SECTION 5.6403. Application for Initial Certificate of Approval

(a) An unincorporated association or business trust composed of five or more private employers that proposes to organize as a workers' compensation self-insurance group shall file with the department an application for a certificate of approval.

(b) Contents of the application must include the information required by Labor Code §407A.051.

(c) In addition to the information required under subsection (b) of this section, an applicant shall also provide the following:

(1) A statement that demonstrates that the members of the group are in the same or similar type of business as required by Labor Code §407A.002(a)(1).

(A) The statement should demonstrate that the members of the group have the same governing classification.

(B) If the members of the proposed group have different governing classifications, the statement should demonstrate how the business pursuits of the members of the group are similar enough in operation in the Commissioner of Insurance's discretion to be grouped together.

(2) To aid the department in making the determination that the trade or professional association meets the requirements of Labor Code §407A.002(a)(2) that the trade of professional association has been in existence in this state for purposes other than insurance for five years before the establishment of the group, provide copies of documents relating to the organization, governance and operation of the association and a narrative describing the activities of the association. Annual reports, conventions, seminars, dues requirements, newsletters and other evidence acceptable to the Commissioner of Insurance may be submitted to aid the department in making its determination.

(3) In addition to the copy of the bylaws of the group required by Labor Code §407A.051(c)(6), submit copies of documents relating to the organization, governance and operation of the group.

(4) Projected financial statements for the 24 month period from the group's start of operations using quarterly balance sheet projections based on the group's fiscal year, quarterly cash flow schedules reflecting expenditures by category, quarterly revenue and expense projections and an actuarial projection of the group's total projected incurred liabilities for workers' compensation which demonstrate compliance with Labor Code §407A.051(c)(10) which requires the group to show its financial ability to pay the workers' compensation obligations of the employers who are members of the group and Labor Code §407A.053(c) which requires the group to post security equal to the greater of $300,000 or 25% of the group's total incurred liabilities for workers' compensation. The projections shall include an estimate of the employees to be covered on which the projections and actuarial assumptions are based. The projections must reflect the identity, qualifications and credentials of the persons making the projections.

(5) A written commitment, binder, or policy or contract of excess insurance that meets the requirements of §5.6405 of this division (relating to Excess Insurance).

(6) A fidelity bond for an administrator in the amount of $250,000. The fidelity bond must meet the requirements of §5.6408 of this division (relating to Fidelity and Performance Bonds).

(7) A fidelity bond for a service company identified pursuant to paragraph (12)(A) or (B) of this subsection, if there is one, in the amount of $250,000. The fidelity bond must meet the requirements of §5.6408 of this division.

(8) A performance bond for a service company identified pursuant to paragraph (12)(A) of this subsection that provides claims service to or on behalf of a group, if there is one, in the amount of $250,000. This performance bond is in addition to the fidelity bond required in paragraph (7) of this subsection for a service company. The performance bond shall be in the form prescribed in §5.6408 of this division.

(9) An indemnity agreement executed by the members of the group binding the members, jointly and severally, for the obligations of the group. At a minimum, the agreement shall include the provisions described in §5.6406 of this division (relating to Indemnity Agreement).

(10) An acknowledgement, in the form prescribed in §5.6407 of this division (relating to Acknowledgement of Indemnity Agreement), executed by each member of the group that it is aware that it can be called upon to pay the workers' compensation claims of another member of the group pursuant to the Labor Code Chapter 407A.

(11) The statement required by §5.6404 of this division (relating to Notification to the Department and Responsibility for Continued Compliance).

(12) A business plan or plan of operation that describes the group's business activities, safety program, and organization. The plan must also include:

(A) the identity of the administrator of the group and any third party administrator that provides services to or on behalf of the group;

(B) excluding any person identified pursuant to subparagraph (C) of this paragraph, the identity of any service company that performs one or more of the following services:

(i) provides cash and asset management services to a group, including any person that has access to or disbursement authority over any of the group's assets and accounts;

(ii) maintains the group's accounting records or organizational documents;

(iii) stores or maintains the group's electronic books and records, including a person identified by a group under §5.6409(b)(3) of this division (relating to Books and Records); or

(iv) provides management of a function for which the group retains ultimate responsibility under the Insurance Code, the Labor Code, or rules adopted thereunder;

(C) the identity of:

(i) the accountant of the group; and

(ii) the actuary of the group.

(D) a general description of the experience, qualifications, facilities, and personnel of a person identified pursuant to subparagraph (A) or (B) of this paragraph; and

(E) the identity of the affiliates of a person identified pursuant to subparagraph (A) or (B) of this paragraph. A group may identify such affiliates in an organizational chart.

(13) A copy of each written agreement required under §5.6411 of this division (relating to Contract Provisions).

(14) A statement that a third party administrator identified pursuant to paragraph (12)(A) of this subsection either holds the required authorization from the department or has applied for the required authorization from the department and that the group will verify that such authorization has been granted by the department before the group allows the third party administrator to provide services to or on behalf of the group.

(d) The group must also submit the following:

(1) proof that it has received payment or a promise to pay from each member of 25% of its first year estimated modified schedule rating premium. If the group approves a member's submission of a promise to pay the 25% of premium, the employer must submit payment of the amount promised no later than 10 days after the effective date of the member's coverage with the group, or

(2) a certification by a certified public accountant and an actuary that assets and reserves of the trust satisfy the requirement of the Labor Code §407A.051(c)(11)(B).

(e) Each member of the initial board of trustees of a group, subsequent members of the board of trustees of a group, and the executive officers of a person identified pursuant to subsection (c)(12)(A) or (B) of this section shall provide to the department a completed biographical affidavit in accordance with §7.1604(b)(1)(C) of this title (relating to Application Denial, Suspension, Cancellation, or Revocation). A biographical affidavit is not required if a biographical affidavit from the individual has been filed with the department within the prior three years and contains substantially accurate information. A biographical affidavit must demonstrate that the affiant has sufficient experience, ability, standing, and good record to make success of a group probable.

(f) Each member of the initial board of trustees of a group, subsequent members of the board of trustees of a group, and the executive officers of a person identified pursuant to subsection (c)(12)(A) or (B) of this section shall comply with the requirements of Chapter 1 Subchapter D of this title (relating to Effect of Criminal Conduct).

(g) A person subject to this division and to the requirements of the Insurance Code §4151.055 may satisfy the requirements of §4151.055 by obtaining a fidelity bond that meets the requirements of subsection (c)(6) or (7) of this section, as applicable.

(h) Pursuant to the Labor Code §407A.051(b)(7), the commissioner may require the submission of any other relevant information reasonably required to determine whether to approve or disapprove an application for a certificate of approval.

Source Note: The provisions of this §5.6403 adopted to be effective August 31, 2004, 29 TexReg 8353; amended to be effective October 23, 2006, 31 TexReg 8681; amended to be effective February 15, 2009, 34 TexReg 813