Title 31 Pa. Code — Insurance

Part I General Provisions

Subpart A Uniform Classification of Expenses

Chapter 11 Miscellaneous Provisions

31 Pa. Code § 11.2 Changes made in filing or certifying records.

Section 211 of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § 49) provides for a charge to be made for each copy of a paper filed in the Department of 25¢ per page, and $10 for certifying the copy. A similar charge will also be made for papers which are prepared by the company, exchange, association or society itself and are submitted to the Department for verification and certification.

The provisions of this § 11.2 amended under sections 206, 506, 612-A, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 240-12A, 411 and 412); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and The Insurance Department Act of 1921 (40 P. S. § § 1—321).

The provisions of this § 11.2 amended November 30, 1990, effective December 1, 1990, 20 Pa.B. 5920. Immediately preceding text appears at serial page (118081).

History

• Authority: The provisions of this § 11.
• Source: The provisions of this § 11.

31 Pa. Code § 11.7 Salvage and subrogation recovery expenses.

(a) This section prescribes accounting practices for the classification and allocation of salvage and subrogation recovery expenses in financial statements filed with the Insurance Commissioner under sections 1 and 2 of the act of May 9, 1949 (P. L. 1025, No. 298)(40 P. S. § § 1261—1264) and section 320 of The Insurance Company Law of 1921 (40 P. S. § 443).

(b) This section applies to all stock or mutual insurance companies, associations, exchanges, employees mutual liability associations and organizations, including The State Workmen’s Insurance Fund, which are subject to the Casualty and Surety Rate Regulatory Act (40 P. S. § § 1181—1199); The Fire, Marine and Inland Marine Rate Regulatory Act (40 P. S. § § 1221—1238); or section 654 (Workmen’s Compensation Insurance) of The Insurance Company Law of 1921 (40 P. S. § 814). This section does not apply to insurers authorized to write title insurance.

(c) If attention is given to salvage or subrogation matters at the same time as the adjustment of the loss is proceeding, no attempt need be made to allocate any portion of the time of the adjuster to salvage or subrogation expense.

(d) If the salvage or subrogation activity follows the adjustment of the loss, such additional time as may be required shall be treated as salvage expense.

(e) Any items of outside service, such as advertising, expenses of outside organizations, or rewards, shall be treated as salvage expense.

(f) The cost of recovering stolen goods when incurred by the insurer shall be treated as salvage expense.

(g) If salvage is handled by outside agencies, their billing shall be made directly to the companies and sufficient information given for proper classification of the related expenses.

The provisions of this § 11.7 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); sections 1 and 2 of the act of May 9, 1949 (P. L. 1025, No. 289)(40 P. S. § § 1261 and 1262); and section 320(a) of The Insurance Company Law of 1921 (40 P. S. § 443(a)).

The provisions of this § 11.7 adopted October 21, 1949; amended through July 7, 1970; amended April 13, 2001, effective April 14, 2001, 31 Pa.B. 2001. Immediately preceding text appears at serial pages (246893) to (246894).

History

• Authority: The provisions of this § 11.
• Source: The provisions of this § 11.

Chapter 12 Cost of Insurance Department Examinations

31 Pa. Code § 12.1 Purpose.

The Department is responsible for the conduct of examinations of insurers and other entities subject to its administrative or regulatory authority under Article IX of the act (40 P. S. § § 323.1—323.8). Examinations are conducted to verify the financial condition of the examinee and ascertain whether the examinee has complied with the laws of the Commonwealth. Section 907 of the act (40 P. S. § 323.7) provides that the expenses incurred in and about the examination of an entity, including compensation of Department employees assisting in an examination and other professionals or specialists retained as examiners, shall be charged to and paid by the examinee. This chapter specifies the types of examination costs charged to examinees and the manner in which amounts charged are determined.

History

• Authority: The provisions of this Chapter 12 issued under Article IX of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 12 adopted August 5, 1994, effective August 6, 1994, 24 Pa.

31 Pa. Code § 12.2 Definitions.

In addition to the terms defined in section 902 of the act (40 P. S. § 323.2), the following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Insurance Department Act of 1921 (40 P. S. § § 1—297.4). Department—The Insurance Department of the Commonwealth.

History

• Authority: The provisions of this Chapter 12 issued under Article IX of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 12 adopted August 5, 1994, effective August 6, 1994, 24 Pa.

31 Pa. Code § 12.3 Scope.

This chapter applies to every company subject to examination under section 903 of the act (40 P. S. § 323.3).

History

• Authority: The provisions of this Chapter 12 issued under Article IX of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 12 adopted August 5, 1994, effective August 6, 1994, 24 Pa.

31 Pa. Code § 12.4 Per diem charges.

(a) Per diem charges for Department examinations, including financial examinations, market conduct examinations and examinations of companies subject to summary proceedings, will be updated annually and published in the Pennsylvania Bulletin according to the following classifications:

(1) Examiner Trainee.

(2) Examiner 1.

(3) Examiner 2.

(4) Examiner 3.

(5) Examination Manager.

(b) In addition to Department examiners, the Department may utilize the services of other Department employes and may retain attorneys, appraisers, independent actuaries, independent certified public accountants or other professionals and specialists as examiners, the cost of which will be charged to and paid by the examinee.

(c) Per diem charges for examiners and other Department employes will be calculated based on the current salary and benefit level of the examiners or other employes. The Department will require that per diem charges for other professionals and specialists retained as examiners be comparable to prevailing rates for the services. Per diem charges for examination costs will be calculated and billed in 1/2 hour units.

This section cited in 31 Pa. Code § 12.7 (relating to general procedures related to costs of examination).

History

• Authority: The provisions of this Chapter 12 issued under Article IX of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 12 adopted August 5, 1994, effective August 6, 1994, 24 Pa.

31 Pa. Code § 12.5 Travel, lodging and food expenses.

(a) In addition to per diem charges, the travel, lodging and food expenses of Department examiners, other Department employes assisting in the examination and other professionals or specialists retained as examiners will be charged to and paid by the examinee.

(b) Charges for travel, lodging and food expenses of Department examiners and employes will be made in accordance with the rules governing employes of the Commonwealth. Charges for travel, lodging and food expenses of other professionals or specialists will be made in accordance with provisions set forth in letters of engagement.

This section cited in 31 Pa. Code § 12.7 (relating to general procedures related to costs of examination).

History

• Authority: The provisions of this Chapter 12 issued under Article IX of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 12 adopted August 5, 1994, effective August 6, 1994, 24 Pa.

31 Pa. Code § 12.6 Charges for offsite examination work.

Charges referred to in this chapter are payable by the examinee for the time period in which a Department examiner, another Department employe or another professional or specialist is engaged in examination work pertaining to that examinee, regardless of whether the examiner, employe or other professional or specialist is physically present at the examinee’s business site.

History

• Authority: The provisions of this Chapter 12 issued under Article IX of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 12 adopted August 5, 1994, effective August 6, 1994, 24 Pa.

31 Pa. Code § 12.7 General procedures related to costs of examinations.

(a) Prior to or contemporaneous with commencement of an examination, the Department will disclose to each examinee the general information relating to how the examination will be conducted and how it will impact the examinee. The information will include, for example, whether examiners conducting the examination will be lodged near the examinee’s site or travel daily from home or headquarters, consistent with Commonwealth rules on these matters.

(b) Billings for examination costs will reflect a cost category for per diem charges as set forth in § 12.4 (relating to per diem charges) and a cost category for travel, lodging and food expense as set forth in § 12.5 (relating to travel, lodging and food expenses). Additional detail on costs billed for expenses will be available upon request by examinees.

History

• Authority: The provisions of this Chapter 12 issued under Article IX of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 12 adopted August 5, 1994, effective August 6, 1994, 24 Pa.

Subpart B Securities and Stock Transactions

Chapter 25 Rules and Procedural Requirements for Insurance Holding Company Systems

31 Pa. Code § 25.1 Definitions.

(a) The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Insurance Company Law of 1921 (40 P. S. § § 341—991.1718). Commissioner—The Insurance Commissioner of the Commonwealth. Corporation—A corporation organized under a law of the Commonwealth or under the laws of another state, or having an office or transacting business in this Commonwealth. Department—The Insurance Department of the Commonwealth. Executive officer—A chief executive officer, chief operating officer, chief financial officer, president, treasurer, secretary, controller and other individual performing functions corresponding to those performed by the foregoing officers under whatever title. NAIC—The National Association of Insurance Commissioners. Surplus—Total assets less total liabilities as calculated and reported in accordance with the annual statement instructions and accounting practices and procedures manual prescribed by the NAIC or as otherwise required by the Commissioner for annual financial statements filed with the Department. Ultimate controlling person—A person which is not controlled by another person. An ultimate controlling person may be one or more of the following: individual, corporation, limited liability company, partnership, association, joint stock company, trust, unincorporated organization, or any similar entity or combination of the foregoing who controls another person.

(b) Unless the context otherwise requires, other terms found in this chapter are used as defined in Article XIV of the act (40 P. S. § § 991.1401—991.1413).

The provisions of this § 25.1 amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413).

The provisions of this § 25.1 amended September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406. Immediately preceding text appears at serial pages (245443) to (245444).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.8 Waivers.

This chapter does not constitute a waiver by the Department of its authority, for the purpose of examining into the affairs of a person proposing to acquire or offering to acquire voting securities of an insurer or a person which controls an insurer, to have free access to its books and papers which relate to its business, and to the books and papers kept by any of its agents. The Department may summon, and administer the oath to, and examine as witnesses, the directors, officers and agents of the person and other persons, relative to its affairs, transactions and condition.

The provisions of this § 25.8 amended under Article XIV The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.8 amended September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial pages (281680) to (281681).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.11 Expenses of experts and consultants.

(a) Under sections 1402(f)(3) and 1405(a)(4) of the act (40 P. S. § § 991.1402(f)(3) and 991.1405(a)(4)), the Department may retain attorneys, actuaries, accountants and other experts not otherwise a part of the Department’s staff as may be reasonably necessary to assist the Department in the evaluation of a filing under this chapter. The Department will provide the person filing with written notice of the engagement of an outside expert, including the expert’s name, the terms of engagement and a cost estimate, and will consider any possible cost-saving alternatives suggested by the person filing.

(b) The cost of experts retained by the Department will be charged to and paid by the person filing the statements or a designee of the person acceptable to the Department.

(c) The Department will require hourly charges for experts retained by the Department be comparable to prevailing rates for the services.

(d) In addition to hourly charges, the Department will require that charges for travel, lodging and food expenses of experts retained by the Department be comparable to prevailing rates for similar services and made in accordance with provisions set forth in letters of engagement.

The provisions of this § 25.11 amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413).

The provisions of this § 25.11 adopted July 30, 1982, effective July 31, 1982, 12 Pa.B. 2382; amended September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406. Immediately preceding text appears at serial pages (245445) to (245446).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.12 Forms—general requirements.

(a) Forms A—F located in Appendix A are intended to be guides in the preparation of the statements required by sections 1402—1405 of the act (40 P. S. § § 991.1402—991.1405). They are not intended to be blank forms which are to be filled in. The forms filed shall contain the numbers and captions of all items, but the text of the items may be omitted if the answers are prepared in a manner that indicates clearly the scope and coverage of the items. Instructions, whether appearing under the items of the form or elsewhere therein, shall be omitted. Unless expressly provided otherwise, if an item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.

(b) Two copies of Forms A and E and one copy of Forms B—D and F, including exhibits and other papers and documents filed as a part thereof, shall be filed with the Commissioner by personal delivery, mail, facsimile or other form of electronic transmission acceptable to the Department. At least one copy shall be signed in the manner prescribed on the form. Unsigned copies shall be conformed. If the signature of a person is affixed under a power of attorney or other similar authority, a copy of the power of attorney or other authority shall also be filed with the form.

(c) One of the filed copies of Form A shall be available for public inspection as of the date the filing is made; except that copies of personal financial statements of nonpublicly held ultimate controlling persons shall be given confidential treatment. Form A filings also may contain or reference other materials that are confidential, proprietary or privileged under statute, regulation, case law, administrative or court order, or other authority.

(1) If a person filing a Form A wishes to assert that personal financial statements or other materials included or referenced within the filing are confidential, proprietary or privileged and should not be available for public inspection, the person shall notify the Department at the time the initial filing is made as follows:

(i) Identify the specific information, document, report or other material that is asserted to be confidential, proprietary or privileged.

(ii) State the basis upon which the assertion of confidentiality, proprietary or privilege is premised.

(iii) Identify the person to whom inquiries regarding the issue of confidential treatment should be directed.

(iv) Submit one copy of the filing with the materials asserted to be confidential, proprietary or privileged physically separate from the remainder of the filing, or as otherwise instructed by the Department.

(2) If an applicant requests a hearing on a consolidated basis under section 1402(f)(2.1) of the act, in addition to filing Form A with the Commissioner, the applicant shall file a copy of the Form A with the NAIC in electronic form.

(d) Forms shall be prepared on 8 1/2 inches x 11 inches paper and preferably bound at the top or the top left-hand corner. Exhibits and financial statements, unless specifically prepared for the filing, may be submitted in their original size. Copies of forms, financial statements or exhibits shall be clear, easily readable and suitable for review and reproduction. Debits in credit categories and credits in debit categories shall be designated so that they are clearly distinguishable on photocopies. An insurer may request that the Department accept a form in an electronic format only. Upon the Department’s request, an insurer shall prepare an electronic version of the form, which may be submitted by secure e-mail, if this option is available to a company, or on CD-ROM mailed or hand-delivered to the Department.

(e) Forms shall be completed in the English language and monetary values shall be stated in United States currency. If a financial statement, exhibit or other paper or document filed with the form is in a foreign language, it shall be accompanied by a translation into the English language and monetary value shown in a foreign currency normally shall be converted into United States currency utilizing the conversion rate in effect as of the financial statement date.

The provisions of this § 25.12 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.12 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial pages (281682) to (281683).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.13 Forms—incorporation by reference, summaries and omissions.

(a) Information required in Form A, B or D—F located in Appendix A may be incorporated by reference as provided in this subsection if the incorporation would not make the information provided in the form incomplete, unclear or confusing. Information required by an item in Form A, B or D—F may be incorporated by reference in answer or partial answer to another item. Information contained in a financial statement, annual report, proxy statement, statement filed with a governmental authority or another document may be incorporated by reference in answer or partial answer to an item in Form A, B or D—F if the document or paper is filed as an exhibit to the form. Excerpts of documents may be filed as exhibits if the documents are extensive. Documents currently on file with the Commissioner which were filed within the immediately preceding 3 years need not be attached as exhibits if there has been no change in the information already on file. References to information contained in exhibits or in documents already on file shall clearly identify the material and shall specifically indicate that the material is to be incorporated by reference in answer to the item.

(b) If an item requires a summary or outline of the provisions of a document, only a brief statement shall be made as to the pertinent provisions of the document. In addition to the brief statement, the summary or outline may incorporate by reference particular parts of an exhibit or document currently on file with the Commissioner which was filed within the immediately preceding 3 years and may be qualified in its entirety by that reference. When two or more documents required to be filed as exhibits are substantially identical in all material respects, except as to the parties thereto, the dates of execution or other details, a copy of only one of the documents needs be filed with a schedule identifying the omitted documents and setting forth the material details in which the omitted documents differ from the document which is filed.

The provisions of this § 25.13 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 and Article XIV of the Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.13 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial pages (281683) to (281684).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.14 Forms—information unknown or unavailable and extension of time to furnish.

If it is impractical to furnish required information, document or report at the time it is required to be filed, a separate document shall be filed with the Commissioner:

(1) Identifying the information, document or report in question.

(2) Stating why the filing thereof at the time required is impractical.

(3) Requesting an extension of time for filing the information, document or report to a specified date. The request for extension shall be deemed granted unless the Commissioner within 30 days after receipt thereof denies the request.

The provisions of this § 25.14 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.14 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial pages (281684) to (281685).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.15 Forms—additional information and exhibits.

(a) In addition to the information expressly required to be included in Forms A—F located in Appendix A, the person filing shall provide further material information, if any, as necessary for the completion or clarity of the information expressly required in the form. The person filing may also file exhibits as desired in addition to those expressly required by the form. The exhibits shall be marked to indicate clearly the subject matters to which they refer. The Commissioner may require the person filing the form to provide additional information as may be necessary to determine compliance with the act.

(b) Changes to Forms A—F must include on the top of the first page the phrase ‘‘Change No. (insert number) to’’ and indicate the date of the change and not the date of the original filing.

The provisions of this § 25.15 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.15 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial page (281685).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.16 Acquisition of control—statement filings.

(a) A person required to file a statement under section 1402 of the act (40 P. S. § 991.1402) shall furnish the required information on Form A located in Appendix A as prescribed by this chapter. If the information requirements in section 1403(c)(2) of the act and the criteria in section 1403(d)(2) of the act (40 P. S. § § 991.1403(c)(2) and 991.1403(d)(2)), regarding the competitive impact of an acquisition in this Commonwealth, apply to a Form A filing, the person shall also furnish the required information on Form E located in Appendix A as prescribed by this chapter.

(b) A person filing a request under section 1402(g) of the act for an exemption from section 1402 of the act is not required to file a Form A as prescribed by this chapter but shall provide information deemed by the Commissioner as necessary to determine that an offer, request, invitation, agreement or acquisition does either of the following:

(1) Has not been made or entered into for the purpose and will not have the effect of changing or influencing the control of a domestic insurer.

(2) Otherwise is not comprehended within the purposes of section 1402 of the act.

(c) A person required to file a preacquisition notification under section 1403(b) of the act for an acquisition not subject to a Form A filing under section 1402 of the act shall file Form E as prescribed by this chapter.

(d) Under section 1403(c)(2) of the act the Department may require material and information in addition to the information required by Form E as reasonably necessary to determine whether the proposed acquisition, if consummated, would exceed the competitive standard of section 1403(d) of the act. The additional information required may include an opinion of an economist as to the competitive impact in this Commonwealth of an acquisition that would exceed the competitive standard of section 1403(d) of the act. The opinion shall be obtained by the person filing the form and shall be accompanied by a summary of the economist’s education and experience indicating the economist’s ability to render an informed opinion.

(e) Under section 1402(d) of the act, a person shall file with the Department and send to the insurer an amendment disclosing a material change in the information furnished on Forms A and E within 2 business days after the person learns of the change. If the acquiring person is not an individual, a material change includes changes in directors, executive officers or owners of 10% or more of the voting securities of the acquiring person. In addition, the person shall file with the Department and send to the insurer within 5 business days an amendment disclosing a change other than a material change in the information furnished on Forms A and E arising after the date on which the form was filed but before a determination is made on the filing.

(f) If the person being acquired is deemed to be a ‘‘domestic insurer’’ under section 1402(a)(2)(i) of the act, the name of the domestic insurer on the first page of Forms A and E shall be indicated as follows: ‘‘ABC Insurance Company, a subsidiary of XYZ Holding Company.’’

(g) If a person deemed to be a ‘‘domestic insurer’’ under section 1402(a)(2)(i) of the act is being acquired, references to ‘‘the insurer’’ in Forms A and E shall refer to both the domestic subsidiary insurer and the person being acquired.

The provisions of this § 25.16 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.16 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial pages (281685) to (281687).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.17 Annual registration of insurers—statement filing.

(a) An insurer required to file an annual registration statement under section 1404 of the act (40 P. S. § 991.1404) shall furnish the required information on Form B as prescribed by this chapter.

(b) Under section 1404(a) of the act, an insurer shall file a Form B located in Appendix A within 15 days after becoming subject to registration and annually thereafter by March 31 of each year. If the Commissioner approves a merger or acquisition of control, the domestic insurer being acquired shall file a properly completed Form B within 15 days of the end of the month in which the merger or acquisition is consummated.

(c) An amendment to Form B shall be filed within 15 days after the end of a month in which there is a material change to the information provided in the annual registration statement, including changes in officers or directors listed in Item 4 of Form B. An amendment to Form B is not required if a material change has been reported as a dividend, other distribution to shareholders, or other transaction under § § 25.21 and 25.22 (relating to transactions subject to prior notice—notice filing; and all dividends and other distributions), and there has been no change in the reported information.

(d) Amendments shall be filed in the Form B format with only items which are being amended reported. Each amendment shall include at the top of the first page ‘‘Amendment No. (insert number) to Form B for (insert year of most recent filing)’’ and shall indicate the date of the amendment and not the date of the original filing.

The provisions of this § 25.17 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 of The Insurance Company Law of 1921 (40 P. S. § 459.8).

The provisions of this § 25.17 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406. Immediately preceding text appears at serial pages (245449) to (245450).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.18 Summary of registration—statement filing.

An annual registration statement filed under section 1404 of the act (40 P. S. § 991.1404) shall include the information required on Form C located in Appendix A as prescribed by this chapter.

The provisions of this § 25.18 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.18 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial page (281688).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.19 Alternative and consolidated registrations.

(a) Under section 1404(i) of the act (40 P. S. § 991.1404(i)) an insurer authorized to do business in this Commonwealth may file a registration statement on behalf of an affiliated insurer which is required to register under section 1404 of the act. A registration statement may include information regarding an insurer in the insurance holding company system even if the insurer is not authorized to do business in this Commonwealth. In lieu of filing a registration statement on Form B located in Appendix A, an insurer authorized to do business in this Commonwealth may file a copy of the registration statement or similar report which it is required to file in its state of domicile, if:

(1) The statement or report contains substantially similar information required to be furnished on Form B.

(2) The filing insurer is the principal insurance company in the insurance holding company system.

(b) The question of whether the filing insurer is the principal insurance company in the insurance holding company system is a question of fact. An insurer filing a registration statement or report in lieu of Form B on behalf of an affiliated insurer shall set forth a brief statement of facts to substantiate the filing insurer’s claim that it, in fact, is the principal insurer in the insurance holding company system.

(c) With the prior approval of the Commissioner, an unauthorized insurer may follow any of the procedures which could be done by an authorized insurer under subsection (a).

(d) An insurer may take advantage of the provisions of section 1404(h) or (i) of the act without obtaining the prior approval of the Commissioner. The Commissioner reserves the right to require individual filings if the Commissioner deems that the filings are necessary in the interest of clarity, ease of administration or the public good.

The provisions of this § 25.19 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 of The Insurance Company Law of 1921 (40 P. S. § 459.8).

The provisions of this § 25.19 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406. Immediately preceding text appears at serial pages (245450) to (245451).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.20 Disclaimers and termination of registration.

(a) A disclaimer of affiliation under section 1404(k) of the act (40 P. S. § 991.1404(k)) or a request for termination of registration under section 1404(g) of the act claiming that a person does not, or will not upon the taking of some proposed action, control another person, referred to as the ‘‘subject,’’ within this subsection, must contain the following information:

(1) The number of authorized, issued and outstanding voting securities of the subject.

(2) With respect to the person whose control is denied and the affiliates of that person, the number and percentage of shares of the subject’s votes that shareholders would be entitled to cast in the election of directors which are held of record or known to be beneficially owned, and the number of the shares concerning which there is a right to acquire, directly or indirectly.

(3) The material relationships and bases for affiliation between the subject and the person whose control is denied and the affiliates of that person.

(4) A statement explaining why the person should not be considered to control the subject along with supporting information.

(b) A request for termination of registration shall be deemed to have been granted unless the Department, within 30 days after receipt of the request, notifies the registrant otherwise.

The provisions of this § 25.20 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.20 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial page (281689).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.21 Transactions subject to prior notice—notice filing.

(a) An insurer required to give notice of a proposed transaction under section 1405(a)(2) of the act (40 P. S. § 991.1405(a)(2)) shall furnish the required information on Form D located in Appendix A as prescribed by this chapter.

(b) The insurer shall file an amendment to Form B reporting changes in the information furnished on Form D, including a change in the effective date of the transaction, within 15 days after the end of a month in which the transaction is effectuated.

(c) An insurer may not enter into a proposed transaction if a material change occurs in the information furnished on Form D unless the insurer has filed an amended Form D with the Department at least 30 days prior to entering into the transaction, or a shorter period the Department may permit, and the Department has not disapproved the amended transaction within that time period.

(d) New or amended management agreements, service contracts, tax allocation agreements, guarantees and cost-sharing arrangements (including leases), involving a domestic insurer and a person in its insurance holding company system must:

(1) Be filed for prior approval under section 1405(a)(2)(v) of the act.

(2) At a minimum and as applicable:

(i) Identify the person providing services and the nature of the services.

(ii) Set forth the methods to allocate costs.

(iii) Require timely settlement, not less frequently than on a quarterly basis, and compliance with the NAIC Accounting Practices and Procedures Manual.

(iv) Prohibit advancement of funds by the insurer to the affiliate except to pay for services defined in the agreement.

(v) State that the insurer shall maintain oversight for functions provided to the insurer by the affiliate and that the insurer shall monitor services annually for quality assurance.

(vi) Define books and records of the insurer to include the books and records developed or maintained under or related to the agreement.

(vii) Specify that the books and records of the insurer are the exclusive property of the insurer, held for the benefit of the insurer and are subject to the control of the insurer.

(viii) Include standards for termination of the agreement with and without cause.

(ix) Include provisions for indemnification of the insurer in the event of gross negligence or willful misconduct on the part of the affiliate providing the services.

(x) Specify that, if the insurer is placed in receivership or seized by the Commissioner under Article V of The Insurance Department Act of 1921 (40 P. S. § § 221.1—221.63):

(A) The rights of the insurer under the agreement extend to the receiver or Commissioner.

(B) The books and records shall immediately be made available to the receiver or Commissioner immediately upon the receiver or the Commissioner’s request.

(xi) Specify that the affiliate does not have an automatic right to terminate the agreement if the insurer is placed in receivership under Article V of The Insurance Department Act of 1921.

(xii) Specify that the affiliate will continue to maintain systems, programs or other infrastructure notwithstanding a seizure by the Commissioner under Article V of The Insurance Department Act of 1921 and shall make them available to the receiver for as long as the affiliate continues to receive timely payment for services rendered.

(e) For purposes of subsection (d), ‘‘amended’’ does not include:

(1) The continuation of an agreement or contract with no specified term or that is automatically renewed if provisions are not altered.

(2) The addition of an affiliate if the filing evidencing the notification of the addition is made with a domiciliary regulator in another state.

The provisions of this § 25.21 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.21 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial page (281690).

This section cited in 31 Pa. Code § 25.17 (relating to annual registration of insurers—statement of policy); and 31 Pa. Code Appendix A, Form B (relating to insurance holding company system annual registration statement).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.21a Enterprise risk report.

The ultimate controlling person of an insurer required to file an enterprise risk report under section 1404(k.1) of the act (40 P. S. § 991.1404(k.1)) shall furnish the required information on Form F as set forth in Appendix A. If the Commissioner approves a merger or acquisition of control, a revised enterprise risk report shall be filed within 30 days after the end of the month in which the acquisition of control occurs unless otherwise ordered by the Commissioner.

The provisions of this § 25.21a issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413).

The provisions of this § 25.21a adopted May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851.

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.22 All dividends and other distributions.

(a) Under section 1404(e) of the act (40 P. S. § 991.1404(e)) a registered insurer is required to report to the Department all dividends and other distributions to shareholders within 5 business days following the declaration thereof and at least 10 days, commencing from the date of receipt by the Department, prior to payment thereof. The report shall include the information set forth in section 1404(e) of the act and subsection (c)(1)—(6) except that the information set forth in subsection (c)(6) is not required for dividends other than dividends reported under section 1405(b) of the act (40 P. S. § 991.1405(b)) and dividends and other distributions filed under section 337.8 of the act (40 P. S. § 459.8).

(b) Under section 337.8 of the act a domestic insurance company, association or exchange may pay dividends and other distributions to shareholders only out of unassigned funds as defined in section 337.8(e) of the act or upon approval of the Commissioner. Information filed with the Commissioner under section 337.8 of the act shall include the information set forth in subsection (c)(1)—(6).

(c) Requests for approval of extraordinary dividends or another extraordinary distribution to shareholders under section 1405(b) of the act shall include the following:

(1) The amount of the proposed dividend or other distribution.

(2) The date established for payment of the dividend or other distribution.

(3) A statement as to whether the dividend or other distribution is to be in cash or other property and, if in property, a description thereof, its cost and its fair market value together with an explanation of the basis for valuation.

(4) A copy of the calculations determining that the proposed dividend or other distribution is or is not extraordinary. The work paper shall include the following information with respect to the domestic insurer:

(i) The amounts, dates and form of payment of all dividends and other distributions made within the previous 12 consecutive months ending on the date fixed for payment of the proposed dividend and commencing on the day after the same day of the same month in the last preceding year.

(ii) Surplus, total capital and surplus, as of the 31st day of December next preceding.

(iii) The net income for the 12-month period ending the 31st of December next preceding.

(5) A statement demonstrating the transaction’s compliance with section 1405(d) of the act by describing the effect of the proposed dividend or other distribution upon the insurer’s surplus and the reasonableness of surplus in relation to the insurer’s outstanding liabilities and the adequacy of surplus relative to the insurer’s financial needs.

(6) A balance sheet and statement of income for the period intervening from the last annual statement filed with the Commissioner and the end of the month preceding the month in which the request for dividend or other distribution approval is submitted.

(d) Reports of dividends and other distributions under this section shall include on the top of the first page the phrase: ‘‘Notice of Dividend or Other Distribution’’ and the name of the insurer.

(e) The insurer shall report changes in information furnished under subsection (c) within 15 days after the end of a month in which the dividend or other distribution is paid. If the dividend or other distribution is required to be reported on Form B located in Appendix A, the insurer shall report the changes as an amendment to Form B. If the dividend or other distribution is not subject to a Form B filing, the report of changes shall state on the top of the first page the phrase: ‘‘Change No. (insert number) to,’’ and shall include the date of the change, date of declaration, amount paid, payment date, form of payment and the nature of and reason for the change.

