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Chapter 8. Office of the Director
Subchapter 2. Administration of Self-Insurance Plans
Article 13. Group Self Insurance

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§15496. Group Self Insurer's Security Deposit.

(a) Each group self insurer shall post and maintain a security deposit with the Director upon approval of its Certificate of Consent to Self Insure. The security deposit amount shall be in accordance with the provisions of this section, and, once a Self Insurer's Actuarial Study and Summary has been filed, no less than as determined pursuant to Labor Code Section 3701, calculated as the undiscounted expected actuarial confidence level including each of the following components; incurred but not reported (IBNR) liabilities, Allocated loss adjustment expense (ALAE), Unallocated loss adjusted expense (ULAE) net of specific excess insurance coverage.

The required deposit may be increased at the Director's discretion as set forth in Article 3 of these regulations.

(b) Upon approval for a Certificate of Consent to Self Insure, the group self insurer, in the manner provided in subsection (e), shall post an initial security deposit in an amount no less than the greater of the following:

(1) The statutory minimum amount pursuant to Labor Code Section 3701(b);

(2) No less than 60% of one year ultimate losses based on the actuarial report submitted with the application for the group self insurer;

(3) A higher amount approved by the Director.

(c) If the group self insurer initially posts a security deposit of 60% of one year's projected ultimate losses in accordance with subsection (b)(2), the group self insurer shall ensure that the amount posted is no less than the undiscounted expected actuarial confidence level including each of the following components; incurred but not reported (IBNR) liabilities, Allocated loss adjustment expense (ALAE), Unallocated loss adjusted expense (ULAE) net of specific excess insurance coverage after one year of self insurance by increasing its security deposit by an amount no less than 25% of one year's projected ultimate losses in three equal installments. The installments shall be at intervals of 120 days or less, with the first installment being posted no later than 120 days after the effective date of self insurance.

(d) Notwithstanding subsection (c), each new affiliate member of the group self insurer issued an Interim Certificate or an Affiliate Certificate of Consent to Self Insure whose exposure was not contemplated in the calculation of the initial security deposit shall post an additional amount equal to an average year's incurred losses over the past three years as documented by the applicant's prior insurance carrier or, if the applicant is a new employer with no loss history, calculated based on one year's projected contributions. The increase in security deposit for the new affiliate group member shall be posted within 30 days of issuance of the Interim Certificate or Affiliate Certificate of Consent to Self Insure.

(e) The group self insurer's security deposit shall be posted in one of the following manners:

(1) A surety bond executed on State issued bond and rider forms pursuant to Section 15212 of these regulations;

(2) An irrevocable letter of credit issued by a bank, credit union, savings institution or other financial institution pursuant to Section 15215 of these regulations;

(3) Approved securities in the form of government issued or corporate issued securities, meeting the requirements of Section 15213 of these regulations;

(4) Cash in trust deposited pursuant to requirements of Section 15214 of these regulations; or

(5) Any combination of one or more of the methods described in subsections (g)(1) through (g)(4) of this section.

(f) Failure to maintain the required amount of security deposit or to post an acceptable form of deposit as set forth in this Article shall be good cause for assessment of civil penalties pursuant to Labor Code Section 3702.9(a) and/or revocation of the Certificate of Consent to Self Insure pursuant to Labor Code Section 3702, and Section 15423 of these regulations.

(g) A group self insurer or group member requesting a hearing pursuant to Article 11 shall provide proof of workers' compensation coverage under a policy from an admitted carrier for the period of time without the required security deposit or deposit increase, or proof of compliance with the Chief's request to post security.

Note: Authority cited: Sections 54, 55, 3701.8 and 3702.10, Labor Code. Reference: Sections 59, 3700, 3701, 3701.5, 3701.8, 3702, 3702.3, 3702.6, 3702.10, 3740, 3741, 3742, 3743, 3744 and 3745, Labor Code.

HISTORY

1. New section filed 3-2-2009; operative 3-2-2009 pursuant to Government Code section 11343.4 (Register 2009, No. 10).

2. Amendment of subsection (a), repealer of subsections (a)(1)-(3) and amendment of subsections (c) and (g) filed 12-31-2012 as an emergency; operative 1-1-2013 pursuant to Government Code section 11346.1(d) (Register 2013, No. 1). A Certificate of Compliance must be transmitted to OAL by 7-1-2013 or emergency language will be repealed by operation of law on the following day.

3. Certificate of Compliance as to 1-1-2013 order transmitted to OAL 7-1-2013 and filed 8-13-2013 (Register 2013, No. 33).


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