2006 -- S 2009 SUBSTITUTE A

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LC00355/SUB A

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2006

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A N A C T

RELATING TO INSURANCE -- WORKERS' COMPENSATION INSURANCE FUND

     Introduced By: Senators Badeau, Ruggerio, Ciccone, Bates, and Revens

     Date Introduced: January 05, 2006

     Referred To: Senate Labor

It is enacted by the General Assembly as follows:

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     SECTION 1. Sections 1 through 21 inclusive of Chapter 410 of the 2003 Public Laws

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entitled "An Act Relating to Insurance -- Workers' Compensation Fund" are hereby amended to

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read as follows:

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     SECTION 1. Title. -- Workers’ Compensation Insurance Fund.

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     SECTION 2. Definitions. – When used in this act, the following words have the

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following meanings:

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     (1) “Board” means the board of directors of the state compensation insurance fund;

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     (2) “Fund” means the state compensation insurance fund known as The Beacon Mutual

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Insurance Company;

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     (3) “Chief executive officer” means the chief executive officer of the state compensation

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insurance fund;

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     (4) “Personal injury” or “injury” has the meaning given to it in chapter 29 of title 28.

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     SECTION 3. Creation of fund. – (a) The purpose of the fund is to ensure that all

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employers in the state of Rhode Island have the opportunity to obtain workers’ compensation

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insurance at the lowest possible price. It is also the policy and purpose of this act to establish and

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maintain that the fund shall be the workers’ compensation insurance carrier of last resort. The

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fund is created as a nonprofit independent public corporation for the purpose of insuring

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employers against liability for personal injuries for which their employees may be entitled to

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benefits under chapter 33 of title 28 or under 33 U.S.C. Section 901 et seq., and other employer’s

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liabilities incidental to those provisions.

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     (b) The fund shall be organized and, except as provided in subsection (c) of this section,

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subsection (c) of section 11, or in this act, operated as a domestic mutual insurance company.

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     (c) The fund shall be deemed to have met the requirements of sections 27-1-37 and 27-8-

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5 when the director of the department of labor and training has appropriated to the fund any

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portion of the amount provided for in section 18 and all policies issued by the fund shall be

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without the contingent mutual liability of the policyholders for assessment.

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     (d) The fund shall be deemed for all purposes to be an insurance company organized in

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accordance with section 7-1-5 and chapter 1.1 of title 7. Without limiting the foregoing, section 7-

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1.1-4.1 relating to, among other things, indemnification of officers, directors, and employees, and

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section 7-1.1-33(b) – (e) relating to directors shall apply to the fund.

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     (e) The fund may amend its charter pursuant to section 7-1.1-53.1, subject to the prior

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approval of all amendments by the director of the department of business regulation.

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     (f) The general assembly declares that a stable market for workers’ compensation

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insurance for all employers seeking coverage is necessary to the economic welfare of Rhode

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Island; that a stable and competitive insurance market will benefit all employers, all employees

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and their families, and all insurance companies doing business in Rhode Island; that without this

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insurance at a competitive rate, the orderly growth and economic development of the state would

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be severely impeded; and that the provision of competitive insurance coverage by the fund for

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employers in Rhode Island and the capitalization of the fund through capital assessments as

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provided in this act is for the benefit of the public and in furtherance of a public purpose.

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     SECTION 4. Board of directors. – The board of directors shall be comprised of seven

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(7) members elected or appointed as provided in this section and the director of the department of

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labor and training and the chief executive officer of the fund who shall be ex officio members.

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     Each director shall hold office until a successor is appointed and qualified. Except for ex

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officio members, each director shall be a policyholder or an officer or employee of a

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policyholder. The governor shall appoint four (4) directors and three (3) directors shall be elected

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by the fund’s policyholders. In addition to the director of the department of labor and training, no

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more than one (1) member of the board may be an elected or appointed official of state or

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municipal government. At least three (3) members of the board shall be policyholders of an

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officer or employee of a policyholder which is a for profit entity. No member other than the chief

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executive officer may represent or be an employee of an insurance company. The terms of board

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members, except for ex officio members, shall be four (4) years in accordance with the provisions

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for the election and classification of directors as may be established in the fund’s bylaws. Any

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vacancy occurring during the term of any director shall be filled as provided in the fund’s bylaws

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in the same manner as the member’s predecessor. The board shall annually elect a chairperson

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from among its members, and any other officers it deems necessary for the performance of its

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duties.

