An Act To Clarify the Security Requirements for Self-insurers
Maine Legislature, Session 123, LD 0991
Committee: Insurance and Financial Services
Sponsors: PRIEST, SNOWE-MELLO, PERRY

Legislative Document 
No. 991 
H.P.751 
House of Representatives, March 2, 2007 
An Act To Clarify the Security Requirements for Self-insurers 
Submitted by the Department of Professional and Financial Regulation pursuant to Joint 
Rule 204. 
Reference to the Committee on Insurance and Financial Services suggested and ordered 
printed. 
'7J'l~ /J7. 7J7~ 
MILLICENT M. MacFARLAND 
Clerk 
Presented by Representative PRIEST of Brunswick. 
Cosponsored by Senator SNOWE-MELLO of Androscoggin and 
Senator: PERRY of Penobscot. 
Printed on re,-=yded paper 
Be it enacted by the People of the State of Maine as follows: 
Sec. 1. 39-A MRS A §403, sub-§3, as amended by PL 2005, c. 98, §§ 1 and 2, is 
further amended to read: 
3. Proof of solvency and financial ability to pay; trust. The employer may 
comply with this section by furnishing satisfactory proof to the Superintendent of 
Insurance of solvency and financial ability to pay the compensation and benefits, and 
depositing cash, satisfactory securities, irrevocable standby letters of credit issued by a 
. qualified financial institution or a surety bond with the board, in such sum as the 
superintendent may determine pursuant to subsection 8, the bond to run to the Treasurer 
of State and to be conditional upon the faithful performance of this Act relating to the 
payment of compensation and benefits to any injured employee. In case of cash or 
securities being deposited, or drawn on a surety bond or letter of credit, the cash or 
securities must be placed in an account at interest by the Treasurer of State, and the 
accumulation of interest on the cash or securities so deposited must be credited to the 
account and may not be paid to the employer to the extent that the interest is required to 
secure the employer's self-insurance obligations, including the amount needed to support 
any present value discounting in the determination of the amount of the deposit. Any 
security deposit must be held by the Treasurer of State in trust for the benefit of the self-
insurer's employees for the purposes of making payments under this Act. 
If the 
superintendent determines that the self-insurer has experienced a deterioration in financial 
condition that adversely affects the self-insurer's ability to pay obligations under this Act, 
the security amount may be in excess of the minimum amount required by this Title. 
A self-insurer may, with the approval of the Superintendent of Insurance, use the 
following types of security to satisfy the self-insurer's responsibility to post security 
required by the superintendent: a surety bond; an irrevocable standby letter of credit; cash 
deposits and acceptable securities; and an actuarially determined fully funded trust. For 
purposes of this section, "tangible net worth" means equity less assets that have no 
physical existence and depend on expected future benefits for their ascribed value. 
Unless disapproved by the superintendent pursuant to paragraph C, subparagraphs (5) and 
(6), a group self-insurer that maintains a trust actuarially funded to the confidence level 
required by the superintendent may use an irrevocable standby letter of credit as follows: 
only in an amount not greater than the difference between the funding to the required 
confidence level and funding to the confidence level reduced by 10 percentage points; 
only as long as the trust assets are not used as collateral for the letter of credit; and only 
as long as the value of trust assets, excluding the value of the letter of credit, af6 ~ at least 
equal to the present value, evaluated to the 65% confidence level, of ultimate incurred 
claims, claims settlement costs and, if determined necessary by the superintendent, 
administrative costs. 
A. 
An individual self-insurer providing an irrevocable standby letter of credit as 
security shall file with the Superintendent of Insurance a letter of credit, on a form 
approved by the superintendent, copies of any agreements or other documents 
establishing the terms and conditions of the employer's reimbursement obligations to 
the financial institution issuing the letter of credit, together with copies of any 
required security agreements, mortgages or other agreements or documents granting 
security for the employer's reimbursement obligations and any other agreements that 
contain conditions, restrictions or limitations of any kind upon the employer, the 
superintendent or the Treasurer of State. The form of letter of credit approved by the 
superintendent must include, but is not limited to, all terms specifically required by 
this subsection and all terms reasonably required to secure the payment of 
compensation and benefits to claimants as required under this Act. 
The 
superintendent, upon receipt of the original irrevocable standby letter of credit, shall 
promptly forward it to the Treasurer of State. 
