Initial Statement of Reasons
Title 8, Chapter 8, Group 2
Article 3, Section 15212
Surety Bond Ratings
This proposal will add a requirement that a surety company issuing a bond for self insurer's workers compensation liabilities shall meet the acceptable financial credit ratings established by Self Insurance Plans. The proposal will also require all existing security deposits in the form of a surety bond to meet the financial credit rating standards.
Labor Code Section 3701 requires a private self insured company to secure incurred worker's compensation liabilities. The intent of this section is to protect the rights of the injured workers and the other self insured companies in case of bankruptcy or other non payment of claims by a self insurer.
The self insurer is required to post a security deposit in the amount determined by the Director. The security deposits are held in trust by the Director of Industrial Relations for the self insurer. If the company defaults on payment of their workers compensation liabilities or files bankruptcy, the deposit will be utilized to pay their employees worker's compensation claims.
In order to benefit the injured workers, the security deposit needs to be issued by an institution that can make payment of the entire amount on demand. This makes it critical that the security deposit be issued by a financially secure institution.
SIP determined that in order to ensure payment of claims, a surety company needed to meet financial credit standards. They determined that a rating of A or better with Standard and Poors, or a rating of B+ or better with A.M. Best Company would adequately ascertain a surety company that could ensure the payment of workers compensation benefits to the affected employees and protect the SISF from assuming liability of a financial institution in default. The ratings selected define an insurance company that has strong financial security characteristics and have good ability to meet the ongoing obligations. A company with a lower rating is more likely to be affected by adverse economic conditions.
TECHNICAL, THEORETICAL, AND/OR EMPIRICAL STUDY, REPORTS OR DOCUMENTS
The Department did not rely upon any technical, theoretical, or empirical studies, reports or documents in proposing the adoption of this regulation.
ALTERNATIVES TO THE REGULATION CONSIDERED BY THE AGENCY AND THE AGENCY'S REASONS FOR REJECTING THOSE ALTERNATIVES
No other reasonable alternatives were presented or considered by the Department.
ALTERNATIVES TO THE PROPOSED REGULATORY ACTION THAT WOULD LESSEN ANY ADVERSE IMPACT ON SMALL BUSINESS
The Department has not identified any reasonable alternatives or that have otherwise been identified and brought to the attention of the agency that would lessen any adverse impact on small businesses.
EVIDENCE SUPPORTING FINDING OF NO SIGNIFICANT ADVERSE ECONOMIC IMPACT ON ANY BUSINESS
SIP is not aware that there will be any significant adverse economic impact on business.