This chapter applies only to workers' compensation self-insurance groups (“group” or “groups”) organized pursuant to Insurance Article, Title 25, Subtitle 3, Annotated Code of Maryland, and not to groups organized pursuant to Labor and Employment Article, §9-402(a), Annotated Code of Maryland. All terms defined in Insurance Article, Title 25, Subtitle 3, Annotated Code of Maryland, which are used in this chapter have the same meaning as in Insurance Article, Title 25, Subtitle 3, Annotated Code of Maryland. Terms Defined. “Insolvent” or “insolvency” means the inability of a group to pay its outstanding lawful obligations as they mature in the regular course of business as may be shown either by an excess of its required reserves and other liabilities over its assets or by its not having sufficient assets to reinsure all of its outstanding liabilities after paying all accrued claims owed by it. “Net premium” means premium derived from standard premium adjusted by any advance premium discounts. “Standard premium” means the premium derived from the pure loss manual rate adjusted by the expense factors and by experience modification factors, but before advance premium discounts. The Basic Manual for Workers' Compensation and Employees Liability Insurance (2001 Edition), published by the National Council on Compensation Insurance (NCCI) is incorporated by reference. A group may be formed only by employers who are engaged in the same or a similar type of business or who are members of the same bona fide trade or professional association which has been in existence for not less than 5 years. For the first 5 years of its existence or until such time as the self-insured group's experience is such that its data becomes fully credible, a group shall classify employees as set forth in the Basic Manual for Workers' Compensation and Employees Liability Insurance (2001 Edition), published by the National Council on Compensation Insurance (NCCI). If the group submits justification to the Commissioner showing that it has fully credible data from which a change in classification could be supported from an actuarial perspective and what the deviation from the NCCI classification would be and the Commissioner approves same, then the group may use such classifications. During a group's first year of operation it shall have an annual premium of at least $500,000, all of which shall have been paid to the group not later than the end of the ninth month of the group's first year of operation. For each year after the first year of operation, the annual premium shall be at least $500,000 unless the Commissioner determines that a greater amount is required based on the Commissioner's examination of the group's annual statement of financial condition. Each group shall obtain and maintain a surety bond for the protection of group members and their employees in an amount not less than $500,000 unless the Commissioner specifies a different amount. The Commissioner may, in the Commissioner's discretion, waive the requirement of §A of this regulation and permit a group to deposit and maintain in trust with the State Treasurer, for the protection of group members, employees and creditors, cash or government securities of the type described in Insurance Article, §5-701(b), Annotated Code of Maryland, in an amount not less than the amount specified in §A of this regulation. Each administrator and service company shall obtain a fidelity bond in an amount not less than $100,000, and a performance bond in an amount not less than $50,000, before providing services to a workers' compensation self-insurance group. Each group shall maintain excess insurance coverage in an amount not less than $1,000,000 per occurrence and not less than $5,000,000 in the aggregate over a commercially available and reasonable attachment point subject to review of the Commissioner. A group shall send a copy of its excess insurance policy to the Commissioner in the following circumstances: Within 60 days of the renewal or replacement of an existing policy unless, within 90 days after its inception date, such policy will be provided to the Commissioner pursuant to §B(3) of this regulation; Within 60 days of an amendment to an existing policy unless, within 90 days after its inception date, such amended policy will be provided to the Commissioner pursuant to §B(3) of this regulation; Annually as provided in COMAR 31.08.09.13B; or Upon request of the Commissioner. The Commissioner may, in the Commissioner's discretion, take the following actions by notifying the group in writing: Increase the minimum amount of excess insurance coverage to assure adequacy of coverage for each group; and Require the group to obtain and maintain excess coverage with a specified attachment point upon consideration of, but not limited to, the following factors relating to the group: Size of group, that is, the number of members and premium volume; Financial condition of group; Group's risk versus surplus position; Group's loss development history; and The availability of reinsurance at specific attachment points at economically feasible rates. Instead of maintaining excess insurance coverage as set forth in §A of this regulation, a group may deposit and maintain in trust with the State Treasurer, cash or government securities of the type described in Insurance Article, §5-701(b), Annotated Code of Maryland, in an amount at least equal to the minimum excess insurance coverage required by §A of this regulation. A policy of excess insurance may not be recognized by the Commissioner unless the