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     SECTION 5. Fund management. – The management and control of the fund is vested

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solely in the board.

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     SECTION 6. Power and duties of the board. – The board is vested with full power,

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authority, and jurisdiction over the fund. The board may perform all acts necessary or convenient

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in the exercise of any power, authority, or jurisdiction over the fund, either in the administration

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of the fund or in connection with the insurance business to be carried on by it under the

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provisions of this act, as fully and completely as the governing body of all other domestic

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insurance carriers to fulfill the objectives and intent of this act. The board’s authority to invest

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funds is subject to the limitations imposed on domestic insurance companies in chapter 11.1 of

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title 27.

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     SECTION 7. Chief executive officer. – Subject to the authority of the board, the chief

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executive officer appointed by the board pursuant to section 12 shall administer the fund.

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     SECTION 8. Personal liability excluded. – The members of the board and officers or

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employees of the fund are not liable personally, either jointly or severally, for any debt or

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obligation created or incurred by the fund.

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      SECTION 9. Insurance of workers' compensation liability. – The fund may insure an

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employer against any workers’ compensation claim, claims under 33 U.S.C. Section 901 et seq.,

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and other employer’s liabilities incidental to those provisions arising out of and in the course of

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employment, including the provision of excess workers’ compensation insurance coverage, as

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fully as any other insurer.

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     SECTION 10. General powers and limitations. – For the purposes of exercising the

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specific powers granted in this act and effectuating the other purposes of this act, the fund may:

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     (1) Sue and be sued;

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     (2) Have a seal and alter it at will;

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     (3) Make, amend, and repeal bylaws and rules relating to the conduct of the business of

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the fund;

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     (4) Enter into contracts relating to the administration of the fund;

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     (5) Rent, lease, buy, or sell property, real and personal, in its own name and may

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construct or repair buildings necessary to provide space for its operations;

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     (6) Declare dividends to its policyholders when there is an excess of assets over

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liabilities, and minimum surplus requirements;

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     (7) Pay medical expenses, rehabilitation expenses, compensation due claimants of insured

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employers, pay salaries, and pay administrative and other expenses of the fund;

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     (8) Hire personnel and set salaries and compensation; and

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     (9) Perform all other functions and exercise all other powers of a domestic mutual

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insurance company that are necessary, appropriate, or convenient to administer the fund and to its

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members; provided, that the fund shall not be a member of the National Council on

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Compensation Insurance (NCCI).

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     SECTION 1. The Beacon Mutual Insurance Company is established as a nonprofit,

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independent mutual insurance company for the purpose of transacting the following kinds of

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insurance:

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     (a) Workers' compensation and employer liability insurance and related coverages only

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for employers located in Rhode Island and their out-of-state employees and residual market

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programs;

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     (b) To accept and cede the reinsurance of the kind or kinds of insurance business in

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which the corporation is authorized to engage by the terms of this act or otherwise to the extent

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permitted by law;

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     (c) To engage in any and all kinds of business to the extent that are necessarily or

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properly incidental to the kind or kinds of insurance business in which the corporation is

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authorized to engage hereunder or otherwise to the extent permitted by law;

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     (d) To exercise all of the rights and privileges of a domestic mutual insurance company

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pursuant to Chapter 1 of Title 27 of the Rhode Island general laws and the Rhode Island Business

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Corporation Act, as amended, provided the corporation shall not have the right or privilege to

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transact any insurance other than workers' compensation insurance claims under 33 U.S.C.

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Section 901 et. seq. and employer's liabilities incidental to those arising out of and in the course

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of employment.

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     The corporation shall be for all purposes a mutual insurance company and, without

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limiting or enlarging the effect of this general grant of authority, the corporation shall have all of

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the general powers set forth in Chapter 6 of Title 7 of the Rhode Island general laws, and all acts

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and amendments thereof, and all of the powers and privileges and be subject to all the duties and

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obligations set forth therein so far as the same are not inconsistent with the powers and privileges

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granted herein.