In order to issue an irrevocable standby letter of credit as security under this 
paragraph, a financial institution or its parent company must either: 
(1) Maintain a long-term unsecured debt rating of at least A by either Moody's 
Investors Service, Inc. or Standard and Poor's Corporation; 
(2) 
Maintain a short-term commercial paper rating within the 3 highest 
categories established by Moody's Investors Service, Inc. or Standard and Poor's 
Corporation; or 
(3) Be certified in writing by the Superintendent of Financial Institutions to be 
well capitalized and well managed in accordance with the criteria set forth in 
Title 9-B, section 446-A, subsections 1 and 2. The Superintendent of Insurance 
shall keep the certification confidential, except from the subject financial 
institution, in accordance with Title 9-B, section 226. 
The Superintendent of Insurance may adopt rules to establish additional 
qualifications for financial institutions issuing irrevocable standby letters of credit. 
Rules adopted pursuant to this paragraph are routine technical rules pursuant to Title 
5, chapter 375, subchapter lI--A 2-A. 
The irrevocable standby letter of credit must be the individual obligation of the 
issuing financial institution, may not be subject to any agreement, condition, 
qualification or defense between the financial institution and the employer and may 
not in any way be contingent on reimbursement by the employer. If the rating of an 
issuing financial institution that has issued an irrevocable standby letter of credit 
pursuant to this section falls below the required standard, the employer shall obtain a 
new irrevocable standby letter of credit from a qualified financial institution or shall 
provide other eligible security of equal value approved by the Superintendent of 
Insurance. The irrevocable standby letter of credit is automatically extended for one 
year from the date of expiration unless, 90 days prior to any expiration date, the 
issuing financial institution notifies the Superintendent of Insurance that the financial 
institution elects not to renew the irrevocable standby letter of credit. 
An irrevocable standby letter of credit that has been issued by a qualified financial 
institution and accepted by the Superintendent of Insurance binds the issuing 
financial institution to pay one or more drafts drawn by the Treasurer of State, as 
directed by the superintendent, as long as the draft does not exceed the total amount 
of the irrevocable standby letter of credit. Any draft presented by the Treasurer of 
State, as directed by the superintendent, must be promptly honored if accompanied by 
the certification of the superintendent that any obligation under this chapter has not 
been paid when due or that a proceeding in bankruptcy has been initiated by or with 
respect to the employer in a court of competent jurisdiction. 
If the Superintendent of Insurance certifies that the superintendent has been notified 
by the issuing financial institution that the irrevocable standby letter of credit expires 
by its terms in 30 days or less and that the irrevocable standby letter of credit was not 
replaced within 15 days after that notice to the superintendent by other eligible 
security of equal value approved by the superintendent, then the financial institution 
must remit within 15 days the full amount of the irrevocable letter of credit to the 
Treasurer of State without further certification. 
Any proceeds from a draw on such an irrevocable standby letter of credit by the 
Treasurer of State, as directed by the Superintendent of Insurance, must be held by 
the Treasurer of State on behalf of workers' compensation claimants to secure 
payment of claims until either the superintendent authorizes the Treasurer of State to 
release those proceeds to the employer upon provision by the employer of 
replacement security adequate to meet the requirements for security set by the 
superintendent or the superintendent directs distribution of the proceeds in 
accordance with this Title. 
To the extent not inconsistent with state law, the letter of credit is subject to and 
governed by the International Standby Practices 1998 or successor practices 
governing standby letters of credit duly adopted by the International Chamber of 
Commerce. If any legal proceedings are initiated with respect to payment of the 
letter of credit, those proceedings are subject to the State's courts and law. 
B. 
The Superintendent of Insurance shall prescribe the form of the surety bond that 
may be used to satisfy, in whole or in part, the self-insurer's responsibility under this 
section to post security. The bond must be continuous, be subject to nonrenewal only 
upon not less than 60 days days' notice to the superintendent, cover payment of all 
present and future liabilities incurred under this Act while the bond is in force and 
cover payments that become due while the bond is in force that are attributable to 
injuries incurred in prior periods and otherwise unsecured by cash, irrevocable 
standby letters of credit or acceptable securities. A bond must be held until all 
payments secured by the bond have been made or until the bond has been replaced by 
other eligible security approved by the superintendent that covers all outstanding 
liabilities. Payments under the bond are due within 30 days after notice has been 
given to the surety by the board that the principal has failed to make a payment 
required under the terms of an award, agreement or governing law. 
A trust 
established to satisfy the requirements of this section may not be funded by a surety 
bond. 
C. 
