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Nebraska Workers' Compensation Legal Library


Nebraska Home Page   >   Nebraska Regulations
 

RULE 73
SELF-INSURANCE
SECURITY


A. Security Requirement. As a condition for approval to self-insure and continue to self-insure, the employer shall deposit an acceptable security to secure the payment of compensation liabilities under the Nebraska Workers' CompensationAct as they are incurred. Political subdivisions with either unlimited rate making authority or having taxing authority with a tax base of at least $2,500,000,000 and a general obligation bond rating from Standard & Poor or Moody's Investor Service of“A” or better may, at the discretion ofthe court, be excluded from this requirement.
B. Form ofSecurity. Security shall be in the form ofa surety bond or irrevocable workers' compensation trust agreement. Forms for bonds and trust agreements must be approved by the court.
C. Amount ofSecurity.
1. The amount ofsecurity required, regardless ofthe method used for determining the amount, will be calculated using Nebraska specific payroll, paid losses, or reserve. The reserve is the actual and present value of the determined and estimated future compensation payments under theAct.
2. One oftwo methods will be used by the court to calculate the amount of security required ifthe employer is able to provide paid loss totals for each ofthe last three complete calendar years. The formula method, as set out in Rule 73,D, will be used to determine the amount required unless the employer chooses to have the amount calculated based on an actuarial statement ofreserve, as set out in Rule 73,F. Ifthe employer is unable to provide paid loss totals for each ofthe last three complete calendar years, the court will determine the amount ofsecurity required based on actual and projected payroll by job classification code. The amount required may be periodically adjusted, at the court's discretion, until such time as the employer
qualifies to have the amount ofsecurity determined by the formula or actuarial method.
3. The amount ofsecurity required will be determined when the application to self-insure is reviewed and at other times at the court's discretion.
4. Any change to the amount ofsecurity shall extend to all compensation liabilities ofthe employer as a self-insurer, including those liabilities already present, whether known or yet to be discovered.
5. Except in accordance with Rule 73,G the amount ofsecurity shall, in no case, be less than $500,000 or the reserve, whichever is greater.
D. Formula Method. The formula for determining the amount ofsecurity is the average ofthe employer's paid losses for the last three complete calendar years preceding the date the amount ofsecurity is determined, multiplied by 2.5. The product is increased by 40 percent or $500,000, whichever is greater. The result is the amount ofthe security required under the formula method.
E. Adjustments to the Formula Method. The amount ofsecurity required under the formula method may, at the discretion ofthe court, be adjusted based on the financial condition ofthe employer. For purposes ofdetermining eligibility for such an adjustment self-insurers will be assigned to one ofthree classes. Assignment to a given class shall be in accordance with the criteria set forth in Rule 73,E,1 through Rule 73,E,3, based on the periodic review offinancial and other records ofthe self-insured employer. The self-insurer and its parent, if applicable, must furnish annual audited financial statements to the court within a time frame established by the court. To ascertain continued eligibility for a Class II or Class III designation, the court may periodically request financial statements and other information. Failure to comply with court requests for financial statements and other information will result in assignment to Class I.
1. Class I: Employers in Class I shall be required to deposit security in the full amount calculated according to the formula method as set out in Rule 73,D. Employers assigned to Class I are:
a. Employers with a net worth ofless than $100,000,000, excluding goodwill and restricted assets, or;
b. Employers not showing a net profit in four out ofthe last five years, or:
c. Employers not showing a positive operational cash flow in four out of the last five years regardless ofnet worth, or;
d. Employers with a total reduction ofnet worth of50 percent or more over the last five years, or;
e. Employers with a reduction in net worth of25 percent or more in the most recent year, or;
f . Employers with a net worth between $100,000,000 and $250,000,000, excluding goodwill and restricted assets, and a net worth to asset ratio ofless than 20 percent (i.e. net worth as a percent ofassets) excluding goodwill and restricted assets from both net worth and assets, or;
g. Employers terminating self-insurance for any reason, without regard to eligibility for another class.