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     SECTION 2. The management of the business and affairs of the corporation shall be

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vested in the board of directors, all of whom shall be elected, except as provided herein, from

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time to time by the policyholders, upon the expiration of the terms of the elected or appointed

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members of the board of directors having terms of office as of the effective date of this act. The

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number of members of the board of directors shall be determined in accordance with bylaws to be

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adopted by the board of directors. There shall be no ex-officio directors. Each director,

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howsoever appointed or elected, shall be a policyholder or an officer or employee of a

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policyholder or an officer of the corporation. Commencing with the expiration of the terms of

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office of directors appointed by the governor in 2002 or elected by the policyholders in 2003, a

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majority of the directors shall be, at all times, elected by the policyholders. In view of the

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corporation's additional obligations as the insurer of last resort as provided in Section 3 hereof,

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upon expiration of the terms of office of the directors appointed by the governor in 2002, three (3)

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positions on the board of the corporation shall be filled by public appointment. The governor, the

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president of the senate, and the speaker of the house of representatives shall each appoint one

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director who shall serve a term of three (3) years. The board of directors of the corporation may

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elect such officers as are provided for in the bylaws of the corporation and the board of directors

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may also appoint such committees as they deem fit from their own number and may delegate to

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such committees such of the powers of the board of directors and such other powers as they deem

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expedient. The general assembly declares that a stable market for workers' compensation

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insurance for all employers seeking coverage is necessary to the economic welfare of Rhode

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Island, that a stable and competitive insurance market will benefit all employers, all employees

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and their families, and all insurance companies doing business in Rhode Island. The corporation

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shall offer all employers in the state of Rhode Island the opportunity to obtain workers'

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compensation insurance at the lowest possible price.

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     SECTION 11. Insurance coverage program. SECTION 3. Additional obligations as

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insurance carrier of last resort; Denial, cancellation and non-renewal; Rate regulation. --

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(a) Provision of workers’ compensation coverage. Subject to the limitations set forth in this act,

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the fund shall (a) Additional obligations. In addition to, and not in derogation of, its purposes to

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transact and provide workers' compensation and employer liability insurance and related

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coverage, the corporation shall also be the workers' compensation insurance carrier of last resort

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obligated to provide workers’ compensation insurance against liabilities arising under title 28 for

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any employer that tenders the necessary premium.

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     (b) Applications; provisions of coverage.

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      (1) Policy applications. -- Applicants may apply for coverage by the fund in good faith,

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either directly or through an insurance producer licensed by the state of Rhode Island to procure

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workers’ compensation insurance according to rules adopted by the board under section 16.

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      (2) Denial, cancellation, and nonrenewal. – (b) Denial, cancellation, and nonrenewal of

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coverage for all employees. -- Notwithstanding the provision of the foregoing subsection (a) The

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the nonpayment of premium for current or prior policies issued by the fund corporation to the

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applicant, or to another entity for which the fund deems the applicant to be a successor in interest,

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may be a basis for the fund to deny, not renew or terminate coverage. The failure or refusal by an

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applicant or insured policyholder to fully and accurately disclose to the fund corporation

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information concerning the applicant’s or insured’s policyholder's ownership, management,

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change of ownership, prior ownership, operations, or payroll, including allocation of payroll

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among state and federal compensation programs, classification of payroll, and any other

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information determined by the fund corporation to be important in determining proper rates

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appropriate premiums shall be sufficient grounds for the fund corporation to deny an application

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or to not renew or cancel an existing policy or to assess a premium surcharge against the insured

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policyholder pursuant to subsection (d) (c). The failure or refusal by any insured policyholder or

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applicant to comply with the fund’s corporation's safety requirements or to permit premises

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inspections to the sole satisfaction of the fund corporation shall be sufficient grounds for having

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its workers’ compensation insurance coverage surcharged, not renewed, or cancelled, or an

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application for the coverage denied in the sole discretion of the corporation.