A self-insurer may establish an actuarially determined fully funded trust, funded 
at a level sufficient to discharge those obligations incurred by the employer pursuant 
to this Act as they become due and payable from time to time, as long as the 
Superintendent of Insurance requires that the value of trust assets be at least equal to 
the present value of ultimate expected incurred claims and claims settlement costs, 
plus required safety margins and, if determined necessary by the superintendent, 
administrative costs for the operation of the plan of self-insurance. For the purpose 
of determining whether an actuarially determined fully funded trust has a surplus of 
funds in excess of that required by this subsection, the superintendent shall consider, 
based upon the group's audit for all completed plan years, only the following assets 
held outside the trust account: cash up to $10,000; accounts receivable, limited to 
amounts collected and deposited in the trust account by the date of the surplus 
distribution; accrued interest on trust account assets that will be collected and 
deposited in the trust account within 6 months from the date of the surplus 
determination; tangible assets that will be converted to cash and deposited in the trust 
account prior to the distribution date of any surplus; and a letter of credit to be used to 
partially fund the trust to the extent allowed under this section and rules adopted by 
the superintendent, as supported in the actuarial review. The superintendent shall 
consider cash held outside the trust account in excess of $10,000 if the self-insurer 
provides, to the superintendent's satisfaction, documentation regarding why the 
money is being held outside the trust account. 
An actuarially determined fully 
funded trust must be funded as follows, as determined by the superintendent. 
(1) 
For individual and group self-insurers, the amount of security must be 
determined based upon an actuarial review. The actuarial review must take into 
consideration the use by a group self-insurer of any irrevocable standby letter of 
credit. Except as provided in subparagraph (3), initial funding for each plan year 
must be maintained at the 90% or higher confidence level. Funding after the 
completion of the initial plan year may be established no lower than the 75% 
confidence level if the following has occurred: 
(a) A year considered for reduction is completed; 
(b) 
The supporting actuarial review includes an evaluation of the 
completed year experience with claims evaluated not less than 6 
months from the end of the plan year, or in the case of a group self-
insurer in existence for at least 36 months, not less than 4 months from 
the end of the plan year; and 
(c) For individual self-insurers, prior approval from the superintendent 
is obtained. 
For the purposes of determining the confidence level, all completed years 
at the same confidence level may be aggregated. 
For individual self-
insurers, funds may not be released from the trust or transferred between 
years except as approved by the superintendent. The governing body of a 
group self-insurer may at any time declare a surplus of funds above the 
required confidence level, but may only release funds after the completion 
of any plan year. The superintendent may request information regarding 
any such declaration. Any distribution of surplus must be based upon an 
actuarial review of all outstanding obligations for all completed plan years, 
an audited financial statement of the group for all completed plan years 
and a surplus distribution worksheet for all completed plan years on a form 
approved by the superintendent. The group self-insurer must provide the 
required information within 10 days after the distribution. Any surplus 
declared or distributed pursuant to this paragraph is subject to adjustment 
after review by the superintendent within 60 days of the receipt of the 
required information. Any deficit below the required confidence level, as 
determined by the superintendent, that results from a distribution under 
this paragraph must be funded within 45 days from the date of the notice 
by the superintendent. 
(2) A group self-insurer may elect to fund at a higher confidence level through 
the use of cash, marketable securities or reinsurance. If a member of a group 
self-insurer terminates membership in the group for any reason, that member 
shall fund the member's proportionate share of the liabilities and obligations of 
the trust to the 95% confidence level. If for any reason the departing member 
fails to fund the member's proportionate share of the trust's exposure to the 95% 
level of confidence, the remaining members of the group shall make the 
additional contribution no later than the anniversary date of the program as 
required to fund the departing member's exposure in accordance with this 
provision. 
(3) 
Subject to prior approval by the superintendent in accordance with 
subparagraph (5), a self-insurer that has successfully maintained an actuarially 
determined fully funded trust for a period of 5 or more consecutive years may 
fund all years, including the prospective fund year, at the 75% or higher 
confidence level in the aggregate and a group self-insurer that has successfully 
maintained an actuarially determined fully funded trust for a period of 10 or more 
consecutive years may fund all years, including the prospective fund year, at the 
65% or higher confidence level in the aggregate. 
(4) Trust assets must consist of cash or marketable securities of a type and risk 
character as specified in subsection 9. The trustee shall submit a report to the 
superintendent not less frequently than quarterly that lists the assets comprising 
the corpus of the trust, including a statement of their market value and the 
investment activity during the period covered by the report. The trust must be 
established and maintained subject to the condition that trust assets may not be 
transferred or revert in any manner to the employer except to the extent that the 
superintendent finds that the value of the trust assets exceeds the present value of 
incurred claims and claims settlement costs with an actuarially indicated margin 
for future loss development. In all other respects, the trust instrument, including 
terms for certification, funding, designation of trustee and payout, must be as 
approved by the superintendent, except that the value of the trust account must be 
actuarially calculated at least annually by a casualty actuary who is a member of 
the American Academy of Actuaries and adjusted to the required level of 
funding. 