(f) An insurer may not pay a dividend or other distribution under sections 337.8 or 1405(b) of the act if a material change occurs in the information reported under this section unless the insurer has filed an amended report with the Department at least 30 days prior to paying the dividend or other distribution, or a shorter period the Department may permit, and the Department has not disapproved the amended report within that time period.

The provisions of this § 25.22 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 and Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 459.8 and 991.1401—991.1413); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 25.22 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406; amended May 16, 2014, effective June 16, 2014, 44 Pa.B. 2851. Immediately preceding text appears at serial pages (281690) to (281692).

This section cited in Pa. Code § 25.17 (relating to annual registration of insurers—statement of policy); and 31 Pa. Code Appendix A, Form B (relating to insurance holding company system annual registration statement).

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

31 Pa. Code § 25.23 Adequacy of surplus.

The factors in section 1405(d) of the act (40 P. S. § 991.1405(d)) to be considered in determining whether an insurer’s surplus is reasonable in relation to the insurer’s outstanding liabilities and adequate to its financial needs are not intended to be an exhaustive list. In determining the adequacy and reasonableness of an insurer’s surplus, no single factor is necessarily controlling. The Commissioner will consider the net effect of these factors plus other factors bearing on the financial condition of the insurer. In comparing the surplus maintained by other insurers, the Commissioner will consider the extent to which each of these factors varies from company to company. In determining the quality and liquidity of investments in subsidiaries, the Commissioner will consider the individual subsidiary and may discount or disallow its valuation to the extent that the individual investments so warrant.

The provisions of this § 25.23 issued under Article XIV of The Insurance Company Law of 1921 (40 P. S. § § 991.1401—991.1413); amended under section 337.8 of The Insurance Company Law of 1921 (40 P. S. § 459.8).

The provisions of this § 25.23 adopted September 3, 1993, effective September 4, 1993, 23 Pa.B. 4216; amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4406. Immediately preceding text appears at serial page (245453).

(Name of Domestic Insurer)

BY: (Name of Acquiring Person (Applicant))

Filed with the Insurance Department of the Commonwealth of Pennsylvania

Dated:

Name, title, address and telephone number of individual to whom notices and correspondence concerning this form should be addressed:

Item 1. Insurer and Method of Acquisition

State the name, NAIC code number and address of the domestic insurer to which this application relates and a brief description of how control is to be acquired.

Item 2. Identity and Background of the Applicant

A. State the name and address of the applicant seeking to acquire control over the insurer.

B. If the applicant is not an individual, state the nature of its business operations for the past five (5) years or for such lesser period as the person and any predecessors thereof shall have been in existence. Briefly describe the business intended to be done by the applicant and the applicant’s subsidiaries.

C. Furnish a chart or listing clearly presenting the identities and the interrelationships among the applicant and all affiliates of the applicant. Indicate in the chart or listing the percentage of voting securities of each person which is owned or controlled by the applicant or by any other person. If control of any person is maintained other than by the ownership or control of voting securities, indicate the basis of control. As to each person specified in the chart or listing indicate the type of organization (e.g. corporation, trust, partnership) and the state or other jurisdiction of domicile. If court proceedings involving a reorganization or liquidation are pending with respect to any such person, indicate which person, and set forth the title of the court, nature of proceedings and the date when commenced.

Item 3. Identity and Background of Individuals Associated with the Applicant

Furnish a third-party background check upon request and biographical affidavit for (1) the applicant if the applicant is an individual or (2) all persons who are directors, executive officers or owners of 10% or more of the voting securities of the applicant if the applicant is not an individual. Biographical affidavits filed with the Department within the immediately preceding 3 years need not be included if there has been no change in the information already on file.

Biographical affidavits shall be signed in the original and shall include the following:

A. Name and business address.

B. Present principal business activity, occupation or employment including position and office held and the name, principal business and address of any corporation or other organization in which employment is carried on.

C. Material occupations, positions, offices or employment during the last five (5) years, giving the starting and ending date of each and the name, principal business and address of any business corporation or other organization in which each occupation, position, office or employment was carried on. If any occupation, position, office or employment required licensing by or registration with any Federal, state or municipal governmental agency, indicate that fact, the current status of the licensing or registration, and an explanation of any surrender, revocation, suspension or disciplinary proceedings in connection therewith.

D. Whether or not the person has ever been convicted in a criminal proceeding (excluding minor traffic violations) during the last ten (10) years and, if so, give the date, nature of conviction, name and location of court, and penalty imposed or other disposition of the case.

The Department will accept copies of original, signed biographical affidavits filed with the chief insurance regulatory official of another jurisdiction if the following conditions are met:

(1) The identity of the chief insurance regulatory official holding the original affidavit and the date of the original filing are provided in this statement.

(2) The original affidavit was filed within the immediately preceding three years.

(3) There has been no change in the information required in the affidavit.

Item 4. Nature, Source and Amount of Consideration

A. Describe the nature, source and amount of funds or other considerations used or to be used in effecting the merger or other acquisition of control. If any part of the same is represented or is to be represented by funds or other consideration borrowed or otherwise obtained for the purpose of acquiring, holding or trading securities, furnish a description of the transaction, the names of the parties thereto, the relationship, if any, between the borrower, and the lender, the amounts borrowed or to be borrowed, and copies of all agreements, promissory notes and security arrangements relating thereto.

B. Explain the criteria used in determining the nature and amount of the consideration.

C. If the source of the consideration is a loan made in the lender’s ordinary course of business and if the applicant wishes the identity of the lender to remain confidential, the applicant must specifically request that the identity be kept confidential.

Item 5. Future Plans of Insurer

Describe any plans or proposals which the applicant may have to declare an extraordinary dividend, to liquidate the insurer, to sell its assets to or merge it with any person or persons or to make any other material change in its business operations or corporate structure or management.

Item 6. Voting Securities to be Acquired

State the number of shares of the insurer’s voting securities which the applicant, its affiliates and any person listed in Item 3 plan to acquire, and the terms of the offer, request, invitation, agreement or acquisition, and a statement as to the method by which the fairness of the proposal was arrived at.

Item 7. Ownership of Voting Securities

State the amount of each class of any voting security of the insurer which is beneficially owned or concerning which there is a right to acquire beneficial ownership by the applicant, its affiliates or any person listed in Item 3.

Item 8. Contracts, Arrangements, or Understandings with Respect to Voting Securities of the Insurer

Give a full description of any contracts, arrangements or understandings with respect to any voting security of the insurer in which the applicant, its affiliates or any person listed in Item 3 is involved, including, but not limited to, transfer of any of the securities, joint ventures, loan or option arrangements, puts or calls, guarantees of loans, guarantees against loss or guarantees of profits, division of losses or profits, or the giving or withholding of proxies. The description shall identify the person with whom such contracts, arrangements or understandings have been entered into.

Item 9. Recent Purchases of Voting Securities

Describe any purchases of any voting securities of the insurer by the applicant, its affiliates or any person listed in Item 3 during the twelve (12) calendar months preceding the filing of this statement.

Include in the description the dates of purchase, the name of the purchasers, and the consideration paid or agreed to be paid therefor.

State whether any shares so purchased are hypothecated.

Item 10. Recent Recommendations to Purchase

Describe any recommendations to purchase any voting security of the insurer made by the applicant, its affiliates or any person listed in Item 3, or by anyone based upon interviews or at the suggestion of the applicant, its affiliates or any person listed in Item 3 during the twelve (12) calendar months preceding the filing of this statement.

Item 11. Agreements with Broker-Dealers

Describe the terms of any agreement, contract or understanding made with any broker-dealer as to solicitation of voting securities of the insurer for tender and the amount of any fees, commissions or other compensation to be paid to broker-dealers with regard thereto.

Item 12. Financial Statements and Exhibits

A. Financial statements and exhibits, and three-year financial projection of the insurer(s) shall be attached to this statement as an appendix, but list under this item the financial statements and exhibits so attached.

B. The financial statements shall include the annual financial statements of the persons identified in Item 2(c) for the preceding five (5) fiscal years (or for such lesser period as the applicant and its affiliates and any predecessors thereof shall have been in existence), and similar information covering the period from the end of the person’s last fiscal year, if that information is available. Statements may be prepared on either an individual basis, or, unless the Commissioner otherwise requires, on a consolidated basis if consolidated statements are prepared in the usual course of business.

The annual financial statements of the applicant shall be accompanied by the certificate of an independent public accountant to the effect that the statements present fairly the financial position of the applicant and the results of its operations for the year then ended, in conformity with generally accepted accounting principles or with requirements of insurance or other accounting principles or permitted under law. If the applicant is an insurer which is actively engaged in the business of insurance, the financial statements need not be certified, provided they are based on the Annual Statement of that person filed with the insurance department of the person’s domiciliary state and are in accordance with the requirements of insurance or other accounting principles prescribed or permitted under the law and regulations of that state.

C. If the acquiring person is an individual, the Department may require the filing of Federal income tax returns in lieu of audited financial statements. Any returns filed shall be given confidential treatment and shall not be subject to subpoena and shall not be made public by the Department or any other person.

D. File as exhibits copies of all tender offers for, requests or invitations for, tenders of, exchange offers for, and agreements to acquire or exchange any voting securities of the insurer and (if distributed) of additional soliciting material relating thereto, any proposed employment, consultation, advisory or management contracts concerning the insurer, annual reports to the stockholders of the insurer and the applicant for the last two fiscal years, and any additional documents or papers required by this chapter.

Item 13. Agreement Requirements for Enterprise Risk Management

Applicant agrees to provide, to the best of its knowledge and belief, the information required by Form F within thirty (30) days after the end of the month in which the acquisition of control occurs and annually thereafter as long as control exists or upon request as necessary for the Commissioner to evaluate enterprise risk of the insurer unless otherwise ordered by the Commissioner.

Item 14. Signature and Certification

Signature and certification required as follows:

SIGNATURE

Pursuant to the requirements of Section 1402 of the act

History

• Authority: The provisions of this Chapter 25 issued under sections 214 and 216 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 25 adopted June 12, 1968, unless otherwise noted.

Chapter 27 Disclosure of Material Transactions

31 Pa. Code § 27.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Acquisition of assets—The purchase, lease, exchange, succession or other acquisition of assets, other than the following:

(i) The purchase, construction or development of real property occupied or to be occupied by the insurer for the transaction of its business or the acquisition of materials for that purpose.

(ii) Electronic data processing hardware and operating software acquired by the insurer to support the transaction of its business. Act—The Insurance Company Law of 1921 (40 P. S. § § 341—991.1718). Association—Individuals, partnerships or associations of individuals, authorized to engage in the business of insurance in this Commonwealth as insurers on the Lloyds plan. Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Disposition of assets—The sale, lease, transfer, exchange, mortgage, hypothecation, assignment (whether for the benefit of creditors or otherwise), abandonment, destruction, alienation or other conveyance of an interest in assets. Domestic—Incorporated or organized under the laws of the Commonwealth. Exchange—Individuals, partnerships and corporations, authorized by the laws of the Commonwealth to exchange with each other inter-insurance or reciprocal insurance contracts. Insurer—A stock or mutual insurance company (including title insurance companies), association or exchange. Licensed—Currently authorized by the Commissioner to transact the business of insurance in this Commonwealth under the act, as evidenced by a certification issued by the Commissioner.

History

• Authority: The provisions of this Chapter 27 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 27 adopted May 22, 1998, effective May 23, 1998, 28 Pa.

31 Pa. Code § 27.2 Scope.

(a) This chapter provides for the interim filing of statements of transactions that may have a material effect on the financial condition of a domestic insurer.

(b) This chapter applies to licensed domestic insurers subject to section 320 of the act (40 P. S. § 443) relating to the filing of statements of financial condition.

(c) This chapter does not supersede or in any way affect an insurer’s duty to comply with the act of July 31, 1968 (P. L. 941, No. 288) (40 P. S. § § 995.1—995.4), relating to prior notice to the Commissioner of disposal of assets and certain reinsurance cessions.

History

• Authority: The provisions of this Chapter 27 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 27 adopted May 22, 1998, effective May 23, 1998, 28 Pa.

31 Pa. Code § 27.3 Disclosure of material acquisitions or dispositions of assets.

(a) An insurer shall file a statement disclosing an acquisition of assets or disposition of assets if the following apply:

(1) A single transaction, or a series of related transactions during a 30-day period, involves more than 5% of the insurer’s total admitted assets as reported in the insurer’s most recent annual statutory financial statement filed with the Department.

(2) The transaction is nonrecurring.

(3) The transaction is not in the ordinary course of business.

(b) Statements of material acquisitions or dispositions of assets as required under subsection (a) shall include the following information:

(1) The dates of the transactions.

(2) The manner of acquisition or disposition.

(3) A description of the assets involved.

(4) The nature and amount of the consideration given or received.

(5) The purpose of or reason for the transactions.

(6) The manner by which the amount of consideration was determined.

(7) The gain or loss recognized or realized as a result of the transaction.

(8) The name of person from whom the assets were acquired or to whom they were disposed.

(9) The name, title, address and telephone number of the individual to whom notices and correspondence concerning the statements should be addressed.

(10) A certification by an officer of the insurer as provided in Appendix A (relating to certification for statement disclosing material transaction).

(c) Insurers shall prepare statements disclosing material acquisitions and dispositions of assets as required under subsection (a) on a nonconsolidated basis.

(d) An insurer shall file a statement disclosing a material acquisition or disposition of assets consisting of a single transaction as required under subsection (a) with the Department within 30 days after the date on which the transaction was closed.

(e) An insurer shall file a statement disclosing a material acquisition or disposition of assets consisting of a series of related transactions as required under subsection (a) within 30 days after the closing date of any transaction within a 30-day period that results in the aggregate of related transactions within that period involving more than 5% of the reporting insurer’s total admitted assets as reported in that insurer’s most recent annual statutory financial statement filed with the Department. For example:

Filing 1 shall be made within 30 days of January 21.

Filing 2 shall be made within 30 days of February 8.

(f) A filing is not required if statements disclosing the acquisition of assets or disposition of assets have been submitted to the Department under other laws, regulations or requirements.

History

• Authority: The provisions of this Chapter 27 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 27 adopted May 22, 1998, effective May 23, 1998, 28 Pa.

31 Pa. Code § 27.4 Disclosure of material nonrenewals, cancellations or revisions of ceded reinsurance agreements.

(a) A property and casualty insurer shall file:

(1) A statement disclosing a nonrenewal, cancellation or revision of a ceded reinsurance agreement with respect to property and casualty business—including accident and health business written by a property and casualty insurer—if it relates to reinsurance cessions which generate any of the following.

(i) Fifty percent or more of the insurer’s ceded written premiums as reported in the most recent annual statutory financial statement filed by the insurer.

(ii) Fifty percent or more of the insurer’s total ceded indemnity loss and loss adjustment expense reserves.

(2) A statement disclosing a revision of a ceded reinsurance agreement with respect to property and casualty business—including accident and health business written by a property and casualty insurer—if any of the following events occur:

(i) A reinsurer which represents more than 10% of a total cession and which is licensed to transact business in this Commonwealth or included on the Department’s list of qualified reinsurers is replaced by one or more reinsurers that are neither licensed nor on the Department’s list of qualified reinsurers.

(ii) Previously established collateral requirements have been reduced or waived for one or more reinsurers that are neither licensed nor on the Department’s list of qualified reinsurers, representing collectively more than 10% of a total cession.

(iii) The percentage increase in the net aggregate retention by the domestic ceding insurer is equal to or greater than 50%.

(b) A property and casualty insurer is not required to file a statement under subsection (a) if any of the following conditions are met:

(1) The total ceded written premium of a property and casualty insurer represents, on an annualized basis, less than 10% of the sum of the insurer’s total written premium, for direct and assumed business as reported in the insurer’s most recent annual statutory financial statement filed with the Department.

(2) A ceded reinsurance agreement which is nonrenewed or canceled is replaced under the following conditions: The replacement reinsurer is licensed or on the Department’s list of qualified reinsurers and the percentage increase in the net aggregate retention by the domestic ceding insurer is less than 50%.

(3) A revision to a ceded reinsurance agreement does not increase the ceding insurer’s retention of risk or exposure to loss.

(4) A revision is made to an inter-company pooling reinsurance agreement among affiliated insurers.

(c) A life insurer shall file:

(1) A statement disclosing a nonrenewal, cancellation or revision of a ceded reinsurance agreement with respect to life, annuity and accident and health business if the transaction affects more than 50% of the total reserve credit taken for business ceded as reported in the insurer’s most recent annual statutory financial statement filed with the Department.

(2) A statement disclosing a revision of a ceded reinsurance agreement with respect to life, annuity and accident and health business if any of the following events occur:

(i) A reinsurer that represents more than 10% of a total cession and that is either licensed or included on the Department’s list of qualified reinsurers is replaced by any reinsurers that are neither licensed nor on the Department’s list of qualified reinsurers.

(ii) Previously established collateral requirements have been reduced or waived with regard to any reinsurers that are neither licensed nor on the Department’s list of qualified reinsurers, representing collectively more than 10% of a total cession.

(d) A life insurer is not required to file a statement under subsection (c) if any of the following conditions are met:

(1) The total reserve credit taken for business ceded represents less than 10% of the amount of gross reserves reported in the insurer’s most recent annual statutory financial statement filed with the Department.

(2) A ceded reinsurance agreement that is nonrenewed or canceled is replaced under the following conditions: The replacement reinsurer is either licensed or on the Department’s list of qualified reinsurers and the percentage increase in the amount of reserve credit taken by the domestic ceding insurer under the replacement agreement does not exceed 50% of the reserve credit which was taken under the agreement being replaced.

(3) A revision to a ceded reinsurance agreement does not increase the ceding insurer’s retention of risk or exposure to loss.

(4) A revision is made to an intercompany pooling reinsurance agreement among affiliated insurers.

(e) Statements of material nonrenewal, cancellation or revision of ceded reinsurance agreements as required under this section shall include the following information:

(1) The effective date of the nonrenewal, cancellation or revision.

(2) A description of the transaction.

(3) Identification of the party which initiated the transaction.

(4) The purpose of or reason for the transaction.

(5) The identity of replacement reinsurers, if applicable.

(6) Quantification of additional risk to the insurer resulting from the transaction.

(7) The name, title, address and telephone number of the individual to whom notices and correspondence concerning the statements should be addressed.

(8) A certification of an officer of the insurer as provided in Appendix A (relating to certification for statement disclosing material transaction).

(f) Statements disclosing material nonrenewals, cancellations or revisions of ceded reinsurance agreements as required under this section shall be prepared on a nonconsolidated basis; except that statements may be prepared on a consolidated basis if the insurer meets the following requirements:

(1) The insurer is part of a consolidated group of insurers which utilizes a pooling arrangement or 100% reinsurance agreement which affects the solvency and integrity of the reporting insurer’s reserves.

(2) The insurer ceded substantially all of its direct and assumed business to the pool. An insurer is deemed to have ceded substantially all of its direct and assumed business to a pool if the insurer has less than $1 million total direct plus assumed written premiums during a calendar year that are not subject to a pooling arrangement and the net income of the business not subject to the pooling arrangement represents less than 5% of the insurer’s capital and surplus as reported in its most recent annual statutory financial statement filed with the Department.

(g) An insurer shall file a statement disclosing a material nonrenewal, cancellation or revision of a ceded reinsurance agreement as required under this section with the Department within 30 days after the date on which the transaction was closed.

(h) A filing is not required under this section if statements disclosing material nonrenewals, cancellations or revisions of ceded reinsurance agreements have been submitted to the Department under other laws, regulations or requirements.

History

• Authority: The provisions of this Chapter 27 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 27 adopted May 22, 1998, effective May 23, 1998, 28 Pa.

31 Pa. Code § 27.5 Confidentiality of statements disclosing material transactions.

(a) Statements filed under this chapter shall be given confidential treatment, unless any of the following occur:

(1) The insurer gives its prior written consent that the information may be published.

(2) The Commissioner exercises discretion and determines that all or any part of the information related to the transaction be published. Prior to making a determination to publish all or any part of the information, the Commissioner will notify the affected insurer of the right to request a confidential review by the Commissioner. At the review, the affected insurer shall have an opportunity to demonstrate why the transaction and related information should remain confidential. After the review, the Commissioner may order some, all or none of the information related to the transaction be made public. Any of the Commissioner’s responsibilities may be delegated to a designee.

(3) The statements are subpoenaed. The Department will notify the insurer prior to providing the information subject to subpoena, unless otherwise prohibited by statute or rule of court.

(b) The Department may share statements filed under this chapter with regulatory or law enforcement officials of this Commonwealth or other jurisdictions, as long as, prior to the Department’s disclosure, those officials or jurisdictions demonstrate by written statement the authority and intent to provide the same confidential treatment required by Article II-A of The Insurance Department Act of 1921 (40 P. S. § § 65.1A and 65.2A) regarding authority to share confidential information with other Jurisdictions (Act 20 of 1997). The Department may also share statements filed under this chapter with the National Association of Insurance Commissioners, or successor organization, if that organization agrees in writing prior to receiving the information to provide to it the same confidential treatment as required by Act 20 of 1997.

History

• Authority: The provisions of this Chapter 27 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 27 adopted May 22, 1998, effective May 23, 1998, 28 Pa.

Subpart F Rules of Procedure

Chapter 56 Special Rules of Administrative Practice and Procedure

31 Pa. Code § 56.1 Applicability of general rules.

Under 1 Pa. Code § 31.1 (relating to scope of part), 1 Pa. Code Part II (relating to general rules of administrative practice and procedure) is applicable to the activities of and proceedings before the Insurance Department except 1 Pa. Code § § 35.201—35.207, 35.211—35.214 and 35.221 (relating to proposed reports generally; exceptions to proposed reports; and briefs and oral argument in absence of proposed report).

The provisions of this § 56.1 adopted February 7, 1975, effective February 8, 1975, 5 Pa.B. 239; amended December 9, 1977, effective December 10, 1977, 7 Pa.B. 3611. Immediately preceding text appears at serial page (19066).

History

• Authority: The provisions of this Chapter 56 issued under section 35 of the Administrative Agency Law (71 P.
• Source: The provisions of this Chapter 56 adopted February 7, 1975, 5 Pa.

31 Pa. Code § 56.2 Adjudication procedure.

(a) At the conclusion of an administrative hearing, if submission of briefs is waived by participants with the consent of the presiding officer or the Insurance Commissioner sitting as such or after submission of briefs, the matter will be adjudicated by the Insurance Commissioner. Consequently, notwithstanding any provision of 1 Pa. Code Part II (relating to general rules of administrative practice and procedure) to the contrary, oral argument, certification of the record of hearing or a proposed report by a presiding officer prior to adjudication by the Insurance Commissioner are dispensed with.

(b) The provisions of subsection (a) supersedes 1 Pa. Code § § 35.201—35.207, 35.211—35.214 and 35.221 (relating to proposed reports generally; exceptions to proposed reports; and briefs and oral argument in absence of proposed report).

The provisions of this § 56.2 adopted December 9, 1977, effective December 10, 1977, 7 Pa.B. 3611.

While this section mandates providing an opportunity to be heard, this opportunity does not require an evidentiary hearing. Where no disputed facts are present, the motion proceedings, including briefs and argument by both parties, provide an ample opportunity to be heard. United Healthcare Benefits Trust v. Insurance Commission, 620 A.2d 81 (Pa. Cmwlth. 1993).

History

• Authority: The provisions of this Chapter 56 issued under section 35 of the Administrative Agency Law (71 P.
• Source: The provisions of this Chapter 56 adopted February 7, 1975, 5 Pa.

31 Pa. Code § 56.3 Admissions as to facts and documents.

(a) A participant may serve upon any participant a written request for the admission by him, for the purpose of the pending hearing only, of the truth of relevant matters of fact set forth in the request or of the genuineness of any writing, document, or record, a copy of which is attached to the request, or of the truth of any fact relating to its authenticity, correctness, execution, delivery, mailing or receipt.

(b) A matter of which an admission is requested is admitted unless the participant, within 10 days after service of the request, serves upon the requesting participant:

(1) A sworn denial or explanation why he cannot admit or deny the matter.

(2) Objections to the relevance or competence of the matter or the scope of the request.

(c) The provisions of subsections (a) and (b) supplement 1 Pa. Code § § 35.112 and 35.155 (relating to conferences to expedite hearings; and presentation and effect of stipulations).

The provisions of this § 56.3 adopted December 9, 1977, effective December 10, 1977, 7 Pa.B. 3611.

Denial

In view of the relaxed procedural and evidentiary rules that normally govern administrative proceedings it was permissible for the Department to permit a party to submit a sworn denial to its answer to Request for Admissions subsequent to the filing of that answer. R. A. Freudig Associates v. Insurance Department, 532 A.2d 509 (Pa. Cmwlth. 1987).

History

• Authority: The provisions of this Chapter 56 issued under section 35 of the Administrative Agency Law (71 P.
• Source: The provisions of this Chapter 56 adopted February 7, 1975, 5 Pa.

Chapter 57 Publication of Citations and Notice of Hearings

31 Pa. Code § 57.1 General requirements.

All notices of hearing pertaining to alleged violations of the insurance laws of the Commonwealth will hereafter be published in the Pennsylvania Bulletin for the purpose of informing the respondents, the insurance industry and the public of pending actions.

The provisions of this § 57.1 amended September 4, 1998, effective September 5, 1998, 28 Pa.B. 4531. Immediately preceding text appears at serial page (203405).

History

• Authority: The provisions of this Chapter 57 issued under sections 506 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 57 adopted March 23, 1973, 3 Pa.

Chapter 59 Reasons for Cancellations and Refusal to Renew; Notice and Appeal Procedures

31 Pa. Code § 59.1 Purpose.

This chapter implements section 5(9) of The Unfair Insurance Practices Act (40 P. S. § § 1171.5(9)).

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.2 Applicability.

This chapter applies to policies of insurance covering owner-occupied private residential properties or personal property owned by individuals that have been in force for 60 days or more, excluding automobiles covered under the act of June 5, 1968 (P. L. 140, No. 78) (40 P. S. § § 1008.1—1008.11).

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.3 Definitions.

The following terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise. Policies covering owner-occupied dwellings—Policies covering a residential structure consisting of four or less household units, one of which is occupied by the owner of such structure. Policies covering personal property owned by individuals—Policies covering a natural person against loss, theft, damage or destruction of personal property, including liability arising out of the ownership or use thereof except policies of automobile insurance covered under the act of June 5, 1968 (P. L. 140, No. 78) (40 P. S. § § 1008.1—1008.11).

The provisions of this § 59.3 issued under The Insurance Company Law of 1921 (40 P. S. § § 1—321); The Insurance Department Act of 1921 (40 P. S. § § 344—991); The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); act of June 5, 1968 (P. L. 140, No. 78) (40 P. S. § § 1008.1—1008.11); and section 5(a)(9) of the Unfair Insurance Practices Act (40 P. S. § 1171.5(a)(9)).

The provisions of this § 59.3 adopted January 31, 1975, 5 Pa.B. 186; amended October 29, 1982, effective October 30, 1982, 12 Pa.B. 3818. Immediately preceding text appears at serial page (48082).

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.4 Separate insurers.

Each member of a group of affiliated insurers shall be considered a separate insurer for purposes of the act. Therefore, if one insurer, which is a member of a group of affiliated insurers, cancels or refuses to renew a particular policy but at the time offers to arrange insurance for the applicant or insured with another member of the same group, there will be deemed to have been a cancellation or refusal to renew by the first insurer.

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.4a Reasons for cancellation of insurance policies.

In addition to the statutorily permitted bases for cancellation of a policy of insurance found at section 5(a)(9) of the Unfair Insurance Practices Act (40 P. S. § 1171.5(a)(9)), an insurer may cancel any policy other than a policy insuring farm risks when the property insured would not meet the eligibility requirements for insurance of the Insurance Placement Facility of Pennsylvania (Fair Plan) then in effect.

The provisions of this § 59.4a issued under The Insurance Company Law of 1921 (40 P. S. § § 1—321); The Insurance Department Act of 1921 (40 P. S. § § 344—991); The Administrative Code of 1929 (71 P. S. § § 66, 186, 411, and 412); act of June 5, 1968 (P. L. 140, No. 78) (40 P. S. § § 1008.1—1008.11); and section 5(a)(9) of the Unfair Insurance Practices Act (40 P. S. § 1171.5(a)(9)).

The provisions of this § 59.4a adopted October 29, 1982, effective October 30, 1982, 12 Pa.B. 3818.

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.5 Notice of cancellation or refusal to renew.

Forms of notices of cancellation or refusal to renew shall be filed with and approved by the Insurance Commissioner prior to use.

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.6 Notice of cancellation or refusal to renew; requirements.

Notices of cancellation or refusal to renew shall meet the following requirements:

(1) The form shall be clearly labeled: ‘‘Notice of Cancellation or Refusal to Renew.’’

(2) The form shall be given to the insured in duplicate.

(3) The date, not less than 30 days after the date of delivery or mailing, on which such cancellation or refusal to renew is to become effective shall be clearly indicated.

(4) Space must be provided for the insurer to provide the specific reason or reasons for the cancellation or refusal to renew.

(5) The reasons given for cancellation or refusal to renew shall be clear and complete. If the reason is a material misrepresentation, fraudulent statement, omission or concealment of fact material to the acceptance of the risk, or to the hazard assumed by the company, made by the insured, the insurer shall specify what statements, omissions or concealments it relied on for its action.

(6) If the reason is a substantial change or increase in the hazard, the insurer shall specify the changes or increased hazards it relied on for its actions. If the reason is the failure to pay a premium, the insurer shall specify the amount due, and the date when it was due.