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      (3) Appeal to director. – Any determination of the fund corporation with respect to the

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denial, cancellation, or nonrenewal of any workers’ compensation insurance policy against

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liabilities arising under title 28, with the exception of cancellation for nonpayment of premium,

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may be appealed to the director of the department of business regulation, in writing, within thirty

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(30) days of notice of this action. If the director determines that the fund corporation has

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unreasonably denied, cancelled, or failed to renew any workers’ compensation insurance policy,

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the fund corporation shall in good faith reconsider issuing, reinstating, or renewing the workers’

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compensation insurance policy. If the fund corporation has not issued, reinstated, or renewed the

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workers’ compensation insurance policy within thirty (30) days of a determination of the director,

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the applicant or insured policyholder may appeal the denial, cancellation, or failure to renew by

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the fund corporation to the superior court for Providence County.

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      (c) Exemptions Rate Regulation.

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      (1) Except as provided in subsection (d), the fund The corporation shall be subject to rate

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regulation under chapter 7.1 of title 27. , subject to the following:

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     (1) The corporation shall not be required to adhere to the uniform classification system or

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uniform experience rating plan required under section 27-7.1-9.1 in effect from time to time after

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the approval by the director of the department of business regulation of the corporation's own

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classification plan, experience rating plan, manuals, schedules and rules, which approval shall be

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deemed to be effective ninety (90) days after the acceptance of the filing unless the director finds

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that the classification system and experience rating plan fails to meet the requirements of sections

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27-7.1-1.1(3) and (8), respectively. The corporation may, upon the filing of the corporation's own

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classification plan or experience rating plan also file its rates in accordance with section 27-7.1-5-

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1 utilizing such classification system or experience rating plan. The information furnished in

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support of the filing may include:

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     (i) the use of Rhode Island data only;

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     (ii) the experience or judgment of the corporation;

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     (iii) its interpretation of any statistical data it relies upon;

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     (iv) the experience of other insurers or rating organizations;

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     (v) any other relevant factors including past and prospective loss experience within the

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state, a reasonable margin for profits and contingencies, dividend savings or unabsorbed premium

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deposits allowed or returned by the corporation to policyholders past and prospective expenses

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specifically applicable to this state, provisions for special assessments and all other relevant

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factors within this state and only to the extent applicable or desirable, from outside of Rhode

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Island. If the filing of a classification system or experience rating plan is disapproved by the

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director, the corporation may request a hearing on disapproval within ten (10) days of the date of

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the order of disapproval and the director shall schedule a hearing within thirty (30) days of the

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receipt of the request.

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     (2)(i) From and after January 1, 2007, notwithstanding any law to the contrary, the

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corporation, may file rates with the director of the department of business regulation and may use

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the rates thirty (30) days after the filing. The corporation shall not file and use any rates which

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would increase rates in excess of an average of five percent (5%) annually of its rates then in

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effect without prior approval of the director of the department of business regulation

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      (ii) Notwithstanding the foregoing, if the director finds that a rate of filing made pursuant

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to section 4(c)(2) hereof of the corporation is excessive, inadequate or unfairly discriminatory by

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written order of disapproval specifying the reasons the rate or filing fails to meet the standards

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established hereunder, and stating when within a reasonable period thereafter, the rate shall no

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longer be used or the filing shall be deemed no longer effective, the rate or filing shall be deemed

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disapproved. If the rate or filing is disapproved by the director, the corporation may request a

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hearing on the disapproval within ten (10) days of the date of the order of disapproval and the

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director shall schedule a hearing within thirty (30) days of the receipt of the request. An order of

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disapproval shall not affect any contract or policy made or issued prior to the expiration of the

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period set forth in the order. If, however, the director finds that an unfair discrimination exists in

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the application of a rate or filing to an individual risk, the director may, after a hearing held on

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like notice to the corporation issue an order that the discrimination be removed with respect to

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such individual risk.

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     (iii) The corporation may continue to provide workers' compensation insurance coverage

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at the rates filed or adopted by the corporation in effect as of the effective date of this act until the

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effectiveness of any revised rates filed or adopted by the corporation and approved pursuant to

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this subsection (c).

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     (3) Notwithstanding any law to the contrary, the corporation and any workers'

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compensation insurance policyholder may mutually consent to modify the rates for the

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policyholder's workers' compensation insurance policy, provided the corporation files notice of

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the modification if the modification is in excess of the rate determined in accordance with the

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provisions of this chapter with the director of the department of business regulation.

