Section R20-5-202. Self-insurance Application; Requirements

A.      All applicants who initially apply for self-insurance on or after the certification of the 1993 rule amendments by the Attorney General and filing of those amendments with the Secretary of State shall:

1.        Complete, date, sign, and file with the Commission an application for authority to self-insure on a form that can be obtained from the Commission and contains the fol- lowing information:

a.        Applicant identification including names, addresses, corporation, subsidiary, and partnership information;

b.        Nature of business;

c.        History of business in Arizona and elsewhere;

d.        Payroll data;

e.        Work force data;

f.         Insurance data;

g.        Claims history;

h.        Method proposed to finance self-insurance liability and reserves;

i.         Program for compliance with occupational safety and health standards, rules, and laws of this state;

j.         Program to finance medical, surgical, and hospital benefits including information on organization responsible for processing claims;

k.        Names and addresses of Arizona agents upon whom legal notice of proceedings before the Commission is served;

l.         Authorization for signator;

m.      Authorization by corporate resolution, or board of trustees resolution, if applicable; and

n.        Statement attesting to the truthfulness of the infor- mation in the application.

2.        Maintain an office in Arizona. Payroll reports and other materials relating to the calculation of premiums shall be readily available at this office for inspection and audit by the Commission or its authorized representative.

3.        In the first year of operation, obtain a guaranty bond and specific excess insurance or excess of loss insurance in an amount as provided in R20-5-206(D)(1) to adequately protect against catastrophic losses. Starting with the sec- ond year of operation, an individual self-insurer shall choose one of the two options provided in R20-5-206(D). The insurance shall contain:

a.        A 60-day notice of termination; and

b.        A provision that insolvency of the self-insurer does not relieve the excess insurer of liability assumed under the contract.

B.       An individual applicant for self-insurance that is not a member of a workers’ compensation pool, in addition to complying with subsection (A) of this rule, shall:

1.        Have been engaged in business in Arizona for at least five years prior to the date of application.

2.        Provide  an  annual  payroll  in   this  state  of  at  least

$2,000,000 (this payroll may include the combined pay- rolls of all subsidiary companies carried under the self- insurance authorization; the requirements of this subsec- tion do not apply to political subdivisions of this state) and meet either of the following thresholds:

a.        Total reported assets of at least $50,000,000; or

b.        Combination of $10,000,000 in net worth and a cash flow ratio of.25.

3.        Provide the Commission with an internally certified copy of the employer’s audited or reviewed financial state- ments for the most current and prior two years. The Com- mission’s review of the applicant’s financial statements includes the following:

a.        Calculation of the following ratios:

i.         Cash Flow Ratio - Cash flow from operations divided by current liabilities which is an indica- tion of the ability of the applicant to meet cur- rent obligations out of cash flow.

ii.        Current Ratio - Current assets divided by cur- rent liabilities which indicate the applicant’s ability to service current obligations.

iii.      Debt Status Ratio - Net worth divided by total liabilities which indicate the proportion of funds supplied by the applicant relative to the funds supplied by creditors.

iv.      Profitability Ratio - Profit before taxes, divided by total assets, multiplied by 100 which mea- sures the return on assets and the efficiency of assets employed by the firm.

v.        Quick Ratio - Cash and equivalents, plus trade receivables, divided by current liabilities which express the degree to which the applicant’s lia- bilities are covered by the most liquid current assets.

vi.      Working Capital Ratio - Working capital divided by sales which measures the suffi- ciency of working capital to support sales.

b.        Comparison of the applicant’s ratios with the ratios of existing self-insurers in the same or a closely related industry.

c.        Review of notes to the financial statement.

d.        Review of management report of operation and other information published in the annual statement.

4.        Provide the Commission with the names of all other juris- dictions in which it has been granted authority to self- insure and the effective dates of such authorization.

5.        Provide the Commission with the names of all other juris- dictions in which its application to self-insure has been denied or its authority to self-insure has been suspended or revoked, and the dates and reasons for such denials, suspensions, or revocations.

C.      In addition to the requirements of subsection (A), a workers’ compensation pool applicant for self-insurance shall:

1.        File with the application for self-insurance a completed indemnity agreement on a form that can be obtained from the Commission, signed by a duly authorized agent of the pool jointly and severally binding the pool and each of its members to comply with the provisions of A.R.S. Title 23, Chapter 6 and rules adopted pursuant to Chapter 6. The indemnity agreement shall contain the following information:

a.        Name of the group, with names of trustees and members;

b.        Amount of the corporate surety bond;

c.        Name of the service agent of the group, including a description of the agent’s duties and responsibilities; and

d.        Statement that the group will defend and assume lia- bilities in the name of and on behalf of any member of the group.

2.        Provide a copy of the most recently audited financial report of the pool prepared by a certified public accoun- tant, including a copy of the examination report prepared by the Department of Insurance and that Department’s recommendations, if any.

3.        Provide the names and addresses of the members of the board of trustees of the pool.

4.        Provide the agreement indicating the terms and condi- tions of coverage within the pool including any exclu- sions of coverage.

5.        An intergovernmental agreement filed with the Commis- sion pursuant to A.R.S. § 11-952.01(G)(7) shall contain the provisions of A.R.S. § 11-952.01(I).

Historical Note

Former Rule II. Section repealed, new Section adopted effective July 6, 1993 (Supp. 93-3). R20-5-202 recodified from R4-13-202 (Supp. 95-1).