26.1-03.2 Risk-Based Capital for Health Organizations

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CHAPTER 26.1-03.2RISK-BASED CAPITAL FOR HEALTH ORGANIZATIONS26.1-03.2-01. Definitions. In this chapter, unless the context or subject matter otherwiserequires:1.&quot;Adjusted risk-based capital report&quot; means a risk-based capital report which has<br>been adjusted by the commissioner in accordance with section 26.1-03.2-02.2.&quot;Corrective order&quot; means an order issued by the commissioner specifying corrective<br>actions which the commissioner has determined are required.3.&quot;Domestic health organization&quot; means a health organization domiciled in this state.4.&quot;Foreign health organization&quot; means a health organization that is licensed to do<br>business in this state but is not domiciled in this state.5.&quot;Health organization&quot; means a health maintenance organization, prepaid limited<br>health service organization, nonprofit health service corporation, or other managed<br>care organization licensed by the commissioner to do business in this state. &quot;Health<br>organization&quot; does not include an organization that is licensed as either a life and<br>health insurer or a property and casualty insurer that is otherwise subject to either<br>the life or property and casualty risk-based capital requirements.6.&quot;Risk-based capital instructions&quot; means the risk-based capital report including<br>risk-based capital instructions adopted by the national association of insurance<br>commissioners, as these risk-based capital instructions may be amended by the<br>national association of insurance commissioners from time to time in accordance<br>withtheproceduresadoptedbythenationalassociationofinsurancecommissioners.7.&quot;Risk-based capital level&quot; means a health organization's company action level<br>risk-based capital, regulatory action level risk-based capital, authorized control level<br>risk-based capital, or mandatory control level risk-based capital and:a.&quot;Authorized control level risk-based capital&quot; means the number determined<br>under the risk-based capital formula in accordance with the risk-based capital<br>instructions.b.&quot;Company action level risk-based capital&quot; means, with respect to any health<br>organization, the product of 2.0 and its authorized control level risk-based<br>capital.c.&quot;Mandatory control level risk-based capital&quot; means the product of .70 and the<br>authorized control level risk-based capital.d.&quot;Regulatory action level risk-based capital&quot; means the product of 1.5 and its<br>authorized control level risk-based capital.8.&quot;Risk-based capital plan&quot; means a comprehensive financial plan containing the<br>elements specified in subsection 2 of section 26.1-03.2-03.If the commissionerrejects the risk-based capital plan, and it is revised by the health organization, with<br>or without the commissioner's recommendation, the plan must be called the &quot;revised<br>risk-based capital plan&quot;.9.&quot;Risk-based capital report&quot; means the report required in section 26.1-03.2-02.10.&quot;Total adjusted capital&quot; means the sum of:Page No. 1a.A health organization's statutory capital and surplus, net worth, as determined<br>in accordance with the statutory accounting applicable to the annual financial<br>statements required to be filed under section 26.1-03-07 or, in the case of a<br>health maintenance organization, section 26.1-18.1-08; andb.Such other items, if any, as the risk-based capital instructions may provide.26.1-03.2-02. Risk-based capital reports.1.On or before each March first, a domestic health organization shall prepare and<br>submit to the commissioner a report of its risk-based capital levels as of the end of<br>the calendar year just ended, in a form and containing such information as is<br>required by the risk-based capital instructions.In addition, a domestic healthorganization shall file its risk-based capital report:a.With the national association of insurance commissioners in accordance with<br>the risk-based capital instructions; andb.With the insurance commissioner in any state in which the health organization<br>is authorized to do business, if the insurance commissioner has notified the<br>health organization of its request in writing, in which case the health<br>organization shall file its risk-based capital report not later than the later of:(1)Fifteen days from the receipt of notice to file its risk-based capital report<br>with that state; or(2)The filing date.2.A health organization's risk-based capital must be determined in accordance with<br>the formula set forth in the risk-based capital instructions. The formula must take<br>the following into account, and may adjust for the covariance between, as<br>determined in each case by applying the factors in the manner set forth in the<br>risk-based capital instructions:a.Asset risk;b.Credit risk;c.Underwriting risk; andd.All other business risks and such other relevant risks as are set forth in the<br>risk-based capital instructions.3.Net worth over the amount produced by the risk-based capital requirements<br>contained in this chapter and the formulas, schedules, and instructions referenced in<br>this chapter is desirable in the business of health insurance. Accordingly, health<br>organizations should seek to maintain capital above the risk-based capital levels<br>required by this chapter.Additional capital is used and useful in the insurancebusiness and helps to secure a health organization against various risks inherent in,<br>or affecting, the business of insurance and not accounted for or only partially<br>measured by the risk-based capital requirements contained in this chapter.4.If a domestic health organization files a risk-based capital report that in the judgment<br>of the commissioner is inaccurate, then the commissioner shall adjust the risk-based<br>capital report to correct the inaccuracy and shall notify the health organization of the<br>adjustment. The notice must contain a statement of the reason for the adjustment.