Sec. 14.09.13.06. Security

A. Each self-insurer shall, as a condition for the approval and continuation of its self-insurance privilege, provide a qualifying security deposit to secure the payment of compensation. The security is not subject to assignment, execution, attachment, or any legal process whatsoever, except as necessary to guarantee compensation under this chapter. The Commission may waive security requirements for individually self-insured governmental entities.

B. Types of Qualifying Security.

(1) Surety Bond.

(a) A surety bond shall be on a form prescribed by the Commission and issued by a company authorized to transact surety business in this State by the Maryland Insurance Administration.

(b) The surety company shall possess a current A. M. Best Rating of A- or better or a comparable rating by another insurance company rating service acceptable to the Commission.

(2) Letter of Credit.

(a) Requirements.

(i) A letter of credit shall be issued by a Federal Deposit Insurance Corporation member bank on a form prescribed by the Commission and in accordance with the Act.

(ii) A letter of credit shall possess a current financial standing according to Weiss Ratings, Inc. or equivalent rating service of B- or better.

(iii) If the Commission executes a draw down against a letter of credit, the funds shall be wired to a Federal Deposit Insurance Corporation member bank account within the State.

(b) When a self-insurer, active or revoked, provides adequate security after the Commission drawing on the letter of credit, the funds shall be released back to the letter of credit issuer.

(3) Irrevocable Trust, Custodian, Safekeeping Agreement, or Book Entry Account.

(a) The Commission in its discretion may accept an irrevocable trust, custodian, safekeeping agreement, or book entry account for placement of securities issued by the federal government or by any state government in the United States, which is AA rated or better.

(b) Investment grade securities deposited in an irrevocable trust, custodian, safekeeping agreement, or book entry account shall be held for the benefit of the Commission and shall have a fair market value and be redeemable at or above the required security amount at all times.

(c) An irrevocable trust, custodian, safekeeping agreement, or book entry account that contains adequate securities as defined in §B(3)(a) and (b) of this regulation for the benefit of injured employees of the self-insurer may not be used for any other purpose or voided by order of owners, directors, or creditors of the self-insurer, or by order of any court, without specific written authorization of the Commission.

(d) When a self-insurer is revoked or withdraws from the self-insurance program, the securities remain pledged to the Commission to guarantee payment of any claim occurring during the self-insured period.

(e) At any time that the redeemable value falls below the security required, the self-insurer shall provide the additional security within 60 days of notification of deficit by the banking depository or the Commission. Any securities subject to rollover shall be replaced concurrently with the maturity and receipt of proceeds from the rollover.

(f) Any earnings received on these securities shall be returned to the self-insurer.

(g) A request for release of securities, or any part of the securities, shall be in writing to the Commission.

C. Security Deposit Determinations.

(1) Before approval of self-insurance status and periodically after that, the Commission, in establishing and adjusting security deposit amounts, shall consider, among other conditions or facts relevant to security and prompt payment of compensation, the following:

(a) Claims experience and reserves;

(b) Financial condition and performance;

(c) Safety record and program;

(d) Potential for catastrophic event;

(e) Compliance with law and regulations; and

(f) Reliability of audited financial statements, and reports of payroll, accident, claims, and reserve data.

(2) A self-insurer shall, after the third full year of an approved plan, or earlier if required by the Commission, and tri-annually after that, or at a time frequency determined by the Commission, provide an independent actuarial study prepared in accordance with actuarial standards of practice as a basis for security deposit determination. The Commission may use reported reserve amounts in addition to a factor for related administrative costs and the potential modifiers in this subsection to establish the security amount.

(3) The Commission may waive this requirement for security for individually self-insured governmental entities.