perform such other acts as are necessary or proper to effectuate the purpose of this section.
(c)	In the event that the assets of the Fund are not sufficient to pay the obligations of the Association, then the Association shall impose an additional assessment upon its members, which shall be known as a post-insolvency assessment which shall be imposed as follows:
(1)	Each individual member self-insurer shall be assessed in an amount not to exceed two percent (2%) each year of the annual gross premiums, as determined under G.S. 105-228.5(b), (b1), and (c), that would have been paid by that member self-insurer during the prior calendar year. The assessments of each individual member self-insurer shall be in the proportion that the annual gross premiums of the individual member self-insurer for the premium calendar year bears to the annual gross premiums of all individual member self-insurers for the preceding calendar year. For group member self-insurers, the assessment shall not exceed two percent (2%) each year the annual premium collected by that group member self-insurer during the prior calendar year. The assessments of each group member self-insurer shall be in the proportion that the annual gross premiums of the group member self-insurer for the premium calendar year bears to the annual gross premiums of all group member self-insurers for the preceding calendar year.
(2)	Each member self-insurer shall be notified of the assessment no later than 30 days before it is due.
(3)	The Association may exempt or defer, in whole or in part, the assessment of any member self-insurer, if the assessment would cause that member's financial statement to reflect liabilities in excess of assets.
(4)	Delinquent assessments, except as provided in subdivision (3) of this subsection, shall bear interest at the rate to be established by the Board, but not to exceed the discount rate of the Federal Reserve Bank, Richmond, Virginia, on the due date of the assessment, plus four percent (4%) annually, computed from the due date of the assessment.
(5)	The Association shall establish in the Plan a mechanism to calculate the assessments required by subdivision (1) of this subsection by a simple and equitable means to convert from policy or fund years that are different from a calendar year.
(d)	No individual member self-insurer may be assessed in any calendar year an amount greater than two and one-half percent (2.5%) of the annual gross premium, as determined under G.S. 105-228.5(b), (b1), and (c), that would have been paid by that individual member self-insurer during the prior calendar year. No group member self-insurer may be assessed in any calendar year an amount greater than two and one-half percent (2.5%) of the annual gross premiums of by that group member self-insurer during the prior calendar year. If the maximum assessment does not provide in any one year an amount sufficient to make all necessary payments, the funds available shall be prorated and the unpaid portion shall be paid as soon thereafter as funds become available. There shall be established in the Plan a mechanism to calculate the assessments required by this section by a simple and equitable means to convert from policy or fund years that are different from a calendar year."
Section 5.  G.S. 97-165(2) reads as rewritten:
"(2)	'Certified audit' means an audit on which a certified public accountant expresses his or her professional opinion that the accompanying statements fairly present the financial position of the self-insurer, in conformity with generally accepted accounting principles."
Section 6.  G.S. 97-170(c) reads as rewritten:
"(c)	Only an applicant whose total fixed assets amount to five hundred thousand dollars ($500,000) or more may apply for a license. In judging the applicant's financial strength and liquidity relative to its ability to comply with the Act, the Commissioner shall consider the applicant's:
(1)	Organizational structure and management;
(2)	Financial strength;
(3)	Source and reliability of financial information;
(4)	Risks to be retained;
(5)	Workers' compensation loss history;
(6)	Number of employees;
(7)	Claims administration;
(8)	Excess insurance; and
(9) 	Access to excess insurance."
Section 7.  G.S. 97-170(d)(4) is repealed.
Section 8.  G.S. 97-180(b) reads as rewritten:
"(b)	Every self-insurer shall submit within 120 days after the end of its fiscal year a certification from a qualified actuary setting forth the actuary's opinion relating to loss and loss adjustment expense reserves for workers' compensation obligations for North Carolina. The certification shall show liabilities, excess insurance carrier and other qualifying credits, if any, and net retained workers' compensation liabilities. The qualified actuary shall present an annual report to the self-insurer on the items within the scope of and supporting the certification, within 90 days after the close of the self-insurer's fiscal year. Upon request, the report shall be submitted to the Commissioner."
Section 9.  G.S. 97-180(d) reads as rewritten:
"(d)	Upon the request of the Commissioner, every self-insurer shall submit a report of its annual payroll information. The report shall summarize payroll, by annual amount paid, and the number of employees, by classification, using the rules, classifications, and rates in the most recently approved Workers' Compensation and Employers' Liability Insurance Manual governing the audits of payrolls and the adjustments of premiums. Every self-insurer shall maintain true and accurate payroll records. These payroll records shall be maintained to allow for verification of the completeness and accuracy of the annual payroll report."
Section 10.  There is allocated from the Department of Insurance Fund established in G.S. 58-6-25 to the Department of Insurance the sum of three hundred three thousand eight hundred fifty-three dollars ($303,853) for fiscal year 1998-99 for the expenses of administering this act and Part 2 of Article 47 of Chapter 58 of the General Statutes.
Section 11.  G.S. 105-259(b) is amended by adding a new subdivision to read:
"(16a)	To provide the North Carolina Self-Insurance Guaranty Association information on self-insurers' premiums and payroll when the Association needs the information to collect the assessments authorized in G.S. 97-133(a)."
Section 12.  This act becomes effective July 1, 1998, and Section 4 of this act applies to assessments made for calendar year 1998 and subsequent calendar years.