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s 15212. Surety Bonds.
(a) Surety bonds shall be accepted by the Manager only if written by an "admitted surety insurer" as defined by California Code of Civil Procedure, Chapter 2, Bonds and Undertaking, Section 995.120(a).
(b) A surety bond underwritten by an organization owned and/or controlled by the self insurer, who is also the principal on the surety bond, shall be rejected by the Manager unless the surety company is financially independent of its parent.
(c) The Manager shall make available, upon request of any self insurer, an appropriate quantity of surety bond forms (Form A4-20 (Rev. 11/92)), increase riders (Form A4-21b (Rev. 4/92)) decrease riders (Form A4-21a (Rev. 4/92)), name change riders (Form A4-22 (Rev. 4/92)), and special form change riders (Form A4-23 (Rev. 4/92)), and Release of Surety (Form A4-24 (11/92)), California Code of Regulations, Title 11, Chapter 2, Section 25, which are hereby incorporated by reference. Note : The current surety bond forms and rider forms are contained in Plates F-1 through F-6 of the Appendix immediately following the last Article in these Subchapter 2 regulations.
(d) A surety bond accepted by the Manager as security deposit shall be continuous in form. Surety bonds shall be exonerated only by their terms and cancelled only according to the specific language in the bond form. Exoneration of a surety bond by the Manager shall only be done when the bond language includes a release provision and the self insurer has substituted another acceptable security deposit or combination of acceptable deposits that totals to the amount determined by the Director to be required as a security deposit. Note : Bond forms previously accepted as security deposit have differing terms and conditions from the current surety bond forms and some of the prior bond forms may not include a release provision in the bond language. Such bonds cannot be exonerated by the Manager unless the prior bond form is changed to the current terms and conditions by means of reinstatement of the surety bond, if cancelled, and execution of a Special Form Change Rider.
(e) The surety company shall submit a Notice of Cancellation in writing to the Manager on any surety bond according to the terms of the bond. The surety shall give the Manager written notice at least (thirty) 30 days in advance of the effective date of cancellation of an existing surety bond. After receipt of the written cancellation notice and receipt of a replacement security deposit, as set forth in subsection (d) and (g), in the amount required by the Director, the Manager may issue a Release of Surety to the surety company for the cancelled bond.
(f) Surety bonds and all riders to the surety bonds shall be executed by the surety company's Attorney-In-Fact and the Attorney-In-Fact's appointment or power of attorney must accompany all copies of the bond or rider being submitted. Note : The Attorney-In-Fact does not need to be a California Attorney- In-Fact.
(g) The self insurer shall substitute the deposit represented by the penal sum of the cancelled surety bond with another acceptable form of security deposit, in the full amount required by the Director, within thirty (30) days of the receipt of bond cancellation notice to the Manager.Exceptions: (1) A surety bond issued prior to the effective date of these regulations where the bond secures liabilities of a former self insurer. (2) An active self insurer in the process of revocation on the effective date of this regulation of its self insurance authority and which has fully insured its workers' compensation liabilities with a standard workers' compensation policy from an admitted carrier prior to the effective date of this regulation.
(h) The surety company or its parent company shall have and maintain an acceptable credit rating as set forth below:
(1) Standard and Poors Insurer Financial Strength Rating of A or better rating, or
(2) A.M. Best Company, Financial Strength Rating of B+ or better rating.
(i) A surety bond shall be replaced by the self insurer in the event the surety is placed in conservatorship, or is seized, or declares insolvency, or the current credit rating is below the ratings required in subsection (h).


Note: Authority cited: Sections 54, 55 and 3702.10, Labor Code. Reference: Sections 3700, 3700(b), 3701, 3701.5, 3702.10, 3703, 3705 and 3740-3744, Labor Code; and Sections 995.120(a) and 995.430, Code of Civil Procedure.






s 15213. Approved Securities.
(a) Approved securities shall be only those securities which meet the following:
(1) Securities are corporate or Federal, State or municipal government bonds or notes in book entry form, having a rating of AA or better by Standard and Poor's Rating Service or a rating of Aa or better by Moody's Investors Service Guide or a rating of AA or better by Fitch Investors Service Guide;

Exception 1. Securities issued by the State of California shall have a rating of B or better.
Exception 2. Securities in registered, physical form that meet all requirements of this section are acceptable until January 1, 1997 for posting by a self insurer. After that date, all securities shall be in book entry form.
(2) Securities shall be delivered in the name of the "Treasurer, State of California in trust for (insert the legal name of the self insurer)" or similar legible abbreviation to a custodian account designated by the State Treasurer. [FNa1]
(3) Securities previously accepted and registered in the name of "Treasurer State of California" or "Treasurer of State of California in trust for [legal name of self insurer(s)] liabilities pursuant to Labor Code Sections 3700 and 3701" shall not have to be reregistered, but will be held until maturity or released by order of the Manager or Director.
(4) Mortgage backed securities shall not be acceptable and zero-coupon securities shall not be accepted.