(7) The form shall include that advice that the insured has a right to request review of the insurer’s action as provided in § 59.7 (relating to appeal procedure), within ten days of receipt of the notice. In so doing the notice shall include:

(i) Advice that review may be requested by signing a copy of the form in a space provided and sending it to one of the regional offices of the Insurance Department.

(ii) The addresses of the four regional offices of the Insurance Department.

(8) The form shall include advice to the insured that he or she may be eligible for insurance under the Pennsylvania Fair Plan Act or the Pennsylvania Auto Insurance Plan.

(9) Each provision of the notice shall be set forth in clear and understandable terms. To assure adequate notice, the form label shall be set at the top of the form in roman type no smaller than 14 point modern type, all capitals. The remainder of the notice shall be set in roman type no smaller than ten point modern type, two points leaded.

(10) A recommended form of notice which would meet the requirements of the foregoing provisions is given in Appendix A.

This section cited in 31 Pa. Code § 59.13 (relating to foreign language requirement).

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.7 Appeal procedure.

(a) An insured may request review by the Insurance Commissioner of the action of the insurer in cancelling or refusing to renew his or her policy by making written request therefor. This may be done by signing a copy of the ‘‘Notice of Cancellation or Refusal to Renew,’’ and sending it to one of the regional offices of the Insurance Department at one of the addresses given on the notice.

(b) Upon receipt of such request, both the insured and the insurer will be notified that an investigation has been undertaken and they may be contacted to secure additional information as required.

(c) Upon completion of the investigation, a copy of the investigative report will be supplied to both the insured and the insurer. Within ten days of receipt of the report either party may submit written comments for consideration by the Insurance Commissioner.

(d) If either insurer or insured desires a formal administrative hearing, such request shall be made at the time written comments are submitted. If so, a hearing will be scheduled as soon as possible. If not, the matter will be decided on the basis of the written comments and investigative report.

(e) Hearings will be held in accordance with the following procedures:

(1) Upon receipt of a request for a formal administrative hearing, notice of the time and place of such hearing will be sent by certified mail to the insurer and insured, not less than five days prior to the hearing.

(2) The hearing will be recorded on tape with a stenographer. The tape and stenographer’s notes must be prepared such that a full verbatim transcription may thereafter be made. Such tape will be retained for a period of 90 days following issuance of the Insurance Commissioner’s final order in the case.

(3) Parties will be afforded a reasonable time following the hearing to submit written briefs in support of their position.

(4) All relevant evidence of reasonable probative value will be admitted into the record of the proceeding and reasonable examination and cross-examination shall be permitted.

(5) The regulations in 1 Pa. Code Part II (relating to general rules of administrative practice and procedure) may be used where conducive to speedy and fair proceedings.

(f) Upon completion of a hearing, if held, or upon receipt of the written comments, the Insurance Commissioner will issue an Order in conformance with his findings.

The provisions of this § 59.7 amended January 16, 1976, 6 Pa.B. 78. Immediately preceding text appears at serial page (19072).

This section cited in 31 Pa. Code § 59.6 (relating to notice of cancellation or refusal to renew requirements); and 31 Pa.B. § 59.13 (relating to foreign or language requirement).

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.8 Residence.

If an insurer determines not to renew a policy of insurance because the insured no longer resides in this Commonwealth, the insurer shall not be required to comply with the requirement of section 5(a)(9) of The Unfair Insurance Practices Act (40 P. S. § 1171.5).

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.9 Nonapplicability of the acts.

(a) Some insurers affect a renewal of their outstanding policies of insurance merely by sending a renewal premium notice to the insured in advance of the expiration date of his policy. The insured need only make a timely payment of the premium due in order to keep his policy in force. In such a situation the mailing by the insurer of the renewal premium notice does constitute such a manifestation of willingness by the insurer to renew as to come within the purview of section 5(c)(1) of The Unfair Insurance Practices Act (40 P. S. § 1171.5(c)(1)) if mailed not less than 30 days in advance of the expiration date of the policy. If the insurer has manifested its willingness to renew by mailing a renewal notice or issuing a renewal policy and the insured fails to pay the renewal premium when due, the policy shall terminate in accordance with its terms. No further notice to the insured by the insurer of an intention not to renew for nonpayment of premium shall be necessary.

(b) The period of 60 days referred to in section 5(a)(9) and (c)(3) of The Unfair Insurance Practices Act (40 P. S. § 1171.5(a)(9) and (c)(3)) is intended to provide to insurers a reasonable period of time, if desired, to investigate thoroughly a particular risk while extending coverage during the period of investigation. An insurer may cancel the policy provided it gives at least 30 days notice of the termination and provided it gives notice no later than the 60th day. The insurer’s decision to cancel during this 60-day period must not violate section 5(a)(7)(iii) of The Unfair Insurance Practices Act (40 P. S. § 1171.5(a)(7)(iii)).

(c) Insurers are reminded, however, that a regulation of the U.S. Department of Housing and Urban Development as set forth in 24 CFR § 1905.9. (relating to notice of cancellation or nonrenewal) further limits the right of insurers to cancel or nonrenew policies of property insurance on properties eligible for coverage under the Pennsylvania FAIR Plan.

(d) The pertinent provisions of this regulation provide that:

(a) Except in cases of owner or occupant incendiarism, material misrepresentation or nonpayment of premium, each plan shall require its participating insurers to give, and each such insurer shall give, property owners no less than 30 days prior written notice of any cancellation or nonrenewal of coverage initiated by the insurer with respect to any eligible risk, whether or not such risk is then insured under the Plan, in order to allow the affected property owner sufficient time to apply for an inspection and to obtain coverage under the Plan if necessary.

(b) For the purposes of this § 1905.9, the term cancellation or nonrenewal shall include (1) reductions in amounts of insurance and adverse modifications in coverage initiated by the insurer with respect to any owner individually, and (2) refusals by the insurer or its agents to renew any expiring coverage in any line of essential property insurance previously provided to the property owner.

This requirement, therefore, allows insurers to cancel or nonrenew such policies only if the insured is given 30 days notice of both the cancellation and of the possible availability of coverage under the Pennsylvania FAIR Plan: This applies to such policies both during and after the first 60 days of their issue.

The provisions of this § 59.9 issued under the Unfair Insurance Practices Act § § 1—15 (40 P. S. § § 1171.1—1171.15).

The provisions of this § 59.9 amended July 3, 1980, effective July 5, 1980, 10 Pa.B. 2876. Immediately preceding text appears at serial page (24944).

Denial of Application

An insurance company could not assert that it was denying the insured’s application for fire insurance and the subsequent claim for fire damage to her house based upon a previous loss suffered because the insurance company’s agent advised the insured that the house was covered from the moment of payment and the insurance company failed to provide 30 days’ notice of termination as required for policies in force for less than 60 days. Pennsylvania National Mutual Casualty Insurance Company v. Insurance Commissioner, 551 A.2d 368 (Pa. Cmwlth. 1988); appeal denied 559 A.2d 41 (Pa. 1989).

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.10 Notice of representative.

Each insurer shall file within 30 days of the effective date of this Chapter, with the Department, the names of its representatives who are to be notified in the event that an insured or an applicant requests the Insurance Department to review a cancellation or refusal to renew, involving that insurer.

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.11 Records; cancellation, refusal to write or renew.

Each insurer shall maintain records of the numbers of cancellations and refusals to renew policies and the reasons therefor. These records shall be made available to the Insurance Commissioner upon his request.

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.12 Records; complaints.

Each insurer shall maintain records of the number of complaints received during the previous four years in conformance with section 5(a)(11) of The Unfair Insurance Practices Act (40 P. S. § 1171.5(a)(11)).

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

31 Pa. Code § 59.13 Foreign language requirement.

Each insurer shall assure that the notice required by § 59.6 (relating to notice of cancellation or refusal to renew; requirements) shall be given to each policyholder affected. In the event the insurer, or its agent, knows or has reason to believe that any policyholder will be unable to read such notice, the insurer shall assure that the notice is communicated to the policyholder by an appropriate foreign language equivalent or oral communication in a language understood by the policyholder.

Your

History

• Authority: The provisions of this Chapter 59 issued under section 320 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 59 adopted January 31, 1975, effective February 1, 1975, 5 Pa.

Part II Automobile Insurance

Chapter 62 Motor Vehicle Physical Damage Appraisers

31 Pa. Code § 62.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Motor Vehicle Physical Damage Appraiser Act (63 P. S. § § 851—863). Aftermarket crash part—A nonoriginal equipment manufacturer (non-OEM) replacement part, either new or used, for any of the nonmechanical parts that generally constitute the exterior of the motor vehicle, including inner and outer panels. Appraisal—

(i) A written monetary estimate of physical damage sustained to a motor vehicle when the making of the estimate is assigned in order to allow the return of the vehicle to its predamaged condition.

(ii) The term includes estimates made by the insurer, its employes, its agents or related entities or individuals or entities assigned to make the estimate. Appraiser—A natural person in this Commonwealth who makes appraisals of motor vehicle physical damage. Commissioner—The Insurance Commissioner of the Commonwealth. Consumer—The owner of the motor vehicle which has sustained damage or the owner’s representative. Dealer—An individual licensed, active and knowledgeable in the sale of used motor vehicles similar to that being appraised. Insurer—All companies, associations and exchanges engaged in the insurance business of insurance companies and self-insurers. Motor vehicle—A motorized device, including a trailer attached thereto, in, upon or by which a person or property is or may be transported or drawn upon a public highway. Predamaged condition—The function and appearance of the motor vehicle just prior to when the damage in question was sustained.

The provisions of this § 62.1 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); section 320 of The Insurance Department Act of 1921 (40 P. S. § 443); and the Motor Vehicle Physical Damage Appraiser Act (63 P. S. § § 851—863).

The provisions of this § 62.1 amended May 10, 1974, 4 Pa.B. 916; amended October 22, 1999, effective October 23, 1999, 29 Pa.B. 5511. Immediately preceding text appears at serial page (254585).

This section cited in 31 Pa. Code § 146a.2 (relating to definitions); and 31 Pa. Code § 146b.2 (relating to definitions).

History

• Authority: The provisions of this Chapter 62 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 62 adopted December 28, 1973, 3 Pa.

31 Pa. Code § 62.2 Experience and fitness requirements for licensing.

(a) In addition to the requirements in sections 3, 4, 8 and 11 of the act (63 P. S. § § 853, 854, 858 and 861), to qualify to take the examination required for appraisers, an applicant shall establish competency to fulfill the responsibility of being an appraiser.

(1) Competency may be demonstrated by providing written documentation of one of the following:

(i) A minimum of 6 months continuous experience within the previous 3 years at an occupation, such as body repair, that directly involves the estimation of physical damage to motor vehicles.

(ii) Successful completion of education or training related to appraising motor vehicle physical damage taken within the previous 3 years.

(2) The applicant shall provide additional information relating to experience, education or training to the Commissioner or a designee upon request.

(b) An application for a license may be denied for any of the following:

(1) The applicant has provided incorrect, misleading or incomplete answers to interrogatories on forms incidental to applying for a license.

(2) The applicant has been denied a license or has had an existing license revoked, suspended or not renewed by the Department or a regulatory authority in another state, territory or possession of the United States, or in the District of Columbia, or the Canadian provinces.

(3) The applicant does not possess the professional competence and trustworthiness required to engage in conducting motor vehicle appraisals.

(4) An applicant has pleaded guilty, entered a plea of nolo contendere or has been found guilty of a felony in a court of competent jurisdiction, or has pleaded guilty, entered a plea of nolo contendere or been found guilty of criminal conduct which relates to the applicant’s suitability to conduct motor vehicle appraisals.

(i) Examples of criminal violations which the Department may consider related to the applicant’s suitability to engage in the business of an appraiser include: unlawful practices, embezzlement, obtaining money under false pretenses, conspiracy to defraud, bribery or corrupt influence, perjury or false swearing, unlicensed activity or a criminal offense involving moral turpitude or harm to another.

(ii) Examples of violations or incidents which the Department will not consider related to the applicant’s suitability to engage in the business of an appraiser are all summary offenses, records of arrests if there is no conviction of a crime based on the arrest, convictions which have been annulled or expunged or convictions for which the applicant has received a pardon from the Governor.

(5) If applicable, applicants shall also comply with the insurance-related provisions in sections 320 and 603(a) of the Violent Crime Control and Law Enforcement Act of 1994 (18 U.S.C.A. § § 1033 and 1034).

(6) The applicant has unpaid any overdue amounts, including, fees and civil penalties, owing to the Department.

The provisions of this § 62.2 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); section 320 of The Insurance Department Act of 1921 (40 P. S. § 443); and the Motor Vehicle Physical Damage Appraiser Act (63 P. S. § § 851—863).

The provisions of this § 62.2 amended October 22, 1999, effective October 23, 1999, 29 Pa.B. 5511. Immediately preceding text appears at serial pages (254586) to (254587).

History

• Authority: The provisions of this Chapter 62 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 62 adopted December 28, 1973, 3 Pa.

31 Pa. Code § 62.3 Applicable standards for appraisal.

(a) The appraisal shall:

(1) Be signed by the appraiser before the appraisal is submitted to the insurer, the consumer or another involved party. The appraiser may utilize an electronic signature.

(2) Not use abbreviations or symbols to describe work to be done or parts to be repaired or replaced unless an explanation of the abbreviations and symbols is included.

(b) In addition to the requirements in the act, the appraisal shall contain a written disclosure which includes the following:

(1) The dollar amount of the appraisal.

(2) A statement that costs above the appraised amount may be the responsibility of the vehicle owner.

(3) A statement that there is no requirement to use any specified repair shop.

(4) A statement informing the consumer that information regarding repair facilities which will be able to repair the vehicle for the appraised amount is available from the insurer. If the consumer receives information from the insurer, the information shall include disclosure that there is no requirement to use any specified repair shop.

(5) A description of repairs, known at the time of appraisal, necessary to return the vehicle to its predamaged condition, including labor involved, cost of all parts, necessary painting or refinishing and all sublet work to be done.

(6) Incidental charges, known at the time of appraisal, including towing, protective care, custody, storage, depreciation, battery and tire replacement.

(7) Applicable sales tax.

(8) The date, if any, after which an insurer will not be responsible for any related towing services or storage charges, known at the time of appraisal, and after which the charges will be the responsibility of the consumer.

(9) The location where the listed parts are available in a condition equivalent to, or better than, the condition of the replaced parts prior to the accident.

(10) If the appraisal includes aftermarket crash parts, a statement that the appraisal has been prepared based on the use of aftermarket crash parts, and that if the use of an aftermarket crash part voids the existing warranty on the part being replaced or any other part, the aftermarket crash part shall have a warranty equal to or better than the remainder of the existing warranty.

(11) Identification of all aftermarket crash parts and a definition of aftermarket crash parts consistent with § 62.1 (relating to definitions), if these parts are used.

(c) An appraisal for the repair of the motor vehicle shall be made in the amount necessary to return the motor vehicle to its predamaged condition. If the consumer wishes to repair the motor vehicle to a condition better than the predamaged condition, the appraisal need only specify the cost of repairing the vehicle to its predamaged condition.

(d) In the appraisal of salvage value, the following standard shall be used:

(1) If the salvage value of the vehicle being appraised is known or could reasonably be determined, the appraiser shall disclose to the consumer in writing:

(i) The salvage value.

(ii) The provisions of 75 Pa.C.S. § 1117(a) (relating to vehicle destroyed, dismantled, salvaged or recycled), requiring the filing of an application for certificate of salvage with the Department of Transportation. See 75 P. S. § 1117.

(iii) Additional charges for towing services or storage chargeable against the motor vehicle as of the date of the appraisal.

(2) If the salvage value is listed, the appraiser shall disclose to the consumer in writing:

(i) The name and address of each salvage bidder.

(ii) The amount.

(iii) The expiration date of each salvage bid known.

(3) If the ownership and possession of the damaged motor vehicle is not retained by the owner or the owner’s representative, this subsection dealing with salvage value is inapplicable.

(e) The appraised value of the loss shall be the replacement value of the motor vehicle if the cost of repairing a motor vehicle exceeds its appraised value less salvage value, or the motor vehicle cannot be repaired to its predamaged condition.

(1) Under this subsection, replacement value under the policy provisions covering the total loss of a motor vehicle including an unrecovered motor vehicle shall be determined by one of the following methods:

(i) Guide source method. The appraiser shall calculate the average of two figures reflecting the retail book value of a vehicle of like kind and condition, as provided by guide sources approved by the Commissioner. A listing of approved guide sources will be published once a year in the Pennsylvania Bulletin. The appraised value shall be adjusted for equipment and mileage, less the cost of repair of damage which preexisted the accident in question. No other deductions may be taken except for salvage and then only if the owner elects to retain the vehicle.

(ii) Actual cost method. The appraiser shall determine the actual cost of purchase of an available motor vehicle of like kind and quality in condition similar to or better than the motor vehicle being appraised in its predamaged condition. The appraiser shall specify, in writing, the location of the vehicle of like kind and quality.

(iii) Dealer quotation method. The appraiser shall consult with dealers or other persons knowledgeable in the field to secure quotations as to the value of the motor vehicle being appraised. At least two quotations shall be secured. The figures thus secured shall be averaged.

(2) If the motor vehicle is listed in at least two guide sources approved by the Commissioner, the replacement value shall be calculated by the guide source method or by the actual cost method, as described in paragraph (1)(i) and (ii). If the actual cost method is used, and the owner of the damaged vehicle shows that the replacement vehicle is not of the same kind and quality, both calculations referenced in this paragraph shall be made, and the higher of the values obtained shall be offered in settlement.

(3) If the motor vehicle is not listed in at least two of the sources authorized by paragraph (1)(i), or if the vehicle differs materially from the average vehicle because of factors not considered in the guide sources, for example, antique or classic cars, vehicles no longer manufactured and unique vehicles, the replacement value shall be calculated by the actual cost method or by the dealer quotation method, as described in paragraph (1)(ii) and (iii). If the dealer quotation method is used, both calculations referenced in this paragraph shall be made, and the higher of the values obtained shall be offered in settlement.

(4) Applicable sales tax on the replacement cost of a motor vehicle shall be included as part of the replacement value.

(5) The licensed appraiser’s total loss evaluation report shall contain the names and addresses of those persons from whom quotations were secured, the date secured, and whether or not a similar vehicle was available.

(6) The licensed appraiser’s file shall show the method used to determine the replacement value in a given locality.

(7) The appraiser is responsible for ensuring that a copy of the total loss evaluation report be sent within 5 working days to the consumer by the appraiser after the appraisal is completed. If a settlement offer is extended before the consumer receives the total loss evaluation report, the consumer shall be advised of the total loss evaluation report’s contents and of the consumer’s right to be sent a copy within 5 days after its completion.

(f) In addition to the requirements in section 11 of the act (63 P. S. § 861), an appraiser shall:

(1) Not have a conflict of interest in the making of an appraisal. This chapter and the act, and this section in particular, shall be strictly interpreted to protect the interest of the consumer and place the burden upon the appraiser to eliminate any conflict of interest in the making of an appraisal.

(2) Obtain the consumer’s consent before authorizing the removal of a motor vehicle from one location to another.

(i) The consent of the consumer is not necessary for initial removal of the motor vehicle from the scene of an accident.

(ii) An appraiser authorizing removal of a motor vehicle by a vehicle salvage dealer shall inform the vehicle salvage dealer in writing that possession is merely for safe-keeping purposes and that the vehicle salvage dealer does not have any ownership rights to the motor vehicle, its parts or accessories, until a certificate of title or certificate of salvage is received indicating that ownership has been transferred.

(3) Review the appraisal with an authorized representative of the repair shop which is selected by the consumer or with any other person reasonably necessary to demonstrate that the actual costs of repairs are adequately covered in the appraisal.

(4) Not mention the name of any repair shop, unless the appraiser includes disclosure that there is no requirement to use any specified repair shop.

(g) There are no provisions of the act or this chapter which shall be construed as intended in any way to prohibit or limit the subsequent appraisal or reappraisal of damage by different licensed appraisers, if desired by any of the involved parties.

(h) The penalties for violating provisions of the act and this chapter are set forth in sections 5, 6 and 9 of the act (63 P. S. § § 855, 856 and 859).

The provisions of this § 62.3 issued under section 10 of the Motor Vehicle Physical Damage Appraiser Act (63 P. S. § 860); amended under the Motor Vehicle Physical Damage Appraiser Act (63 P. S. § § 851—863); sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 320 of The Insurance Department Act of 1921 (40 P. S. § 443).

The provisions of this § 62.3 amended through August 17, 1984, effective August 18, 1984, 14 Pa.B. 3032; amended July 21, 1995, effective July 22, 1995, 25 Pa.B. 2884; amended October 22, 1999, effective October 23, 1999, 29 Pa.B. 5511. Immediately preceding text appears at serial pages (254587) to (254591).

History

• Authority: The provisions of this Chapter 62 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 62 adopted December 28, 1973, 3 Pa.

Chapter 64 Private Passenger Automobile Policy Forms

31 Pa. Code § 64.1 Purpose.

The purpose of the Department’s readability program is an auto insurance policy that is understandable to a person of average intelligence and education. Towards this end, this chapter is promulgated to inform the insurers licensed in the Commonwealth of the standards the Department will use in determining whether to approve a given policy form. Licensed insurers are advised that policy forms that do not conform substantially with the standards set forth in this chapter will not be approved for use in this Commonwealth.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.2 Applicability.

(a) This chapter applies to policies providing auto liability, medical payments, physical damage or uninsured motorists insurance on private passenger automobiles owned or rented under a long term lease or contract by an individual or husband and wife who are resident in the same household on a specified car basis. A ‘‘private passenger automobile,’’ for the purposes of this section includes the following:

(1) A motor vehicle of the private passenger or station wagon type which is neither used for transporting goods or passengers for hire nor rented to others without a driver.

(2) A motor vehicle with a pick-up body, a delivery sedan or panel truck, not customarily used in the occupation, profession or business of the insured other than farming or ranching. A motor vehicle used in the course of driving to or from work, which otherwise meets the eligibility requirements of this rule, shall be classified as a private passenger automobile.

(3) An automobile owned by a farm family, copartnership or corporation which is principally garaged on a farm or ranch and otherwise meets the definitions set forth in paragraph (1) or (2) shall be considered a private passenger automobile owned by two or more relatives resident in the same household.

(b) The requirements of this chapter applies to policy forms covering risks mentioned in this section received by the Department for approval after the effective date of this chapter. Its requirements apply to policy forms for auto insurance as defined in this section presently approved for use in this Commonwealth beginning 1 year after the effective date of this chapter.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.3 Short sentences.

Sentences should be as short as possible. Sentence structure should be primarily simple. Compound and complex sentences shall be avoided where possible.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.4 Simple wording.

Policy forms shall be written in simple words. The words should convey meanings clearly and directly. Legal sounding words should be avoided. Present tense and positive statements should be used wherever possible. Gerunds, participles and infinitives should be avoided. Words should be used in their commonly understood senses.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.5 Definitions.

Definitions should be limited to words which cannot be properly explained or qualified in the text. Terms should reflect their defined meanings.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.6 Index.

(a) Policy forms should include an index at the beginning of the form. The index should give a comprehensive listing of policy parts in a logical sequence. Index listings should clearly state the contents of each section. The index should provide a useful guide to use of the form.

(b) A good index should include the following:

(1) Who is insured under each coverage.

(2) What is covered under each coverage.

(3) What is not covered under each coverage.

(4) Words defined.

(5) How to file a claim under each coverage.

(6) What to do if you are sued.

(7) Change in the policy.

(c) If the index does not appear on the cover, the backside of the cover or the first page after the cover, its location should be noted on the cover page.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.7 Introduction.

Policy forms should be introduced by a brief explanation of the fact that the policy is a contract between the company and the policyholder.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.8 Policy structure.

For clarity, each coverage (in forms with two or more coverages) should be arranged separately with its related exclusions, conditions and other provisions. Claim filing procedures should either be stated in a separate section and keyed to each coverage section or set forth in the section pertaining to each coverage.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.9 Legibility.

(a) The policy and endorsements shall be printed in upright type at least as large as 10-point modern type, 1-point leading (11-point spacing). The legibility should be comparable to that of Century type. No insurer, however, shall be required to use a specific type face as long as the type selected meets this standard of readability. The Department will consider the following type faces as being legible as Century type, although this list is not intended to be exhaustive but is intended solely as an indication of the legibility of a type face that is required:

(1) Aldine.

(2) Baskerville.

(3) Bodoni.

(4) Bodoni Book.

(5) Century Schoolbook.

(6) Journal.

(7) Press Roman.

(8) Times Roman.

(b) The column width or line length of the body text of the policy should not exceed 4 inches per column. This maximum is based upon the assumption that ten-point Century Roman type, two points leaded will be used. If an insurer uses a different type size any corresponding adjustment in column width should maintain the following ratio:

(c) Margins should be adequate for purposes of readability.

(d) The contrast and legibility of the color of ink and the color of paper of the policy should be substantially the equivalent of that of black ink on white paper.

(e) Contract section headings should be in a contrasting color, type-face, or size.

The provisions of this § 64.9 amended October 7, 1977, 7 Pa.B. 2893. Immediately preceding text appears at serial page (19092).

This section cited in 31 Pa. Code § 151.9 (relating to standards for disclosure statement and resident’s agreement).

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.10 Narrative or outline form.

Policy forms may be prepared in narrative or outline form. If the narrative form is used, frequent section headings should be used to permit ease in locating provisions. If the outline form is used a maximum of three levels of division should be used. Care should be taken to avoid fragmentation in the outline form.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.11 Conditions.

Conditions should be incorporated in the sections to which they apply. Conditions relating to a specific coverage should be included with that coverage. Conditions relating to claims procedures should be included in a section on how to file a claim. Avoid using a series of unrelated conditions which relate to other parts of the policy individually or which could be combined in a section on what to do if you are sued or on policy changes.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.12 Testing.

(a) Policy forms should have a total readability score of 40 or more on the Flesch Scale. The Flesch Scale testing procedure is given in Appendix A.

(b) Forms with a Flesch Test score of less than 40 may be approved where the length of sentences and words are sufficiently compensated for by compliance with other standards in this chapter.

(c) A Flesch Test score of 40 or more will not permit approval of a form which does not meet other standards in this chapter.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.13 Filing requirements.

(a) Policy forms filed for approval should be accompanied by a Flesch readability analysis and test score in accord with the procedure set out in Appendix A.

(b) Where policy forms are filed as replacements for other forms presently in use, copies of the forms are to accompany the filing for comparison.

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

31 Pa. Code § 64.14 Approved forms.

(a) Forms presently approved by the Insurance Department for insurance within the scope of this chapter are subject to disapproval 1 year after the effective date of this section unless they comply with the requirements set forth in this chapter.

(b) If presently approved forms are believed to be in compliance with the requirements of this chapter, insurers may request confirmation from the Insurance Department.

A. If the whole contract is analyzed:

1. For each sentence, count the number of words and the number of syllables.

Counting sentences—When counting sentences, go according to full units of thought, ending with a period, semicolon, or colon. Do not count headings or subsection numbers. Skip lists of items having only a few words.

Counting words—Contractions and hyphenated words are counted as one word. So are numbers and letters, if they are separated by spaces. For example, ‘‘C.O.D.’’ and ‘‘19’’ would each be considered one word.

Counting syllables—Count as syllables pronounce, even for numbers and letters, if they are not too lengthy. If numbers and letters (such as ‘‘PA-1943D’’) are too lengthy, skip them. Where the dictionary shows two or more equally acceptable pronunciations of a word, use the one having the fewer number of syllables.

An easy way to count words and syllables is to write down the number of syllables in each word as you read the sentences. To get the number of words, count the numbers written down. To get the number of syllables, add the numbers written down.

To simplify counting the number of words, use graph paper scaled every 5 or 10 spaces.

To simplify adding up the number of syllables, total up the syllables, other than the first, in all words of more than one syllable. Then add this total to the number of words being tested.

2. Add up the total number of sentences, words, and syllables for the whole contract.

B. If samples are used

1. Sampling—It will often be too time-consuming to analyze all the sentences in a contract. Choose samples of about 100 words by using all sentences up to and including the sentence ending after the 100-word mark. For example, the last sentence in the sample might end on the 105th or 115th word of sample; i.e., count 100 words and then finish the sentence.

To insure an unbiased sample, use the following system:

a. For small contracts of one or two pages, do not use samples. Instead, analyze the whole contract.

b. For larger policies, take about two samples per page.

c. Skip an equal number of printed lines after each sample and start the next sample with the sentence beginning after that point. To determine the number of lines between samples, take two samples from page 1 and count how many lines are between them.

For example, suppose there were 50 printed lines between the first two samples. Then after each sample, count 50 lines, and start the next sample with the sentence beginning after that 50-line point.

If a row of print is less than one-half the column of print, do not count it.

2. For all the sentences in the samples, follow the same procedure as in items A-1, 2, 3.

For each policy analyzed by the Flesch Readability Method, please submit the following:

A. If the whole contract is analyzed:

1. Summary of information for each sentence—number of words and number of syllables.

2. Calculation of Average Sentence Length, Average Word Length, and Flesch Reading Ease Score.

B. If samples are used:

1. Description of Sampling method—number of samples, number of printed lines between samples, and marked copy of policy indicating samples.

2. Summary of information for each sample—number of sentences, number of words, and number of syllables.

3. Calculation of Average Sentence Length, Average Word Length, and

Flesch Reading Ease Score.

Example:

If samples are used:

C. Because of their effect on readability, each filing submitted should list the number of times each of the following words or phrases is used for calculating the Flesch Score on each policy:

‘‘accident’’

‘‘bodily injury’’

‘‘company’’

‘‘insurance’’

‘‘liability’’

‘‘damage’’

‘‘policy’’

‘‘property damage’’

History

• Authority: The provisions of this Chapter 64 issued under The Insurance Department Act of 1921, particularly section 354 (40 P.
• Source: The provisions of this Chapter 64 adopted January 10, 1975, 5 Pa.