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     (4) Notwithstanding any law to the contrary, the corporation may establish and apply a

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premium surcharge of up to three (3) times its applicable premium rate for policyholders who

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present higher than normal risks within a class. The surcharge may be payable, at the option of

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the corporation, upon assessment from time to time, over the policy year, or upon renewal. Any

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premium surcharge assessed by the corporation may be appealed to the director of the department

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of business regulation within twenty (20) days of notice of the surcharge, and the director may

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modify or rescind the surcharge if the director determines that the surcharge is unjust,

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unreasonable, inadequate, excessive or unfairly discriminatory. The corporation may also

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establish and apply discounts to the policyholders who present lower than normal risks within a

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class.

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     (2) Notwithstanding the provisions of this section, if, at any time, the director finds that a

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rate or filing of the fund is unjust, unreasonable, inadequate, excessive, or unfairly discriminatory,

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he or she shall, after a hearing held upon not less than ten (10) days written notice, specifying the

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matters to be considered at that hearing, issue an order specifying in what respects he or she finds

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that the rate or filing is unjust, unreasonable, inadequate, excessive, or unfairly discriminatory

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and stating when within a reasonable period after this the rate shall no longer be used or the filing

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shall be deemed no longer effective. That order shall not affect any contract or policy made or

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issued prior to the expiration of the period set forth in the order. If the director finds that an unfair

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discrimination exists in the application of a rate or filing to an individual applicant or insured, the

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director may, after a hearing held on similar notice to the fund, issue an order that the

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discrimination be removed.

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      (d) Rate regulation.

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      (1) When a filing is not accompanied by the information upon which the fund supports

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that filing, and the director does not have sufficient information to determine whether the filing

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meets the requirements of applicable law, the director may require the fund to furnish the

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information upon which it supports the filing. The information furnished in support of a filing

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may include: (i) the experience or judgment of the fund, (ii) its interpretation of any statistical

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data it relies upon, (iii) the experience of other insurers or rating organizations, or (iv) any other

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relevant factors.

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      (2) Notwithstanding any law to the contrary, the fund and any workers’ compensation

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insurance policyholder may mutually consent to modify the rates for that policyholder’s workers’

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compensation insurance policy, provided the fund files notice of the modification with the

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director of the department of business regulation.

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      (3) Notwithstanding any law to the contrary, the fund may establish and apply a

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premium surcharge protocol. The protocol shall provide for higher premium and surcharge

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payments by insured who present higher than normal risks within a class, including the ability of

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the fund to assess from time to time a premium surcharge of up to three (3) times its applicable

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premium rate, as it deems appropriate to further the public purposes set forth in this act. The

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surcharge may be payable, at the option of the fund, upon assessment, over the policy year, or

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upon renewal. Any premium surcharge assessed by the fund may be appealed to the director of

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the department of business regulation within twenty (20) days of notice of the surcharge, and the

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director may modify or rescind the surcharge if the director determines that the surcharge is

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unjust, unreasonable, inadequate, excessive or unfairly discriminatory.

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     (4) Notwithstanding any other provisions of law, immediately upon May 18, 1992, the

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fund may issue workers’ compensation insurance policies at an initial rate not in excess of the

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rates then in effect for residual market workers’ compensation insurance coverage offered by any

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other insurers within the state of Rhode Island, subject to the discretion of the fund to apply

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discounts and surcharge multipliers of up to three (3) times the premiums that would otherwise be

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applicable under the rates, with the premium surcharge to be payable as provided in subdivision

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(d)(3). The fund may continue to issue workers’ compensation insurance coverage at the initial

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rates until the effectiveness of any revised rates filed pursuant to subdivision (d)(1).

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     (5) The corporation shall not be a member of the national council on compensation

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insurance but shall provide its workers' compensation experience data to the national council on

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compensation insurance or other approved advisory organization as required by section 27-7.1-

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9.1 so long as such advisory organization shall not charge the corporation for providing such

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information and notwithstanding any law to the contrary, shall not be required to pay any costs

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associated with any filing made by the national council of compensation insurance or such other

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approved advisory organization unless the corporation shall adopt the same.