<br>A risk-based capital report as so adjusted is referred to as an &quot;adjusted risk-based<br>capital report&quot;.Page No. 226.1-03.2-03. Company action level event.1.&quot;Company action level event&quot; means any of the following events:a.The filing of a risk-based capital report by a health organization which indicates<br>that the health organization's total adjusted capital is greater than or equal to its<br>regulatory action level risk-based capital but less than its company action level<br>risk-based capital;b.Notification by the commissioner to the health organization of an adjusted<br>risk-based capital report that indicates an event in subdivision a, provided the<br>health organization does not challenge the adjusted risk-based capital report<br>under section 26.1-03.2-07; orc.If, pursuant to section 26.1-03.2-07, a health organization challenges an<br>adjusted risk-based capital report that indicates the event in subdivision a, the<br>notification by the commissioner to the health organization that the<br>commissioner, after a hearing, has rejected the health organization's challenge.2.In the event of a company action level event, the health organization shall prepare<br>and submit to the commissioner a risk-based capital plan that:a.Identifies the conditions that contribute to the company action level event;b.Contains proposals of corrective actions which the health organization intends<br>to take and which would be expected to result in the elimination of the company<br>action level event;c.Provides projections of the health organization's financial results in the current<br>year and at least the two succeeding years, both in the absence of proposed<br>corrective actions and giving effect to the proposed corrective actions, including<br>projections of statutory balance sheets, operating income, net income, capital<br>and surplus, and risk-based capital levels. The projections for both new and<br>renewal business may include separate projections for each major line of<br>business and separately identify each significant income, expense, and benefit<br>component;d.Identifies the key assumptions impacting the health organization's projections<br>and the sensitivity of the projections to the assumptions; ande.Identifies the quality of, and problems associated with, the health organization's<br>business, including its assets, anticipated business growth and associated<br>surplus strain, extraordinary exposure to risk, mix of business, and use of<br>reinsurance, if any, in each case.3.The risk-based capital plan must be submitted:a.Within forty-five days of the company action level event; orb.If the health organization challenges an adjusted risk-based capital report<br>pursuant to section 26.1-03.2-07, within forty-five days after notification to the<br>health organization that the commissioner, after a hearing, has rejected the<br>health organization's challenge.4.Within sixty days after the submission by a health organization of a risk-based<br>capital plan to the commissioner, the commissioner shall notify the health<br>organization whether the risk-based capital plan shall be implemented or is, in the<br>judgment of the commissioner, unsatisfactory. If the commissioner determines the<br>risk-based capital plan is unsatisfactory, the notification to the health organizationPage No. 3must set forth the reasons for the determination and may set forth proposed<br>revisions that will render the risk-based capital plan satisfactory in the judgment of<br>the commissioner. Upon notification from the commissioner, the health organization<br>shall prepare a revised risk-based capital plan, which may incorporate by reference<br>any revisions proposed by the commissioner, and shall submit the revised<br>risk-based capital plan to the commissioner:a.Within forty-five days after the notification from the commissioner; orb.If the health organization challenges the notification from the commissioner<br>under section 26.1-03.2-07, within forty-five days after a notification to the<br>health organization that the commissioner has, after a hearing, rejected the<br>health organization's challenge.5.In the event of a notification by the commissioner to a health organization that the<br>health organization's risk-based capital plan or revised risk-based capital plan is<br>unsatisfactory, the commissioner, subject to the health organization's right to a<br>hearing under section 26.1-03.2-07, may specify in the notification that the<br>notification constitutes a regulatory action level event.6.Every domestic health organization that files a risk-based capital plan or revised<br>risk-based capital plan