(5) 
In determining whether a self-insurer that maintains an actuarially 
determined fully funded trust qualifies for a reduction in the required confidence 
level pursuant to subparagraph (1) or (3) or is subject to an enhanced confidence 
level pursuant to subparagraph (6), the superintendent shall consider the financial 
condition of the self-insurer in relation to the potential workers' compensation 
liabilities. The factors the superintendent may consider include the self-insurer's 
liquidity, leverage, tangible net worth, size and net income. 
For group self-
insurers, the superintendent's review must be based on the aggregate financial 
condition of the group members. At the request of the superintendent, a group 
self-insurer shall report relevant financial information, on a form prescribed by 
the superintendent, at such intervals as the superintendent directs. 
The 
superintendent may establish additional review criteria or procedures by rule. 
Rules adopted pursuant to this subparagraph are routine technical rules as defined 
in Title 5, chapter 375, subchapter 2-A. 
(6) If the superintendent determines, based on an evaluation of a self-insurer's 
financial condition pursuant to subparagraph (5), that the confidence level at 
which the self-insurer has been authorized to fund its trust is not sufficient to 
provide adequate security for the self-insurer's reasonably anticipated potential 
workers' compensation liabilities, the superintendent shall make a determination 
of the appropriate confidence level and order the self-insurer to take prompt 
action to increase funding to that level within 60 days. 
D. 
Notwithstanding any provision of this chapter, authorization to self-insure may 
not be conditioned on a bond or security deposit that is in excess of $50,000 for the 
State, the University of Maine System or any county, city or town with a state-
assessed valuation equal to or in excess of $300,000,000 and either a bond rating 
equal to or in excess of the 2nd highest standard as set by a national bond rating 
agency or a net worth equal to or in excess of $35,000,000. If a county, city or town 
that is a self-insurer relies upon a bond rating to qualify under this paragraph, it shall 
value or cause to be valued its unpaid workers' compensation claims pursuant to 
sound accepted actuarial principles. This value must be incorporated in the annual 
audit of the county, city or town, together with disclosure of funds appropriated to 
discharge incurred claims expenses. 
E. 
In consideration of a self-insuring entity's application for authorization to operate 
a plan of self-insurance, the Superintendent of Insurance may require or permit an 
applicant to employ valid risk transfer by the utilization of primary reinsurance, 
subject to the provisions of subsection 8. Standards respecting the application of 
reinsurance must be contained in a rule adopted by the superintendent pursuant to the 
Maine Administrative Procedure Act. Reinsurance must be defined as insurance 
covering workers' compensation exposures in excess of risk retained by a self-insurer. 
F. 
An employer may be eligible for approved self-insurance status pursuant to this 
Act if the employer submits a written guarantee of the obligations incurred pursuant 
to this Act, the guarantee to be issued by a United States or Canadian corporation that 
is a member of an affiliated group of which the employer is a member, and which 
corporation is solvent and demonstrates an ability to pay the compensation and 
benefits, and the guarantee is in a form acceptable to the Superintendent of Insurance. 
The guarantor shall provide audited annual financial statements and such other 
information as the superintendent may require, including quarterly financial 
statements, and the employer shall provide a cash deposit, satisfactory securities, 
irrevocable standby letters of credit issued by a qualified financial institution or a 
surety bond as otherwise required by this Act in an amount not less than $100,000. 
The guarantor is deemed to have submitted to the jurisdiction of the board and the 
courts of this State for purposes of enforcing the guarantee. The guarantor, in all 
respects, is bound by and subject to the orders, findings, decisions or awards rendered 
against the employer for payment of compensation and any penalties or forfeitures 
provided under this Act. The superintendent, following hearing, may revoke the self-
insured status of the employer if at any time the assets of the guarantor become 
impaired or encumbered or are otherwise found to be inadequate to support the 
guarantee. 
G. 
A subsidiary employer may be eligible for approved self-insurance status 
pursuant to this Act if: the subsidiary employer files an application jointly with a 
qualified parent corporation that has direct ownership of a majority voting interest of 
the subsidiary employer; the parent corporation and subsidiary employer submit an 
irrevocable contract of assignment, on a form approved by the Superintendent of 
Insurance, of the subsidiary employer's obligations incurred pursuant to this Act; the 
parent corporation is solvent and demonstrates an ability to pay the compensation and 
benefits of the subsidiary employer; and the subsidiary employer meets all other 
requirements for application and qualification as a self-insurer under this chapter and 
under any applicable rules adopted by the superintendent. If the parent corporation is 
not a United States corporation, the superintendent may, in the superintendent's sole 
discretion, establish the conditions of any approval of the foreign parent corporation 
or deny the application of the foreign parent corporation. 