Part III Credit Insurance

Chapter 73 Credit Life Insurance and Credit Accident and Health Insurance

31 Pa. Code § 73.101 Purpose.

The purpose of this chapter is to interpret and implement the act and section 641 of The Insurance Department Act of 1921 (40 P. S. § 281). This chapter is intended to protect the interests of debtors and the public in this Commonwealth by providing a system of rate, contract form and operating standards for the transaction of credit life, credit accident and health and credit unemployment insurance. This chapter is not intended to prohibit or discourage reasonable competition.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.102 Applicability.

This chapter applies to the following:

(1) An individual or group credit insurance policy.

(2) Certificates issued under a group credit insurance policy and applications or other forms used in connection with the policy or certificate.

(3) A premium rate charged for credit insurance.

(4) Practices followed in providing credit insurance.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.103 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: A and H—Accident and health insurance. Account—The coverage for a single line of insurance offered to a single type of business by one creditor. The term includes coverage written on a group or individual policy. Act—The Model Act for the Regulation of Credit Life Insurance and Credit Accident and Health Insurance (40 P. S. § § 1007.1—1007.15). Agent—A person defined in section 601 of The Insurance Department Act of 1921 (40 P. S. § 231). Amount financed—The amount on which interest charges are calculated. Amount of level lease insurance—In connection with a lease transaction, the amount of death benefit equal to the residual payment, plus any applicable taxes on the residual payment. Balloon amount—The excess of the final payment on a balloon loan over the amount of one periodic installment payment. Balloon loan—A loan which provides for periodic installment payments of a stated amount during the term of the indebtedness and for a final payment at the end of the term of the indebtedness which is substantially more than the amount of one periodic installment payment and less than the initial net unpaid indebtedness. Broker—A person defined in section 621 of The Insurance Department Act of 1921 (40 P. S. § 251). Closed end loan—Indebtedness which is not an open end loan or a lease. Commissioner—The Insurance Commissioner of the Commonwealth. Composite term period—The installment periods for which composite term premium rates will be charged. Composite term premium rate—Premium rates which do not vary based on the number of monthly installments and which meet the requirements of § 73.120 (relating to composite term premium rate). Contributory insurance—Insurance for which the debtor is charged an identifiable charge. Credit accident and health insurance—Insurance as defined in section 2(b)(2) of the act (40 P. S. § 1007.2(b)(2)). Credit instrument—A loan or sales instrument or agreement. Credit insurance—Insurance subject to the act and section 641 of The Insurance Department Act of 1921 (40 P. S. § 281). Credit involuntary unemployment insurance—Credit unemployment insurance paid in the event of the debtor’s unemployment due to no choice of the debtor. Credit life insurance—Insurance as defined in section 2(b)(1) of the act. Credit life insurance with TPD—Insurance on the life of a debtor paid under or in connection with a specific loan or other credit transaction in the event of the debtor’s death or total and permanent disability. Credit unemployment insurance—Insurance on a debtor to provide indemnity for payments becoming due on a specific loan or other credit transaction while the debtor is unemployed as defined in the group certificate or individual policy. Credit voluntary unemployment insurance—Credit unemployment insurance paid in the event of the debtor’s unemployment due to a choice made by the debtor. Creditor—As defined in section 2(b)(3) of the act. Debtor—As defined in section 2(b)(4) of the act. Decreasing term lease insurance amount—The amount required to liquidate the lease obligation excluding the amount of any monthly lease payments paid at the beginning of a lease and excluding the residual value. Department—The Insurance Department of the Commonwealth. Electronic rate book—An electronic data system programmed and used solely for the calculation and computation of installment loans and calculation and computation of insurance amount, premium rates and refunds. Excess benefits—The portion of the insurance benefit that exceeds the outstanding indebtedness. Fixed residual value financing—The manner of financing a motor vehicle purchase whereby a buyer, who is listed as the owner on the title of a motor vehicle, agrees to select and perform one of the following options, at the conclusion of a predetermined schedule of installment payments made in substantially equal periods and in substantially equal amounts:

(i) Satisfying the balance of the contractual amount owing.

(ii) Refinancing any balance owing on the terms previously agreed upon at the original execution of the installment sales contract.

(iii) Surrendering the motor vehicle as agreed upon at the original execution of the installment sale contract. Full benefit period coverage—Insurance coverage which provides protection for a benefit period equal to the shorter of the duration of disability or unemployment minus any elimination period and the full term of coverage remaining when the disability or unemployment benefits first become payable. Full term insurance coverage—Insurance coverage for a benefit period equal to the term of the indebtedness remaining at the time coverage is elected. Grace period—The period during which a premium may be paid after the premium due date. Identifiable charge—The amount a creditor charges a debtor specifically for credit insurance. A differential in finance, interest, service or similar charges made to debtors who are in like circumstances, except for their insured or noninsured status, is considered an identifiable charge. Indebtedness—The total amount payable by a debtor to a creditor in connection with a loan or other credit transaction.

(i) Actual gross unpaid indebtedness. The scheduled gross unpaid indebtedness plus any past-due installment payments and minus any prepaid installment payments.

(ii) Actual net unpaid indebtedness. The amount necessary to liquidate the actual unpaid indebtedness in a single sum excluding unearned interest, but including any prepayment penalty.

(iii) Initial insured indebtedness.

(A) If coverage is provided on a gross indebtedness basis, the sum of the installment payments under the contract of indebtedness as of the date the indebtedness is incurred, subject to any maximum dollar amount of coverage specified in the group policy and group certificate or individual policy.

(B) If coverage is provided on a net indebtedness basis, the amount of the indebtedness excluding the unearned interest under the contract of indebtedness as of the date the indebtedness is incurred, subject to any maximum dollar amount of coverage specified in the group policy and group certificate or individual policy.

(iv) Scheduled gross unpaid indebtedness. The sum of the scheduled remaining installment payments under the contract of indebtedness, including unearned interest.

(v) Scheduled net unpaid indebtedness. The amount necessary to liquidate the scheduled unpaid indebtedness in a single sum excluding unearned interest but including any prepayment penalty. Initial amount of decreasing lease insurance—The excess of the amount of death benefit payable in the event of death of the lessee during the first month of the lease, over the amount of level lease insurance, as defined in this section. The term does not include the amount of the monthly lease payment paid at the beginning of the lease. Joint coverage—Credit insurance coverage on any two or more persons who are jointly liable for repayment of an indebtedness or fulfillment of a lease obligation. Limited benefit period coverage—Insurance coverage which provides protection for a benefit period equal to the shorter of the duration of disability or unemployment minus any elimination period and a period less than the full term of coverage remaining when the disability or unemployment benefits first become payable. Limited term insurance coverage—Insurance coverage for a benefit period less than the term of the indebtedness remaining at the time coverage is elected. Insurance coverage terminates at the insured debtor’s attained age as set forth in the group certificate or individual policy or when the truncated coverage terminates. Lockout—The discharge of employes by their employer due to a labor dispute, including discharge as a result of an employer’s dislike of employes’ activities as a union, or the temporary closing of the place of employment by an employer without formally discharging the employes in an effort to discourage union activities, gain acceptance of the employer’s view or effect a labor compromise which is more favorable to the employer in comparison to the demands made by the employes. Loss ratio—The incurred claims during the experience period divided by the actual earned premium during the experience period. Open end loan—A credit plan which may be drawn upon by a debtor without renegotiating with the creditor. Physician—A medical doctor, chiropractor or doctor of osteopathy. Prima facie premium rates—The premium rates established by the Department and published in the Pennsylvania Bulletin. Prima facie premium rates shall be published in the Pennsylvania Bulletin by June 19, 1998, and thereafter as established by and referenced in § § 73.106, 73.109 and 73.112 (relating to life insurance rate standards; A & H insurance rate standards; and involuntary unemployment insurance rate standards). Producer—An agent or broker. Prominent type—Font or formatting techniques which differentiate selected text from other text. The term includes, for example, capital letters, contrasting color and underscoring. Residual payment—The amount that shall be paid by the lessee at the end of the lease term if the lessee elects to purchase the property that is the subject of the lease. Single coverage—Credit insurance coverage on one person who is liable for repayment of an indebtedness or fulfillment of a lease obligation. TPD—Total and permanent disability. Term of insurance coverage—The period during which a group certificate or individual policy is effective. 2001 CSO Male Composite Ultimate Mortality Table—The ultimate version of the mortality table, consisting of separate rates of mortality for male lives that do not distinguish between smokers and nonsmokers, developed by the American Academy of Actuaries CSO Task Force from the Valuation Basic Mortality Table developed by the Society of Actuaries Individual Life Insurance Valuation Mortality Task Force, and adopted by the National Association of Insurance Commissioners in December 2002. The table includes both the age-nearest birthday and age-last birthday version. Truncated coverage—Credit insurance coverage as defined in this section that meets the requirements in § § 73.106(11), 73.109(10) and 73.112(10), and provides a term of insurance coverage for a period that is shorter than the full term of the indebtedness remaining at the time the insurance coverage is elected. The term does not include credit insurance coverage which terminates on attainment of a specific age. Variable interest loan—A loan which has an interest rate that may change during the term of the loan which causes a change in either the amount of the installment payment or the term of the loan.

The provisions of this § 73.103 amended July 14, 2006, effective January 1, 2007, 36 Pa.B. 3665. Immediately preceding text appears at serial pages (242923) to (242927).

This section cited in 31 Pa. Code § 73.106 (relating to life insurance rate standards); 31 Pa. Code § 73.109 (relating to A and H insurance rate standards); 31 Pa. Code § 73.110 (relating to involuntary unemployment insurance benefits); and 31 Pa. Code § 73.141 (relating to credit insurance on lease transactions).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.104 Life insurance and life insurance with TPD benefit.

(a) Life benefit plan. The prima facie premium rate standards referenced in § 73.106 (relating to life insurance rate standards) apply to a plan of credit life insurance benefits, if the plan provides the features in paragraphs (1)—(3) and, if applicable, paragraph (4). This plan shall be described in a group policy and group certificate or in an individual policy.

(1) Single life coverage or joint life coverage for all eligible debtors.

(2) A benefit payable upon death or upon TPD, if TPD coverage applies, subject to any maximum dollar amount of coverage specified in the group policy and group certificate or individual policy, equal to any of the following:

(i) The actual gross or net unpaid indebtedness at the time of death or commencement of TPD, in the case of a closed end loan for a group policy of credit life insurance or credit life insurance with a TPD benefit.

(ii) The greater of the scheduled gross or net unpaid indebtedness, or the actual gross or net unpaid indebtedness, at the time of death or commencement of TPD, in the case of a closed end loan for an individual policy of credit life insurance or credit life insurance with a TPD benefit.

(iii) The actual net unpaid indebtedness at the time of death or commencement of TPD, in the case of an open end loan .

(3) A coverage period equal to the lesser of the following:

(i) The term of the indebtedness remaining at the time coverage is elected.

(ii) The term of the indebtedness remaining at the time coverage is elected to the time the insured debtor attains an age at which the group policy and group certificate or individual policy provides for coverage to terminate.

(iii) The term of the indebtedness remaining at the time coverage is elected until truncated coverage terminates.

(4) If TPD coverage is provided, a definition of TPD requiring that the debtor be totally and permanently and continuously unable to engage in any occupation, employment or activity for compensation or profit, for which the debtor is suited by education, training or experience, according to the certification of a physician or podiatrist. The physician or podiatrist’s certification may be waived by the insurer if the debtor has suffered the permanent loss of sight of both eyes, or the severance of both hands, both feet or of one hand and one foot.

(b) Alternate benefit plans. Insurers may offer credit life insurance benefit plans and credit life insurance with TPD benefit plans that differ from the plan described in subsection (a). An alternate plan shall be described in a group policy and group certificate, or in an individual policy, and shall conform to the standards of section 7(b) of the act (40 P. S. § 1007.7(b)) and the applicable standards of section 6 of the Group Life Insurance Law (40 P. S. § 532.6). The premium rate standards of § 73.106 apply to alternate benefit plans.

This section cited in 31 Pa. Code § 73.106 (relating to life insurance rate standards); 31 Pa. Code § 73.114 (relating to insurability requirements); 31 Pa. Code § 73.115 (relating to benefit exclusions); and 31 Pa. Code § 73.116 (relating to age requirements).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.105 Life insurance and life insurance with TPD benefit requirements.

A plan of credit life insurance or credit life insurance with TPD benefit and a group policy and group certificate or an individual policy describing the plan, shall comply with the following:

(1) Joint coverage.

(i) If joint life coverage with or without TPD benefit is provided, a group certificate or individual policy providing joint life coverage with or without TPD coverage shall be issued. Insurers shall not issue two single life coverage group certificates or two single life individual policies.

(ii) The benefit payable in the case of simultaneous death or TPD of both insureds shall not exceed the benefit that would be payable if coverage were provided on only one debtor.

(iii) The group policy and group certificate or individual policy shall make provision for whom any excess benefit will be paid in the event of the simultaneous death of the joint insureds.

(2) Continuation of coverage. If joint life coverage with or without TPD benefit is provided, and coverage on one of the insured debtors is terminated or voided, or a death claim is denied, for any reason other than for the termination of the indebtedness, any remaining eligible debtor’s coverage shall continue and an equitable adjustment of premium shall be made. The remaining eligible debtor’s coverage shall continue under a single life coverage group certificate or individual policy.

(3) Voiding coverage for ineligible age. If a debtor exceeds the eligibility age for coverage and has correctly stated age information in an application signed by the debtor, and if a group certificate or individual policy is issued, the insurer has the right during the debtor’s lifetime to void coverage on the debtor, but only within 60 days from the date of issue of the group certificate or individual policy.

(4) Terminating coverage for ineligible age. When premiums are payable monthly based on the actual monthly outstanding balance, if a debtor who exceeds the age at which coverage is to terminate under a group certificate or individual policy has correctly stated age information in an application signed by the debtor, and premiums continue to be erroneously charged to the debtor, the insurer has the right to terminate coverage as of the next billing date.

(5) Reducing excess coverage. If an identifiable charge is erroneously made to a debtor for an amount of coverage that exceeds the maximum dollar amount of coverage specified in the group policy and group certificate or individual policy, the insurer has the right to reduce the amount of coverage to the appropriate amount specified in the group policy and group certificate or individual policy during the debtor’s lifetime but only within 60 days from the date the identifiable charge is made to the debtor. If coverage is reduced, a refund shall be made of the difference between the actual amount charged and the appropriate amount that should have been charged.

(6) Contestability. A contestability provision may not be more restrictive than to provide that coverage on a debtor shall be incontestable after the group certificate or individual policy has been in force during the lifetime of the debtor for 2 years from the date of issue. Coverage shall be contested based only upon information contained in an insurance application signed by the debtor, a copy of which is furnished, not later than when coverage is contested, to the debtor, a secondary beneficiary or other claimant.

(7) Equitable premium or benefit adjustment. A provision specifying an adjustment of premiums or of benefits, or both, to be made if information relating to the age of a debtor has been fraudulently misstated shall be considered to be equitable if it places the debtor and the insurer in the position they would have been in had the age information been correctly stated. Adjustment may not be made unless the age information is contained in an application signed by the debtor, a copy of which is furnished, not later than the time the adjustment is made, to the debtor, a secondary beneficiary or other claimant.

(8) Premium payment basis.

(i) Premiums shall be payable by the debtor either on a monthly outstanding balance basis or on a single premium basis at issue. Single premium coverage may be written on closed end loans only if at least one of the following conditions applies:

(A) The term of the coverage is 75 months or less. However coverage written on lease transactions may exceed 75 months.

(B) The coverage is provided on a net unpaid indebtedness basis.

(ii) A group certificate or individual policy providing credit life insurance or credit life insurance with TPD benefit on a single premium net unpaid indebtedness basis shall contain a disclosure of the annual percentage rate used in the calculation of the insured indebtedness.

(9) Renewal or refinancing. With respect to the renewal or refinancing of an existing insured indebtedness, the effective date of coverage on the renewed or refinanced indebtedness shall be the date on which the insurer originally insured the debtor with respect to the indebtedness that is renewed or refinanced, to the extent of the amount and term of the indebtedness outstanding at the time of renewal or refinancing.

(10) Truncated life coverage.

(i) Truncated credit life insurance and truncated credit life insurance with TPD benefit may be provided only in connection with loans or credit transactions that are for a term greater than 60 months.

(ii) The truncated coverage period shall be at least 60 months.

(iii) If truncated coverage is elected by a debtor, at the time of election of the insurance coverage, the debtor shall be informed in writing of the term of the insurance coverage and that the coverage will terminate prior to the scheduled maturity date of the indebtedness.

(iv) A group certificate or individual policy providing truncated credit insurance coverage shall disclose both the term of the truncated insurance coverage and that the term of insurance coverage will terminate prior to the scheduled maturity date of the indebtedness. The termination disclosure shall appear in prominent print on the first page of the group certificate or individual policy.

(11) Preexisting exclusion disclosure. A group certificate or individual policy providing for a preexisting condition exclusion shall disclose the exclusion and its effects upon benefit payments. The preexisting condition exclusion disclosure shall appear in prominent type on the first page of the group certificate or individual policy.

This section cited in 31 Pa. Code § 73.116 (relating to age requirements).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.106 Life insurance rate standards.

(a) Prima facie rates. Premium rates for credit life insurance and credit life insurance with TPD benefit, as described in § 73.104(a) (relating to life insurance and life insurance with TPD benefit), may not exceed the prima facie premium rates referenced in this section and published in the Pennsylvania Bulletin, unless higher premium rates are approved under § 73.122 (relating to deviated rates). Premium rates for benefits that differ from those benefits described in § 73.104(a) may not exceed premium rates that are actuarially consistent with the prima facie premium rates referenced in this section and published in the Pennsylvania Bulletin.

(b) Symbols. The symbols used in this section shall have the following meanings.

(1) Et = amount at risk in month t per $1 of initial insured indebtedness.

(2) i = 4.5%, consisting of an interest discount of 4% and a mortality discount of .5%.

(3) LSPn = single premium prima facie premium rate per $100 of a level amount of insured indebtedness.

(4) n = coverage period in months.

(5) Op = monthly outstanding balance prima facie premium rate per $1,000 of outstanding balance.

(6) SPn = single premium prima facie premium rate per $100 of initial insured gross indebtedness, as defined in § 73.103 (relating to definitions), repayable in n equal monthly installments.

(7) NSPn = single premium prima facie premium rate per $100 of initial insured net indebtedness, as defined in § 73.103, repayable in n equal monthly installments.

(c) Debtor insurance charge. The amount charged a debtor by a creditor for credit life insurance or credit life with TPD benefit may not exceed the premium amount charged by the insurer, as computed at the time the charge to the debtor is determined.

(d) Monthly outstanding balance rates. If premiums are payable on a monthly outstanding balance basis, the monthly prima facie premium rate for credit life insurance on a single life shall be $.705 per $1,000 of outstanding balance, and shall be $.844 per $1,000 of outstanding balance for credit life insurance with TPD benefit on a single life.

(e) Gross single premium rates for full term coverage period.

(1) If premiums for decreasing insurance on the gross unpaid indebtedness for a full term coverage period are payable on a single premium basis, the single premium prima facie premium rates for credit life insurance on a single life and for credit life insurance with TPD benefit on a single life shall be calculated, except as provided in subsection (i), in accordance with the following formula:

(2) Gross single premium rates for full term coverage period calculated in accordance with the formula in paragraph (1) are published in the Pennsylvania Bulletin, for single life coverage and for single life coverage with TPD benefit.

(f) Gross single premium rates for limited term coverage period. If premiums for decreasing insurance on the gross unpaid indebtedness for a limited term coverage period are payable on a single premium basis, the single premium rates for credit life insurance on a single life and for credit life insurance with TPD benefit on a single life may not exceed premium rates that are actuarially consistent with the single premium prima facie premium rates published in the Pennsylvania Bulletin, except as provided in subsection (i).

(g) Net single premium rates. If premiums for decreasing insurance on the net unpaid indebtedness for a full term or limited period coverage period are payable on a single premium basis, the single premium prima facie premium rates for credit life insurance on a single life and for credit life insurance with TPD benefit on a single life shall be calculated, except as provided in subsection (i), in accordance with the following formula:

(h) Level single premium rates. If premiums are payable on a single premium basis for level term insurance, the single premium prima facie premium rates for credit life insurance on a single life shall be calculated, except as provided in subsection (i), in accordance with the following formula:

(i) Alternative single premium formula. Prima facie premium rates may be calculated for credit life insurance and credit life insurance with TPD benefit in accordance with the following formula:

(j) Joint rates. Prima facie premium rates for credit life insurance on a joint life with or without TPD benefit shall equal 175% of the prima facie premium rates for a single life benefit plan which is identical to the joint life benefit plan.

(k) Actuarially consistent rates. For credit life insurance or credit life insurance with TPD benefit offered on any other basis, prima facie premium rates shall be actuarially consistent with the rate standards of subsections (d)—(i).

(l) The adjustment of prima facie rates and loss ratio standards. By June 19, 2001, and at least every 3 years thereafter, the Department will review the appropriateness of the prima facie premium rates referenced in this section based upon Commonwealth experience data for the preceding 3-calendar years. The nonclaim element of the prima facie premium rates will not be adjusted unless an adjustment is necessary under subsection (m). An adjustment to the prima facie premium rates will not be made if the change in prima facie premium rates so determined would be less than 5%. If an adjustment to the prima facie premium rates is indicated, the Department will publish the new prima facie premium rates in the Pennsylvania Bulletin. If an adjustment to the loss ratio standards is indicated, the Department will propose regulatory amendment to § 73.123 (relating to loss ratio standards) to reflect the change.

(m) Review of non-claim elements. By June 19, 2007, and at least every 9 years thereafter, the Department will review the changes in the average term and amount of coverage, the changes in the fixed and variable expenses and the reasonable profit margin for insurance companies writing credit life insurance in this Commonwealth. If this review indicates that a change in the nonclaim elements of the premium rates is necessary, the Department will propose a regulatory amendment to the loss ratio standards in § 73.123 and thereafter publish new prima facie premium rates in the Pennsylvania Bulletin.

This section cited in 31 Pa. Code § 73.103 (relating to definitions); 31 Pa. Code § 73.104 (relating to life insurance and life insurance with TPD benefit); 31 Pa. Code § 73.134 (relating to compensation of producers and creditors); 31 Pa. Code § 73.136 (relating to filing of forms and rates); and 31 Pa. Code § 73.134 (relating to compensation of producers and creditors).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.107 A and H insurance benefits.

(a) A and H benefit plans. The prima facie premium rate standards referenced in § 73.109 (relating to A and H insurance rate standards) apply to a plan of credit A and H insurance benefits, if the plan provides the features listed in paragraphs (1)—(7). This plan shall be described in a group policy and group certificate or in an individual policy.

(1) Single A and H coverage or joint A and H coverage for all eligible debtors.

(2) A monthly benefit payable upon the debtor’s disability, subject to any maximum dollar amount of coverage specified in the group policy and group certificate or individual policy, equal to any of the following:

(i) The monthly installment payment required under the contract of indebtedness, for closed end loans.

(ii) The benefit amount provided in § 73.139(f) (relating to credit insurance on open end loans), for open end loans.

(iii) The benefit amount provided in § 73.140(d) (relating to credit insurance on closed end variable interest loans), for closed end variable interest loans.

(iv) The benefit amount as provided in § 73.141(f) (relating to credit insurance on lease transactions), for lease transactions.

(3) A coverage period equal to the lesser of the following:

(i) The term of the indebtedness remaining at the time coverage is elected.

(ii) The term of the indebtedness remaining at the time coverage is elected to the time the insured debtor attains an age at which the group policy and group certificate or individual policy provides for coverage to terminate.

(iii) The term of the indebtedness remaining at the time coverage is elected until truncated coverage terminates.

(4) An elimination period as provided by the policy or certificate of either 14 days or 30 days following the commencement of disability, with benefits becoming payable on either a retroactive or nonretroactive basis.

(5) A requirement for proof of disability in the form of one or both of the following:

(i) During the first 12 months of disability, proof that the insured debtor is unable to perform all of the important or significant occupational duties at the time the disability commences. After 12 months of disability, proof that the debtor is unable to perform the duties required of any gainful occupation for which the debtor is reasonably suited by education, training or experience.

(ii) A medical determination of the insured debtor’s total disability.

(6) A preexisting condition exclusion for disability that commences within 6 months after the effective date of coverage and is the result of an illness, disease or physical condition for which the debtor received medical advice, consultation or treatment within 6 months prior to the effective date of coverage. The effective date of coverage for each portion of the insurance attributable to a different advance under an open end loan is the date on which the advance occurs, or the date on which coverage is elected, if later.

(7) The payment of an A and H benefit shall cease at the scheduled expiration date of the group certificate or individual policy, or when the indebtedness is prepaid.

(b) Alternate benefit plans. Insurers may offer credit A and H insurance benefit plans that differ from the plan described in subsection (a). An alternate plan shall be described in a group policy and group certificate, or in an individual policy, and shall conform to the standards of section 7(b) of the act (40 P. S. § 1007.7(b)) and the applicable standards of section 618 of The Insurance Company Law of 1929 (40 P. S. § 753). The premium rate standards of § 73.109 apply to alternate benefit plans.

This section cited in 31 Pa. Code § 73.109 (relating to A and H insurance rate standards); 31 Pa. Code § 73.114 (relating to insurability requirements); 31 Pa. Code § 73.115 (relating to benefit exclusions); 31 Pa. Code § 73.116 (relating to age requirements); and 31 Pa. Code § 73.117 (relating to employment eligibility requirements).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.108 A and H insurance requirements.

A plan of credit A and H insurance and a group policy and group certificate or an individual policy describing such plan, shall comply with the following:

(1) Joint coverage basis. If joint A and H coverage is provided, it shall be provided either on the basis of each debtor being insured for 100% of the monthly disability payment, or on the basis of each debtor being insured for a specified portion of the amount of the monthly disability payment, with the total of the portions equal to 100% of the monthly disability payment.

(2) Joint contract.

(i) If joint A and H coverage is provided, a group certificate or individual policy providing joint A and H coverage shall be issued. Insurers may not issue two single A and H coverage group certificates or two single individual polices.

(ii) The benefit payable in the case of simultaneous disability of both insureds may not exceed the benefit that would be payable if coverage were provided on only one debtor.

(3) Continuation of coverage. If joint A and H coverage is provided, and coverage on one of the insured debtors is terminated or voided for any reason other than for termination of the indebtedness, any remaining eligible debtor’s coverage shall continue and an equitable adjustment of premium shall be made. The remaining eligible debtor’s coverage shall continue under a single A and H coverage group certificate or individual policy.

(4) Voiding coverage for ineligible employment. If a gainful employment requirement is applicable, and a debtor who is not gainfully employed correctly stated employment status information in an application signed by the debtor, and if a group certificate or individual policy is issued, the insurer has the right to void coverage on the debtor, but only within 60 days from the date of issue of the group certificate or individual policy. This action shall be without prejudice to any claim for a disability that commenced before the termination date.

(5) Voiding coverage for ineligible age. If a debtor exceeds the eligibility age for overage and has correctly stated age information in an application signed by the debtor, and if a group certificate or individual policy is issued, the insurer has the right to void coverage on the debtor, but only within 60 days from the date of issue of the group certificate or individual policy. This action shall be without prejudice to any claim for a disability that commenced before the termination date.

(6) Terminating coverage for ineligible age. When premiums are payable monthly based on the actual gross unpaid indebtedness, if a debtor who exceeds the age at which coverage is to terminate under a group certificate or individual policy has correctly stated age information in an application signed by the debtor, and premiums continue to be erroneously charged to the debtor, the insurer has the right to terminate coverage as of the next billing date. This action shall be without prejudice to any claim for a disability that commenced before the termination date.

(7) Reducing excess coverage. If an identifiable charge is erroneously made to a debtor for an amount of coverage that exceeds the maximum dollar amount of coverage specified in the group policy and group certificate or individual policy, the insurer has the right to reduce the amount of coverage to the appropriate amount specified in the group policy and group certificate or individual policy, but only within 60 days from the date the identifiable charge is made to the debtor. If coverage is reduced, a refund shall be made of the difference between the actual amount charged and the appropriate amount that should have been charged.

(8) Contestability. A contestability provision may not be more restrictive than to provide that coverage on a debtor shall be incontestable after the group certificate or individual policy has been in force during the lifetime of the debtor for 2 years from the date of issue. Coverage shall be contested only based upon information contained in an insurance application signed by the debtor, a copy of which is furnished, not later than when coverage is contested, to the debtor, a secondary beneficiary or other claimant.

(9) Equitable premium or benefit adjustment. A provision specifying an adjustment of premiums or of benefits, or both, to be made if information relating to the age of a debtor has been fraudulently misstated shall be considered to be equitable if it places the debtor and the insurer in the position they would have been in had the age information been correctly stated. An adjustment may not be made unless the age information is contained in an application signed by the debtor, a copy of which is furnished, not later than the time the adjustment is made, to the debtor, a secondary beneficiary or other claimant.

(10) Renewal or refinancing. With respect to the renewal or refinancing of an existing insured indebtedness, the effective date of coverage on the renewed or refinanced indebtedness shall be the date on which the insurer originally insured the debtor with respect to the indebtedness that is renewed or refinanced, to the extent of the amount and term of the indebtedness outstanding at the time of renewal or refinancing.

(11) Truncated A and H coverage.

(i) Truncated credit A and H insurance may be provided only in connection with loans or credit transactions that are for a term greater than 60 months.

