SECTION 5.6405. Excess Insurance

(a) Unless otherwise approved by the commissioner, a group shall obtain excess insurance for losses that exceed a group's retention in an amount that will pay all benefits required under the Labor Code and rules adopted thereunder for a compensable claim.

(b) The group shall obtain and maintain excess insurance coverage from an insurer that has a certificate of authority from the Texas Department of Insurance or from an eligible surplus lines insurer in compliance with Chapter 981 of the Texas Insurance Code and related provisions of the Texas Administrative Code, provided that:

(1) the surplus lines insurer is also certified as a trusteed reinsurer by the Texas Department of Insurance, in accordance with Insurance Code, Article 5.75-1(b)(3) (effective April 1, 2007, Article 5.75-1(b)(3) is repealed and re-adopted as Insurance Code §§493.102, 493.152 - 493.155, and 495 157);

(2) the surplus lines insurer maintains a financial strength rating of ''A-'' or better, as determined by A.M. Best Company;

(3) the surplus lines insurer provides a clean, irrevocable, and unconditional letter of credit in favor of the group as beneficiary and held by the group, subject to withdrawal solely by and under the exclusive control of the group, to secure the payment of losses, including losses, loss adjustment expenses, incurred but not reported losses, and any other obligation of the surplus lines insurer under the terms and conditions of the excess insurance policy, whether paid or unpaid by the group:

(A) in no less than the greater of:

(i) the amount of actuarially projected losses to ultimate; or

(ii) the amount of actual losses to ultimate;

(B) issued by a qualified United States financial institution as defined in Insurance Code, Article 5.75-1(e) (effective April 1, 2007, Article 5.75-1(e) is repealed and re-adopted as Insurance Code §§493.002, 493.102, and 493.104); and

(C) provided the letter of credit is in a form acceptable to the Texas Department of Insurance and meets the requirements in 28 TAC §7.610, except for those requirements that apply solely to reinsurance agreements;

(4) the group timely collects recoverables and receivables from the surplus lines insurer, but in no event, later than 90 days, including, if needed, drawing down on the letter of credit;

(5) the group submits the surplus lines policy forms, renewal forms, certificates, endorsements and amendments applicable thereto, and any agreements between the surplus lines insurer and the group to the Texas Department of Insurance for review prior to use and the group may not accept or enter into any agreement or arrangement with the surplus lines insurer that has not been reviewed by the Texas Department of Insurance;

(6) the group demonstrates to the satisfaction of the Texas Department of Insurance that the group meets the requirements of subsection (b) of this section before obtaining and in order to maintain excess insurance coverage from an eligible surplus lines insurer; and

(7) the group notifies the Commissioner in writing no less than five calendar days after receiving notice of cancellation or nonrenewal of the excess insurance policy and no less than 30 calendar days prior to the effective date of any proposed change in the excess insurance policy, by endorsement or otherwise.

(c) A group may petition the department to obtain excess insurance in an amount that is different than the amount required by subsection (a) of this section. In determining whether to grant a group's petition, the commissioner shall consider the current market conditions; a group's size, types of employment, years in existence, and risk exposure; other forms, if any, of additional financial security available to the group; and any other relevant factor. In no event, however, shall a group's excess insurance coverage be less than $10 million per occurrence.

(d) To assist the commissioner in making the determination under subsection (c) of this section, the group shall, at a minimum, submit an analysis prepared by an actuary of the appropriate level of specific excess insurance for the group.

Source Note: The provisions of this §5.6405 adopted to be effective August 31, 2004, 29 TexReg 8353; amended to be effective March 22, 2007, 32 TexReg 1520; amended to be effective February 15, 2009, 34 TexReg 813