(5) Securities issued by the self insurer or its subsidiaries, or its affiliated companies or parent companies, shall not be accepted for that particular self insurer's security deposit.
(b) Any private self insurer desiring to post or have released approved securities shall provide the Manager with a complete description of the security or securities, including the following:
(1) Whether the security is registered or book entry type;
(2) Complete name of security;
(3) Interest rate of security;
(4) Original issue date of security;
(5) Date of maturity of security;
(6) Par value of security;
(7) Current market value of security;

(8) Name of delivery agent and the telephone number of delivery agent who will actually deliver the security to the State on behalf of the self insured employer.
[Note: This is usually a bank or brokerage firm.]; and
(9) The name and address where interest checks are to be sent for registered securities or a bank name and bank account number for wire transfer of interest payments for book entry securities.
(10) The self insurer's Federal Taxpayer Identification Number for interest payments on the securities.
(c) Approval by the Manager or Director, or other person authorized in writing by the Director, to the State Treasurer shall be required on all securities to be posted or released and the Manager shall transmit the approval order to the State Treasurer.
Note: The current model letter to request approval of securities is contained in Plate G of the Appendix following the last Article in these Subchapter 2 regulations.
(d) The Manager shall value approved securities at par value or market value, whichever is less, when computing the security deposit represented by the securities for any private self insurer. Each self insurer posting securities shall provide a statement of the current market value of the security or securities annually to the Manager on their Self Insurer's Annual Report as required by Section 15251(b)(6).
(e) No approved security shall be accepted for deposit at above its par value. Additional deposits of approved securities shall be required at any time when the market value of an approved security falls below its par value.
(f) The Manager may order called or matured securities to be redeemed by the State Treasurer and the resulting cash returned to or deposited in trust on behalf of the self-insured.
(g) Any self insurer with securities on deposit may request the release of the securities upon the posting of replacement security or upon the determination of the Manager that the securities represent surplus deposit above that required by Labor Code Section 3701 and these regulations.
[FNa1] The usual practice of the State Treasurer is to contact the delivery agent for the specific wire instructions for processing the securities transaction into or out of the State Treasurer's custodian account.


Note: Authority cited: Sections 54, 55 and 3702.10, Labor Code. Reference: Sections 59, 3700, 3701, 3701.5, 3702, 3702.6, 3702.10, 3703, 3705 and 3740-3745, Labor Code.






s 15214. Cash in Trust.
(a) Cash shall be presented to the Manager in the form of a corporate check, cashier's check, certified check or money order and shall be made payable to "The Department of Industrial Relations In Trust For [the legal name of the self insurer]." A wire transfer of funds to a bank or savings institution if approved in advance by the Manager may be used.
Note 1: Cash deposits shall be deposited by the Office of Self-Insurance Plans on the same day received or on the following business day with a bank or savings institution meeting the credit standards contained in Section 15215(e) into an interest bearing passbook savings account or into a certificate of deposit not exceeding one year in duration with an automatic rollover upon maturity. The passbook account or certificate shall be set up in such a manner to show the cash deposit is held in trust for the private self insurer by the Department of Industrial Relations, as the depositor, and the private self insurer has no ability to control any part of the account or certificate. The passbook or original certificate shall be held by the bank pending written instruction from Self-Insurance Plans signed by the Manager to deliver the passbook or certificate to the State Treasurer, who shall be the custodian of the deposit.
Note 2: A private self insurer desiring to deposit cash to be held in trust as part of its security deposit should contact the Manager in advance of sending a cash deposit to the Office of Self-Insurance Plans. The private self insurer may advise the Manager in writing of any preference for a bank or savings institution into which the cash is to be deposited by the Department and length of the deposit term. However, the selection of the bank or savings institution and length of term of the deposit is at the discretion of the Manager.
(b) Negotiable certificates of deposit in book entry format, bearer form or registered form may be deposited with prior arrangements made with the Manager and subject to approval of the Manager as with any other registered securities pursuant to Section 15212.1 of these regulations.
(c) By order of the Manager, physical possession of the passbook or certificate of deposit shall be transferred from the financial institution to the State Treasurer. The passbook or certificate shall be released only upon written order of the Director and the Manager or other person designated by the Director.
(d) The Manager shall provide the private self insurer depositing cash with a written receipt for the deposit.
(e) The private self insurer may request and the Manager shall authorize the payment of any interest on the cash deposit to be sent to the self insurer from the bank or savings institution.