with the commissioner shall file a copy of the risk-based<br>capital plan or revised risk-based capital plan with the insurance commissioner in<br>any state in which the health organization is authorized to do business if:a.The state has a risk-based capital provision substantially similar to subsection 1<br>of section 26.1-03.2-08; andb.The insurance commissioner of that state has notified the health organization of<br>its request for the filing in writing, in which case the health organization shall file<br>a copy of the risk-based capital plan or revised risk-based capital plan in that<br>state no later than the later of:(1)Fifteen days after the receipt of notice to file a copy of its risk-based<br>capital plan or revised risk-based capital plan with the state; or(2)The date on which the risk-based capital plan or revised risk-based<br>capital plan is filed under subsections 3 and 4.26.1-03.2-04. Regulatory action level event.1.&quot;Regulatory action level event&quot; means, with respect to a health organization, any of<br>the following events:a.The filing of a risk-based capital report by the health organization which<br>indicates that the health organization's total adjusted capital is greater than or<br>equal to its authorized control level risk-based capital but less than its<br>regulatory action level risk-based capital;b.Notification by the commissioner to a health organization of an adjusted<br>risk-based capital report that indicates the event in subdivision a, provided the<br>health organization does not challenge the adjusted risk-based capital report<br>under section 26.1-03.2-07;c.If, pursuant to section 26.1-03.2-07, the health organization challenges an<br>adjusted risk-based capital report that indicates the event in subdivision a, the<br>notification by the commissioner to the health organization that the<br>commissioner, after a hearing, has rejected the health organization's challenge;Page No. 4d.The failure of the health organization to file a risk-based capital report by the<br>filing date, unless the health organization has provided an explanation for the<br>failure which is satisfactory to the commissioner and has cured the failure within<br>ten days after the filing date;e.The failure of the health organization to submit a risk-based capital plan to the<br>commissioner within the time period set forth in subsection 3 of section<br>26.1-03.2-03;f.Notification by the commissioner to the health organization that:(1)The risk-based capital plan or revised risk-based capital plan submitted<br>by the health organization is, in the judgment of the commissioner,<br>unsatisfactory; and(2)Notification constitutes a regulatory action level event with respect to the<br>health organization, provided the health organization has not challenged<br>the determination under section 26.1-03.2-07;g.If, pursuant to section 26.1-03.2-07, the health organization challenges a<br>determination by the commissioner under subdivision f, the notification by the<br>commissioner to the health organization that the commissioner, after a hearing,<br>has rejected the challenge;h.Notification by the commissioner to the health organization that the health<br>organization has failed to adhere to its risk-based capital plan or revised<br>risk-based capital plan, but only if the failure has a substantial adverse effect on<br>the ability of the health organization to eliminate the company action level event<br>in accordance with its risk-based capital plan or revised risk-based capital plan<br>and the commissioner has so stated in the notification, provided the health<br>organization has not challenged the determination under section 26.1-03.2-07;<br>ori.If, pursuant to section 26.1-03.2-07, the health organization challenges a<br>determination by the commissioner under subdivision h, the notification by the<br>commissioner to the health organization that the commissioner, after a hearing,<br>has rejected the challenge.2.In the event of a regulatory action level event the commissioner shall:a.Require the health organization to prepare and submit a risk-based capital plan<br>or, if applicable, a revised risk-based capital plan;b.Perform such examination or analysis as the commissioner deems necessary<br>of the assets, liabilities, and operations of the health organization, including a<br>review of its risk-based capital plan or revised risk-based capital plan; andc.Subsequent to the examination or analysis, issue an order specifying such<br>corrective actions as the commissioner determines are required.3.In determining corrective actions, the commissioner may take into account factors<br>the commissioner deems relevant with respect to the health organization risk based<br>upon the commissioner's examination or analysis of the assets, liabilities, and<br>operations of the health organization, including the results of any sensitivity tests<br>undertaken pursuant to the risk-based capital instructions. The risk-based capital<br>plan or revised risk-based capital plan must be submitted:a.Within forty-five days after the occurrence of the regulatory action level event;Page No. 5b.If the health organization challenges an adjusted risk-based capital report<br>pursuant to section 26.1-03.2-07 and the challenge is not frivolous in the<br>judgment of the commissioner, within forty-five days after the notification to the<br>health