(ii) The truncated coverage period shall be at least 60 months.

(iii) If truncated coverage is elected by a debtor, at the time of the election of the insurance coverage, the debtor shall be informed in writing of the term of the insurance coverage and that the coverage will terminate prior to the scheduled maturity date of the indebtedness.

(iv) A group certificate or individual policy providing truncated credit insurance coverage shall disclose both the term of the truncated insurance coverage and that the term of insurance coverage will terminate prior to the scheduled maturity date of the indebtedness. The termination disclosure shall appear in prominent type on the first page of the group certificate or individual policy.

(12) Preexisting exclusion disclosure. A group certificate or individual policy providing for a preexisting condition exclusion shall disclose the exclusion and its effects upon benefit payments. The preexisting condition exclusion disclosure shall appear in prominent type on the first page of the group certificate or individual policy.

This section cited in 31 Pa. Code § 73.116 (relating to age requirements).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.109 A and H insurance rate standards.

(a) Prima facie A&H rates. Premium rates for credit A and H insurance benefits, as described in § 73.107(a) (relating to accident and health insurance benefits), may not exceed the prima facie premium rates referenced in this section and published in the Pennsylvania Bulletin, unless higher premium rates are approved under § 73.122 (relating to deviated rates). Premium rates for benefits that differ from those benefits described in § 73.107(a) may not exceed premium rates that are actuarially consistent with the prima facie premiums rates referenced in this section and published in the Pennsylvania Bulletin.

(b) Symbols. The symbols used in this section shall have the following meanings:

(1) n = coverage period in months.

(2) Opn = monthly prima facie premium rate per $1,000 of gross unpaid indebtedness.

(3) SPn = single premium prima facie premium rate per $100 of initial insured gross indebtedness, as defined in § 73.103 (relating to definitions), repayable in n equal monthly installments.

(c) Debtor insurance charge. The amount charged a debtor by a creditor for credit A and H insurance may not exceed the premium amount charged by the insurer, as computed at the time the charge to the debtor is determined.

(d) Single premium rates for full benefit and full term periods. If premiums are payable on a single premium basis for insurance with a full benefit period and a full term coverage period, the single premium prima facie premium rates for credit A and H insurance on a single life shall be as published in the Pennsylvania Bulletin.

(e) Single premium rates for limited benefit and limited term periods. If premiums are payable on a single premium basis for insurance with a limited term coverage period and a benefit period equal to the limited term coverage period, the prima facie premium rates shall be as published in the Pennsylvania Bulletin, for an installment period equal to the number of monthly installment payments in the limited term coverage period. The premium shall be determined by multiplying the prima facie premium rate by the monthly installment payment, by the number of months in the limited term coverage period, divided by 100.

(f) Single premium rates for limited benefit and full or limited term periods. If premiums are payable on a single premium basis for insurance with a limited benefit period for a full term or limited term coverage period, the single premium rates for credit A and H insurance on a single life may not exceed premium rates that are actuarially consistent with the single premium prima facie premium rates published in the Pennsylvania Bulletin.

(g) Monthly premium rates for full benefit and full term periods. If premiums are payable on a monthly basis for insurance with a full balance benefit period for a full term coverage period, the monthly prima facie premium rates for credit A and H insurance on a single life shall be as published in the Pennsylvania Bulletin. The monthly prima facie premium rates shall be calculated in accordance with the following formula:

(h) Monthly premium rates for limited benefit period and limited term periods. If premiums are payable on a monthly basis for insurance with a limited term coverage period and a benefit period equal to the limited term coverage period, the monthly prima facie premium rates shall be as published in the Pennsylvania Bulletin for an installment period equal to the number of monthly installment payments in the limited term coverage period. The monthly premium shall be determined by multiplying the prima facie premium rate by the monthly loan payment, by the remaining number of months in the limited term coverage period, divided by 1,000.

(i) Monthly premium rates for limited benefit and full or limited term periods. If premiums are payable on a monthly basis for insurance with a limited benefit period for a full term or limited term coverage period, the monthly premium rates for credit A and H insurance on a single life may not exceed premium rates that are actuarially consistent with the monthly prima facie premium rates published in the Pennsylvania Bulletin

(j) Joint rates.

(1) When each debtor is insured for 100% of the monthly A and H payment, the prima facie premium rates for joint credit A and H insurance shall equal 180% of the prima facie premium rates for single A and H coverage.

(2) When each debtor is insured for a specific portion of the monthly disability payment, the prima facie premium rates for joint credit A and H insurance shall equal 100% of the prima facie premium rates for single A and H coverage.

(k) Actuarially consistent rates. For credit A and H insurance offered on any other basis, prima facie premium rates shall be actuarially consistent with the rate standards of subsections (d)—(i).

(l) Adjustment of prima facie rates and loss ratio standards. By June 19, 2001, and at least every 3 years thereafter, the Department will review the appropriateness of the prima facie premium rates referenced in this section based upon Commonwealth experience data for the preceding 3-calendar years. The nonclaim element of the prima facie premium rates may not be adjusted unless an adjustment is necessary under subsection (m). An adjustment to the prima facie premium rates will not be made if the change in prima facie premium rates so determined would be less than 5%. If an adjustment to the prima facie premium rates is indicated, the Department will publish the new prima facie premium rates in the Pennsylvania Bulletin. If an adjustment to the loss ratio standards is indicated, the Department will propose a regulatory amendment to § 73.123 (relating to loss ratio standards) to reflect the change.

(m) Review of nonclaim elements. By June 19, 2007, and at least every 9 years thereafter, the Department will review the changes in the average term and amount of coverage, the changes in fixed and variable expenses and the reasonable profit margin for insurance companies writing credit A and H insurance in this Commonwealth. If this review indicates that a change in the nonclaim elements of the premium rates is necessary, the Department will propose a regulatory amendment to the loss ratio standards in § 73.123 and thereafter publish new prima facie premium rates in the Pennsylvania Bulletin.

This section cited in 31 Pa. Code § 73.103 (relating to definitions); 31 Pa. Code § 73.107 (relating to accident and health insurance benefits); 31 Pa. Code § 73.134 (relating to compensatioin of producers and creditors); and 31 Pa. Code § 173.136 (relating to filing of forms and rates).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.110 Involuntary unemployment insurance benefits.

(a) Involuntary unemployment benefits plans. The prima facie premium rate standards referenced in § 73.112 (relating to involuntary unemployment insurance rate standards) apply to a plan of credit involuntary unemployment insurance benefits, if the plan provides the features of paragraphs (1)—(6). This plan shall be described in a group policy and group certificate or in an individual policy.

(1) Single involuntary unemployment coverage or joint involuntary unemployment coverage for all eligible debtors.

(2) A monthly benefit payable upon involuntary unemployment, subject to any maximum dollar amount of coverage specified in the group policy and group certificate or individual policy, equal to any of the following:

(i) The monthly installment payments required under the contract of indebtedness, for closed end loans.

(ii) The benefit amount as provided in § 73.139(f) (relating to credit insurance on open end loans), for open end loans.

(iii) The benefit amount as provided in § 73.140(d) (relating to credit insurance on closed end variable interest loans), for closed end variable interest loans.

(iv) The benefit amount as provided in § 73.141(f) (relating to credit insurance on lease transactions), for lease transactions.

(3) A coverage period equal to the lesser of the following:

(i) The term of the indebtedness remaining at the time coverage is elected.

(ii) The term of the indebtedness remaining at the time coverage is elected to the time the insured debtor attains an age at which the group policy or group certificate or individual policy provides for coverage to terminate.

(iii) The term of the indebtedness remaining at the time coverage is elected until truncated coverage terminates.

(4) An elimination period as provided by the policy or certificate of 30 days following the commencement of involuntary unemployment, with benefits becoming payable on either a retroactive or nonretroactive basis.

(5) A definition of involuntary unemployment requiring that the debtor be unemployed as a result of nonvoluntary termination from a single job at which the debtor worked for a salary or wages for 30 or more hours a week for at least the 12 months prior to the effective date of insurance coverage. Unemployment due to a lockout as defined in § 73.103 (relating to definitions) will be considered to be involuntary unemployment.

(6) A requirement that the payment of an involuntary unemployment benefit shall cease at the scheduled expiration date of the group certificate or individual policy, or at such time as the indebtedness is prepaid.

(b) Alternate benefit plans. Insurers may offer credit involuntary unemployment insurance benefit plans that differ from the plan described in subsection (a). Any alternate plan shall be described in a group policy and group certificate, or in an individual policy, and shall conform to the standards of section 7(b) of the act (40 P. S. § 1007.7(b)). The premium rate standards of § 73.112 apply to alternate benefit plans.

This section cited in 31 Pa. Code § 73.112 (relating to involuntary unemployment insurance rate standards); 31 Pa. Code § 73.114 (relating to insurability requirements); 31 Pa. Code § 73.115 (relating to benefit exclusions); 31 Pa. Code § 73.116 (relating to age requirements); and 31 Pa. Code § 73.118 (relating to initial eligibility requirements).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.111 Involuntary and voluntary unemployment insurance requirements.

A plan of credit involuntary unemployment insurance and a group policy and group certificate or an individual policy describing the plan shall comply with the following:

(1) Joint coverage basis. If joint unemployment coverage is provided, it shall be provided either on the basis of each debtor being insured for 100% of the monthly unemployment payment or on the basis of each debtor being insured for a specified portion of the monthly unemployment payment, with the total of these portions equal to 100% of the monthly unemployment payment.

(2) Joint contract.

(i) If joint unemployment coverage is provided, a group certificate or individual policy providing joint unemployment coverage shall be issued. Insurers may not issue two single unemployment coverage group certificates or two single individual policies.

(ii) The benefit payable in the case of simultaneous unemployment of both insureds may not exceed the benefit that would be payable if coverage were provided on only one debtor.

(3) Continuation of coverage. If joint unemployment coverage is provided and coverage on one of the insured debtors is terminated or voided for any reason other than for termination of the indebtedness, any remaining eligible debtor’s coverage shall continue and an equitable adjustment of premium shall be made. The remaining eligible debtor’s coverage shall continue under a single unemployment coverage group certificate or individual policy.

(4) Voiding coverage for ineligible employment. If a debtor who is not gainfully employed correctly stated employment status information in an application signed by the debtor, and if a group certificate or individual policy is issued, the insurer has the right to void coverage on the debtor, but only within 60 days from the date of issue of the group certificate or individual policy. This action shall be without prejudice to any claim for unemployment that commenced before the termination date.

(5) Voiding coverage for ineligible age. If a debtor exceeds the eligibility age for coverage and has correctly stated age information in an application signed by the debtor, and if a group certificate or individual policy is issued, the insurer has the right to void coverage on the debtor, but only within 60 days from the date of issue of the group certificate or individual policy. This action shall be without prejudice to any claim for unemployment that commenced before the termination date.

(6) Terminating coverage for ineligible age. When premiums are payable monthly based on the actual gross unpaid indebtedness, if a debtor who exceeds the age at which coverage is to terminate under a group certificate or individual policy has correctly stated age information in an application signed by the debtor, and premiums continue to be erroneously charged to the debtor, the insurer has the right to terminate coverage as of the next billing date. This action shall be without prejudice to any claim for unemployment that commenced before the termination date.

(7) Reducing excess coverage. If an identifiable charge is erroneously made to a debtor for an amount of coverage that exceeds the maximum dollar amount of coverage specified in the group policy and group certificate or individual policy, the insurer has the right to reduce the amount of coverage to the appropriate amount specified in the group policy and group certificate or individual policy, but only within 60 days from the date the identifiable charge is made to the debtor. If coverage is reduced, a refund shall be made of the difference between the actual amount charged and the appropriate amount that should have been charged.

(8) Contestability. A contestability provision may not be more restrictive than to provide that coverage on a debtor shall be incontestable after the group certificate or individual policy has been in force during the lifetime of the debtor for 2 years from the date of issue. Coverage shall be contested only based upon information contained in an insurance application signed by the debtor, a copy of which is furnished, not later than when coverage is contested, to the debtor, a secondary beneficiary or other claimant.

(9) Equitable premium or benefit adjustment. A provision specifying an adjustment of premiums or of benefits, or both, to be made if information relating to the age of a debtor has been fraudulently misstated shall be considered to be equitable if it places the debtor and the insurer in the position they would have been in had the age information been correctly stated. An adjustment may not be made unless the age information is contained in an application signed by the debtor, a copy of which is furnished, not later than the time the adjustment is made, to the debtor, a secondary beneficiary or other claimant.

(10) Renewal or refinancing. With respect to the renewal or refinancing of an existing insured indebtedness, the effective date of coverage on the renewed or refinanced indebtedness shall be the date on which the insurer originally insured the debtor with respect to the indebtedness that is renewed or refinanced, to the extent of the amount and term of the indebtedness outstanding at the time of renewal or refinancing.

(11) Truncated unemployment coverage.

(i) Truncated credit unemployment insurance may be provided only in connection with loans or credit transactions that are for a term greater than 60 months.

(ii) The truncated coverage period shall be at least 60 months.

(iii) If truncated coverage is elected by a debtor, at the time of the election of the insurance coverage, the debtor shall be informed in writing of the term of the insurance coverage and that the coverage will terminate prior to the scheduled maturity date of the indebtedness.

(iv) A group certificate or individual policy providing truncated credit insurance coverage shall disclose both the term of the truncated insurance coverage and that the term of insurance coverage will terminate prior to the scheduled maturity date of the indebtedness. The termination disclosure shall appear in prominent type on the first page of the group certificate or individual policy.

(12) Cancellation notice. A group certificate or individual policy providing involuntary unemployment or voluntary unemployment insurance shall contain a disclosure that the benefit provided by the group certificate or individual policy is related to unemployment and that if the insured debtor retires or no longer plans to work, the insured debtor has the right to contact the insurer or creditor to cancel the insurance coverage. This disclosure shall appear in prominent type on the first page of the group certificate or individual policy.

(13) Proof of unemployment. For involuntary unemployment coverage, proof of involuntary unemployment may not be limited to eligibility for unemployment compensation benefits.

This section cited in 31 Pa. Code § 73.116 (relating to age requirements).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.112 Involuntary unemployment insurance rate standards.

(a) Prima facie involuntary unemployment rates. Premium rates for credit involuntary unemployment insurance benefits, as described in § 73.110(a) (relating to involuntary unemployment insurance benefits), may not exceed the prima facie premium rates referenced in this section and published in the Pennsylvania Bulletin, unless higher premium rates are approved under § 73.122 (relating to deviated rates). Premium rates for benefits that differ from those benefits described in § 73.110(a) may not exceed premium rates that are actuarially consistent with the prima facie premium rates referenced in this section and published in the Pennsylvania Bulletin.

(b) Debtor insurance charge. The amount charged a debtor by a creditor for credit involuntary unemployment insurance may not exceed the premium amount charged by the insurer, as computed at the time the charge to the debtor is determined.

(c) Single premium rates for a 12-month benefit period and a full term coverage period. If premiums are payable on a single premium basis for insurance with a 12-month benefit period for a full term coverage period, the single premium prima facie premium rates for credit involuntary unemployment insurance on a single life shall be as published in the Pennsylvania Bulletin.

(d) Single premium rates for a 12-month benefit period and a limited term coverage period. For insurance with a limited term coverage period and a 12-month benefit period, the single premium prima facie premium rates shall be the prima facie premium rates published in the Pennsylvania Bulletin, for an installment period equal to the number of monthly installment payments in the limited term coverage period. The single premium shall be determined by multiplying the prima facie rate by the monthly installment payment, by the number of months in the limited term coverage period, divided by 1,000.

(e) Monthly premium rates for a 12-month benefit period and a full term coverage period. If premiums are payable on a monthly basis for insurance with a 12- month benefit period for a full term coverage period, the monthly prima facie premium rates for credit involuntary unemployment insurance on a single life shall be as published in the Pennsylvania Bulletin.

(f) Monthly premium rates for a 12-month benefit period and a limited term coverage period. For insurance with a limited term coverage period and a 12-month benefit period, the monthly prima facie premium rates shall be as published in the Pennsylvania Bulletin, for an installment period equal to the number of monthly installment payments in the limited term coverage period. The monthly premium shall be determined by multiplying the prima facie rate by the monthly installment payment, by the remaining number of months in the limited term period, divided by 1,000.

(g) Joint rates.

(1) When each debtor is insured for 100% of the monthly unemployment payment, the prima facie premium rates for joint credit involuntary unemployment insurance shall equal 180% of the prima facie premium rates for single involuntary unemployment coverage.

(2) When each debtor is insured for a specific portion of the monthly unemployment payment, the prima facie premium rates for joint credit involuntary unemployment insurance shall equal 100% of the prima facie premium rates for single involuntary unemployment coverage.

(h) Actuarially consistent rates. For credit involuntary unemployment insurance on any other basis, prima facie premium rates shall be actuarially consistent with the rate standards of subsections (c)—(f).

(i) Adjustment of prima facie rates and loss ratio standards. By June 19, 2001, and at least every 3 years thereafter, the Department will review the appropriateness of the prima facie premium rates referenced in this section based upon Commonwealth experience data for the preceding 3-calendar years. The nonclaim element of the prima facie premium rates may not be adjusted unless an adjustment is necessary under subsection (j). No adjustment to the prima facie premium rates will be made if the change in prima facie premium rates so determined would be less than 5%. If an adjustment to the prima facie premium rates is indicated, the Department will publish the new prima facie premium rates in the Pennsylvania Bulletin. If an adjustment to the loss ratio standards is indicated, the Department will propose a regulatory amendment to § 73.123 (relating to loss ratio standards) to reflect the change.

(j) Review of nonclaim elements. By June 19, 2007, and at least every 9 years thereafter, the Department will review the changes in the average term and amount of coverage, the changes in fixed and variable expenses, and the reasonable profit margin for insurance companies writing credit involuntary unemployment insurance in this Commonwealth. If this review indicates that a change in the nonclaim elements of the premium rates is necessary, the Department will propose a regulatory amendment to the loss ratio standards in § 73.123 and thereafter publish new prima facie premium rates in the Pennsylvania Bulletin.

This section cited in 31 Pa. Code § 73.103 (relating to definitions); 31 Pa. Code § 73.110 (relating to involuntary unemployment insurance benefits); 31 Pa. Code § 73.134 (relating to compensation of producers and creditors); and 31 Pa. Code § 73.136 (relating to filing of forms and rates).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.113 Voluntary unemployment insurance rate standards.

(a) Debtor insurance charge. The amount charged a debtor by a creditor for credit voluntary unemployment insurance may not exceed the premiums charged by the insurer, as computed at the time the charge to the debtor is determined.

(b) Premium rates based on loss ratio. The premium rates shall be based on a loss ratio not less than the loss ratio standard in § 73.123 (relating to loss ratio standards).

(c) Actuarial memorandum filing. The insurer shall include, with the rate filing made under § 73.136(a) (relating to filing of forms and rates), an actuarial memorandum which contains the basis of the claim costs used in computing the premium rates.

(d) Joint rates.

(1) When each debtor is insured for 100% of the monthly unemployment benefit, the premium rates for joint credit voluntary unemployment insurance shall equal 180% of the premium rates for single voluntary unemployment coverage.

(2) When each debtor is insured for a specific portion of the monthly unemployment benefit, the premium rates for joint credit voluntary unemployment insurance shall equal 100% of the premium rates for single voluntary unemployment coverage.

(e) Adoption of prima facie rates. If, in the opinion of the Commissioner, there is sufficient credit voluntary unemployment insurance experience data in this Commonwealth, the Commissioner may establish and adopt prima facie premium rates for voluntary unemployment and procedures for adjusting the prima facie premium rates.

(f) Review of nonclaim elements. By June 19, 1997, and at least every 9 years thereafter, the Department will review the changes in the average term and amount of coverage, changes in fixed and variable expenses, and the reasonable profit margin for insurers writing credit voluntary unemployment insurance in this Commonwealth. If this review indicates that a change in the loss ratio standard is necessary, the Department will propose an appropriate regulatory amendment to § 73.123 to reflect the change.

This section cited in 31 Pa. Code § 73.136 (relating to filing of forms and rates).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.114 Insurability requirements.

Plans of credit insurance as provided in § § 73.104(a), 73.107(a) and 73.110(a) (relating to life insurance and life insurance with TPD benefit; accident and health insurance benefits; and involuntary unemployment insurance benefits) may provide for either:

(1) An evidence of insurability requirement.

(2) No evidence of insurability requirement.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.115 Benefit exclusions.

Exclusions may be contained in a credit insurance plan as provided in § § 73.104(a), 73.107(a) and 73.110(a) (relating to life insurance and life insurance with TPD benefit; accident and health insurance benefits; and involuntary unemployment insurance benefits).

(1) The following exclusions may also be contained in a life insurance plan or a life insurance with TPD benefit plan:

(i) Death due to suicide within 1 year of the effective date of coverage.

(ii) TPD due to intentionally self-inflicted injury.

(iii) A preexisting conditions exclusion due to a condition for which the insured debtor received medical advice, consultation, diagnosis or treatment from a physician or podiatrist within 6 months before the effective date of coverage and due to which death occurs or TPD commences within 6 months after the effective date of coverage. This exclusion applies only if and to the extent that the total amount of all insurance that would otherwise be subject to the preexisting conditions exclusion exceeds $1,000.

(iv) For the application of the exclusions contained in subparagraphs (i)—(iii), the effective date of coverage for each portion of the insurance attributable to a different advance under an open end loan, is the date on which the advance or charge occurs, or if later, the date on which coverage is elected.

(2) The following exclusions may also be contained in an A and H insurance plan:

(i) Normal pregnancy.

(ii) Intentionally self-inflicted injury.

(iii) Nonscheduled aircraft flight.

(3) The following exclusions may also be contained in an involuntary unemployment insurance plan:

(i) Voluntary resignation of employment.

(ii) Voluntary leave of absence.

(iii) Voluntary forfeiture of salary, wages or income.

(iv) Retirement.

(v) Injury or disease.

(vi) Disability.

(vii) Strike or unionized labor dispute.

(viii) Discharge by employer for cause.

(ix) Involuntary unemployment for which severance pay is received by the debtor.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.116 Age requirements

(a) Debtor age provisions. Plans of credit insurance as provided in § § 73.104(a), 73.107(a) and 73.110(a) (relating to life insurance and life insurance with TPD benefit; A and H insurance benefits; involuntary unemployment insurance benefits) may provide for debtor age provisions not less favorable than any of the following:

(1) An age restriction making the debtor ineligible for coverage when one of the following applies:

(i) The debtor will have attained 65 years of age at the time the indebtedness is incurred.

(ii) The debtor will have attained 66 years of age on the scheduled maturity date of the indebtedness.

(2) A provision for coverage to terminate when the debtor attains a specified age not less than 66 years. If coverage is written on a single premium basis, the term of the insurance coverage on which the premium is based may not extend beyond the termination age.

(i) A debtor electing coverage that terminates when a specified age is attained shall be provided, at the time of election of insurance coverage, with a written disclosure specifying the age of the debtor at which the insurance will terminate.

(ii) A group certificate or individual policy providing coverage that terminates when a specified age is attained shall disclose the age of the debtor at which the insurance will terminate. The termination disclosure shall appear in prominent print on the first page of the group certificate or individual policy.

(b) Eligibility determination using age. An age restriction shall be used only to determine initial eligibility for coverage and may not be used as a basis for denying claims or terminating existing coverage, except as provided in subsection (a)(2) and in § 73.105 (3) and (4), § 73.108 (5) and (6) or § 73.111 (5) and (6).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.117 Employment eligibility requirements.

Plans of credit accident and health insurance as provided in § 73.107(a) (relating to accident and health insurance benefits) may provide for either:

(1) Any evidence of gainful employment requirement.

(2) No evidence of gainful employment requirement.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.118 Initial eligibility requirements.

Plans of credit involuntary unemployment insurance as provided in § 73.110 (a) (relating involuntary unemployment insurance benefits) may provide for initial eligibility requirements, whereby an insurer may choose to exclude from credit involuntary unemployment coverage, one or more of the following:

(1) Unemployed individuals.

(2) Self-employed individuals.

(3) Military personnel.

(4) Workers in seasonal or temporary jobs which are designed to last 6 consecutive months or less.

(5) Debtors who have been notified of a layoff or of employment termination occurring within 60 days of the termination notification.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.119 Combination coverage rate.

If an insurer combines two or more credit life, Credit A and H or credit unemployment insurance coverages which are provided under separate and distinct policy forms, and if the debtor may purchase only a package of these insurance coverages, the premium rate for the package shall be the sum of the separate approved premium rates for the applicable insurance coverages less a discount of 5% of the sum of the separate approved premium rates.

This section cited in 31 Pa. Code § 73.130 (relating to election of coverage and disclosure requirements).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.120 Composite term premium rate.

Composite term premium rates may be used under the following conditions:

(1) The insurer shall include in the filing of the composite term premium rates a demonstration that the expected total premium to be collected by the insurer will not exceed the total premium that would be collected if term specific rates were charged.

(2) The composite term premium rates may not exceed by more than 10% any term specific rates within the composite term period.

This section cited in 31 Pa. Code § 73.103 (relating to definitions).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.121 Maximum rates.

An insurer may use a rate for an account that is lower than the filed rate applicable to that account without notice to the Department.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.122 Deviated rates.

An insurer may file for approval of and upon approval may use rates that are higher than the prima facie premium rates if the use of the higher rates will result in a loss ratio which is not less than the loss ratio standard in § 73.123 (relating to loss ratio standards). If rates higher than the prima facie rates are filed, the filing shall specify the account to which the rates apply. These rates may be:

(1) Applied uniformly to all accounts of the insurer.

(2) Applied on an equitable basis to only one or more accounts of the insurer for which the actual prima facie loss ratio was higher than the applicable loss ratio standard.

(3) Applied on an equitable basis in accordance with an account rating procedure. The account rating procedure shall be filed with and approved by the Department prior to use.

This section cited in 31 Pa. Code § 73.106 (relating to life insurance rate standards); 31 Pa. Code § 73.109 (relating to A and H insurance rate standards); and 31 Pa. Code § 73.112 (relating to involuntary unemployment insurance rate standards).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.123 Loss ratio standards.

Unless revised loss ratio standards are adopted, the loss ratio standards for the coverages specified shall be as follows:

This section cited in 31 Pa. Code § 73.106 (relating to life insurance rate standards); 31 Pa. Code § 73.109 (relating to A & H insurance rate standards); 31 Pa. Code § 73.112 (relating to involuntary unemployment insurance rate standards); 31 Pa. Code § 73.113 (relating to voluntary unemployment insurance rate standards); and 31 Pa. Code § 73.122 (relating to deviated rates).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.124 Duration of deviation.

Deviated rates may not be in effect for a period longer than 3 years. An insurer may file for a new rate before the end of the 3 years, but not more often than once during any 12 month period.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.125 Portability of rates.

If an account for which a higher (deviated) rate is approved changes insurers, the rate approved for use for that account by the prior insurer shall be the maximum rate that may be used by any succeeding insurer for the remainder of the applicable rate period, applicable to the prior insurer, or until a new rate is filed for use in connection with the account, if sooner.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.126 Voluntary unemployment experience reports.

The Commissioner may require, with a minimum of 6 months advance notice, that each insurer doing credit voluntary unemployment insurance business in this Commonwealth file a report of credit voluntary unemployment insurance written on a calendar year basis. The report shall follow the format specified for credit unemployment insurance of the Credit Insurance Experience Exhibit as required by the annual statement instructions and shall contain separate specific data for this Commonwealth, rather than an allocation of the company’s countrywide experience.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.127 Refunds.

(a) Refund provision. If insurance terminates prior to the scheduled maturity date of the indebtedness, a refund of any unearned premium shall be made as follows:

(1) If the indebtedness is discharged due to prepayment, renewal or refinancing prior to the scheduled maturity date, credit insurance shall be terminated and a refund of the unearned premium shall be made.

(2) A refund of any unearned credit A and H insurance premium, credit involuntary unemployment insurance premium or credit voluntary unemployment insurance premium shall be made if the indebtedness is prepaid by the proceeds of credit life insurance or credit life insurance with TPD benefit. The refund of the unearned credit insurance premium shall be in addition to any credit life insurance or TPD benefit proceeds.

(3) A refund of the total premium charged for credit insurance coverage shall be made if coverage is voided ab initio for any reason other than termination of the indebtedness.

(4) If joint coverage on one of the debtors is voided ab initio, a refund of the difference between the premium actually charged for the joint coverage, and the premium that would have been charged if only single coverage had been provided shall be made.

(b) Refund time frame. Refunds of premiums paid by or charged to the debtor shall be remitted to the debtor or credited to the debtor’s outstanding indebtedness within 10 working days after the agent or group policyholder receives the refund from the insurer.

(c) Refund notice. A refund payment shall be accompanied by an explanation that the payment is a refund of premium. If the refund amount has been deducted from the debtor’s outstanding indebtedness, the debtor shall be notified in writing that the refund was applied toward the outstanding indebtedness.

(d) Refund formulas. Insurers shall file for approval all refund formulas intended for use. A reference to the Rule of 78 shall be acceptable, in lieu of filing the actual formula.

(1) The refund of premiums on a single premium basis shall be calculated by multiplying the original single premium charged, by the appropriate refund factor.

(i) In determining the refund, if fewer than 15 days of insurance coverage has been provided during the loan month, no charge shall be made for that month. If 15 or more days of coverage have been provided during the loan month, a full month may be charged.

(ii) For gross decreasing credit life insurance with or without TPD benefits, the refund shall be computed based on the Rule of 78.

(iii) For level term credit life insurance with or without TPD benefits, the refund shall be computed based on a pro rata basis.

(iv) For full benefit period credit A and H insurance and full benefit period credit involuntary unemployment insurance, the refund shall be computed based on the Rule of 78.