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     SECTION 12. Chief executive officer. – Appointment and qualifications. – The board

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shall appoint a chief executive officer of the fund who shall be in charge of the day to day

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operations of the fund. The chief executive officer shall have proven successful experience as an

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executive at the general management level. The chief executive officer shall receive

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compensation as set by the board and shall serve at the pleasure of the board.

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     SECTION 13. Chief executive officer’s powers. – Subject to the authority of the board

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and the provisions of this act, the chief executive officer shall perform the duties of chief

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executive officer as provided in the fund’s bylaws or that have been determined by resolution of

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the board of directors. Without limitation on this provision, the chief executive officer or

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qualified officers or employees of the fund designated by the chief executive officer shall:

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     (1) Make safety inspections of risks and furnish advisory services to employers on safety

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and health measures;

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     (2) Act for the fund in collecting and disbursing money necessary to administer the fund

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and conduct the business of the fund; and

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     (3) Cause an abstract summary of any audit or survey conducted. The chief executive

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officer may perform all other acts necessary to exercise the powers, authorities and jurisdictions

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of the fund, either in the administration of the fund or in connection with the insurance business

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to be carried on by the fund under this act, including the establishment of premium rates. Subject

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to the approval of the board, the chief executive officer may delegate any duties, on behalf of the

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fund, to qualified officers and employees of the fund, and may contract with the qualified

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independent contractors to perform those duties for the fund.

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     SECTION 14 4. Property of fund Not a state agency. – The obligation of the

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corporation to insure any employer with employees in Rhode Island that tenders the necessary

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premium and the power to appoint directors as provided in Section 2 hereof shall not cause the

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state to be liable for any obligation, expense, liability or debt of the corporation, any claim or

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right to the assets or property of the corporation; alter the legal status of the corporation as a

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domestic mutual insurance company; or remove from the board of directors any managerial,

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financial or operational control of the corporation. The corporation shall not be considered a state

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agency for any purpose. All premiums and other money paid to the fund corporation, all property

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and securities acquired through the use of money belonging to the fund, all capital assessment

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amounts received pursuant to section 19, and corporation, all interest and dividends earned upon

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money belonging to the fund corporation and deposited all deposits or invested by the fund

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corporation are the sole property of the fund corporation and shall be used exclusively for the

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operation operations and obligations of the fund corporation. The money of the fund corporation

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is not state money. The property of the fund corporation is not state property. The employees of

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the fund corporation shall not be considered state employees for any purpose.

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     SECTION 15. Not a state agency. – The fund shall not be considered a state agency for

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any purpose.

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     SECTION 16 5. Private independent insurance producers. – Private independent

11-9

insurance producers licensed to sell workers’ compensation insurance in this state may sell

11-10

insurance coverage for the fund according to rules adopted by the board. The board shall by rule

11-11

also establish a schedule of commissions for voluntary risk and residual risk coverage that the

11-12

fund corporation will pay for the services of an insurance producer.

11-13

     SECTION 17 6. Annual report. – The board shall submit an annual report to the

11-14

governor and legislature indicating the business done by the fund corporation during the previous

11-15

year and containing a statement of the resources and liabilities of the fund corporation.

11-16

     SECTION 18. Funding. – The director of the department of labor and training is

11-17

mandated and directed to appropriate an amount not to exceed five million dollars ($5,000,000) to

11-18

the state compensation insurance fund to be repaid pursuant to a term and at a rate to be

11-19

negotiated and determined by the director of the department of labor and training and the board of

11-20

directors of the state compensation insurance fund. The rate shall not exceed three percent (3%)

11-21

over the federal discount rate and will be adjusted annually on October first of each year. The

11-22

payment schedule shall be no less than ten (10) years or more than fifteen (15) years. Payment

11-23

shall not commence until October 1, 1992. The terms of the agreement must be approved by the

11-24

state auditor general. Any scheduled payment may be deferred at the time the payment is due, if

11-25

in the opinion of the board, the director of labor and training, and the state auditor general there

11-26

is, or the scheduled payment would cause there to be if made, insufficient surplus to support the

11-27

risk insured by the fund.