As part of its application 
for approval, a foreign parent corporation must provide the following information to 
the superintendent: evidence that its country of domicile has substantially similar 
laws with respect to submission to the jurisdiction of the board and the courts of this 
State for the purposes of payment of workers' compensation claims of the subsidiary 
employer; audited financial statements, as otherwise required by this Act, prepared in 
the English language by a certified public accountant licensed in a state in the United 
States in accordance with generally accepted auditing standards as prescribed by the 
American Institute of Certified Public Accountants; and security, as otherwise 
required by the Act, in United States currency. 
The irrevocable contract of 
assignment and application must be signed by a duly authorized officer of each 
corporation and the application must include a board of directors' resolution from 
each entity as evidence of each officer's authority to enter into the contract. The 
superintendent may determine the subsidiary employer's eligibility for self-insurance 
authority and the amount of required security based upon the parent corporation's 
consolidated financial statement, as long as the employer complies with paragraph H. 
A subsidiary employer currently authorized to self-insure need not pay the 
application fee required of a new applicant in order to file an application to qualify 
under this subsection, but the subsidiary employer and parent corporation must 
provide all information required under this subsection as if they were a new 
applicant. Once the subsidiary employer becomes authorized to self-insure under this 
section, the parent corporation assumes liability for all prior workers' compensation 
liabilities incurred by the subsidiary employer during the period of self-insurance 
prior to the date of authorization under this subsection, unless the subsidiary 
employer files an alternative plan approved by the superintendent. 
The parent 
corporation and the subsidiary employer must both be named on the certificate of 
authorization for self-insurance authority. 
Upon issuance of a certificate of 
authorization pursuant to this subsection, the following applies. 
(1) The parent corporation is deemed to have submitted to the jurisdiction of the 
board and the courts of the State for the purposes of payment of workers' 
compensation claims of the subsidiary employer and is deemed to have submitted 
to the jurisdiction of the superintendent for purposes of implementation of this 
Act. The parent corporation, in all respects, is bound by and subject to all orders, 
findings, decisions or awards rendered against the subsidiary employer for 
payment of compensation and any penalties or forfeitures provided under this 
Act. 
(2) 
A subsidiary employer authorized under this subsection and the parent 
corporation are considered one employer for the purposes of membership in the 
Maine Self-Insurance Guarantee Association. 
In the event of termination, 
transfer, insolvency, dissolution or bankruptcy of a subsidiary employer 
qualifying under this subsection, the parent corporation assumes all assessment 
obligations of the subsidiary employer for its period of self-insurance and is not 
considered a new member of the association. 
(3) If the subsidiary employer fails for any reason to pay compensation and 
benefits as required under this Act, the parent corporation stands in the place of 
the subsidiary employer and is deemed to be the employer, subject to all 
requirements and provisions of this Act. For the purposes of payment of benefits 
and compensation under this Act, an employee of the subsidiary employer is 
deemed to be concurrently employed by both corporations. 
Concerning 
notification of injury to an employee of the subsidiary employer, notice to or 
knowledge of the occurrence of the injury on the part of the subsidiary employer 
is deemed notice or knowledge on the part of the parent corporation. 
The 
transfer, insolvency, dissolution or bankruptcy of a subsidiary employer 
qualifying under this subsection does not relieve the parent corporation from 
payment of compensation for injuries or death sustained by an employee during 
the time the subsidiary employer was approved for self-insurance authority under 
this subsection and the parent corporation continues to be deemed an employer 
until such time as all outstanding workers' compensation claims have been 
discharged. 
(4) The transfer, insolvency, dissolution or bankruptcy of a parent corporation 
causes the termination of the subsidiary employer's authorization to self-insure 
and a termination plan must be filed pursuant to subsection 14. 
H. 
Each individual self-insurer shall submit with its application, and not less 
frequently than annually thereafter, a financial statement of current origin that has 
been audited by a certified public accountant. When a self-insurer qualifies on the 
basis of a financial guarantee or on the basis of an irrevocable contract of assignment, 
the Superintendent of Insurance may accept an audited financial statement of the 
guarantor or parent corporation in satisfaction of this requirement and may also 
require combining statements provided in an array that is reconciled to the 
consolidated report. 
SUMMARY 
This bill clarifies that when a surety bond or a letter of credit held as security for a 
workers' compensation self-insurance program is drawn, the proceeds must be held and 
I 
disbursed in a manner similar to a cash deposit. This bill also specifies that all group self-
insurance trusts must have cash funding to no less than the 65% confidence level.