Note: Authority cited: Sections 54, 55 and 3702.10, Labor Code. Reference: Sections 59, 3700, 3701, 3701.5, 3702, 3702.6, 3702 .10, 3703, 3705 and 3740-3745, Labor Code.







s 15215. Letters of Credit.
(a) An irrevocable standby letter of credit may be accepted by the Manager as all or part of the security deposit for a private self insurer. The Manager shall determine whether the letter of credit submitted is acceptable and if its language and format meets the requirements of this Section.
(b) Irrevocable letters of credit shall be issued by and payable at a branch in the continental United States, Alaska or Hawaii. The issuing bank or savings institution may be:

(1) A State of California chartered bank or savings institution; or
(2) A federally chartered bank or savings institution; or
(3) Any other foreign or domestic bank or savings institution; or
(4) A group (syndication) of domestic or foreign banks or savings institutions.
(c) The Manager shall provide a model letter of credit format and language that will meet the requirements for acceptance. The letter of credit shall include, but not be limited to, the following provisions:
(1) The letter of credit will be automatically extended without amendment for an additional 1 year from the expiry date or any subsequent expiry date unless, at least 45 days before the expiry date, the Manager is notified in writing by the bank or savings institution that the letter of credit will not be renewed;
(2) The letter of credit can be called if the self insurer fails to pay its workers' compensation liabilities; or the self insurer files bankruptcy; or the self insurer fails to renew or substitute acceptable security by ten days prior to the expiry date of the letter of credit; or any combination of these events;
(3) The letter of credit is not subject to any qualification or condition by the issuing or confirming bank or savings institution and is the bank or savings institution's individual obligation which is in no way contingent upon reimbursement;
(4) Payment of any amount under the letter of credit shall be made only by wire transfer in the name of "The Department of Industrial Relations In Trust For (the legal name of the self insurer)" to an account of the State Controller, State of California, at a designated bank;
(5) All letters of credit shall include a statement that if legal proceedings are initiated by any party with respect to the payment of any letter of credit, it is agreed that such proceedings shall be subject to the jurisdiction of California courts and administrative agencies and subject to California law; and
(6) Letters of credit shall be subject to the Uniform Customs and Practices for Documentary Credits, 1993 Revision, ICC Publication No. 500, which is hereby incorporated by reference, and a reference to this publication shall be included within the text of the letter of credit.
(7) Discrepancy fees, if any, shall be payable by the self insurer.
Note: A model single bank letter of credit (Revised 7/94) is contained in Plate I of the Appendix following the last Article in these Subchapter 2 regulations.
(d) A syndicated letter of credit shall include all the language of the single bank issued letter of credit and in addition:
(1) Authorize all demands for payment to be presented at a designated branch ("agent bank") of one of the participating banks or savings institutions;
(2) Include a draft to be presented for payment of all or part of the credit available under the letter of credit;
(3) Permit any participating bank's portion of the total credit available to be drawn upon if the participating bank's credit rating falls below the acceptable credit rating level specified in subsection (e) of this Section; and

(4) State that the obligations of the banks or savings institutions issuing a syndicated letter of credit are several and not joint, and neither the agent bank or savings institution or any other participating bank or savings institution shall be responsible for or otherwise liable for the failure of any other participating bank or savings institution to perform its obligations under the syndicated letter of credit. The failure of any participating bank or savings institution to perform its obligations under the syndicated letter of credit shall also not relieve any other participating bank or savings institution of its obligations under the syndicated letter of credit.
(e) The issuing bank(s) or savings institution(s) or the parent holding corporation of an unrated bank or savings institution issuing a letter of credit shall have at the time of issuance of the letter of credit an acceptable credit rating as set forth below:
(1) An "Aaa", "Aa", "A" long term certificate of deposit (CD) rating for the bank or savings institution in the current monthly edition of "Moody's Statistical Handbook" prepared by Moody's Investors Service, Inc., New York; or
(2) An "AAA", "AA" or "A" long term certificate of deposit (CD) rating for the bank or savings institution in the current quarterly edition or monthly supplement of "Financial Institutions Ratings" prepared by Standard & Poor's Corporation, New York; or
(3) An "AAA", "AA+" or "AA" credit quality rating for the issuing financial institution along with a CD/Debt Credit Limit Code above the dollar amount of the letter of credit as well as a Credit Limit Maturity Code of "a, b, c or d" in the current annual edition of "GFI Credit Ratings", or the latest monthly "GFI Bank Letter" supplement thereto; or
(4) Federally chartered instrumentalities of the United States operating under authority of the Farm Credit Act of 1971, as amended.
(f) A letter of credit issued by a bank or savings institution or syndication of banks or savings institutions that does not meet the credit rating set forth in subsection (e) at the time of issuance shall be accepted by the Manager with a confirming letter of credit issued by a bank or savings institution meeting the criteria of subsection (e). The confirming letter of credit shall state that the confirming bank or savings institution is primarily obligated to pay on demand the full amount of the letter of credit regardless of reimbursement from the bank or savings institution whose letter of credit is being confirmed.
Note: Advising letters of credit shall not be accepted in lieu of the confirmation requirement for the letter of credit bank with a unacceptable credit rating.
(g) If a bank or savings institution's rating subsequent to the issuance of the letter of credit falls below the acceptable rating level as set forth in subsection (e), the Manager shall, within 60 days of the publication of the lower credit rating, require the self insurer to:
(1) Replace the letter of credit with a new letter of credit issued by a bank or savings institution with an acceptable credit rating; or
(2) Confirm the letter of credit by a bank or savings institution with an acceptable rating.