11-28

     SECTION 19 7. Workers’ compensation capital assessment. – (a) In order to establish

11-29

the capital reserves and surplus to allow the fund corporation to effect the assumption of residual

11-30

risk market in fulfillment of the public purposes as set forth in this act, a workers’ compensation

11-31

capital assessment shall be assessed and collected by the director of the department of labor and

11-32

training against each insurance company deemed by the director of the department of business

11-33

regulation to have been licensed as of January 1, 1991, to write workers’ compensation insurance

11-34

in Rhode Island. The assessment shall be payable quarterly and due within fifteen (15) days

12-1

following the close of each calendar quarter or, at the discretion of the director of the department

12-2

of labor and training, on an annual basis on or before July first of each year. The director of the

12-3

department of labor and training shall have the power to institute suit to collect any assessment

12-4

under this section to the same extent as provided in section 28-37-28.

12-5

     (b) The director of the department of labor and training shall collect all of the capital

12-6

assessment amounts in a separate restricted purpose account and shall promptly transfer all the

12-7

amounts to the fund corporation upon receipt and the amounts shall become the property of the

12-8

fund corporation pursuant to section 14 4 for capital reserve and surplus purposes in recognition

12-9

of the fund’s corporation's role as carrier of last resort. During the transition period, the

12-10

assessment for this party shall equal three percent (3%) of gross premiums received from

12-11

workers’ compensation insurance or employer’s liability insurance written or renewed on risks

12-12

within the state or subject to the jurisdiction of the state, or any other level of gross premiums that

12-13

the director of the department of business regulation deems appropriate to ensure both the

12-14

solvency of the fund corporation and the fund’s corporation's ability to establish a surplus

12-15

reasonably adequate to allow it to complete the assumption of the residual risk market in

12-16

furtherance of the public purposes stated in this act. For the purpose of this act, “gross premiums”

12-17

shall be calculated for insurance companies in the same manner as provided in section 28-37-14

12-18

for the applicable period. From and after the transition period, the director of the department of

12-19

business regulation shall periodically determine the rate of the assessment at levels adequate to

12-20

allow the fund corporation to service the residual risk market. and satisfy the reserve and surplus

12-21

requirements of section 20. Notwithstanding the foregoing, from and after: (i) the use by the

12-22

corporation of rates filed by the corporation with the director of the department of business

12-23

regulation as provided in section 4 hereof; (ii) the corporation obtains a financial strength rating

12-24

from A.M. Best Company; and (iii) the corporation participates in and is subject to the insurers'

12-25

insolvency fund established under section 27-34-6, the workers' compensation capital assessment

12-26

authority of the director of the department of labor and training shall terminate.

12-27

     (c) Each insurance company may pass through the entire capital assessment amount to

12-28

each of its policyholders on a pro rata basis.

12-29

     (d) In the event that any insurance company deemed by the director of the department of

12-30

business regulation to have been licensed on January 1, 1991, to write workers’ compensation

12-31

insurance discontinues the issuance of workers’ compensation insurance policies in Rhode Island

12-32

prior to December 31, 1994, that company shall be and remain obligated to pay the capital

12-33

assessment surcharge through December 31, 1994, calculated on the basis of the average

12-34

voluntary and residual risk gross premiums received or the average voluntary and residual risk

13-1

gross losses paid in the thirty-six (36) month period prior to its departure from the Rhode Island

13-2

market.

13-3

     (e) (d) The fund corporation shall pay an annual fee to the director of the department of

13-4

labor and training in the amount of two-tenths of one percent (.2%) of the earned premiums of the

13-5

fund corporation for the prior year in recognition of the continuing obligations of the department

13-6

of labor and training under subsections (a) and (b) of this section until the authority to assess by

13-7

the director of the department of labor and training shall terminate.

13-8

     SECTION 8. Insolvency Fund. -- Subject to the approval of the director of the

13-9

department of business regulation and no earlier than January 1, 2007, the corporation shall

13-10

participate in the insurers' insolvency fund established under section 27-34-6.

13-11

     SECTION 9. Liquidation. -- In the event of the liquidation of the corporation pursuant

13-12

to the Insurers' Rehabilitation and Liquidation Act, chapter 14.3 of title 27, the corporation's

13-13

policyholders, in their capacity as owners, shall have no distributive claims under section 27-

13-14

14.3-46(8) to the liquidation estate of the corporation and, upon satisfaction of any other class 1

13-15

through class 7 claims under section 27-14.3-46, the insurance commissioner, as receiver, shall

13-16

distribute the residual, if any, of the corporation's liquidation estate to the director of the

13-17

department of labor and training; provided, that in no event shall these provisions affect the

13-18

validity or priority of any claims arising from and within the coverage of any policies of the

13-19

corporation.

