In this subtitle the following words have the meanings indicated. “Board” means the Board for the Chesapeake Employers’ Insurance Company. “Company” means the Chesapeake Employers’ Insurance Company. “Fund” means the Injured Workers’ Insurance Fund established under Title 10 of the Labor and Employment Article.

The General Assembly finds and determines that: employers’ access to affordable workers’ compensation insurance is of utmost importance to the economy of the State; the Fund has been the State’s insurer of last resort for workers’ compensation insurance since 1914; since its creation, the Fund was permitted to compete with the private insurance market; however, the Fund did not become an effective competitive insurer until the General Assembly exempted the Fund from most laws that apply to State government agencies and required the Fund to be a regulated insurer; the most effective way to ensure that Maryland’s workers’ compensation system remains stable and affordable is to encourage and create as much competition in the marketplace as possible; the long–term competitive success of the Fund would be enhanced if the final barriers to full competition were eliminated by converting the Fund into a fully competitive, fully regulated, private insurer; converting the Fund into a private, nonstock, nonprofit insurer would level the competitive playing field for all workers’ compensation insurers operating in the State; converting the Fund into a private, nonstock, nonprofit insurer would provide assurance to Maryland employers that the financial success of the Fund would inure to their benefit as policyholders through dividends and lower rates and that surplus funds could not be transferred to the State’s General Fund; the interests of the State would be protected if the Fund’s statutory purpose of insurer of last resort for workers’ compensation insurance is preserved and the Governor retains the right to appoint two members of the board of the new company; the interests of the employees of the Fund would be satisfied by ensuring that current employees have the option to remain State employees of the Fund after the conversion of the Fund to a private, nonstock, nonprofit insurer; and the interests of employees of the Fund would further be satisfied by ensuring that current long–term State employees who remain State employees of the Fund after the conversion of the Fund to a private, nonstock, nonprofit insurer shall remain in the State retirement system and, therefore, would not be unfairly penalized by being prematurely forced out of the State retirement system due to the conversion; and the interests of the residents of the State, both employers and employees, will be best met by converting the Fund into a private, nonstock, nonprofit, fully regulated, competitive insurer.

There is a Chesapeake Employers’ Insurance Company. The Company shall be: a private, nonprofit, nonstock corporation organized under State law; and subject to the applicable provisions of the Corporations and Associations Article as a nonstock corporation. Before October 1, 2013, the Company shall: file articles of incorporation under the Corporations and Associations Article; and take all steps necessary to be a private, nonprofit, nonstock corporation organized under State law.

Before October 1, 2013, the Company shall: file an application for a certificate of authority under this article and a statement of the risk–based capital levels of the Company as of the date of the application prepared in accordance with § 4–303 of this article; and take all steps necessary to be an authorized domestic insurer under State law. On approval of the application for a certificate of authority, the Commissioner shall issue to the Company a certificate of authority that authorizes the Company to issue policies under Title 9 of the Labor and Employment Article. Except as otherwise provided in this subtitle, the Company has the powers, privileges, and immunities granted by and is subject to the provisions applicable to insurers authorized to write workers’ compensation insurance under this article. The Company may issue policies for: employer’s liability insurance; and insurance under a federal compensation law. Except as otherwise provided in this subtitle, the Company shall be: authorized, examined, and regulated by the Commissioner in the same manner and to the same extent as other authorized property and casualty insurers; and subject to each provision of this article that is applicable to other authorized property and casualty insurers. The Company is a member of the Property and Casualty Insurance Guaranty Corporation.

The Company: shall be an authorized insurer; and on and after October 1, 2013, as a condition of being an authorized insurer, shall be the workers’ compensation insurer of last resort for employers covered under Title 9 of the Labor and Employment Article. Before October 1, 2013, the Fund shall serve as the workers’ compensation insurer of last resort for workers’ compensation insurance and as a competitive workers’ compensation insurer under the same terms and conditions as the Fund served before October 1, 2012. The Company may not cancel or refuse to renew or issue a policy except for: nonpayment of a premium for current or prior policies issued by the Fund or the Company; failure to provide payroll information to the Fund or the Company; failure to cooperate in any payroll audit conducted by the Fund or the Company; or failure to reimburse the Company under a policy with deductibles as required under § 19–404 of this article. The Company may engage only in the business of workers’ compensation insurance in accordance with State law. Subject to the requirements of Title 7 of this article, the Company may establish, own, or acquire a subsidiary for any lawful purpose if the subsidiary: is, or after acquisition will be, wholly owned by the Company; engages in a business activity that is ancillary to the workers’ compensation insurance business; and is operated for the purpose of benefiting the Company.