Note: Authority cited: Sections 54, 55 and 3702.10, Labor Code. Reference: Sections 59, 3700, 3701, 3701.5, 3702, 3702.3, 3702.6, 3702.10, 3740, 3741 and 3742, Labor Code.






s 15216. Administration of Defaulted Self-Insurer's Claims.
(a) In the event the self insurer fails to pay workers' compensation benefits due, the cost of administration and legal expenses of existing and new claims shall be made from the security deposit set aside for this purpose pursuant to Labor Code Section 3701.5.
(b) If claims have been administered from out of state, the Director may order all remaining and future claims to be administered from California or may turn them over to the Self-Insurer's Security Fund.
(c) The Manager shall determine the adequacy of the existing security deposit to pay the defaulting self insurer's workers' compensation liabilities within 90 days of the Manager's determination that the self-insured has defaulted, and shall report his/her findings to the Director and the Self Insurer's Security Fund.
(d) If it is necessary for the Director to call or cash any security deposit, a trust shall be established by the Manager to receive the funds from the deposit, except in the following situations:
(1) Where the surety company elects, and the Director approves, handling of the claims directly by the provider of the surety bond; or
(2) Where the funds and responsibility for the claims are turned over to the Self-Insurer's Security Fund pursuant to Labor Code Section 3701.5.
(e) In the event of a default, all security deposits, regardless of form that is posted by the self insured employer, shall be the first in order to be called upon to pay benefits due. If any portion of the defaulting self insurer's liabilities are secured in whole or part by an alternative composite deposit posted by the Security Fund, the alternative composite deposit shall be next in order to be called upon to pay benefits due. The Director may at his/her discretion call any portion of the entire security deposit posted at any time without waiting for the exhaustion of all funds in the prior level or call order contained in this subsection.
(f) The Manager shall advise the Self-Insurers' Security Fund of the receipt of any verified information indicating a self-insurer's failure to pay benefits due, the filing of bankruptcy, or inability to post and maintain required security deposit.
(g) The Director, at his/her discretion, may order the Security Fund to assume full liability for any self insurer's insolvency or failure to pay benefits regardless of whether or not there is a shortfall in the deposit to pay benefits due.


Note: Authority cited: Sections 54, 55, 3701.8 and 3702.10, Labor Code. Reference: Sections 59, 129, 3701, 3701.5, 3701.8, 3702, 3702.3, 3702.6, 3703, 3705 and 3740-3745, Labor Code.






s 15220. Participation in Alternative Composite Deposits.
(a) All private self insured employers, active or revoked, shall be annually determined by the Manager to be either eligible or non-eligible for participation in the alternative composite deposit program. Participation shall be as a fully participating self insured employer or as a partially participating self insured employer as provided in subsection (c)(1).
(b) All non-eligible self insurers shall be deemed "excluded". The following self insured employers shall be excluded from the alternative composite deposit program:
(1) Any new private sector self insured employer during their first three full years of self insurance. An employer shall be considered a new self insured employer if, when it applied to become self insured, it did not possess an active Certificate of Consent to Self Insure issued pursuant to Labor Code Section 3700(b) for itself or for its parent, a subsidiary, or an affiliate employer.
(2) Any former private self insured employer that possesses a revoked Certificate of Consent to Self-Insure and is no longer required to submit a Self-Insurer's Annual Report pursuant to Section 15251 of this subchapter 2 because all known claims costs have been reported and all known claims are closed.
(3) Any former private self insured employer that possesses a revoked Certificate of Consent to Self Insure and is required to post no more than the minimum security deposit amount pursuant to Labor Code Section 3701(b).
(4) Any current or former private self insured employer to the extent it has sold off all or any portion of its workers' compensation liabilities under a special excess workers compensation insurance policy to an admitted carrier and has continued to post security deposit to secure such sold off liabilities for 3 years from the policy issuance date.
(5) All private group self insurers of workers' compensation liabilities as provided for in Article 13 of this subchapter 2.
(6) Any private self insured employer to the extent that it transfers any or all of its existing self insured workers' compensation liabilities to either: (A) a fully insured employer, such as in the merger, reorganization, sale or spin off of a division or subsidiary; or, (B) a carrier through a contractual sell off that is not a special excess workers' compensation insurance policy pursuant to Labor Code Section 3702.8(c) and (d).
(7) Any current or former private self insured employer that has defaulted on the payment of its self insured workers' compensation liabilities and whose liabilities have been turned over to the Security Fund by the Director.
(8) Any current or former private self insured employer that has failed to post the full amount of security deposit required by Section 15210 for more than 60 consecutive days.