(v) For any coverage not listed in subparagraphs (ii)—(iv), the refund factor shall equal the sum of remaining insured balances divided by the sum of the original insured balances.

(2) Except as provided in § 73.139 (j) (relating to credit insurance on open end loans), the refund of any unearned premiums calculated and remitted to the insured on a monthly outstanding balance basis shall be equal to the monthly premium charged if fewer than 15 days of insurance coverage has been provided during that loan month. If coverage has been provided for 15 or more days of the loan month, no refund of premium is required.

(e) Minimum refund. Insurers need not issue refunds for less than $10.

(f) Termination and refund disclosures. The group policy and group certificate or individual policy issued to provide insurance coverage shall disclose the conditions under which the coverage will terminate and under which a premium refund is required. This refund disclosure shall also describe the method used to calculate the premium refund.

This section cited in 31 Pa. Code § 73.139 (relating to credit insurance on open end loans); and 31 Pa. Code § 73.140 (relating to credit insurance on closed end variable interest loans).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.128 Terminations.

(a) Individual policy termination. An individual policy of credit insurance may not be terminated by an insurer, except for nonpayment of premium, prior to the scheduled expiration date of the policy, unless the indebtedness is sooner discharged due to renewal, refinancing or prepayment.

(b) Continuation of coverage. If a debtor is insured under a single premium group credit insurance policy, the insurer shall provide that in the event of termination of the policy, insurance coverage with respect to the debtor shall continue with either the original insurer or a new insurer for the entire period for which the single premium has been paid.

(c) Notice of termination. If a debtor is insured under a group credit insurance policy providing for the payment of premiums to the insurer on a monthly premium basis, the insurer shall, in the event of termination of the policy, cause a notice of termination to be provided to the insured debtor at least 30 days prior to the effective date of termination. A termination notice is not required if replacement coverage, of at least equal value, takes effect on the effective date of termination. The terminating insurer shall be responsible for assuring that any required termination notice is provided.

(d) Assumption of coverage. If an existing group policy is assumed by another insurer, the assuming insurer shall issue to the group policyholder a certificate of assumption for attachment to the group policy. If the entity to which the insured debtor is indebted is other than the group policyholder, the assuming insurer shall make reasonable efforts to notify the entity of the assumption.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.129 Dividends.

(a) Dividend payment. Dividends on participating individual policies of credit insurance may be payable to the owners of the individual policies. Payment of dividends may be deferred until the policy is terminated.

(b) Nonparticipating policies. Experience refunds or retrospective premium rate adjustments may not be applied to nonparticipating individual credit insurance policies.

(c) Dividends or retrospective rate credits as compensation. Dividends or retrospective rate credits on group policies may be paid or credited to the group policyholder. Dividends or retrospective rate credits, less the policyholder’s own contributions, if any, and less any amounts of the dividends or retrospective rate credits paid or credited to the benefit of debtors insured under the group policy, shall be considered compensation for the purpose of § 73.134 (relating to compensation of producers or creditors).

This section cited in 31 Pa. Code § 73.134 (relating to compensation of producers and creditors).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.130 Election of coverage and disclosure requirements.

(a) Separate purchase of coverages. If more than one type of credit insurance coverage is offered for purchase in connection with an indebtedness and each coverage is provided under separate and distinct policy forms, the debtor shall be allowed to separately purchase each credit insurance coverage, unless the premium rate for a package policy is provided under § 73.119 (relating to combination coverage rate).

(b) Election of coverage. If an identifiable charge is made to the debtor for credit insurance coverage, no coverage may be provided unless the debtor is liable under the credit agreement and the coverage is elected and authorized by the proposed insured debtor in the insurance application. If joint life, joint life with TPD benefit, joint A and H, joint involuntary unemployment or joint voluntary unemployment coverage is offered, and an identifiable charge is made for the joint coverage, each proposed insured debtor shall be liable under the credit agreement, and shall elect the coverage by authorizing the insurance application. An insurer may require that only one of the joint debtors elect the credit insurance coverage if the following exist:

(1) The insurance application is mailed or electronically transmitted to the debtor and returned to the insurer or creditor by mail or electronically.

(2) The credit insurance application is completed after the application for the indebtedness is completed.

(c) Single life designation. In situations where two debtors are each liable for repayment of an indebtedness and insurance coverage on only one life is offered, both debtors shall be provided with the option to elect the coverage, if there is an identifiable charge to the debtor for the coverage. Only one of the debtors shall be provided with the opportunity to elect the single coverage if the following conditions are met:

(1) The insurance application is mailed or electronically transmitted to the debtor and returned to the insurer or creditor by mail or electronically.

(2) The credit insurance election is completed after the application for the indebtedness is completed.

(d) Notice of proposed insurance. With respect to section 6(4) of the act (40 P. S. § 1007.6(4)), the application and notice of proposed insurance shall be deemed to be prominently set forth in the financial instrument if set forth in a separate provision on the face or reverse side of the financial instrument in type at least equal in size and prominence to the type used for other provisions of the financial instrument.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.131 Choice of insurer.

If insurance is required as additional security for an indebtedness, the debtor shall be informed by the creditor prior to completion of an application for credit insurance of the right to provide alternative insurance coverage through existing policies or by procuring and purchasing insurance coverage through an authorized insurer.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.132 Collection of premiums.

(a) Collecting premiums as a representative. If the creditor or its representative collects premiums or an identifiable charge for credit insurance from a debtor, it does so as a representative of the insurer and the moneys so collected shall be deemed received by the insurer for purposes of this chapter.

(b) Remittance of premiums. Premiums collected by the creditor from the debtor shall be remitted by the creditor to the insurer on a timely basis. For premiums collected on a single premium basis, premiums shall be remitted not later than 60 days from the last day of the month in which the insurance coverage was purchased. For premiums collected on a monthly outstanding premium basis, premiums shall be remitted not later than 60 days after the last day of the month or billing cycle in which the premiums from the debtor were charged or collected.

This section cited in 31 Pa. Code § 73.137 (relating to compensating balances or special deposits).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.133 Claims and examination procedures

(a) Claim procedures. Every insurer shall be responsible for the settlement, adjustment and payment of all claims and shall establish and maintain adequate claim files.

(b) Claim reporting.

(1) Claims shall be promptly reported by the group policyholder or its representatives to the insurer or its designated claim representative, and all claims shall be settled as soon as practical and in accordance with the terms of the insurance contract.

(2) In the case where both A and H insurance benefit and life insurance with TPD benefit coverages are provided in connection with the same indebtedness, the group policyholder shall report the claim to the insurer for the appropriate coverage prior to or at the end of any applicable elimination period, subject to the group policyholder having received appropriate claim information from the insured debtor.

(c) Payment of claims. In addition to the payment of a claim by a draft drawn upon the insurer or by a check of the insurer, claims may also be paid by electronic transfer drawn by the insurer to the order of the claimant to whom payment of the claim is due. If the amount of the insurance payable exceeds the balance which the debtor is obligated to pay to the creditor, the creditor shall pay the excess directly to the beneficiary designated by the debtor or the estate entitled to the excess.

(d) Settlement of claims. If a group policyholder has made arrangements with an insurer to draw drafts or checks or make electronic transfers for payment of claims due to the group policyholder, the parties making the draws or electronic transfers may not be directly involved in making loans for the policyholder.

(e) Creditor examination. An insurer shall be responsible for conducting a thorough examination of creditors with respect to its credit insurance business during the first policy year and at least annually thereafter to assure compliance with this chapter and other applicable insurance laws and regulations of the Commonwealth. The examination shall verify the accuracy of premiums or other identifiable insurance charges, premium refunds, claim payments which have been reported to the insurer and any other pertinent information necessary for the insurer to determine that debtors are being afforded proper coverage. Examinations performed by an insurer shall be subject to review by the Department. The group policy shall contain a provision explaining that the account will be examined annually.

(f) Inspection of examination procedures. Each insurer shall make available for Department inspection upon request its creditor examination procedures.

(g) Record of examination. The insurer shall establish and maintain a written record of each creditor examination. This record shall be maintained for at least 3 years from the date of examination or until the conclusion of the next succeeding regular examination by the Department of its domicile, whichever is later.

(h) Record of coverage. An insurer or, at the option of the insurer, the creditor shall establish and maintain adequate credit insurance records for at least 2 years after the termination of an individual debtor’s insurance coverage. The records shall identify each individual debtor, the amount insured, the term of the insurance, the charge for the insurance and any refunds of unearned premiums. The records shall be made available for Department review upon request.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.134 Compensation of producers and creditors.

(a) Compensation limits. Premium rates shall be presumed to be excessive if the compensation for writing and handling credit insurance paid to a creditor, producer or any affiliate, associate, subsidiary, director, officer, employe or other representative of the creditor or producer, exceeds:

(1) For credit life insurance and credit life insurance with TPD benefit, 27% of the prima facie premium rates referenced in § 73.106 (relating to life insurance rate standards) or 27% of the actuarially consistent premium rates for insurance for which prima facie rates are not published in the Pennsylvania Bulletin.

(2) For credit A&H insurance or involuntary unemployment insurance, 21% of the prima facie premium rates referenced in § § 73.109 and 73.112 (relating to A and H insurance rate standards; and involuntary unemployment insurance rates standards) or 21% of the actuarially consistent premium rates for insurance for which prima facie rates are not published in the Pennsylvania Bulletin.

(b) Additional compensation. When a licensed producer, general producer, general agency or home office producer, having no direct or indirect affiliation or connection with the creditor, is involved in the solicitation of a credit insurance policy, the compensation of 27% as provided in subsection (a) shall be increased to 30% and the compensation of 21% as provided by subsection (b) shall be increased to 25% provided that the entire amount or any part of additional compensation shall be used solely as commission for the licensed producer, general producer, general agency or home office producer involved in the solicitation. The creditor is prohibited from receiving indirectly or directly all or any portion of the additional 3% or 4% commission.

(c) Compensation defined. For purposes of this chapter, ‘‘compensation’’ means money or anything else of value paid or credited to or on behalf of any group policyholder, producer, or general producer or withheld by any group policyholder producer, broker or general producer within or outside this Commonwealth in relation to business produced or to be produced or written or to be written in this Commonwealth and paid or credited by or on behalf of the insurer or by any affiliate of the insurer or by another person. Compensation includes the following:

(1) Commissions.

(2) Fees, including administrative fees, service fees, consulting fees and expense fees.

(3) Electronic data processing equipment used for purposes other than electronic rate books.

(4) Electronic data processing services other than the programming of existing electronic data processing equipment used in lieu of rate books or charts.

(5) Supplies, other than forms approved by the Commissioner and usual and customary claims and reporting forms and envelopes.

(6) Rental equipment of any type provided by an insurer, its agent or any related person without charge of actual cost or at a charge less than the usual cost.

(7) Advertising provided by an insurer, its agent or a related person without charge of actual cost or at a charge less than the usual cost.

(8) Communication devices provided by an insurer, its agent or a related person without charge of actual cost or at a charge less than the usual cost.

(9) Profit sharing plans.

(10) Experience rating refunds and credits.

(11) Dividends as provided in § 73.129 (relating to dividends).

(12) Dividends received by a producer of credit insurance business who owns in part or whole a reinsurance company which assumes the credit insurance business from the direct insurer, if any of the following criteria are met:

(i) The dividend payment on each share of stock represents more than a reasonable return on the producer’s capital investment.

(ii) The direct insurer has contractually guaranteed to reassume any losses sustained by the reinsurer on the ceded business.

(13) Expense allowances or reimbursement.

(14) Stock plans and bonuses.

(15) Extension of credit.

(16) Reimbursement for expenditures.

This section cited in 31 Pa. Code § 73.129 (relating to dividends); 31 Pa. Code § 73.135 (relating to licensed producers).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.135 Licensed producers.

(a) Individual policy. All individual policies of credit life insurance, credit A and H insurance or credit involuntary or voluntary unemployment insurance shall be issued only through a producer licensed in this Commonwealth. A person performing in connection with an individual policy a conduct which would fall within the definition of a producer shall be licensed as a producer.

(b) Employes of creditor or insurer. If a group policy is issued to a creditor, bona fide employes of the creditor or insurer may issue certificates and perform functions related to the issuance of certificates and administration of the group policy without being licensed as producers.

(c) Receipt of compensation without licensing. If a group policy is issued to a creditor, the creditor may, without being licensed as a producer, receive compensation for the issuance of certificates and performance of functions related to the issuance of certificates, subject to the limitation on compensation as provided in § 73.134 (relating to compensation of producers or creditors).

(d) Licensed agent. A licensed agent of the insurer who is not employed by the group policyholder may assist the group policyholder with the enrollment of persons in the program and with the issuance of certificates, but may not receive a commission from the group policyholder.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.136 Filing of forms and rates.

(a) Approval of forms and rates. Individual policies, group policies, group certificates, notices of proposed insurance, applications for insurance, endorsements and riders delivered or issued for delivery in this Commonwealth and premium rates and formulas used in this Commonwealth shall be filed with the Commissioner for approval in accordance with section 7 of the act (40 P. S. § 1007.7).

(b) Identification of filing. Each filing of an individual or group policy or group certificate shall be accompanied by a filing letter describing the specific type of credit instruments with which the form will be used. If the coverage is equal to the net unpaid indebtedness, the filing letter shall describe the method used to determine how the interest is earned. If an approved form is to be used with a type of credit instrument other than that stated in the original filing letter, or the method for earning interest is other than that as stated in the original filing letter, a new filing letter describing the specific type of loan and the interest charge calculation shall be filed.

(c) Readability.

(1) Forms shall be written in understandable language, which is not confusing or misleading to a person of average intelligence. Forms shall contain a definition or explanation of terminology that would not be ordinarily understood by a person of average intelligence.

(2) Forms may not contain inconsistent or contradictory language or provisions.

(3) Policies and group certificates shall accurately and completely explain the coverage and conditions of coverage. Group certificates shall be consistent with the group policies and contain provisions applicable only to insured debtors.

(d) Combination forms. Insurers may provide life coverage, life coverage with TPD benefit, A and H coverage (any and all benefit plans), or unemployment coverage (any and all benefit plans) on either a single coverage or joint coverage basis within the same policy or certificate. Every individual policy or group certificate shall provide a means of identifying which debtor is insured under which coverage.

(e) Identity of insurer.

(1) Forms shall disclose the identity of the insurer.

(2) If more than one insurer provides credit insurance coverages, a multicompany insurance application, policy or group certificate may be used, as long as the form clearly discloses which insurer provides which coverage.

(f) Credit instrument application.

(1) If an insurer relies on the credit insurance election portion of a credit instrument as the application for insurance, the credit insurance election portion shall be filed with the Department for approval. Once approved, the identical credit insurance election portion of the form may be incorporated into other credit instruments without the necessity of refiling the credit insurance election form.

(2) If an insurer relies on the credit election portion of a credit instrument as the application for insurance, the credit insurance election portion shall be clearly differentiated in appearance from the rest of the credit instrument.

(g) Identification. No credit insurance rate book, rate chart, rate card, rate table, or refund table may be used or distributed in this Commonwealth, unless the premium payment, gross or net coverage basis and plan of benefits appear therein.

(h) Out-of-State coverage. If a group policy of credit insurance has been issued in another state, the insurer shall:

(1) File for approval the group certificate and notice of proposed insurance to be delivered or issued for delivery in this Commonwealth.

(2) Certify that the rates to be charged do not exceed the rates of the insurer on file with the Department.

(3) Identify the applicable rates on file with the Department. If no applicable rates are on file, file for approval the premium rates and formulas in accordance with § 73.106, § 73.109, § 73.112 and § 73.113.

(4) File the group policy with the Department for information purposes only.

This section cited in 31 Pa. Code § 73.113 (relating to voluntary unemployment insurance rate standards); 31 Pa. Code § 73.139 (relating to credit insurance on open end loans); 31 Pa. Code § 73.140 (relating to credit insurance on closed end variable interest loans); 31 Pa. Code § 73.141 (relating to credit insurance on lease transactions); 31 Pa. Code § 73.142 (relating to credit insurance on fixed residential loans); and 31 Pa. Code § 73.143 (relating to credit insurance on balloon loans).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.137 Compensating balances or special deposits.

(a) Definition. Compensating balances or special deposit accounts shall include the following:

(1) The deposit of premiums or money to the account of the insurer or an affiliate of the insurer when the account is either noninterest bearing or bearing interest at a rate less than the current market rate. The rate of interest will be considered less than usual if a higher rate of interest could be earned by combining the account with one or more other accounts, unless there is a business reason unrelated to the credit insurance program for maintaining separate accounts.

(2) The remittance of premiums to the insurer after the expiration of the grace period, except as provided in § 73.132(b) (relating to collection of premiums), on a regular basis thereby resulting in an arrearage period which is constant.

(3) The retention of premiums by a producer to whom the financial institution remits premiums beyond a reasonable period of time needed for the producer to remit premiums to an insurer, if the delay is a continuing practice in the premium paying process.

(4) Any other practice which unduly delays receipt of premiums by the insurer on a regular basis, or which involves the use of the financial resources of an insurer for the benefit of a financial institution.

(b) Illegal inducement. The use of compensating balances or special deposit accounts in connection with a credit insurance program constitutes a violation of section 635 of The Insurance Department Act of 1921 (40 P. S. § 271), section 346 of The Insurance Company Law of 1921 (40 P. S. § 471) and section 5(a)(4) of the Unfair Insurance Practices Act (40 P. S. § 1171.5(a)(4)).

(c) Premium basis. The prohibition on compensating balances and special deposits applies regardless of whether premiums are due the insurer on the single premium basis or on the monthly outstanding balance premium basis.

(d) Nonapplicability. This section does not prevent an insurer from making deposits in a financial institution which deposits are not related to a credit insurance program.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.138 Financial statement reserves.

The following reserves for all credit insurance policies shall be maintained by insurers doing credit life insurance or credit A and H insurance business in this Commonwealth:

(1) The reserves for credit life insurance may not be less than the reserves as computed using the Commissioners 1980 Extended Term Mortality Table, using mortality rates applicable to male lives for insurance issued prior to January 1, 2007, with interest at the rate specified in section 301(c) of The Insurance Department Act of 1921 (40 P. S. § 71(c)).

(2) The reserves for credit life insurance may not be less than the reserves as computed using the 2001 CSO Male Composite Ultimate Mortality Table for insurance issued on or after January 1, 2007 with interest at the rate specified in section 301(c) of The Insurance Department Act of 1921.

(3) If the credit life insurance policy or certificate insures two lives, the minimum standard must be twice the mortality in the 2001 CSO Male Composite Ultimate Mortality Table based on the age of the older insured.

(4) Chapter 84c (relating to valuation of life insurance policies) does not apply to credit life insurance.

(5) The reserves for single premium credit TPD benefits may not be less than the mean of the amounts of unearned premium calculated from gross premiums in force on the following bases:

(i) The pro rata basis.

(ii) Rule of 78 basis.

(6) The reserves for single premium credit A and H insurance are regulated under Chapter 84a (relating to minimum reserve standards for individual and group health and accident insurance contracts).

(7) The reserves for monthly premium credit A and H insurance and TPD benefits may not be less than the amount of unearned premium calculated from gross premiums in force on the pro rata basis.

(8) The claim reserves for credit A and H insurance shall be calculated using a generally accepted actuarial method or other reasonable method acceptable to the Commissioner.

The provisions of this § 73.138 amended July 14, 2006, effective January 1, 2007, 36 Pa.B. 3665. Immediately preceding text appears at serial page (242961).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.139 Credit insurance on open end loans.

(a) General requirements. Credit insurance may be provided in connection with open end loans. This insurance is provided on the outstanding balance of the indebtedness, subject to any maximum dollar amount of coverage or limited benefit period specified in the group certificate or individual policy. If no indebtedness exists, the insurance amount shall be zero and shall remain so until an advance or charge occurs under the plan. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on open end loans.

(b) Identification. A credit insurance program designed for use with open end loans shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).

(c) Symbols. The symbols used in this section shall have the following meaning:

(1) i = actual monthly interest rate (APR/12).

(2) i' = (i + .0025).

(3) n = log(z/(z-i))/log(1+i) rounded up to an integer.

(4) NFC = gross/net conversion rate for an open end loan with the monthly benefit equal to a minimum monthly payment that is based on a percentage of the current month’s balance.

(5) z = minimum monthly payment expressed as a decimal fraction.

(d) Life benefit. The credit life insurance benefit shall be equal to the lesser of:

(1) The amount of the outstanding balance of the indebtedness at the time of death.

(2) The maximum dollar amount of coverage specified in the group certificate or individual policy.

(e) TPD benefit. The TPD benefit shall be equal to the lesser of:

(1) The amount of the outstanding balance of the indebtedness at the commencement of the TPD plus the amount any monthly interest accruing on the net unpaid indebtedness from the date TPD commences until the date the TPD benefit is paid.

(2) The maximum dollar amount of coverage specified in the group certificate or individual policy.

(f) A and H and involuntary unemployment benefit. The minimum monthly insurance benefit for A and H insurance and involuntary unemployment insurance shall be equal to the lesser of:

(1) The minimum loan payment for the month in which disability or unemployment commences, excluding indebtedness incurred after the disability or unemployment commences and repayments made during the month in which disability or unemployment commences.

(2) The maximum monthly dollar amount of coverage specified in the group certificate or individual policy.

(g) A and H and involuntary unemployment premium rates. If the A and H and involuntary unemployment premium rates are based on the net outstanding balance, the premium rates shall be determined as follows:

(1) If the benefit amount is based on a percentage of the current month’s balance and the benefit is paid until the indebtedness existing at the time of disability or involuntary unemployment, including accrued interest, is repaid, the following adjustment shall be made:

(i) The monthly outstanding balance prima facie rates published in the Pennsylvania Bulletin shall be converted from rates to be applied to gross monthly outstanding balance, to rates to be applied to the net monthly outstanding balance. The following formula may be used:

NFC = (n/ani') (Opn)

(ii) Each creditor shall have its A and H and involuntary unemployment rate based on the creditor’s minimum repayment schedule and current annual percentage rate. The insurer shall review the minimum monthly installment and annual percentage rate of each creditor at least annually. If there is a change in the minimum repayment percentage or the annual percentage rate, and the resulting premium rate is greater than the current premium rate, the insurer may adjust the rate. If the resulting rate is lower than the current premium rate, the insurer shall adjust the rate if the change results in a rate reduction of greater than 5%.

(iii) Either the actual interest rate used in calculating the loan or interest rate intervals may be used when converting the gross premium prima facie rates published in the Pennsylvania Bulletin in accordance with subparagraphs (i) and (ii). When interest intervals are used, the monthly interest rate ‘‘i’’ shall be set equal to the midpoint of the range. The interest rate intervals shall be set so as to include all interest rates that produce the same loan duration for a specified playback percentage. The insurer shall include with the premium rate filing, required by § 73.136, a complete description of the method and formulas used to determine the interest rate intervals.

(2) For a benefit plan that is different than the plan described in paragraph (1), the insurer shall include with the premium rate filing, a description of the method and formulas used to determine the coverage period and benefit period, and a description of the method and formulas used to adjust the gross outstanding balance rates for a full coverage period and a full benefit period to net outstanding balance rates for the appropriate coverage period and benefit period. The insurer shall include the actuarial justification of the method.

(h) Furnishing of forms. Forms required to be furnished to a debtor as evidence of coverage need be furnished only once for each open end loan and may remain in force until terminated.

(i) Assumption of coverage. If an existing group policy providing insurance coverage in connection with open end loans is assumed by another insurer, the assuming insurer shall issue a replacement certificate to each existing certificate holder.

(j) Premium refund. Refund of premiums is not required in the event of termination of the coverage, except with respect to the termination of credit A and H, credit involuntary unemployment or credit voluntary unemployment insurance as provided in § 73.127(a)(2) (relating to refunds).

This section cited in 31 Pa. Code § 73.107 (relating to accident and health insurance benefits); 31 Pa. Code § 73.110 (relating to involuntary unemployment insurance benefits); and 31 Pa. Code § 73.127 (relating to refunds).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.140 Credit insurance on closed end variable interest loans.

(a) General requirements. Credit insurance may be provided in connection with closed end variable interest loans. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on closed end variable interest loans.

(b) Identification. A credit insurance program designed for use with closed end variable interest loans shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).

(c) Disclosure. If premiums are payable on a single premium basis and life insurance coverage is provided, the individual policy or group certificate shall contain a disclosure that the insurance benefit may end prior to the maturity date of the loan. If premiums are payable on a single premium basis and A and H, involuntary unemployment or voluntary unemployment insurance coverage is provided, the individual policy or group certificate shall contain a disclosure that the insurance benefits may not be sufficient to pay the entire amount of the periodic loan payment or may end prior to the maturity date of the loan. The disclosure shall appear in prominent type on the first page of the individual policy or group certificate.

(d) Benefit amount. Subject to any policy limitations, if premiums are payable on a single premium basis, the monthly A and H insurance benefit and the involuntary unemployment insurance benefit shall equal the amount of the original monthly installment payment. Subject to any policy limitations, if premiums are payable on a monthly outstanding balance basis, the monthly A and H and involuntary unemployment insurance benefits shall equal the amount of the monthly installment payment amount on the day disability or unemployment began.

(e) Coverage term. If premiums are payable on a single premium basis, the term of the insurance shall extend until the original scheduled maturity date of the indebtedness, unless coverage terminates earlier in accordance with the policy or certificate provisions. If the term of the insurance extends to the original scheduled maturity date of the indebtedness, it may be extended for an additional 2 months to cover delinquencies or extensions due to increased interest rates. If premiums are payable on a monthly basis, the term of the insurance shall extend until the loan is repaid, unless coverage terminates earlier in accordance with the policy or certificate provisions.

(f) Refund. A refund of any unearned premiums shall be made as provided in § 73.127 (relating to refunds) if the indebtedness is prepaid prior to the original scheduled maturity date of the indebtedness as a result of a decline in interest rates. The refund shall be based on the term and interest rate applicable at the inception of the loan and the actual elapsed term.

(g) Premium determination. If premiums are payable on a single premium basis, the premium shall be based on the expected amount and term of coverage, in consideration of the amount financed, the expected loan term and the interest rate applicable to the loan at the time the insurance is elected.

The provisions of this § 73.140 corrected April 24, 1998, effective June 19, 1998, 28 Pa.B. 1941.

This section cited in 31 Pa. Code § 73.107 (relating to accident and health insurance benefits); and 31 Pa. Code § 73.110 (relating to involuntary unemployment insurance benefits).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.141 Credit insurance on lease transactions.

(a) General requirements. Credit insurance may be provided in connection with lease transactions. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on lease transactions.

(b) Identification. Any credit insurance program designed for use with lease transactions shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).

(c) Lease filing. Insurers shall file a lease form and lease worksheet for each total monthly lease payment calculation method. An insurer, which has received approval of filed insurance forms, premiums and refund calculations for use with a particular monthly lease payment calculation method, may use the approved forms, premiums and refund calculations with any lease form providing for the same method. Approved insurance forms may be used with a different total monthly lease payment calculation method if the insurer files the lease form and receives approval of premium and refund calculations. The premium and refund calculations shall be consistent with the manner in which the newly filed total monthly lease payment is calculated.

(d) Lease payment methodology. Insurers shall include with the premium rate filing the methodology for calculating the actual monthly lease payment, including factors such as taxes, depreciation, interest, insurance premiums and service fees.

(e) Coverage basis. The decreasing credit life insurance benefit or credit life insurance with TPD benefit shall equal the decreasing term lease insurance amount, as defined in § 73.103 (relating to definitions). If the residual amount of a lease transaction is insured, the insurance shall be provided on a level term basis.

(f) Benefit amount. The monthly A and H insurance benefit and the involuntary unemployment insurance benefit shall equal the amount of each monthly lease payment, subject to any maximum monthly benefit specified in the group policy and group certificate or individual policy. No credit A and H or involuntary unemployment insurance may be provided on the residual amount.

(g) Payment to beneficiary. If the credit life or TPD proceeds are applied to continue lease payments, the difference between the sum of the remaining payments plus the amount of level insurance, if applicable, and the sum of the present value of the remaining payments plus the present value of the residual payment, if applicable, shall be paid to the named beneficiary or the estate of the debtor regardless of whether the benefit is paid to the creditor as a lump sum or in installments. The present value shall be calculated using an interest rate not less than 5%.

(h) Single premium calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis, the single premium shall equal the sum of the following:

(1) The single premium for decreasing insurance with an amount of initial insured indebtedness equal to the initial amount of decreasing lease insurance, as defined in § 73.103, and with a number of equal monthly installments equal to the number of months in the lease term, less the number of monthly installments paid at the beginning of the lease.

(2) The single premium for level insurance with an amount of insurance equal to the amount of level lease insurance, as defined in § 73.103, and with a number of monthly installments equal to the number of months in the lease term.

(i) Single premium formula filing. Every insurer shall submit its formula for calculating the single premiums for the life, life with TPD, A and H, involuntary unemployment and voluntary unemployment insurance coverages consistent with the calculation of the monthly lease payment.

This section cited in 31 Pa. Code § 73.107 (relating to accident and health insurance benefits); and 31 Pa. Code § 73.110 (relating to involuntary unemployment insurance benefits).

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.142 Credit insurance on fixed residual loans.

(a) General requirements. Credit insurance may be provided in connection with motor vehicle fixed residual value financing. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on fixed residual loans.

(b) Identification. A credit insurance program designed for use with fixed residual value financing shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing of forms and rates).

(c) Filing requirement. Every insurer shall file a fixed residual value financing loan form and the formula demonstrating the manner in which the actual installment payment will be calculated for each installment payment calculation method.

(d) Level life coverage. If the fixed residual value amount is insured, life insurance coverage shall be provided on a level term basis.

