26.1-03.2 Risk-Based Capital for Health Organizations - North Dakota Statutes

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