(9) Any former private self insured employer that has posted a surety bond that contains no provision to release the carrier's liabilities under the surety bond.
(10) Any private self insured employer that does not meet the minimum credit rating criteria for participation in the alternative composite deposit contained in subsection (d)(3).
(11) Any current or former private legally self insured employer that is a member of a public sector healthcare joint powers authority pursuant to Government Code Section 6527.
(12) Any self insured employer that has been specifically excluded by written request of the Security Fund. Notwithstanding other requirements of this section, the Security Fund may submit a written request to the Manager that any private self-insured employer otherwise excluded from participation in the alternative composite deposit program be included, and the Manager, upon such written request, may grant the request; the written request shall identify the private self-insured employer and shall state the reasons that such private self-insured employer should be included in the alternative composite deposit.
(c) All private self insured employers determined by the Manager to be eligible shall be required to participate in the alternative composite deposit program.
(1) The Manager shall identify each eligible participant as one of the following:
(A) Fully participating employer, or
(B) Partially participating employer.
(d) To qualify as a fully participating private self insured employer, the employer shall meet all the following requirements:
(1) The employer is not excluded by subsection (b) of this regulation;
(2) The self insured employer meets the minimum financial requirements in its last published annual financial report as provided in Section 15203.2;
(3) The employer possesses an acceptable credit rating on the date of the Security Fund's written alternative composite deposit proposal. An acceptable credit rating shall be any "A" or any "B" rating or equivalent as determined by section 15220.1, in either of the following publications:
(A) Moody's Investor Service Corporate Finance monthly subscription rating guide entitled "Moody's Global Rating Guide", or
(B) Standard & Poor's Credit Market Services monthly subscription rating guide entitled "Global Ratings Handbook".
In the event that ratings have been determined pursuant to both subsection (d)(3)(A) and (B), and the ratings differ, the most recently published rating shall be utilized.
(e) The following self insured employers shall qualify as partially participating members of the alternative composite deposit program:
(1) The employer is not excluded by subsection (b) of this regulation;
(2) The employer meets the qualifications of subsection (d) but has been identified as a partially participating self insured employer by action of the Manager for cause. Cause may include, but is not limited to, failure to provide a parental agreement of assumption and guarantee; failure to file a complete and timely Self Insurer's Annual Report; failure to post the required security deposit by the required date; failure to report all claim liabilities or to estimate claims liabilities pursuant to Section 15300 of these regulations as determined in a routine audit or special audit; and/or, failure to post alternate deposit for new subsidiaries or affiliates of the self insurer after the end of the cycle for the previous year's alternate composite deposit.
(f) Excluded self insured employers shall not be eligible for any portion of their security deposit to be covered by the alternative composite deposit. The excluded private self insurer shall continue to secure its workers' compensation liabilities as required in Article 3 and to pay assessments as provided in Article 4 of this subchapter 2.
(g) Any private self insured employer that is eligible only as a partially participating member or is excluded to participate in the alternative composite deposit shall post the balance of the amount of required security deposit with the Director pursuant to Labor Code Section 3701 and Article 3 of this subchapter 2.
(h) For cause, the Manager may downgrade an eligible private self insured employer from:
(1) fully participating employer to partially participating employer as provided in subsection (e)(2); or
(2) from partially participating employer to excluded.
Cause may include, but is not limited to, failure to submit the Self Insurers' Annual Report and/or failure to estimate future claim liabilities on the Self Insurers' Annual Report fully pursuant to Section 15300 as determined in an audit; inclusion of claim liabilities of subsidiaries or affiliates in their self insurance program that have not been granted a Certificate to Self Insure by the Director; failure to post a security deposit pursuant to Labor Code Section 3701 and these regulations; failure to meet the financial requirements for self insurance pursuant to Section 15203.1; failure to submit an Assumption and Guarantee Agreement pursuant to Section 15203.1; and/or, failure to pay any assessments, fees, and/or penalties pursuant to Labor Code Section 3702.9, this article, and/or Articles 4 or 9 of this subchapter 2.


Note: Authority cited: Sections 3701, 3701.8 and 3702.10, Labor Code. Reference: Sections 3701 and 3701.8, Labor Code; and Section 6527, Government Code.






s 15220.1. Financial Information.
(a) In addition to the existing requirements to provide the current financial statement to the Manager contained in Section 15203.2 of these regulations, the Manager shall require financial information that includes designated general information and key financial items from such financial statement required by Section 15203.2, in a format approved by the Director pursuant to subsection (c)(3), from any private self insured employer that:
(1) does not have public financial statements (such as closely held or privately held employers) or has no published credit rating; and
(2) has a required security deposit equal to or greater than $2,000,000 or fails to meet the financial requirements to be self insured as contained in Section 15203.2.
(b) Financial information shall include the following designated general information and key financial items:
(1) General Information Items:
(A) Name of Employer
(B) Date of Last Annual Financial Statement
(2) Key Financial Information:
(A) Cash and Marketable Securities
(B) Inventory

(C) Total Current Assets
(D) Total Intangible Assets
(E) Total Assets
(F) Total Short Term Debt
(G) Total Current Liabilities
(H) Total Long Term Debt
(I) Long Term Pension Obligations
(J) Total Liabilities
(K) Total Shareholders' Equity
(L) Total Preferred Stock
(M) Retained Earnings