(e) A and H and involuntary unemployment coverage. The monthly A and H insurance benefit and the involuntary unemployment insurance benefit may not exceed the amount of each monthly installment payment. No credit A and H or involuntary unemployment insurance may be provided on the residual amount.

(f) Single premium gross calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis, when the benefit is the gross unpaid indebtedness, the single premium shall equal the sum of the single premium for decreasing insurance with an amount of initial insured gross unpaid indebtedness equal to the sum of the schedule of installment payments and the single premium for level insurance with an amount of insurance equal to the fixed residual value.

(g) Single premium net calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis, when the benefit is the net unpaid indebtedness, the single premium shall equal the sum of the single premium for decreasing insurance based on an initial amount financed minus an amount equal to the fixed residual value, and the single premium for level insurance with an amount of insurance equal to the fixed residual value.

(h) Payment to beneficiary. If the insurance benefit is the gross unpaid indebtedness, and if the life insurance or TPD proceeds are applied to continue the installment, the group policy and group certificate or individual policy providing the coverage shall provide that the difference between the sum of the remaining payments plus the amount of level insurance, if applicable, and the sum of the present value of the remaining payments plus the present value of the fixed residual value payment, if applicable, shall be paid to the named beneficiary or the estate of the debtor, regardless of whether the benefit is paid to the creditor as a lump sum or in installments. The present value shall be calculated using an interest rate of at least 5%.

History

• Source: The provisions of this § 73.

31 Pa. Code § 73.143 Credit insurance on balloon loans.

(a) General requirements. Credit insurance may be provided in connection with balloon loans. This section supersedes other provisions of this chapter to the extent that the provisions would otherwise relate to credit insurance on balloon loans.

(b) Identification. Any credit insurance program designed for use with balloon loans shall be identified as such when filed with the Department in accordance with § 73.136 (relating to filing for forms and rates).

(c) Disclosure. Every individual policy or group certificate shall contain a disclosure that neither the A and H nor the involuntary unemployment insurance benefit is provided on the balloon amount of the loan. The disclosure shall appear in prominent type on the first page of the individual policy or group certificate.

(d) Benefit amount.

(1) For credit life insurance or credit life insurance with TPD benefit, the balloon amount shall be included in determining the amount of gross unpaid indebtedness or net unpaid indebtedness.

(2) For credit A and H, involuntary unemployment or voluntary unemployment insurance, no monthly benefit may be provided on the balloon amount.

(e) Life insurance single premium gross calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis when the benefit is the gross unpaid indebtedness, the single premium shall equal the sum of the single premium for the decreasing insurance with an amount of initial insured gross unpaid indebtedness equal to the actual amount of initial insured gross unpaid indebtedness minus the balloon amount and the single premium for level insurance with an amount of insurance equal to the balloon amount.

(f) Life insurance single premium net calculation. If premiums for credit life insurance or credit life insurance with TPD benefit are payable on a single premium basis when the benefit is the net unpaid indebtedness, the single premium shall equal the sum of the single premium for the decreasing insurance based on the initial amount financed minus the balloon amount and the single premium for level insurance with an amount of insurance equal to the balloon amount.

The provisions of this Appendix A adopted October 1, 1971; amended May 9, 1975, effective May 10, 1975, 5 Pa.B. 1211; reserved March 20, 1998, effective June 19, 1998, 28 Pa.B. 1401. Immediately preceding text appears at serial pages (240472) to (240474).

The provisions of this Appendix B adopted October 1, 1971; amended May 9, 1975, effective May 10, 1975, 5 Pa.B. 1211; reserved March 20, 1998, effective June 19, 1998, 28 Pa.B. 1401. Immediately preceding text appears at serial page (240475).

The provisions of this Appendix C adopted October 1, 1971; amended May 9, 1975, effective May 10, 1975, 5 Pa.B. 1211; reserved March 20, 1998, effective June 19, 1998, 28 Pa.B. 1401. Immediately preceding text appears at serial pages (240476) to (240479).

The provisions of this Appendix D adopted October 1, 1971; amended May 9, 1975, effective May 10, 1975, 5 Pa.B. 1211; reserved March 20, 1998, effective June 19, 1998, 28 Pa.B. 1401. Immediately preceding text appears at serial pages (240480) to (240486).

History

• Source: The provisions of this § 73.

Part IV Life Insurance

Chapter 81 Replacement of Life Insurance and Annuities

31 Pa. Code § 81.1 Purpose.

The purpose of this chapter is to:

(1) Regulate the activities of insurers, agents and brokers with respect to the replacement of existing life insurance and annuities.

(2) Protect the interest of life insurance and annuity purchasers by establishing minimum standards of conduct to be observed in replacement transactions by:

(i) Assuring that purchasers receive information with which a decision can be made in the purchasers’ best interest.

(ii) Reducing the opportunity for misrepresentation and incomplete disclosures.

(iii) Establishing penalties for failure to comply with this chapter.

History

• Authority: The provisions of this Chapter 81 issued under sections 347, 348 and 350 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 81 adopted September 30, 1969; amended December 2, 1977, effectvie December 3, 1977, 32 Pa.

31 Pa. Code § 81.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Commissioner—The Insurance Commissioner of the Commonwealth. Conservation—An attempt by the existing insurer or its agent or broker to dissuade a policyowner from the replacement of existing life insurance or annuity. The term does not include routine administrative procedures, such as late payment reminders, late payment offers or reinstatement offers. Department—The Insurance Department of the Commonwealth. Direct-response sales—A sale of life insurance or annuity where the insured does not utilize an agent in the sale or delivery of the policy. Existing insurer—The insurance company whose policy is or will be changed or terminated in such a manner as described in the definition of replacement. Existing life insurance or annuity—A life insurance or annuity in force, including life insurance under a binding or conditional receipt or a life insurance policy or annuity that is within an unconditional refund period. Registered contract—Variable annuities, variable life insurance under which the death benefits and cash values vary in accordance with unit values of investments held in a separate account or another contract issued by life insurance companies which is registered with the Federal Securities and Exchange Commission. Replacement—A transaction in which new life insurance or a new annuity is to be purchased, and it is known or should be known to the proposing agent, broker or proposing insurer if there is no agent, that by reason of the transaction, existing life insurance or annuity has been or is to be one of the following:

(i) Lapsed, forfeited, surrendered, assigned to replacing insurer or otherwise terminated.

(ii) Converted to reduced paid-up insurance, continued as extended term insurance or otherwise reduced in value by the use of nonforfeiture benefits, dividend cash values or other policy cash values.

(iii) Amended so as to effect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid.

(iv) Reissued with a reduction in cash value.

(v) Pledged as collateral or subjected to borrowing, whether in a single loan or under a schedule of borrowing over a period of time for amounts in the aggregate exceeding 25% of the loan value set forth in the policy. Replacing insurer—The insurance company that issues or proposes to issue a new policy or contract which is a replacement of existing life insurance or annuity.

History

• Authority: The provisions of this Chapter 81 issued under sections 347, 348 and 350 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 81 adopted September 30, 1969; amended December 2, 1977, effectvie December 3, 1977, 32 Pa.

31 Pa. Code § 81.3 Exemptions.

Unless otherwise specifically included, this chapter does not apply to transactions involving:

(1) Life insurance issued under section 3 of the act of May 11, 1949 (P. L. 1210, No. 367) (40 P. S. § 532.3), known as the Group Life Insurance Policy Law or the Model Act for the Regulation of Credit Life Insurance and Credit Accident and Health Insurance (40 P. S. § § 1007.1—1007.15).

(2) Group life insurance or group annuities.

(3) An application to the existing insurer that issued the existing life insurance and a contractual change or a conversion privilege is being exercised.

(4) Proposed life insurance that is to replace life insurance under a binding or conditional receipt issued by the same company.

(5) Transactions where the replacing insurer and the existing insurer are the same, or are subsidiaries or affiliates under common ownership or control. Agents or brokers and insurers engaged in direct response sales proposing replacement shall comply with § § 81.4(a), (b)(3) and (c) and 81.7(b)(2) (relating to duties of agents and brokers; and duties of insurers with respect to direct response sales).

(6) Registered contracts shall be exempt from the requirements of § 81.6(a)(2)(ii) and (b) (relating to duties of insurers that use agents or brokers) requiring provision of policy summary or ledger statement information. Premium or contract contribution amounts and identification of the appropriate prospectus or offering circular are required in lieu thereof.

History

• Authority: The provisions of this Chapter 81 issued under sections 347, 348 and 350 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 81 adopted September 30, 1969; amended December 2, 1977, effectvie December 3, 1977, 32 Pa.

31 Pa. Code § 81.4 Duties of agents and brokers.

(a) The agent or broker who initiates the application shall submit to the insurer to which an application for life insurance or annuity is presented, with or as part of each application:

(1) A statement signed by the applicant as part of each application as to whether replacement of existing life insurance or annuity is involved in the transaction.

(2) A signed statement as to whether the agent or broker knows replacement is or may be involved in the transaction.

(b) If replacement is involved, the agent or broker shall:

(1) Present to the applicant, not later than at the time of taking the application, a Notice Regarding Replacement of Life Insurance and Annuities in the form as described in Appendix A (relating to notice regarding replacement of life insurance and annuities), or other substantially similar form filed and accepted prior to use by the Commissioner. The notice shall be signed by both the applicant and the agent or broker and left with the applicant.

(2) Obtain with or as part of each application a list of existing life insurance or annuities, or both, to be replaced and properly identified by name of insurer, the insured and contract number. If a contract number has not been assigned by the existing insurer, alternative identification, such as an application or receipt number, shall be listed.

(3) Leave with the applicant the original or a copy of written or printed communications used for presentation to the applicant relative to policies or annuities associated with the replacement sale.

(4) Submit to the replacing insurer with the application a copy of the notice regarding replacement of life insurance and annuities provided under paragraph (1).

(c) An agent or broker who uses written or printed communications in a conservation shall leave with the applicant the original or a copy of materials relative to policies or annuities associated with the replacement sale.

The provisions of this § 81.4 corrected July 11, 1986, effective October 14, 1986, 16 Pa.B. 2523.

It was a violation of this section to represent on insurance applications that the life insurance was not to be a replacement policy when the agent knew that one of the applications was for a replacement policy. McDermond v. Foster, 561 A.2d 70 (Pa. Cmwlth. 1989).

This section cited in 31 Pa. Code § 81.3 (relating to exemptions); and 31 Pa. Code § 81.6 (relating to duties of insurers that use agents or brokers).

History

• Authority: The provisions of this Chapter 81 issued under sections 347, 348 and 350 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 81 adopted September 30, 1969; amended December 2, 1977, effectvie December 3, 1977, 32 Pa.

31 Pa. Code § 81.5 Duties of insurers.

(a) The insurer shall inform its field representatives or other personnel responsible for compliance with this chapter of the requirements of this chapter.

(b) The insurer shall require as part of a completed application for life insurance or annuity a statement signed by the applicant as to whether the proposed insurance or annuity will replace existing life insurance or annuity.

This section cited in 31 Pa. Code § 90c.3 (relating to replacement questions for life insurance).

History

• Authority: The provisions of this Chapter 81 issued under sections 347, 348 and 350 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 81 adopted September 30, 1969; amended December 2, 1977, effectvie December 3, 1977, 32 Pa.

31 Pa. Code § 81.6 Duties of insurers that use agents or brokers.

(a) An insurer that uses an agent or broker in a life insurance or annuity sale shall:

(1) Require with or as part of a completed application for life insurance or annuity a statement signed by the agent or broker as to whether the broker knows replacement is or may be involved in the transaction.

(2) If replacement is involved:

(i) Require from the agent or broker with the application for life insurance or annuity a list of all the applicant’s existing life insurance or annuity to be replaced, and a copy of the replacement notice provided the applicant under § 81.4(b)(1) (relating to duties of agents and brokers). The existing life insurance or annuity shall be identified by name of insurer, insured and contract number. If a number has not been assigned by the existing insurer, alternative identification, such as an application or receipt number, shall be listed.

(ii) Send to each existing insurer a written communication advising of the replacement or proposed replacement and the identification information obtained under subparagraph (i) and in the case of life insurance, the disclosure statement as required by § 83.3 (relating to disclosure statement) or a ledger statement containing comparable policy data on the proposed life insurance. A surrender comparison index need not be included. In the case of an annuity, a ledger statement containing comparable data shall be provided. This written communication shall be made within 5 working days of the date the application is received in the replacing insurer’s home or regional office, or the date the proposed policy or contract is issued, whichever is sooner.

(b) An existing insurer or insurer’s agent or broker that undertakes the conservation shall, within 20 days from the date the written communication plus the materials required in subparagraphs (i) and (ii) is received by the existing insurer, furnish the policyowner with a disclosure statement for the existing life insurance or ledger statement containing policy data on the existing policy or annuity, or both. The disclosure statement or ledger statement shall be completed in accordance with § 83.3, except that information relating to premiums, cash values, death benefits and dividends shall be computed from the current policy year of the existing life insurance. The disclosure statement or ledger statement shall include the amount of outstanding indebtedness, the sum of dividend accumulations or additions, and may include other information that is not in violation of regulations or statutes. A surrender comparison index need not be included. In the case of an annuity, a ledger statement containing comparable data shall be provided. The replacing insurer may request the existing insurer to furnish it with a copy of the statements, which shall be furnished within 5 working days of the receipt of the request.

(c) The replacing insurer shall maintain evidence of the Notice Regarding Replacement of Life Insurance and Annuities, the disclosure statement and any ledger statement used, and a replacement register, cross indexed, by replacing agent and existing insurer to be replaced. The existing insurer shall maintain evidence of disclosure statements or ledger statements used in any conservation. Evidence that all requirements were met shall be maintained for at least 3 years or until the conclusion of the next succeeding regular examination by the Department of its state of domicile, whichever is earlier.

(d) The replacing insurer shall have prominently printed on the first page of the policy or attached thereto a notice that the applicant has a right to an unconditional refund of all premiums paid, which right may be exercised within a period of 20 days commencing from the date of delivery of the policy.

This section cited in 31 Pa. Code § 81.3 (relating to exemptions); and 31 Pa. Code § 81.7 (relating to duties of insurers with respect to direct response sales).

History

• Authority: The provisions of this Chapter 81 issued under sections 347, 348 and 350 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 81 adopted September 30, 1969; amended December 2, 1977, effectvie December 3, 1977, 32 Pa.

31 Pa. Code § 81.7 Duties of insurers with respect to direct response sales.

(a) If in the solicitation of a direct response sale, the insurer did not propose the replacement and a replacement is involved, the insurer shall:

(1) Send to the applicant with the policy a Notice Regarding Replacement of Life Insurance and Annuities in the form as described in Appendix A or Appendix B (relating to notice regarding replacement of life insurance and annuities) or other substantially similar form filed and accepted prior to use by the Commissioner. In such instances, the insurer may delete the last sentence and the references to signatures from Appendix A without having to refile the form and obtain acceptance prior to use by the Commissioner.

(2) Comply with the requirements of § 81.6(d) (relating to duties of insurers that use agents or brokers).

(b) If in the solicitation of a direct response sale, the insurer proposed the replacement and a replacement is involved, the insurer shall:

(1) Provide to applicants or prospective applicants with or as a part of the application a Notice Regarding Replacement of Life Insurance and Annuities in the form as described in Appendix A or Appendix B or other substantially similar form filed and accepted prior to use by the Commissioner. In such instances the insurer may delete the last sentence and the references to signatures from Appendix A without having to refile the form and obtain acceptance prior to use by the Commissioner.

(2) Upon request of the applicant or prospective applicant, provide written or printed communications relative to policies or annuities associated with the replacement sale.

(3) Request from the applicant with or as part of the application, a list of existing life insurance or annuity to be replaced and properly identified by name of insurer and insured.

(4) Comply with the requirements of § 81.6(a)(2)(ii), if the applicant furnishes the name of the existing insurers, and the requirements of § 81.6(c), except that it need not maintain a replacement register, and the requirements of § 81.6(d).

The provisions of this § 81.7 corrected July 11, 1986, effective October 14, 1986, 16 Pa.B. 2523.

This section cited in 31 Pa. Code § 81.3 (relating to exemptions).

History

• Authority: The provisions of this Chapter 81 issued under sections 347, 348 and 350 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 81 adopted September 30, 1969; amended December 2, 1977, effectvie December 3, 1977, 32 Pa.

31 Pa. Code § 81.8 Penalties.

(a) Failure to comply with this chapter, after an administrative hearing as provided by statute, may subject an agent or broker to penalties provided in section 639 of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § 279). Failure to comply shall be considered a separate and distinct violation and may not prevent or be considered in lieu of a proceeding against an agent or broker for violation of section 637 or section 638 of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § 277 or § 278). Failure to comply may, for purposes of section 639 of The Insurance Department Act of one thousand nine hundred and twenty-one, be considered as conduct that would disqualify an agent or broker from initial issuance of a license under section 603 and 622 of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § § 233 and 252).

(b) Failure to comply with this chapter, after an administrative hearing as provided by statute, may subject an insurance company, association or exchange, its members, officers, directors or attorney-in-fact, to penalties provided in section 350 of The Insurance Company Law of 1921 (40 P. S. § 475). Failure to comply shall be considered a separate and distinct violation and may not prevent or be considered in lieu of a proceeding against an insurance company, association or exchange, its members, officers, directors or attorney-in-fact for violation of section 347, 348 or 349 of The Insurance Company Law of 1921 (40 P. S. § 472, § 473 or § 474).

(c) In addition to subsections (a) and (b), failure to make the disclosure outlined in this chapter may be considered a violation of the Unfair Insurance Practices Act (40 P. S. § § 1171.1—1171.15).

(d) A policyholder has the right to replace an existing policy after indicating on the application that replacement is not by intention. Patterns of replacement by policyholders of the same agent, broker or company shall be considered prima facie evidence of the knowledge of the agent, broker or company that replacement was intended in connection with the transaction. Patterns of replacement shall be considered violations of this chapter.

History

• Authority: The provisions of this Chapter 81 issued under sections 347, 348 and 350 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 81 adopted September 30, 1969; amended December 2, 1977, effectvie December 3, 1977, 32 Pa.

Chapter 82 Variable Life Insurance

31 Pa. Code § 82.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the content clearly indicates otherwise: Act—The Insurance Company Law of 1921 (40 P. S. § § 341—991). Affiliate of an insurer—A person directly or indirectly controlling, controlled by or under common control with the insurer; a person who regularly furnishes investment advice to the insurer with respect to its separate accounts for which a specific fee or commission is charged; or a director, officer, partner or employe of the insurer, controlling or controlled person, or person providing investment advice or a member of the immediate family of the person. Agent—A person, corporation, partnership or other legal entity which is licensed by the Commonwealth as a life insurance agent or broker. Assumed investment rate—The rate of investment return which would be required to be credited to a variable life insurance policy, after deduction of charges for taxes, investment expenses, and mortality and expense guarantees, to maintain the variable death benefit equal at all times to the amount of death benefit other than incidental insurance benefits, which would be payable under the plan of insurance if the death benefit did not vary according to the investment experience of the separate account. Benefit base—The amount to which the net investment return is applied. Commissioner—The Insurance Commissioner of the Commonwealth. Control, including the terms controlling, controlled by and under common control with—The possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise, unless the power is the result of an official position with or corporate office held by the person. Control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote or holds proxies representing more than 10% of the voting securities of another person. This presumption may be rebutted by a showing made to the satisfaction of the Commissioner that control does not exist in fact. The Commissioner may determine, after furnishing all persons in interest notice and opportunity to be heard and making specific findings of fact to support the determination, that control exists in fact, notwithstanding the absence of a presumption to that effect. Department—The Insurance Department of the Commonwealth. Flexible premium policy—A variable life insurance policy which permits the policyholder to vary, independently of each other, the amount or timing of one or more premium payments. General account—The assets of the insurer other than assets in separate accounts established under section 406.2 of the act (40 P. S. § 506.2), or under the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer, whether or not for variable life insurance. Incidental insurance benefit—The insurance benefits in a variable life insurance policy, other than the variable death benefit and the minimum death benefit, including but not limited to accidental death and dismemberment benefits, disability benefits, guaranteed insurability options, family income and term riders. Minimum death benefit—The amount of the guaranteed death benefit, other than incidental insurance benefits, payable under a variable life insurance policy regardless of the investment performance of the separate account. Net investment return—The rate of investment return in a separate account to be applied to the benefit base. Person—Individual, corporation, partnership, association trust or fund. Policy processing day—The day on which charges authorized in the policy are deducted from the policy’s cash value. Scheduled premium policy—A variable life insurance policy other than a flexible premium policy. Separate account—A separate account established under section 406.2 of the act or the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer. Variable death benefit—The amount of the death benefit, other than incidental insurance benefits, payable under a variable life insurance policy dependent on the investment performance of the separate account which the insurer would have to pay in the absence of any minimum death benefit. Variable life insurance policy—An individual policy which provides for life insurance, the amount or duration of which varies according to the investment experience of separate accounts established and maintained by the insurer as to the policy, under section 406.2 of the act or under the corresponding section of the insurance laws of the state of domicile of a foreign or alien insurer.

The provisions of this § 82.1 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137031) to (137033).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.11 Scope.

The requirements listed in § § 82.12—82.17 are applicable to insurers either seeking authority to issue variable life insurance in this Commonwealth or having authority to issue variable life insurance in this Commonwealth.

The provisions of this § 82.11 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137033).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.12 Licensing and approval to do business in this Commonwealth.

An insurer may not deliver or issue for delivery in this Commonwealth a variable life insurance policy unless the following conditions have been met:

(1) The insurer is licensed or organized to do a life insurance business in this Commonwealth.

(2) The insurer has obtained the written approval of the Commissioner for the issuance of variable life insurance policies in this Commonwealth. The Commissioner will grant written approval only after finding that the following have been met:

(i) The plan of operation for the issuance of variable life insurance policies is not unsound.

(ii) The general character, reputation and experience of the management and those persons of firms proposed to supply consulting, investment, administrative or custodial services to the insurer are such as to reasonably assure competent operation of the variable life insurance business of the insurer in this Commonwealth.

(iii) The present and foreseeable future financial condition of the insurer and its method of operation in connection with the issuance of such policies is not likely to render its operation hazardous to the public or its policyholders in this Commonwealth. The Commissioner will consider, among other things:

(A) The history of the operation and financial condition of the insurer.

(B) The qualifications, fitness, character, responsibility, reputation and experience of the officers and directors and other management of the insurer and of those persons or firms proposed to supply consulting, investment, administrative or custodial services to the insurer.

(C) The applicable law and regulations under which the insurer is authorized in its state of domicile to issue variable life insurance policies, the state of entry of an alien insurer being deemed its state of domicile for this purpose.

(D) If the insurer is a subsidiary of or is affiliated by common management or ownership with another company, its relationship to the other company and the degree to which the requesting insurer, as well as the other company, meets the standards set forth in this section.

The provisions of this § 82.12 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137033) to (137034).

This section cited in 31 Pa. Code § 82.11 (relating to scope); and 31 Pa. Code § 82.13 (relating to filing for approval to do business in this Commonwealth).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.13 Filing for approval to do business in this Commonwealth.

The Commissioner may require that an insurer, before it delivers or issues for delivery a variable life insurance policy in this Commonwealth, file with the Department the following information for the consideration of the Commissioner in making the determination required by § 82.12(2) (relating to licensing and approval to do business in this Commonwealth):

(1) Copies of and a general description of the variable life insurance policies, applications and riders it intends to issue.

(2) A general description of the methods of operation of the variable life insurance business of the insurer, including methods of distribution of policies and the names of those persons or firms proposed to supply consulting, investment, administrative, custodial or distribution services to the insurer.

(3) With respect to a separate account maintained by an insurer for a variable life insurance policy, a statement of the investment policy the insurer intends to follow for the investment of the assets held in the separate account and a statement of the procedures for changing the investment policy. The statement of investment policy shall include a description of the investment objective intended for the separate account.

(4) A description of any investment advisory services contemplated as required by § 82.51 (relating to investment advisory services).

(5) A copy of the statutes and regulations of the state of domicile of the insurer under which it is authorized to issue variable life insurance policies.

(6) Biographical data with respect to officers and directors of the insurer on the National Association of Insurance Commissioners Uniform Biographical Data Form.

(7) A statement of the insurer’s actuary describing the mortality and expense risks which the insurer will bear under the policy.

The provisions of this § 82.13 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137034) to (137035).

This section cited in 31 Pa. Code § 82.11 (relating to scope); and 31 Pa. Code § 82.47 (relating to separate account investment policy).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.14 Standards of suitability.

(a) An insurer seeking approval to enter into the variable life insurance business in this Commonwealth shall establish, maintain and file, at the discretion of the Commissioner, a written statement specifying the standards of suitability to be used by the insurer.

(b) The standards of suitability shall specify that no recommendation shall be made to an applicant to purchase a variable life insurance policy and that no variable life insurance policy shall be issued in the absence of reasonable grounds to believe that the purchase of the policy is suitable for the applicant on the basis of information furnished after reasonable inquiry of the applicant concerning the applicant’s insurance and investment objectives, financial situation and needs and other information known to the insurer or to the agent making the recommendation.

The provisions of this § 82.14 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137035).

This section cited in 31 Pa. Code § 82.11 (relating to scope).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.15 Use of sales materials.

(a) An insurer authorized to transact variable life insurance business in this Commonwealth may not use sales material, advertising material or descriptive literature or other materials in connection with its variable life insurance business in this Commonwealth which is false, misleading, deceptive or inaccurate.

(b) For purposes of this chapter, variable life insurance sales material, advertising material or descriptive literature includes, but is not limited to:

(1) Printed and published material, audio-visual material and descriptive literature of an insurer used in direct mail, newspapers, magazines, radio scripts, television and film scripts, billboards and similar displays for variable life insurance.

(2) Descriptive literature and sales aids used to sell variable life insurance by or on behalf of an insurer or a person authorized to sell variable life insurance for presentation to members of the insurance buying public, including but not limited to circulars, leaflets, booklets, depictions, illustrations and form letters.

(3) Prepared sales talks, presentations and material for use in the sale of variable life insurance by a person authorized to sell variable life insurance.

The provisions of this § 82.15 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137036).

This section cited in 31 Pa. Code § 82.11 (relating to scope).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.16 Requirements applicable to contractual services.

A material contract between an insurer and suppliers of consulting, investment, administrative, sales, marketing, custodial or other services with respect to variable life insurance operations shall be in writing and provide that the supplier of the services furnish the Commissioner with information or reports in connection with the services which the Commissioner may request to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with this chapter and other applicable laws or regulations.

The provisions of this § 82.16 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137036).

This section cited in 31 Pa. Code § 82.11 (relating to scope).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.17 Reports to the Commissioner.

(a) An insurer authorized to transact the business of variable life insurance in this Commonwealth shall submit to the Commissioner, in addition to other materials which may be required by this chapter or other applicable laws or regulations, the following documents:

(1) An annual statement of the business of its separate accounts in a form as may be prescribed by the National Association of Insurance Commissioners.

(2) Prior to use in this Commonwealth, information furnished to applicants as provided for in § 82.61 (relating to information for applicants).

(3) Prior to use in this Commonwealth, the form of the reports to policyholders as provided for in § § 82.72—82.74 (relating to policy statements; separate account statements; and warning statements for flexible premium policies).

(4) Additional information concerning its variable life insurance operations or its separate accounts as the Commissioner deems necessary.

(b) Material submitted to the Commissioner under this section will be disapproved if it is found to be false, misleading, deceptive or inaccurate in a material respect and, if previously distributed, the Commissioner will require the distribution of amended material.

The provisions of this § 82.17 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137037).

This section cited in 31 Pa. Code § 82.11 (relating to scope).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.21 Insurance policy qualification.

The Commissioner will not approve a variable life insurance form filed under this chapter unless it conforms to the requirements of § § 82.22—82.26.

The provisions of this § 82.21 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171.

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.22 Filing of variable life insurance policies.

(a) Variable life insurance policies and riders, endorsements, applications and other documents which are to be attached to and made a part of the policy and which relate to the variable nature of the policy shall be filed with and approved by the Commissioner prior to delivery or issuance for delivery in this Commonwealth.

(b) The procedures and requirements for the filing and approval shall be, to the extent appropriate and not inconsistent with this chapter, the same as those otherwise applicable to other life insurance policies.

(c) The Commissioner may approve variable life insurance policies and related forms with provisions the Commissioner deems to be not less favorable to the policyholder and the beneficiary than those required by this chapter.

The provisions of this § 82.22 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137038).

This section cited in 31 Pa. Code § 82.21 (relating to insurance policy qualification).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.23 Mandatory policy benefit and design requirements.

Variable life insurance policies delivered or issued for delivery in this Commonwealth shall comply with the following minimum requirements:

(1) The mortality and expense risk shall be borne by the insurer. The mortality and expense charges shall be subject to the maximums stated in the contract. For a flexible premium policy, the guaranteed maximum mortality charges may not exceed charges based on a mortality table permitted for calculation of nonforfeiture benefits. Guaranteed charges of up to 130% of an approved version of 1958 CSO or up to 135% of an approved version of 1980 CSO will be considered for policies issued on a simplified underwriting basis. Guaranteed charges of up to 145% of an approved version of 1958 CSO or up to 150% of an approved version of 1980 CSO will be considered for policies issued on a guaranteed basis. The guaranteed maximum mortality charges for a flexible premium policy issued to an insured in a rated premium class may reflect that the insured is rated. A premium class composed of smokers is considered to be a smoker class and not a rated premium class.

(2) For scheduled premium policies, a minimum death benefit shall be provided in an amount at least equal to the initial face amount of the policy so long as premiums are paid, subject to § 82.25 (relating to policy loan provisions).