2. Class II: Employers in Class II may, at the discretion ofthe court, be eligible for a 25 percent reduction in the amount ofsecurity calculated according to the formula method as set out in Rule 73,D. In no case shall the amount ofsecurity be less than $500,000 or the reserve, whichever is greater. Employers eligible for Class II are:
a. Employers with a net worth between $100,000,000 and $250,000,000, excluding goodwill and restricted assets, and;
i. Net profit in four out ofthe last five years, and;
ii. Positive operational cash flow in four out ofthe last five years, and;
iii. No reduction ofnet worth of25 percent or more in the most recent year, and;
iv. No reduction ofnet worth of50 percent or more over the last five years, and;
v. Anet worth to asset ratio ofbetween 20 percent and 66.67 percent (i.e. net worth as a percent ofassets) excluding goodwill and restricted assets from both net worth and assets;
OR
b. Employers with a net worth of$250,000,000 or more excluding goodwill and restricted assets, and;
i. Net profit in four out ofthe last five years, and;
ii. Positive operational cash flow in four out ofthe last five years, and;
iii. No reduction ofnet worth of25 percent or more in the most recent year, and;
iv. No reduction ofnet worth of50 percent or more over the last five years, and;
v. Anet worth to asset ratio ofless than 20 percent (i.e. net worth as a percent ofassets) excluding goodwill and restricted assets from both net worth and assets.
3. Class III: Employers in Class III may, at the discretion ofthe court, be eligible for a 50 percent reduction in the amount ofsecurity calculated according to the formula method as set out in Rule 73,D. In no case shall the amount ofsecurity be less than $500,000 or the reserve, whichever is greater. Employers eligible for Class III are:
a. Employers with a net worth between $100,000,000 and $250,000,000, excluding goodwill and restricted assets, and;
i. Net profit in four out ofthe last five years, and;
ii. Positive operational cash flow in four out ofthe last five years, and;
iii. No reduction ofnet worth of25 percent or more in the most recent year and;
iv. No reduction ofnet worth of50 percent or more over the last five years, and;
v. Anet worth to asset ratio of66.67 percent or more (i.e. net worth as a percentage ofassets) excluding goodwill and restricted assets from both net worth and assets.
OR
b. Employers with a net worth of$250,000,000 or more excluding goodwill and restricted assets, and;
i. Net profit in four out ofthe last five years, and;
ii. Positive operational cash flow in four out ofthe last five years, and;
iii. No reduction ofnet worth of25 percent or more in the most recent year, and;
iv. No reduction ofnet worth of50 percent or more over the last five years, and;
v. Anet worth to asset ratio of20 percent or more (i.e. net worth as a percent ofassets) excluding goodwill and restricted assets from both net worth and assets.
F. Actuarial Method. As an alternative to the formula method ofdetermining the amount ofsecurity required, the court will calculate the amount required based on an actuarial estimate ofcompensation liabilities. In no case shall the amount ofsecurity be less than $500,000.
1. Aqualified independent actuary who is a member oftheAmericanAcademy ofActuaries or CasualtyActuarial Society must perform an analysis ofthe self-insurer's workers' compensation liabilities and provide a certified statement ofthe reserve. The opinion must include a statement that there is no impediment to the actuary's ability to provide an unbiased and independent opinion as to the adequacy ofthe reserve. The report must also include a synopsis ofthe nature ofthe actuary's approach.
2. The self-insurer is responsible for any cost associated with obtaining the statement.
3. The amount ofsecurity required is equal to 66.67 percent ofthe actual reserve amount, increased by 40 percent or $500,000 whichever is greater.
4. An actuarial statement ofthe reserve must be provided with the application to self-insure. Failure to provide an actuarial statement shall result in the security amount being calculated using the formula method as set out in Rules 73,D and 73,E.
G. Reduction or Release ofSecurity after Termination ofSelf-Insurance. An employer whose approval to self-insure has been terminated for at least two years may submit a written request to the court to reduce the amount ofsecurity. At its discretion, with satisfactory proofofthe actual amount ofoutstanding compensation liabilities, the court may approve a reduction in the amount ofsecurity required. Unless an employer provides the court with satisfactory proofofthe transfer ofall outstanding compensation liabilities, no security will be released for at least two years after the last payment to or on behalfofthe claimant on any and all claims arising during the period the employer was approved for self-insurance.
Section48-145, R.S. Supp., 2016. Effective date: December 14, 2016.



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