(N) Net Sales
(O) Cost of Goods Sold
(P) Selling, General & Administrative Expenses
(Q) Operating Profit/ (Loss)
(R) Earnings before Interest and Taxes
(S) Total Interest Expenses
(T) Rental Expense
(U) Net Income
(V) Depreciation & Amortization
(W) Extraordinary Items
(c) A private self insured employer that fails to file the financial information as determined by this section shall be ineligible to participate as a fully participating member in the current alternative composite deposit.
(1) The Manager shall utilize available financial information to assign a non-investment grade rating to any self insured employer that fails to submit financial information for eligibility as a partial participating member.
(2) The Manager shall be authorized to determine that a private self insurer that fails to submit financial information be ineligible for partial participation in the current alternative composite deposit program.
(3) After December 31, 2004, the financial information required by subsection (b) shall be submitted to the Manager electronically in a format provided by the Manager.
(d) Pursuant to Labor Code Section 3701.8(b)(5), the Manager may provide to the Security Fund any financial information needed to set the deposit assessments for self-insured employers participating in the alternative composite deposit program and to secure the composite deposit.


Note: Authority cited: Sections 3701.8 and 3702.10, Labor Code. Reference: Sections 3701.8 and 3702.10, Labor Code.






s 15220.3. Alternative Composite Deposits.
(a) The Security Fund shall secure the aggregate security deposit amount required, in whole or part, for all eligible private self insured employers in the alternative composite deposit program, utilizing any one or combination of security instruments listed in Labor Code Section 3701 and/or Section 3701.8 and as provided for in subsection (b) of this section.
(b) These security instruments may include, but not be limited to, letters of credit, surety bonds, approved securities, and cash subject to the regulatory requirements for each contained in Article 3 (commencing with Section 15210) of this subchapter 2. It may also include, but not be limited to, insurance coverage, such as specific or aggregate excess policies, or special excess workers' compensation policies; or other financial instruments, such as commercial paper or reinsurance contracts; or the Security Fund's own secured or unsecured indebtedness; or financial guarantees, including the Security Fund's own guarantee backed by cash or securities.
(c) The Security Fund shall submit a written proposal as required in subsection (d) each year that the Security Fund proposes to replace individual security deposits with an aggregate composite deposit.
(d) Each formal written proposal for an alternative composite deposit to the Manager shall include:
(1) A complete description of the proposed composite deposit including what portions are cash and non-cash; any retentions, deductibles, or co-payments that are contemplated in each layer, if any; and any insurance or reinsurance being utilized as part of the proposal;
(2) A list of all proposed self insured employers to be covered; their amount of coverage; their applicable credit rating or equivalent credit rating as determined by Section 15220.1 of this subchapter 2; and the credit rating agency utilized to determine the credit rating;
(3) Specification of the call order, if any, of the instruments proposed to be posted as part of the alternative composite deposit.
(4) A proposed starting date for the proposed alternative composite deposit that is at least 30 days after the date of the official written proposal to the Manager.
(e) The Manager shall advise the Director of all written proposals submitted by the Security Fund for an alternative composite deposit and the details of the proposal.
(f) The Manager shall review and approve or reject the alternative composite deposit proposal in whole or part and shall advise the Security Fund of the decision within 30 days. If approved, the Security Fund shall have 30 days to post the alternative composite deposit instruments(s) with the Director, unless the Security Fund's approved proposal sets forth some other acceptable timetable for delivery of the instrument(s).
(g) The Manager shall not release security deposits posted by individual self insured employers pursuant to Labor Code Section 3701 until after the alternative composite deposit permitted by Labor Code Section 3701.8 is fully posted.
(h) The Security Fund may subsequently propose additions, extensions, replacements, substitutions, or other changes to the initial alternative composite deposit posted with the Manager, in whole or part, in the same manner as set forth in this section. Approval and posting of any changes in the alternative composite deposit shall comply with the provisions of this section.
(i) The Security Fund may provide its own guarantee for any portion of the alternative composite deposit in the form of a retention, a deductible, or its own guarantee, provided the guaranteed amount is secured by segregated cash or securities posted with the Director as set forth in Section 15220.8.
(j) At the time the Security Fund submits the written proposal each year as required by subsection (d), it shall list the self-insurers that it proposes to include in whole or in part in the composite deposit. Notwithstanding Section 15210.1(b) of these regulations, each self-insurer listed for inclusion shall have 60 days from the date of notification of the increase or until July 1 of that year, whichever is sooner, to post any indicated increase in security deposit, and that increase shall be either included in the composite deposit proposed by the Security Fund or separately posted, as required.