policy is: Issued by an insurer admitted to do business in Maryland unless the Commissioner, in his discretion, allows the coverage to be placed with an approved surplus lines carrier; and Not subject to cancellation or nonrenewal for any reason except nonpayment of premium except upon 45 days notice sent by certified mail to the group and to the Commissioner. A person or entity may not act as a workers' compensation self-insurance group except as so authorized by the Commissioner. Application for a certificate of authority shall be made to the Commissioner on a form prescribed by him and shall include a $25 nonrefundable filing fee. The application form shall be accompanied by the following: A list of the names of the members of the group, to include each member’s: Corporate name; Main business address; State of domicile; and Date upon which the member’s fiscal year ends; Proof of compliance with the requirements of these regulations; A copy of the group's articles of association, if any; A copy of agreements with the administrator and with any service company; A copy of the group's bylaws, which shall contain, at a minimum: A copy of or written description of the underwriting standards for acceptance and continuance in the group; A copy of or written description of the method for selecting the board of trustees and administrator of the group; A list of the members of the board of trustees and the term of office of the board of trustees; and A copy of or written description of the method for amending the group's bylaws; A copy of regulations adopted by the trustees, which shall be binding on the administrator and service company and which shall contain, at a minimum: A description of the manner in which excess funds and claim reserves shall be invested; A description of the frequency and extent of loss control and safety engineering services provided to members of the group; The size of the common claim fund; A schedule for the collection of premiums, including a definition of “delinquent premium”; A copy of or written description of the membership, admission, and expulsion procedures; A copy of or written description of the delineation of authority granted to the administrator, board of trustees, and service company; and A copy of the procedures for handling disputes regarding premium payments by members; A copy of the agreement between the group and each member securing the payment of workers' compensation benefits; A list of the initial board of trustees and administrator of the group; The address in this State where the books and records of the group will be maintained at all times; A financial statement on a form acceptable to the Commissioner showing the financial ability of the group to pay the workers' compensation obligations of its members; Proof of payment to the group by each member of not less than 25 percent of that member's first year estimated annual net premium on a date prescribed by the Commissioner; A statement outlining the guidelines used to determine the types of businesses eligible for membership in the group; Copies of executed agreements with each member assuming joint and several liability for obligations of the group in the event of insolvency of the Self-Insurers' Guaranty Fund; A description of the arrangements whether in-house or under contract, for handling claims; and A report on the financial condition of each member in a format acceptable to the Commissioner, based on each member’s most recent fiscal year-end data, which shall include the following information for each member: Total assets; Total liabilities and net worth; Total sales or revenues; Net profit; The member’s fiscal year-end date; and The basis for reporting the financial information, including whether the report was prepared by a certified public accountant and presented in conformity with generally accepted accounting principles. At the request of the Commissioner, the group shall submit additional financial information or financial statements for any or all members of the group. To obtain and maintain its certificate of authority, a group shall comply with the following requirements, as well as with any other requirements established by law or regulation: Provide notice to the Commissioner as soon as practicable of any change in the information required to be filed under §B or C of this regulation; and Maintain combined net assets of all members of at least $1,000,000 as shown by the most recent annual financial report of one or more members, each of which is prepared by an independent certified public accountant and in conformity with generally accepted accounting principles, and submitted on behalf of the group as a whole. Every group shall be deemed to have appointed the Commissioner its attorney to receive service of legal process issued against it in this State and this appointment shall be irrevocable, shall bind any successor in interest and shall remain in effect for so long as there is any obligation or liability of the group in this State for workers' compensation benefits. The Commissioner may not grant the request of any group to terminate its certificate of authority until the group has insured or reinsured all incurred workers' compensation obligations, including both known claims and expenses associated with them, with an authorized insurer under an agreement filed with and approved in writing by the Commissioner. The Commissioner may approve a merger of groups engaged in the same or a similar type of business only if the resulting group assumes in full all obligations of the merging