organization that the commissioner has, after a hearing, rejected the<br>health organization's challenge; orc.If the health organization challenges a revised risk-based capital plan pursuant<br>to section 26.1-03.2-07 and the challenge is not frivolous in the judgment of the<br>commissioner, within forty-five days after the notification to the health<br>organization that the commissioner has, after a hearing, rejected the health<br>organization's challenge.4.The commissioner may retain actuaries and investment experts and other<br>consultants as may be necessary in the judgment of the commissioner to review the<br>health organization's risk-based capital plan or revised risk-based capital plan,<br>examine or analyze the assets, liabilities, and operations, including contractual<br>relationships, of the health organization and formulate the corrective order with<br>respect to the health organization.The fees, costs, and expenses relating toconsultants must be borne by the affected health organization or such other party as<br>directed by the commissioner.26.1-03.2-05. Authorized control level event.1.&quot;Authorized control level event&quot; means any of the following events:a.The filing of a risk-based capital report by the health organization which<br>indicates that the health organization's total adjusted capital is greater than or<br>equal to its mandatory control level risk-based capital but less than its<br>authorized control level risk-based capital;b.The notification by the commissioner to the health organization of an adjusted<br>risk-based capital report that indicates the event in subdivision a, provided the<br>health organization does not challenge the adjusted risk-based capital report<br>under section 26.1-03.2-07;c.If, pursuant to section 26.1-03.2-07, the health organization challenges an<br>adjusted risk-based capital report that indicates the event in subdivision a,<br>notification by the commissioner to the health organization that the<br>commissioner, after a hearing, has rejected the health organization's challenge;d.The failure of the health organization to respond, in a manner satisfactory to the<br>commissioner, to a corrective order, provided the health organization has not<br>challenged the corrective order under section 26.1-03.2-07; ore.If the health organization has challenged a corrective order under section<br>26.1-03.2-07 and the commissioner, after a hearing, has rejected the challenge<br>or modified the corrective order, the failure of the health organization to<br>respond, in a manner satisfactory to the commissioner, to the corrective order<br>subsequent to rejection or modification by the commissioner.2.In the event of an authorized control level event with respect to a health<br>organization, the commissioner shall:a.Take such actions as are required under section 26.1-03.2-04 regarding a<br>health organization with respect to which a regulatory action level event has<br>occurred; orb.If the commissioner deems it to be in the best interests of the policyholders and<br>creditors of the health organization and of the public, take such actions as arePage No. 6necessary to cause the health organization to be placed under regulatory<br>control under chapter 26.1-06.1. If the commissioner takes such actions, the<br>authorized control level event must be deemed sufficient grounds for the<br>commissioner to take action under chapter 26.1-06.1 and the commissioner<br>shall have the rights, powers, and duties with respect to the health organization<br>as are set forth in chapter 26.1-06.1. If the commissioner takes actions under<br>this subdivision pursuant to an adjusted risk-based capital report, the health<br>organization is entitled to such protections as are afforded to health<br>organizations under the provisions of chapter 26.1-06.1 pertaining to summary<br>proceedings.26.1-03.2-06. Mandatory control level event.1.&quot;Mandatory control level event&quot; means any of the following events:a.The filing of a risk-based capital report that indicates that the health<br>organization's total adjusted capital is less than its mandatory control level<br>risk-based capital;b.Notification by the commissioner to the health organization of an adjusted<br>risk-based capital report that indicates the event in subdivision a, provided the<br>health organization does not challenge the adjusted risk-based capital report<br>under section 26.1-03.2-07; orc.If, pursuant to section 26.1-03.2-07, the health organization challenges an<br>adjusted risk-based capital report that indicates the event in subdivision a,<br>notification by the commissioner to the health organization that the<br>commissioner, after a hearing, has rejected the health organization's challenge.2.In the event of a mandatory control level event, the commissioner shall take such<br>actions as are necessary to place the health organization under regulatory control<br>under chapter 26.1-06.1. In that event, the mandatory control level event must be<br>deemed sufficient grounds for the commissioner to take action under chapter<br>26.1-06.1, and the commissioner shall have the rights, powers, and duties with<br>respect to the health organization as are set forth in chapter 26.1-06.1.If thecommissioner takes actions pursuant to an adjusted risk-based capital report, the<br>health organization is entitled to the protections of chapter 