Note: Authority cited: Sections 3701.8 and 3702.10, Labor Code. Reference: Section 3701.8, Labor Code.






s 15220.4. Deposit Assessments by the Security Fund for Participants of the Alternative Composite Deposit.
(a) The Security Fund shall collect an annual deposit assessment from all private self insurers participating in the alternative composite deposit as follows:
(1) A pro-rata cash contribution to build the net worth of the Security Fund to pay existing or future defaults on covered workers' compensation liabilities of eligible private self insured employers under an alternative composite deposit. This portion of the deposit assessment shall be called the Default Loss Fund Fee.
(2) A pro-rata cash contribution to pay the cost of any aggregate loss protection in excess of the level of liability provided through the Default Loss Fund. This portion of the deposit assessment shall be called the Excess Liability Protection Fee.
(3) A pro-rata cash contribution to fund security deposit shortfalls from existing private self insurer insolvencies and defaults formerly funded exclusively by the Security Fund's Insolvency Assessment pursuant to Labor Code Section 3745. This portion of the deposit assessment shall be called the Pre-Existing Deposit Shortfall Fee.
Exception: Private self insurers whose Certificate of Consent to Self Insure was revoked before January 1, 2003, shall remain subject to the assessments as provided by Labor Code Section 3745.
(b) Each private self insured employer participating in an alternative composite deposit with the Security Fund shall be required to annually pay the Security Fund deposit assessment.
(c) The Security Fund shall determine the pro-rata amount of the deposit assessment for each fully participating and partially participating private self insured employer based on all the following:
(1) Labor Code Section 3701.8(b) requirements;
(2) the cost of the security instruments permitted in Section 15220.2 including any cash holdings that will make up the Default Loss Fund and/or the Excess Liability Protection Fee portions of any alternative composite deposit proposed to the Director;
(3) the amount of the security deposit required by the Manager for each participating private self insured employer to secure its self insured workers' compensation liabilities;
(4) the participating private self insured employer's credit ratings or equivalent credit ratings as determined by Sections 15220, 15220.1, or Section 15220.3;
(5) an amount, if needed, for the pro-rata share of incurred but not fully reported liabilities aggregated across all private self insurers;
(6) an amount for the pro-rata share of pre-existing, unfunded defaulted liabilities of the Self Insurers' Security Fund to be collected for funding cash flow needs by the Pre-Existing Deposit Shortfall Fee;
(7) other measures of each private self insured employer's contribution to the cost of the alternative composite deposit proposed to the Director; and
(8) the amount, if any, of the security deposit required to be separately posted with the Director pursuant to Labor Code Section 3701 to secure that portion of the employer's self insured workers' compensation liabilities that is not secured in the alternative composite deposit.
(d) Where the participating self insurer has more than one credit rating from the credit rating agencies and the ratings are not in agreement, the most recently published credit rating shall be used to calculate the deposit assessment.
(e) Excluded private self insured employers shall be required to participate in the assessments. The Manager shall determine the amount of each deposit assessment due from private self insured employers excluded from participation in any alternative composite deposit and submit it to the Security Fund. The Security Fund shall collect the deposit assessments from excluded employers.
(f) The Security Fund may repay any indebtedness incurred as contemplated by Section 15220.3 from the annual deposit assessment. At the time the annual deposit assessment is determined, it may not be known whether any such indebtedness will be incurred, or the amount or repayment terms thereof. Accordingly, a portion of the annual deposit assessment may be contingent upon the actual incurrence of such indebtedness and delayed until the amount and repayment terms are known.
(g) If the Manager increases the security deposit requirement of a participating self-insured employer after the Security Fund has issued the annual assessment for the alternative composite deposit, the amount of the increase may be addressed through a supplemental assessment or by the posting of additional deposit separately as a partially participating self-insurer.


Note: Authority cited: Sections 3701, 3701.8, 3702.10 and 3745, Labor Code. Reference: Sections 3701, 3701.8, 3701.8(b), 3702.10 and 3745, Labor Code.






s 15220.5. Deposit Assessments; Failure to Pay; Assessment Liability.
(a) Each alternative composite deposit posted with the Director by the Security Fund shall be a binding agreement for all private self insured employers, fully participating and non-fully participating.
(b) Individual deposit assessment determinations, billings, and collection of these individual deposit assessments from participating private self insured employers shall be the responsibility of the Security Fund. The Security Fund shall advise the Manager in writing of any employer that fails to pay the assessment within the time period allocated by the Security Fund.
(c) The Manager shall assess a civil penalty pursuant to Labor Code Section 3701.8(d) against each private self insured employer who fails to pay the deposit assessment in the time allocated by the Security Fund. In addition to the civil penalty, the private self insured employer shall post a separate security deposit pursuant to Labor Code Section 3701 within 30 days of notice by the Manager.
(d) Failure by any participating private self insured employer to pay the deposit assessment in the time specified by the Security Fund, and/or failure to post and maintain the full amount of required security deposit pursuant to Labor Code Section 3701 for 60 days shall be good cause for the Manager to summarily revoke the private self insured employer's Certificate to Self Insure without a hearing as set forth in Section 15210.1.
(e) Any civil penalty assessed by the Manager pursuant to Labor Code Section 3701.8 shall not be discharged by the employer subsequently posting a security deposit. Any civil penalty or unpaid portion of the deposit assessment shall not be discharged by revocation of the employers' Certificate of Consent to Self Insure.