groups. The Commissioner shall hold a hearing on the merger, pursuant to Insurance Article, §§2-203 and 2-210—2-214, Annotated Code of Maryland, if requested to do so by a member of either group. The Commissioner may make an examination of the affairs, transactions, records, and assets of any group as often as the Commissioner deems necessary to determine the group's financial solvency and for the protection of the interest of the people of Maryland, but the examination may not be less frequent than once every 5 years. Each group shall pay to the Commissioner an annual sum of $500 to be used to defray the cost of examinations. On or before 90 days following the end of a group's fiscal year, each group shall submit to the Commissioner a fiscal year-end audited financial report, prepared by an independent certified public accountant, in conformity with generally accepted accounting principles, which shall be on a form prescribed by the Commissioner which shall include, but not be limited to: Actuarially appropriate reserves for: Known claims and expenses associated with them; Claims incurred but not reported and expenses associated with them; Unearned premiums; and Bad debts, for which reserves shall be shown as liabilities; An actuarial opinion in compliance with the current edition of the Financial Analysis Handbook published by the National Association of Insurance Commissioners and given by a member of the American Academy of Actuaries or a person who has otherwise demonstrated his or her actuarial competence to the satisfaction of the Commissioner, regarding reserves for: Known claims and expenses associated with them; and Claims incurred but not reported and expenses associated with them. A copy of a group’s excess insurance policy for the current calendar year shall be submitted with the fiscal year-end audited financial report required by §A of this regulation. On or before 90 days following the end of a group's fiscal year, each group shall submit to the Commissioner a report, in a format acceptable to the Commissioner, regarding the financial condition of each member based on the member’s most recent fiscal year-end data, containing the information described in COMAR 31.08.09.08C(15). The report shall be signed by an executive officer of the group. Any monies for a fund year in excess of the amount necessary to fund all undiscounted losses and loss adjustment expenses for that fund year, actuarially determined by a member of the American Academy of Actuaries or a person who has otherwise demonstrated his or her actuarial competence to the satisfaction of the Commissioner, may be rebated to members of the group. A rebate for any fund year shall be paid only to those employers who remain participants in the group for the entire fund year. Instead of rebating excess monies, a group may temporarily suspend premium contributions for a period of time calculated to result in no excess for the succeeding fund year. No rebates or suspension of premium contributions shall be made when a group is insolvent or otherwise causes the group to be considered in a financially hazardous condition pursuant to §9-102 of the Insurance Article of the Annotated Code of Maryland. The following actions by a group are prohibited unfair trade practices and are violations of this regulation: Excluding an employer from a group for any reason based in whole or in part upon race, color, creed, sex, or blindness of the employer or its employees, or for any arbitrary, capricious, or unfairly discriminatory reason; Excluding an employer from a group by the application of standards which are not reasonably related to the group's economic and business purposes; and Requiring the existence of special conditions, facts, or situations as a condition to acceptance or continuance in a group of a particular employer in an arbitrary, capricious, or unfairly discriminatory manner based in whole or in part upon race, creed, color, sex, religion, national origin, place of residency, or blindness or other physical handicap or disability of the employer or its employees. If, after written notice and opportunity for a hearing, the Commissioner finds that a group has committed a prohibited unfair trade practice, as defined in this regulation, the Commissioner may exercise the powers conferred upon him by Insurance Article, §25-308, Annotated Code of Maryland. Insurance Article, §§2-108, 2-109, 9-102, Title 25, Subtitle 3, and 27-501, Annotated Code of Maryland Effective date: December 26, 1988 (15:26 Md. R. 2982) Chapter recodified from COMAR 09.30.73 to COMAR 31.08.09 effective September 7, 1998 (25:18 Md. R. 1439) Regulation .04 amended as an emergency provision effective October 28, 2002 (29:23 Md. R. 1809); amended permanently effective February 3, 2003 (30:2 Md. R. 76) Regulation .05A, B amended as an emergency provision effective October 28, 2002 (29:23 Md. R. 1809); amended permanently effective February 3, 2003 (30:2 Md. R. 76) Regulation .06A amended as an emergency provision effective October 28, 2002 (29:23 Md. R. 1809); amended permanently effective February 3, 2003 (30:2 Md. R. 76) Chapter revised effective June 30, 2008 (35:13 Md. R. 1182) Regulation .06A amended effective January 1, 2018 (44:4 Md. R. 256) Regulation .07 amended effective January 1, 2018 (44:4 Md. R. 256) Regulation .08 amended effective January 1, 2018 (44:4 Md. R. 256) Regulation .13 amended effective January 1, 2018 (44:4 Md. R. 256) Regulation .14A amended effective January 1, 2018 (44:4 Md. R. 256) Regulation .14D adopted effective January 1, 2018 (44:4 Md. R. 256)