26.1-06.1 pertaining to<br>summary proceedings.Notwithstanding any of the foregoing, the commissionermay forego action for up to ninety days after the mandatory control level event if the<br>commissioner finds there is a reasonable expectation that the mandatory control<br>level event may be eliminated within the ninety-day period.26.1-03.2-07. Hearings. Upon the occurrence of any of the following events, the healthorganization shall have the right to a confidential departmental hearing, on a record, at which the<br>health organization may challenge any determination or action by the commissioner. The health<br>organization shall notify the commissioner of its request for a hearing within five days after the<br>notification by the commissioner under subsection 1, 2, 3, or 4.Upon receipt of the healthorganization's request for a hearing, the commissioner shall set a date for the hearing, which<br>may not be less than ten nor more than thirty days after the date of the health organization's<br>request. The events include:1.Notification to a health organization by the commissioner of an adjusted risk-based<br>capital report;2.Notification to a health organization by the commissioner that:a.The health organization's risk-based capital plan or revised risk-based capital<br>plan is unsatisfactory; andPage No. 7b.Notification constitutes a regulatory action level event with respect to the health<br>organization;3.Notification to a health organization by the commissioner that the health organization<br>has failed to adhere to its risk-based capital plan or revised risk-based capital plan<br>and that the failure has a substantial adverse effect on the ability of the health<br>organization to eliminate the company action level event with respect to the health<br>organization in accordance with its risk-based capital plan or revised risk-based<br>capital plan; or4.Notification to a health organization by the commissioner of a corrective order with<br>respect to the health organization.26.1-03.2-08. Confidentiality - Prohibition on announcements - Prohibition on usein ratemaking.1.All risk-based capital reports, to the extent the information is not required to be set<br>forth in a publicly available annual statement schedule, and risk-based capital plans,<br>including the results or report of any examination or analysis of a health organization<br>performed pursuant to this chapter, and any corrective order issued by the<br>commissioner pursuant to examination or analysis, with respect to a domestic health<br>organization or foreign health organization, which are filed with the commissioner<br>constitute information that might be damaging to the health organization if made<br>available to its competitors, and therefore shall be kept confidential by the<br>commissioner. This information may not be made public or be subject to subpoena,<br>other than by the commissioner and then only for the purpose of enforcement<br>actions taken by the commissioner pursuant to this chapter or any other provision of<br>the insurance laws of this state.2.It is the judgment of the legislature that the comparison of a health organization's<br>total adjusted capital to any of its risk-based capital levels is a regulatory tool that<br>may indicate the need for corrective action with respect to the health organization<br>and is not intended as a means to rank health organizations generally. Therefore,<br>except as otherwise required under the provisions of this chapter, the making,<br>publishing, disseminating, circulating, or placing before the public, or causing,<br>directly or indirectly to be made, published, disseminated, circulated, or placed<br>before the public, in a newspaper, magazine, or other publication, or in the form of a<br>notice, circular, pamphlet, letter, or poster, or over a radio or television station, or in<br>any other way, an advertisement, announcement, or statement containing an<br>assertion, representation, or statement with regard to the risk-based capital levels of<br>any health organization, or of any component derived in the calculation, by any<br>health organization, insurance producer, or other person engaged in any manner in<br>the insurance business would be misleading and is therefore prohibited. However, if<br>any materially false statement with respect to the comparison regarding a health<br>organization's total adjusted capital to its risk-based capital levels, or any of them, or<br>an inappropriate comparison of any other amount to the health organization's<br>risk-based capital levels is published in any written publication and the health<br>organization is able to demonstrate to the commissioner with substantial proof the<br>falsity of the statement, or the inappropriateness, as the case may be, then the<br>health organization may publish an announcement in a written publication if the sole<br>purpose of the announcement is to rebut the materially false statement.3.It is the further judgment of the legislature that the risk-based capital instructions,<br>risk-based capital reports, adjusted risk-based capital reports, risk-based capital<br>plans, and revised risk-based capital plans are intended solely for use by the<br>commissioner in monitoring the solvency of health organizations and the need for<br>possible corrective action with respect to health organizations and may not be used<br>by the commissioner