Note: Authority cited: Sections 3701.8 and 3702.10, Labor Code. Reference: Section 3701.8, Labor Code.






s 15220.6. New Self Insurers Fair Share Contribution Surcharge Fee.
(a) The Security Fund shall develop and track an annual historical schedule of cash contributions covering the initial ten years of the alternative security deposit program to build the net worth of the Default Loss Fund. A private self insured employer issued a Certificate to Self Insure after January 1, 2004, shall be surcharged a fair share contribution for the portion of the initial ten years that they did not contribute to the Default Loss Fund. This initial ten-year contribution for new self insurers shall be called the "New Self Insurer Fair Share Contribution Surcharge Fee" and shall be assessed and collected as a surcharge in addition to any other payment required of that new private self insurer into the Default Loss Fund. The Self Insurers Fair Share Contribution may be calculated as an average over a period of up to ten years.
(b) All funds collected from the New Self Insurer Fair Share Contribution Surcharge Fee shall be subject to the requirements of Section 15220.8.


Note: Authority cited: Sections 3701.8 and 3702.10, Labor Code. Reference: Section 3701.8, Labor Code.






s 15220.7. Appeals of Deposit Assessments and Appeals of Deposit Assessment Penalties.
(a) Any private self insured employer assessed a deposit assessment by the Security Fund may object or appeal the calculation or any other aspect of its deposit assessment to the Director as set forth in Article 11 (commencing with Section 15430). However, it shall be a condition precedent of such appeal that the full amount of the deposit assessment must first be paid to the Security Fund.
(b) Any private self insured employer assessed a civil penalty by the Manager for non-payment of the deposit assessment may appeal any civil penalties resulting from non-payment of the deposit assessment to the Director as set forth in Article 11 (commencing with Section 15430).


Note: Authority cited: Sections 3701.8 and 3702.10, Labor Code. Reference: Section 3701.8, Labor Code.






s 15220.8. Requirements for Use and Investment of Cash Generated from Deposit Assessments.
(a) The Security Fund shall provide the Director with a detailed accounting report of the monies collected for each deposit assessment within 90 days of the payment due date of the assessment.
(b) The accounting report shall include a summary of all funds collected, costs of each instrument posted as alternative composite deposit, all commissions and costs due or paid related to the alternative deposit system for that cycle, and any remaining excess funds.
(c) Following the purchase of any non-cash financial instruments to secure the liabilities of the alternative composite deposit, excess funds collected by the Security Fund in any deposit assessment and any additional funds subsequently collected shall be posted with the Director.
(d) All remaining cash collected from the assessments shall be deposited with the Director or as provided in subsection (f).
(e) All Security Fund cash deposits posted with the Director shall be held in the name of "Director of Industrial Relations in Trust for Self Insurers' Security Fund".
(f) The Director shall deposit and invest the Security Fund's cash in the Surplus Money Investment Fund pursuant to Labor Code Section 3702.5(b) and subject to the restrictions of use contained in Labor Code Section 3701.8, or the Director may permit the Security Fund to hire its own funds manager and invest the deposited cash on behalf of the Security Fund outside of the State Treasury subject to the following:

(1) As a condition precedent to the Security Fund managing such funds, the Security Fund shall adopt a cash investment policy outlining the types of investments in which such cash may be invested to preserve and protect the principal.
(2) The Security Fund shall insure that the Investment Fund manager submit a quarterly report to the Manager covering any of the Director's cash managed by the Security Fund.
(3) None of the Director's cash may be commingled with Security Fund cash, nor may any specific investments made with the Director's cash be commingled in the same instrument with Security Fund cash.
(4) Regardless of whether the Director or the Security Fund manages the cash posted, the funds shall remain in the name of the Director as set forth in subsection (e) of this section until such time as the Director may order any or all of the funds released to the Security Fund or refunded to the private self insured employers.
(g) Whenever the Director initially turns over the compensation liabilities of a private self insured employer to the Security Fund pursuant to Labor Code Section 3701.5 and such liabilities are covered in whole or part by the cash portion of an alternative composite deposit, the Director shall order the Manager to release enough cash to fund the payment of expected workers' compensation benefits for the remainder of the calendar year. If the amount released is inadequate, the Manager in consultation with the Security Fund shall advise the Director and request the Director to authorize the release of an additional amount to fund the payment of benefits and expenses for the period.
(h) The Security Fund shall annually notify the Manager and the Director in writing of the amount of funds that it will need to operate for the next calendar year for payment of benefits due, legal and administrative expenses, and other expenses of the Security Fund that will be funded from alternative composite deposits. The Manager shall be authorized to release the cash portion of the funds to the Self Insurers' Security Fund's possession.


Note: Authority cited: Sections 3701.8 and 3702.10, Labor Code. Reference: Section 3701.8, Labor Code.






s 15230. Private Sector License Fee Assessment.
(a) After July 1, 2001, an annual license fee shall be assessed by the Manager against each private self-insurer and paid by each private self-insurer on the following basis:

Number of Single Adjusting
Employees Location [FNa1] (continued)