Section R20-5-1127. Review of Initial Application and Request for Renewal to Self-insure

A.      Upon the filing of a completed initial application or request for renewal, the Division shall:

1.        Determine whether the applicant or self-insurer meets the requirements of A.R.S. § 23-961;

2.        Determine whether the applicant or self-insurer meets the requirements of this Article. Except for a self-insurer that is exempt under R20-5-1114, the self-insurer shall post security according to R20-5-1109 that is adequate to pro- vide for the self-insurer’s future estimated liability. If applicable, the Division shall advise the applicant or self- insurer of the need for additional security, and the self- insurer shall post the additional security before the Com- mission makes its decision under R20-5-1128;

3.        If a self-insurer requests a decrease of 10% or greater in the value or amount of security provided in the prior year, perform an additional review to determine the adequacy of the security deposit, including:

a.        Mathematical verification of the accuracy of amounts reported on the Workers’ Compensation Liability form;

b.        Review of claims filed for the three preceding years;

c.        Review of changes in the payroll of the self-insurer to determine changes in employment levels;

d.        Review of changes in workers’ compensation classi- fication codes to determine changes in operations of the company in Arizona; and

e.        Review of the financial condition of the self-insurer to determine changes in financial stability, including a review of the total incurred liability expenses for the past three years;

4.        Determine whether the applicant or self-insurer has the ability to process and pay benefits required under the Ari- zona Workers’ Compensation Act.

a.        For an applicant that is not a public entity, the Divi- sion shall determine whether the self-insurer has the ability to process and pay by:

i.         Reviewing the financial statements to deter- mine the current ratio, quick ratio, cash-flow ratio, working-capital ratio, debt-status ratio, profitability ratio, and the applicant’s net profit or loss;

ii.        Comparing the applicant’s ratios with the ratios of existing self-insurers in the same or a closely related industry;

iii.      Reviewing notes to the financial statements;

iv.      Reviewing management reports of operations and other information provided by the self- insurer; and

v.        Comparing the applicant’s ratio of claims filed to total employees with that of other employers within the same or closely related industry;

b.        For an applicant that is a public entity, the Division shall determine whether the self-insurer has the abil- ity to process and pay by:

i.         Reviewing the public entity’s general fund financial statement to determine the cash ratio and fund equity ratio;

ii.        Reviewing excess revenues over expenditures and the ending balances in the general fund and all fund accounts for the past two years;

iii.      Reviewing notes to the self-insurer’s financial statements;

iv.      Reviewing management reports of operations and other information provided by the self- insurer;

v.        Comparing the public entity’s ratio of claims filed to total employees with that of other pub- lic entities;

vi.      Comparing cash and fund equity ratios with that of other self-insured public entities; and

vii.     Reviewing the risk management fund to deter- mine if it is sufficient to pay all workers’ com- pensation liabilities;

c.        For a self-insurer requesting renewal that is not a public entity, the Division shall determine whether the self-insurer has the ability to process and pay by:

i.         Reviewing the information in subsection (A)(4)(a);

ii.        Reviewing the claims profile for the past three years, which includes a review of the claims filed, claims denied, and denial rate;

iii.      Reviewing of the self-insurer’s experience modification rate;

iv.      Comparing of the self-insurer’s ratio of claims filed to total employees with that of other self- insurer’s; and

v.        Reviewing the Parent Company Guaranty form; and

d.        For a self-insurer requesting renewal that is a public entity, the Division shall determine whether the self- insurer has the ability to process and pay by:

i.         Reviewing the information in subsection (A)(4)(b);

ii.        Reviewing the claims profile for the past three years, including a review of the claims filed, claims denied, and denial rate;

iii.      Reviewing the self-insured’s experience modi- fication rate; and

iv.      Comparing the self-insurer’s ratio of claims filed to total employees with that of other self- insured public entities of similar size.

B.       The Division shall present the findings and recommendations of its review to the Commission, and may include a recom- mendation regarding the adequacy of the security based on its review and determination whether the self-insurer has the abil- ity to process and pay as set forth in subsection (A)(3).

Historical Note

New Section made by final rulemaking at 11 A.A.R.

1008, effective April 4, 2005 (Supp. 05-1).