for ratemaking nor considered or introduced as evidence in any<br>rate proceeding nor used by the commissioner to calculate or derive any elements ofPage No. 8an appropriate premium level or rate of return for any line of insurance that a health<br>organization or any affiliate is authorized to write.26.1-03.2-09. Supplemental provisions - Rules - Exemption.1.The provisions of this chapter are supplemental to any other provisions of the laws<br>of this state, and do not preclude or limit any other powers or duties of the<br>commissioner under such laws, including chapter 26.1-06.1.2.The commissioner may adopt reasonable rules necessary for the implementation of<br>this chapter.3.The commissioner may exempt from the application of this chapter a domestic<br>health organization that:a.Writes direct business only in this state;b.Assumes no reinsurance in excess of five percent of direct premium written;<br>andc.Writes direct annual premiums for comprehensive medical business of less<br>than an amount determined by the commissioner; ord.Is a limited health service organization that covers less than a number of lives<br>determined by the commissioner.26.1-03.2-10. Foreign health organizations.1.a.A foreign health organization, upon the written request of the commissioner,<br>shall submit to the commissioner a risk-based capital report for the calendar<br>year just ended, the later of:(1)The date a risk-based capital report would be required to be filed by a<br>domestic health organization under this chapter; or(2)Fifteen days after the request is received by the foreign health<br>organization.b.A foreign health organization, at the written request of the commissioner, shall<br>promptly submit to the commissioner a copy of any risk-based capital plan that<br>is filed with the insurance commissioner of any other state.2.In the event of a company action level event, regulatory action level event, or<br>authorized control level event with respect to a foreign health organization as<br>determined under the risk-based capital statute applicable in the state of domicile of<br>the health organization or, if no risk-based capital statute is in force in that state,<br>under the provisions of this chapter, if the insurance commissioner of the state of<br>domicile of the foreign health organization fails to require the foreign health<br>organization to file a risk-based capital plan in the manner specified under that<br>state's risk-based capital statute or, if no risk-based capital statute is in force in that<br>state, under section 26.1-03.2-03, the commissioner may require the foreign health<br>organization to file a risk-based capital plan with the commissioner. In such event,<br>the failure of the foreign health organization to file a risk-based capital plan with the<br>commissioner is grounds to order the health organization to cease and desist from<br>writing new insurance business in this state.3.In the event of a mandatory control level event with respect to a foreign health<br>organization, if no domiciliary receiver has been appointed with respect to the<br>foreign health organization under the rehabilitation and liquidation statute applicablePage No. 9in the state of domicile of the foreign health organization, the commissioner may<br>make application to the district court permitted under section 26.1-06.1-04 with<br>respect to the liquidation of property of foreign health organizations found in this<br>state, and the occurrence of the mandatory control level event shall be considered<br>adequate grounds for the application.26.1-03.2-11. Immunity. There is no liability on the part of, and no cause of action shallarise against, the commissioner or the insurance department or its employees or agents for any<br>action taken by them in the performance of their powers and duties under this chapter.26.1-03.2-12. Notices. All notices by the commissioner to a health organization whichmay result in regulatory action under this chapter are effective upon dispatch if transmitted by<br>registered or certified mail, or in the case of any other transmission, are effective upon the health<br>organization's receipt of notice.26.1-03.2-13. Phasein provision. For risk-based capital reports required to be filed byhealth organizations with respect to 1999, the following requirements apply in lieu of the<br>provisions of sections 26.1-03.2-03, 26.1-03.2-04, 26.1-03.2-05, and 26.1-03.2-06:1.In the event of a company action level event with respect to a domestic health<br>organization, the commissioner shall take no regulatory action under this chapter.2.In the event of a regulatory action level event under subdivision a, b, or c of<br>subsection 1 of section 26.1-03.2-04, the commissioner shall take the actions<br>required under section 26.1-03.2-03.3.In the event of a regulatory action level event under subdivision d, e, f, g, h, or i of<br>subsection 1 of section 26.1-03.2-04 or an authorized control level event, the<br>commissioner shall take the actions required under section 26.1-03.2-04 with<br>respect to the health organization.4.In the event of a mandatory control level event with respect to a health organization,<br>the commissioner shall take the actions required under section 26.1-03.2-05 with<br>respect to the health organization.Page No. 10Document Outlinechapter 26.1-03.2 risk-based capital for health organizations