There is a Board for the Chesapeake Employers’ Insurance Company. The Board shall manage the business and affairs of the Company as a private, nonprofit corporation in accordance with State law. The Board shall consist of nine members, of which: two members shall be appointed by the Governor; and subject to paragraph (3) of this subsection, seven members shall be appointed by the policyholders of the Company under procedures provided in the bylaws of the Board. To the extent practicable, the Board shall reflect the geographic and demographic, including race and gender, diversity of the State. Of the seven members appointed by the policyholders: two members shall have substantial experience as officers or employees of an insurer, but may not be employed by an insurer that is in direct competition with the Company while serving on the Board; one member shall be a policyholder of the Company; one member shall have significant experience in the investment business; one member shall have significant experience in the accounting or auditing field; and one member shall have significant experience as a representative, employee, or member of a labor union. Each member shall be a resident of the State. The term of a member is 5 years. The terms of members are staggered as required by the terms provided for members of the Board for the Fund on October 1, 2015. At the end of a term, a member continues to serve until a successor is appointed and qualifies. A member who is appointed after a term has begun serves only for the rest of the term and until a successor is appointed and qualifies. A member may not serve for more than: two full terms; or a total of 10 years. The Governor may remove a member appointed by the Governor for incompetence or misconduct. The policyholders may remove a member appointed by the policyholders at any time, with or without cause, by the affirmative vote of a majority of all of the votes entitled to be cast generally in the election of directors. The Commissioner may remove a member appointed by the policyholders for incompetence, misconduct, or malfeasance after notice and opportunity for a hearing under §§ 2–210 through 2–214 of this article. The Board shall adopt rules, bylaws, and procedures.

Subject to subsection (b) of this section, the Board may declare a policyholder dividend in the form of a cash refund or credit to: a policyholder based on the actual loss ratio that is better than the loss ratio used to calculate the policyholder’s premium; or all policyholders whose loss ratio contributed to the Company’s surplus for that year. The Board may not issue a policyholder dividend under subsection (a)(2) of this section unless the Commissioner has approved the policyholder dividend. In determining whether to approve the policyholder dividend under paragraph (1) of this subsection, the Commissioner shall consider: the Company’s surplus; material changes in premium rates, claims, market share, or types of insured risks; the methodology the Board used to determine that policyholders are eligible for the policyholder dividend; and any other factor the Commissioner considers relevant.

The Company is not and may not be deemed to be a department, unit, agency, or instrumentality of the State for any purpose. Employees of the Company are not: employees of the State; or members of the State Retirement and Pension System. All debts, claims, obligations, and liabilities of the Company, whenever incurred, shall be the debts, claims, obligations, and liabilities of the Company only and not of the State or the State’s departments, units, agencies, instrumentalities, officers, or employees. Money of the Company is not part of the General Fund of the State. The State may not budget for or provide General Fund appropriations to the Company. The debts, claims, obligations, and liabilities of the Company are not a debt of the State or a pledge of the credit of the State.

Consistent with minority business purchasing standards applicable to units of State government under the State Finance and Procurement Article and consistent with the fiduciary duties of the Board, the Board shall attempt to use to the greatest extent feasible minority business enterprises to provide brokerage and investment management services to the Board. For purposes of this section, brokerage and investment management services shall include services relating to all allocated asset classes. To assist the Board in achieving the goal described under subsection (a) of this section, the Board shall undertake measures to remove any barriers that limit full participation by minority business enterprises in brokerage and investment management services opportunities afforded by the Company. The measures undertaken by the Board shall include the use of a wide variety of media, including the Board’s Web site, to provide notice to a broad and varied range of potential providers about the brokerage and investment management services opportunities afforded by the Company. In conjunction with the Governor’s Office of Small, Minority, and Women Business Affairs, the Board shall develop guidelines to assist it in identifying and evaluating qualified minority business enterprises in order to help the Company achieve the objective for greater use of minority business enterprises for brokerage and investment management services. On or before September 1 each year, the Board shall submit a report to the Governor’s Office of Small, Minority, and Women Business Affairs and, in accordance with § 2–1257 of the State Government Article, the General Assembly on: the identity of the minority business enterprise brokerage and investment management services firms used by the Board in the immediately preceding fiscal year; the percentage and dollar value of the Company assets that are under the investment control of minority business enterprise brokerage and investment management services firms; and the measures the Board undertook in the immediately preceding fiscal year in accordance with subsection (c)(2) of this section.

Except as provided in subsections (b) and (c) of this section, on October 1, 2013, all the functions, powers, duties, assets, real and personal property, accounts, liabilities, contracts, and obligations of the Fund shall be irrevocably transferred to the Company, including liability for all claims, whether known or unknown, arising out of any insurance policy previously issued by the Fund. Any contract or agreement with the State for the third party administration of the State’s Self–Insured Workers’ Compensation Program for State Employees may not be transferred or assigned to the Company until the Fund no longer has employees. The Fund shall retain those assets necessary to perform its duties under Title 10 of the Labor and Employment Article.

The Company may not: be converted to a mutual or stock company; be sold; or be dissolved.