13-20

     SECTION 10. The duration of the corporation shall be perpetual.

13-21

     SECTION 11. The corporation shall pay assessments in the same manner as any

13-22

insurance carrier authorized to issue workers' compensation insurance in Rhode Island. In no

13-23

event shall any amounts received by the corporation relating to the workers' compensation capital

13-24

assessment be subject to any form of state taxation or assessment.

13-25

     SECTION 12. The corporation may issue non-assessable policies.

13-26

     SECTION 13. (a) The corporation shall be subject to the provisions of Chapter 17 of

13-27

Title 44 of the general laws and shall file returns and pay taxes in accordance therewith, provided,

13-28

however, that the corporation shall be taxed on gross premiums on contracts of insurance written

13-29

by the corporation after July 1, 2005.

13-30

     (b) The corporation shall be subject to the provisions of Chapter 26 of Title 44 of the

13-31

general laws except that the "safe harbor" provisions contained in section 44-26-2.1(j) shall not

13-32

apply to tax year 2006, and estimated tax payments for tax year 2006 shall be due on March 15,

13-33

2006 and June 15, 2006 in accordance with the other provisions of Chapter 26 of Title 44, and

13-34

such estimated payments shall together be equal to at least two percent (2%) of the gross

14-1

premiums on contracts of insurance written by the corporation in calendar year 2005.

14-2

     SECTION 14. Notwithstanding any law to the contrary, the corporation shall not convert

14-3

to a stock company.

14-4

     SECTION 20. Reserves – Premium to surplus ratio – Insolvency fund. – (a) The fund

14-5

shall maintain a ratio of premiums on policies written to surplus of not more than three (3) to one

14-6

(1), or any greater or lesser ratio that the director of the department of business regulation deems

14-7

appropriate. In determining the ratio, the director may at all times consider the net present value

14-8

of future capital assessment amounts as current surplus. To facilitate the ongoing oversight of the

14-9

fund, the fund shall submit to the department of business regulation quarterly and annual

14-10

statements in the format and scope specified in section 27-12-2.

14-11

     (b) The fund shall not participate in, or be subject to, the insurers’ insolvency fund

14-12

established under section 27-34-6.

14-13

     (c) In the event of the liquidation of the fund pursuant to the Insurers’ Rehabilitation and

14-14

Liquidation Act, chapter 14.3 of title 27, the fund’s policyholders, in their capacity as owners of

14-15

the fund, shall have no distributive claims under section 27-14.3-46(8) to the liquidation estate of

14-16

the fund and, upon satisfaction of any other class 1 through class 7 claims under section 27-14.3-

14-17

46, the insurance commissioner, as receiver, shall distribute the residual, if any, of the fund’s

14-18

liquidation estate to the director of the department of labor and training; provided, that in no event

14-19

shall these provisions affect the validity or priority of:

14-20

     (1) any claims arising from and within the coverage of any policies of the fund; or

14-21

     (2) claims of the director of the department of labor and training to repayment of the term

14-22

note of the fund issued pursuant to section 18.

14-23

     SECTION 21. Payment assessments and fees. – (a) Except as provided in this act, the

14-24

fund shall pay assessments in the same manner as an insurance carrier authorized to issue

14-25

workers’ compensation insurance in Rhode Island.

14-26

     (b) In light of the express purpose of the fund to serve as the insurance carrier of last

14-27

resort, the fund shall be exempt from any taxes due pursuant to chapter 17 of title 44. In no event

14-28

shall any amounts received by the fund relating to the workers’ compensation capital assessment

14-29

be subject to any form of state taxation or assessment.

14-30

     SECTION 2. This act shall take effect upon passage.

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LC00355/SUB A

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO INSURANCE -- WORKERS' COMPENSATION INSURANCE FUND

***

15-1

     This act would amend the charter of the Beacon Mutual Insurance Company.

15-2

     This act would take effect upon passage.

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LC00355/SUB

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