(3) The policy shall reflect the investment experience of one or more separate accounts established and maintained by the insurer. The insurer shall demonstrate that the reflection of investment experience in the variable life insurance policy is actuarially sound.

(4) Each variable life insurance policy shall be credited with the full amount of the net investment return applied to the benefit base.

(5) Changes in variable death benefits of each variable life insurance policy shall be determined at least annually.

(6) The cash value of each variable life insurance policy shall be determined at least monthly. The method of computation of cash values and other nonforfeiture benefits, as described either in the policy or in a statement filed with the Commissioner of the state in which the policy is delivered or issued for delivery, shall be in accordance with actuarial procedures that recognize the variable nature of the policy. The method of computation shall be such that, if the net investment return credited to the policy at all times from the date of issue should be equal to the assumed investment rate with premiums and benefits determined accordingly under the terms of the policy, then the resulting cash values and other nonforfeiture benefits shall be at least equal to the minimum values required by section 410A of the act (40 P. S. § 510.1) for a general account policy with those premiums and benefits. The assumed investment rate may not exceed the maximum interest rate permitted under section 410A of the act. If the policy does not contain an assumed investment rate this demonstration shall be based on the maximum interest rate permitted under section 410A of the act. The method of computation may disregard incidental minimum guarantees as to the dollar amounts payable. Incidental minimum guarantees include but are not limited to a guarantee that the amount payable at death or maturity shall be at least equal to the amount that otherwise would have been payable if the net investment return credited to the policy at all times from the date of issue had been equal to the assumed investment rate.

(7) The computation of values required for each variable life insurance policy may be based upon such reasonable and necessary approximations as are acceptable to the Commissioner.

The provisions of this § 82.23 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137038) to (137040).

This section cited in 31 Pa. Code § 82.21 (relating to insurance policy qualification); and 31 Pa. Code § 82.24 (relating to mandatory policy provisions).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.24 Mandatory policy provisions.

A variable life insurance policy filed for approval in this Commonwealth shall contain at least the following provisions:

(1) The cover page of each policy containing the following:

(i) A prominent statement, in either contrasting color or in boldface type, that the amount or duration of the death benefit may be variable or fixed under specified conditions.

(ii) A prominent statement, in either contrasting color or in boldface type, that cash values may increase or decrease in accordance with the experience of the separate account subject to specified minimum guarantees.

(iii) A statement describing minimum death benefits required under § 82.23(2) (relating to mandatory policy benefit and design requirements).

(iv) The method or a reference to the policy provision which describes the method for determining the amount of insurance payable at death.

(v) A captioned provision prominently printed on the first page of the policy which provides that the policyholder may return the variable life insurance policy within at least 10 days of receipt of the policy by the policyholder and receive a refund of the premium payments for the policy.

(vi) Other items currently required for fixed benefit life insurance policies and which are consistent with this chapter.

(2) Grace periods which comply with the following:

(i) For scheduled premium policies, a provision for a grace period of at least 31 days from the premium due date which provides that, if the premium is paid within the grace period, policy values will be the same, except for the deduction of an overdue premium, as if the premium were paid on or before the due date.

(ii) For flexible premium policies, a provision for a grace period beginning on the policy processing day when the total charges authorized by the policy that are necessary to keep the policy in force until the next policy processing day exceed the amounts available under the policy to pay the charges in accordance with the terms of the policy. The grace period shall end on a date not less than 61 days after the mailing date of the Report to Policyholders required by § 82.74 (relating to warning statements for flexible premium policies). The death benefit payable during the grace period shall equal the death benefit in effect immediately prior to that period, less overdue charges. If the policy processing days occur monthly, the insurer may require the payment of not more than three times the charges which were due on the policy processing day on which the amounts available under the policy were insufficient to pay charges authorized by the policy that are necessary to keep the policy in force until the next policy processing day.

(3) For scheduled premium policies, a provision that the policy will be reinstated at any time within 2 years from the date of default upon the written application of the insured and the furnishing of evidence of insurability, including good health, satisfactory to the insurer, unless the cash surrender value has been paid or the period of extended insurance has expired; upon the payment of outstanding indebtedness arising subsequent to the end of the grace period following the date of default together with accrued interest thereon to the date of reinstatement; and upon payment of an amount not exceeding the greater of one of the following:

(i) All overdue premiums and indebtedness in effect at the end of the grace period following the date of default with interest at a rate not exceeding that permitted by section 410(k) of the act (40 P. S. § 510(k)).

(ii) One hundred ten percent of the increase in cash surrender value resulting from reinstatement plus overdue premiums for incidental insurance benefits with interest at a rate not exceeding that permitted by section 410(k) of the act.

(4) A full description of the benefit base and of the method of calculation and application of factors used to adjust variable benefits under the policy.

(5) A provision designating the separate account to be used and stating that:

(i) The assets of the separate account shall be available to cover the liabilities of the general account of the insurer only to the extent that the assets of the separate account exceed the liabilities of the separate account arising under the policies or contracts supported by the separate account.

(ii) The assets of the separate account shall be valued as often as policy benefits vary but at least monthly.

(6) A provision specifying what documents constitute the entire insurance contract.

(7) A designation of the officers of the insurer who are empowered to make an agreement or representation on behalf of the insurer and an indication that statements by the insured or on his behalf shall be considered as representations and not warranties.

(8) An identification of the owner of the insurance contract.

(9) A provision setting forth conditions or requirements as to the designation or change of designation of a beneficiary and a provision for disbursement of benefits in the absence of a beneficiary designation.

(10) A statement of conditions or requirements concerning the assignment of the policy.

(11) A description of the methods of adjustments made in death benefits and policy values—account values or cash values, or both—in the event of misstatement of age or sex of the insured. Examples of acceptable adjustment methods to the account value would be to recalculate from issue using mortality charges based on the correct age or sex or to make no adjustment. An example of an acceptable adjustment method for the death benefit of a flexible premium variable life insurance policy would be to determine the death benefit to be that purchased by the most recent mortality charge at the correct age or sex.

(12) A provision that the policy shall be incontestable by the insurer after it has been in force for 2 years during the lifetime of the insured. An increase in the amount of the policy’s death benefits subsequent to the policy issue date, which increase occurred upon a new application or request of the owner and was subject to satisfactory proof of the insured’s insurability, shall be incontestable after the increase has been in force, during the lifetime of the insured, for 2 years from the date of the issuance of the increase.

(13) A provision stating that the investment policy of the separate account may not be changed without the approval of the insurance commissioner of the state of domicile of the insurer and that the approval process is on file with the Commissioner.

(14) A provision that payment of variable death benefits in excess of minimum death benefits, cash values, policy loans or partial withdrawals—except when used to pay premiums—or partial surrenders may be deferred for one of the following:

(i) Up to 6 months from the date of request, if the payments are based on policy values which do not depend on the investment performance of the separate account.

(ii) For a period during which the New York Stock Exchange is closed for trading—except for normal holiday closing—or when the Securities and Exchange Commission has determined that a state of emergency exists which may make the payment impractical.

(15) A provision stating that if settlement options are provided, at least one option shall be provided on a fixed basis only.

(16) A description of the basis for computing the cash value and the surrender value under the policy.

(17) Premiums or charges for incidental insurance benefits, stated separately.

(18) Other policy provisions required by this chapter.

(19) Other items currently required for fixed benefit life insurance policies not inconsistent with this chapter.

(20) A provision for nonforfeiture insurance benefits. The insurer may establish a reasonable minimum cash value below which nonforfeiture insurance options will not be available.

The provisions of this § 82.24 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754; amended May 22, 1992, effective May 23, 1992, 22 Pa.B. 2729. Immediately preceding text appears at serial pages (139266) to (139269).

This section cited in 31 Pa. Code § 82.21 (relating to insurance policy qualification); and 31 Pa. Code § 82.61 (relating to information for applicants).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.25 Policy loan provisions.

A variable life insurance policy, delivered or issued for delivery in this Commonwealth, other than a term insurance policy or pure endowment policy, shall contain a provision which provides for policy loans after the policy has been in force for 3 full years. The provision for policy loans may not be less favorable than the following:

(1) At least 75% of the cash surrender value of the policy may be borrowed.

(2) The amount borrowed shall bear interest at a rate not to exceed that permitted by section 410F of the act (40 P. S. § 510e).

(3) An indebtedness shall be deducted from the proceeds payable on death.

(4) An indebtedness shall be deducted from the cash surrender value upon surrender or in determining a nonforfeiture benefit.

(5) For scheduled premium policies, whenever the indebtedness exceeds the cash surrender value, the insurer shall give notice of intent to cancel the policy if the excess indebtedness is not repaid within 31 days after the date of mailing the notice. For flexible premium policies, whenever the total charges authorized by the policy that are necessary to keep the policy in force until the next following policy processing day exceed the amounts available under the policy to pay the charges, a report shall be sent to the policyholder containing the information specified by § 82.74 (relating to warning statements for flexible premium policies).

(6) The policy may provide that if, at any time, so long as premiums are paid, the variable death benefit is less than it would have been if no loan or withdrawal had ever been made, then the policyholder may increase the variable death benefit up to what it would have been if there had been no loan or withdrawal by paying an amount not exceeding 110% of the corresponding increase in cash value and by furnishing evidence of insurability that the insurer may request.

(7) The policy may specify a reasonable minimum amount which may be borrowed at any time, but the minimum does not apply to an automatic premium loan provision.

(8) A policy loan provision is not required if the policy is under the extended insurance nonforfeiture option.

(9) The policy loan provisions shall be construed so that variable life insurance policyholders who have not exercised the provisions are not disadvantaged by the exercise thereof.

(10) Amounts paid to the policyholders upon the exercise of any policy loan provision shall be withdrawn from the separate account and shall be returned to the separate account upon repayment, except that a stock insurer may provide the amounts for policy loans from the general account.

The provisions of this § 82.25 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137043) to (137045).

This section cited in 31 Pa. Code § 82.21 (relating to insurance policy qualification); 31 Pa. Code § 82.23 (relating to mandatory policy benefit and design requirements); and 31 Pa. Code § 82.26 (relating to other policy provisions).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.26 Other policy provisions.

(a) The following provisions may in substance be included in a variable life insurance policy or related form delivered or issued for delivery in this Commonwealth:

(1) An exclusion for suicide within 2 years of the issue date of the policy. To the extent of the increased death benefits only, the policy may provide an exclusion for suicide within 2 years of an increase in death benefits which results from an application of the owner subsequent to the policy issue date.

(2) Incidental insurance benefits offered on a fixed or variable basis.

(3) A provision allowing the policyholder to elect, in writing, in the application for the policy or thereafter, an automatic premium loan on a basis not less favorable than that required of policy loans under § 82.25 (relating to policy loan provisions); except that a restriction that no more than two consecutive premiums can be paid under this provision may be imposed.

(4) A provision allowing the policyholder to make partial withdrawals. The partial withdrawal provision shall be constructed so that a variable life insurance policyholder who has not exercised the provision is not disadvantaged by the exercise thereof.

(5) Other policy provisions approved by the Commissioner.

(b) Policies may be issued on a participating basis. The policies shall offer to pay dividend amounts in cash, and the policies may offer the following dividend options:

(1) The amount of the dividend may be credited against premium payments.

(2) The amount of the dividend may be applied to provide amounts of additional fixed or variable benefit whole life insurance.

(3) The amount of the dividend may be deposited in the general account at a specified minimum rate of interest.

(4) The amount of the dividend may be applied to provide paid-up amounts of fixed benefit 1-year term insurance.

(5) The amount of the dividend may be deposited as a deposit in a separate account.

The provisions of this § 82.26 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137045) to (137046).

This section cited in 31 Pa. Code § 82.21 (relating to insurance policy qualification).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.31 Variable life.

Reserve liabilities for variable life insurance policies shall be established under section 301 of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § 71) in accordance with actuarial procedures that recognize the variable nature of the benefits provided and mortality guarantees.

The provisions of this § 82.31 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137046).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.32 Reserve liabilities for the guaranteed minimum death benefit.

(a) Reserve liabilities for the guaranteed minimum death benefit shall be the reserve needed to provide for the contingency of death occurring when the guaranteed minimum death benefit exceeds the death benefit that would be paid in the absence of guarantee, shall be maintained in the general account of the insurer, and may not be less than the greater of the following minimum reserves:

(1) The aggregate total of the term costs, if any, covering a period of 1 full year from the valuation date, or, if less, covering the period provided for in the guarantee not otherwise provided for by the reserves held in the separate account, on each variable life insurance contract, assuming an immediate 1/3 depreciation in the current value of the assets of the separate account followed by a net investment return equal to the assumed investment rate.

(2) The aggregate total of the ‘‘attained age level’’ reserves on each variable life insurance contract. The ‘‘attained age level’’ reserve on each variable life insurance contract may not be less than zero and shall equal the ‘‘residue,’’ as described in subparagraph (i), of the prior year’s ‘‘attained age level’’ reserve on the contract, with any ‘‘residue’’ increased or decreased by a ‘‘payment computed on an attained age basis,’’ as described in subparagraph (ii).

(i) The ‘‘residue’’ of the prior year’s ‘‘attained age level’’ reserve on each variable life insurance contract may not be less than zero and shall be determined by adding interest at the valuation interest rate to the prior year’s reserve, deducting the tabular claims based on the ‘‘excess,’’ if any, of the guaranteed minimum death benefit over the death benefit that would be payable in the absence of the guarantee, and by dividing the net result by the tabular probability of survival. The ‘‘excess’’ referred to in the preceding sentence shall be based on the actual level of death benefits that would have been in effect during the preceding year in the absence of the guarantee, taking appropriate account of the reserve assumptions regarding the distribution of death claim payments over the year.

(ii) The ‘‘payment computed on an attained age basis’’ shall be computed so that the present value of a level payment of that amount each year over the future period for which charges for this risk will be collected under the contract is equal to A minus B minus C, where A is the present value of the future guaranteed minimum death benefits, B is the present value of the future death benefits that would be payable in the absence of the guarantee, and C is any ‘‘residue,’’ as described in subparagraph (i), of the prior year’s ‘‘attained age level’’ reserve on the variable life insurance contract. If no further charges for this risk shall be collected under the contract, the payment shall equal A minus B minus C.

(iii) The present value of future death benefits that would be payable in the absence of a minimum guarantee, as referred to in subparagraph (ii) of this paragraph, shall be computed assuming a net investment return of the separate account which may differ from the assumed investment rate or the valuation interest rate, or both, but may not exceed the maximum interest rate permitted for the valuation of life insurance contracts.

(b) The valuation interest rate and mortality table used in computing the two minimum reserves described in subsection (a)(1) and (2) shall conform to permissible standards for the valuation of life insurance contracts. In determining the minimum reserve, the company may employ suitable approximations and estimates, including, but not limited to, groupings and averages.

The provisions of this § 82.32 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754; amended May 22, 1992, effective May 23, 1992, 22 Pa.B. 2729. Immediately preceding text appears at serial pages (139272) to (139273).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.34 Other reserve liabilities.

Reserve liabilities for fixed incidental insurance benefits and guarantees associated with variable incidental insurance benefits shall be maintained in the general account and reserve liabilities for variable aspects of the variable incidental insurance benefits shall be maintained in a separate account in amounts determined in accordance with the actuarial procedures appropriate to the benefits.

The provisions of this § 82.34 adopted April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137048).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.41 Applicability.

The requirements in § § 82.42—82.51 apply to the establishment and administration of variable life insurance separate accounts by a domestic insurer.

The provisions of this § 82.41 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137048).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.42 Establishment and administration.

(a) A domestic insurer issuing variable life insurance shall establish one or more separate accounts under section 406.2 of the act (40 P. S. § 506.2).

(b) If no law or other regulation provides for the custody of separate account assets and if the insurer is not the custodian of the separate account assets, contracts for custody of the assets shall be in writing and the Commissioner has authority to review and approve both the terms of the contract and the proposed custodian prior to the transfer of custody.

(c) The insurer may not, without the prior written approval of the Commissioner, employ in a material connection with the handling of separate account assets a person who:

(1) Within the last 10 years has been convicted of a felony or a misdemeanor arising out of the conduct of the person involving embezzlement, fraudulent conversion or misappropriation of funds or securities or involving violation of 18 U.S.C. § § 1341, 1342 or 1343.

(2) Within the last 10 years has been found by any state regulatory authority to have violated or has acknowledged violation of any state insurance law involving fraud, deceit or knowing misrepresentation; or

(3) Within the last 10 years has been found by Federal or State regulatory authorities to have violated or has acknowledged violation of Federal or State securities laws involving fraud, deceit or knowing misrepresentation.

(d) A person with access to the cash, securities or other assets of the separate account shall be under bond in an amount of not less than $100,000.

(e) The assets of the separate accounts shall be valued as often as variable benefits are determined but at least monthly.

The provisions of this § 82.42 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137048) to (137049).

This section cited in 31 Pa. Code § 82.41 (relating to applicability).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.43 Amounts in the separate account.

The insurer shall maintain in each separate account assets with a fair market value at least equal to the greater of the valuation reserves for the variable portion of the variable life insurance policies or the benefit base for the policies.

The provisions of this § 82.43 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137049) to (137050).

This section cited in 31 Pa. Code § 82.41 (relating to applicability).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.44 Investments by the separate account.

(a) Sales, exchanges or other transfers of assets may be made by an insurer between its separate accounts or between another investment account and one or more of its separate accounts if the transfer into or from a separate account is made by one of the following methods:

(1) A transfer of cash.

(2) A transfer of assets having a valuation which could be readily determined in the marketplace.

(3) Other transfers the Commissioner may approve.

(b) The separate account shall have sufficient net investment income and readily marketable assets to meet anticipated withdrawals under policies funded by the account.

The provisions of this § 82.44 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137050).

This section cited in 31 Pa. Code § 82.41 (relating to applicability); and 31 Pa. Code § 82.45 (relating to limitations on ownership).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.45 Limitations on ownership.

(a) A separate account may not purchase or otherwise acquire the securities of an issuer, other than securities issued or guaranteed as to principal and interest by the United States, if, immediately after the purchase or acquisition, the value of the investment, together with prior investments of the separate account in the security valued as required by this chapter, would exceed 10% of the value of the assets of the separate account. The Commissioner may waive this limitation in writing if the Commissioner believes the waiver will not render the operation of the separate account hazardous to the public or the policyholders in this Commonwealth.

(b) No separate account may purchase or otherwise acquire the voting securities of an issuer if, as a result of the acquisition, the insurer and its separate accounts, in the aggregate, will own more than 10% of the total issued and outstanding voting securities of the issuer. The Commissioner may waive this limitation in writing if the Commissioner believes the waiver will not render the operation of the separate account hazardous to the public or the policyholders in this Commonwealth or jeopardize the independent operation of the issuer of the securities.

(c) The percentage limitation specified in subsection (a) does not preclude the investment of the assets of separate accounts in shares of investment companies registered under the Investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-64) or other pools of investment assets if the investments and investment policies of the investment companies or asset pools comply substantially with § 82.44 (relating to investments by the separate account) and other applicable portions of this chapter.

The provisions of this § 82.45 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137050) to (137051).

This section cited in 31 Pa. Code § 82.41 (relating to applicability).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.46 Valuation of separate account assets.

Investments of the separate account shall be valued at their market value on the date of valuation, or at amortized cost if it approximates market value. If there is no readily available market value, then the investments shall be valued as provided under the terms of the contract, the prospectus for the contract, rules of the Securities and Exchange Commission or rules or other written agreement applicable to the separate account.

The provisions of this § 82.46 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137051).

This section cited in 31 Pa. Code § 82.41 (relating to applicability).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.47 Separate account investment policy.

(a) The investment policy of a separate account operated by a domestic insurer filed under § 82.13(3) (relating to filing for approval to do business in this Commonwealth) may not be changed without first filing the change with the Commissioner.

(b) A change filed under this section shall be effective 60 days after the date it was filed with the Commissioner, unless the Commissioner notifies the insurer before the end of the 60-day period of the disapproval of the proposed change. The Commissioner may, after notice and public hearing, disapprove a change that has become effective under this section.

(c) The Commissioner may disapprove the change if the Commissioner determines that the change would be detrimental to the interests of the policyholders participating in the separate account.

The provisions of this § 82.47 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137051) to (137052).

This section cited in 31 Pa. Code § 82.41 (relating to applicability).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.48 Charges against a separate account.

The insurer shall disclose in writing, prior to or contemporaneously with the delivery of the policy, the charges that may be made against the separate account, including, but not limited to, the following charges:

(1) Taxes or reserves for taxes attributable to investment gains and income of the separate account.

(2) Actual cost of reasonable brokerage fees and similar direct acquisition and sales costs incurred in the purchase or sale of separate account assets.

(3) Actuarially determined costs of insurance, that is, tabular costs and the release of reserves and benefit base consistent with the release of separate account liabilities.

(4) Charges for administrative expenses and investment management expenses, including internal costs attributable to the investment management of assets of the separate account.

(5) A charge, at the rate specified in the policy, for mortality and expense guarantees.

(6) Any amounts in excess of those required to be held in the separate account.

(7) A charge for incidental insurance benefits.

The provisions of this § 82.48 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137052).

This section cited in 31 Pa. Code § 82.41 (relating to applicability).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.49 Standards of conduct.

An insurer seeking approval to enter into the variable life insurance business in this Commonwealth shall adopt by formal action of its board of directors a written statement specifying the standards of conduct of the insurer, its officers, directors, employes and affiliates with respect to the purchase or sale of investments of separate accounts. The standards of conduct shall be binding on the insurer and those to whom it refers. A code of ethics meeting the requirements of 15 U.S.C. § 80a-17(j) (relating to transactions of certain affiliated persons and underwriters) and applicable rules and regulations thereunder satisfies the provisions of this section.

The provisions of this § 82.49 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137052) to (137053).

This section cited in 31 Pa. Code § 82.41 (relating to applicability); and 31 Pa. Code § 82.51 (relating to investment advisory services).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.50 Conflicts of interest.

Rules under the insurance laws of the Commonwealth or a regulation applicable to the officers and directors of insurance companies with respect to conflicts of interest also apply to members of a separate account’s committee or other similar body.

The provisions of this § 82.50 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137053).

This section cited in 31 Pa. Code § 82.41 (relating to applicability).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.51 Investment advisory services.

(a) An insurer may not enter into a contract under which a person undertakes, for a fee, to regularly furnish investment advice to the insurer with respect to any of its separate accounts maintained for variable life insurance policies unless one of the following conditions are met:

(1) The person providing the advice is registered as an investment advisor under 15 U.S.C.A. § § 80b-1—80b-21 under the Employe Retirement Income Security Act of 1974 (ERISA), the act of September 2, 1974 (Pub. L. 93-406, 88 Stat. 829).

(2) The insurer has filed with the Commissioner and continues to file annually the following information and statements concerning the advisory.

(i) The name and form of organization, state of organization and its principal place of business.

(ii) The names and addresses of its partners, officers, directors and persons performing similar functions or, if the investment advisor is an individual, of the individual.

(iii) A written standard of conduct, complying in substance with the requirements of § 82.49 (relating to standards of conduct), which has been adopted by the investment advisor and is applicable to the investment advisor, its officers, directors and affiliates.

(iv) A statement provided by the proposed advisor as to whether the advisor or a person associated therewith has been convicted within 10 years of a felony or misdemeanor arising out of that person’s conduct as an employe, salesman, officer or director of an insurance company, a bank, an insurance agent, a securities broker or an investment advisor, involving embezzlement, fraudulent conversion or misappropriation of funds or securities or involving the violation of 18 U.S.C. § § 1341, 1342 or 1343 (relating to frauds and swindles; fictitious name or address; or fraud by wire, radio or television); has been permanently or temporarily enjoined by order, judgment or decree of a court of competent jurisdiction from acting as an investment advisor, underwriter, broker or dealer or as an affiliated person or as an employe of an investment company, bank or insurance company or from engaging in or continuing conduct or practice in connection with that activity; has been found by Federal or State regulatory authorities to have willfully violated or has acknowledged willful violation of Federal or State securities laws or State insurance laws or of a rule or regulation under those laws; or has been censured, been denied an investment advisor registration, had a registration as an investment advisor revoked or suspended, or been barred or suspended from being associated with an investment advisor by order of Federal or State regulatory authorities.

(b) The investment advisory contract shall be in writing and shall provide that it may be terminated by the insurer without penalty to the insurer or the separate account upon no more than 60 days’ written notice to the investment advisor.

(c) The Commissioner may, by order, after notice and opportunity for hearing, require the investment advisory contract to be terminated if the Commissioner deems continued operation thereunder to be hazardous to the public or the insurer’s policyholders.

The provisions of this § 82.51 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected May 25, 1989, effective April 29, 1989, 19 Pa.B. 2251; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137053) to (137055).

This section cited in 31 Pa. Code § 82.13 (relating to filing for approval to do business in this Commonwealth); and 31 Pa. Code § 82.41 (relating to applicability).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.61 Information for applicants.

(a) An insurer delivering or issuing for delivery in this Commonwealth variable life insurance policies shall deliver to the applicant for the policy and obtain a written acknowledgment or receipt from the applicant, coincident with or prior to the execution of the application, the following information:

(1) A summary explanation, in nontechnical terms, of the principal features of the policy, including a description of the manner in which the variable benefits will reflect the investment experience of the separate account and the factors which affect such variation. The explanation shall include notices of the provisions required by § 82.24(1)(v) and (6) (relating to mandatory policy provisions).

(2) A statement of the investment policy of the separate account, including the following:

(i) A description of the investment objective intended for the separate account and the principal types of investments intended to be made.

(ii) Restrictions or limitations on the manner in which the operations of the separate account are intended to be conducted.

(3) A statement of the net investment return of the separate account for each of the last 10 years or a lesser period that the separate account has been in existence.

(4) A statement of the charges levied against the separate account during the previous year.

(5) A summary of the method to be used in valuing assets held by the separate account.

(6) A summary of the Federal income tax aspects of the policy applicable to the insured, the policyholder and the beneficiary.

(7) Illustrations of benefits payable under the variable life insurance contract. The illustrations shall be prepared by the insurer and may not include projections of the past investment experience into the future or attempt predictions of future investment experience. This paragraph does not prohibit the use of hypothetical assumed rates of return to illustrate possible levels of benefits if it is made clear that the assumed rates are hypothetical only.

(b) The requirements of this section shall be deemed to have been satisfied to the extent that a disclosure containing information required by this section is delivered, in the form of one of the following:

(1) A prospectus included in a registration statement which satisfies the requirements of the Securities and Exchange Commission.

(2) The information and reports required by the Employee Retirement Income Security Act of 1974, the act of September 2, 1974 (Pub. L. 93-406, 88 Stat. 829) if the policies are exempted under section 3(a)(2) from the registration requirements of the Securities Act of 1933 (15 U.S.C. § 77c(a)(2)).

The provisions of this § 82.61 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137054) to (137056).

This section cited in 31 Pa. Code § 82.17 (relating to reports to the Commissioner).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.62 Applications.

The application for a variable life insurance policy shall contain:

(1) A prominent statement that the death benefit may be variable or fixed under specified conditions.

(2) A prominent statement that cash values may increase or decrease in accordance with the experience of the separate account, subject to a specified minimum guarantees.

(3) Questions designed to elicit information which enables the insurer to determine the suitability of variable life insurance for the applicant.

The provisions of this § 82.62 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137056).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.71 Mailing.

An insurer delivering or issuing for delivery in this Commonwealth variable life insurance policies shall mail each variable life insurance policyholder at his last known address the material in § § 82.72—82.74 (relating to policy statements; separate account statements; and warning statements for flexible premium policies).

The provisions of this § 82.71 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137056) to (137057).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.72 Policy statements.

Within 30 days after each anniversary of the policy, a statement of the cash surrender value, death benefit, a partial withdrawal or policy loan and interest charge, under the policy computed as of the policy anniversary date shall be mailed. The statement may be furnished within 30 days after a specified date in each policy year if the information contained therein is computed as of a date not more than 60 days prior to the mailing of the notice.

(1) This statement shall state that, in accordance with the investment experience of the separate account, the cash values and the variable death benefit may increase or decrease, and this statement shall prominently identify value described therein which may be recomputed prior to the next statement required by this section. If the policy guarantees that the variable death benefit on the next policy anniversary date will not be less than the variable death benefit specified in the statement, the statement shall be modified to so indicate.

(2) For flexible premium policies, the report shall contain a reconciliation of the change since the previous report in cash value and cash surrender value, if different, because of payments made—less deductions for expense charges—withdrawals, investment experience, insurance charges and other charges made against the cash value.

(i) The report shall show the projected cash value and cash surrender value, if different, as of 1 year from the end of the period covered by the report assuming that:

(A) Planned periodic premiums, if any, are paid as scheduled.

(B) Guaranteed costs of insurance are deducted.

(C) The net investment return is equal to the guaranteed rate or, in the absence of a guaranteed rate, is not greater than zero.

(ii) If the projected value is less than zero, a warning message shall be included that states that the policy may be in danger of terminating without value in the next 12 months unless additional premium is paid.

The provisions of this § 82.72 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137057) to (137058).

This section cited in 31 Pa. Code § 82.17 (relating to reports to the Commissioner); and 31 Pa. Code § 82.71 (relating to mailing).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.73 Specific account statements.

Annually, a statement shall be mailed which includes the following:

(1) A summary of the financial statement of the separate account based on the annual statement last filed with the Commissioner.

(2) The net investment return of the separate account for the last year and, for each year after the first, a comparison of the investment rate of the separate account during the last year with the investment rate during prior years, up to a total of not less than 5 years when available.

(3) A list of investments held by the separate account, as of a date not earlier than the end of the last year for which an annual statement was filed with the Commissioner.

(4) Charges levied against the separate account during the year.

(5) A statement of a change, since the last report, in the investment objective and orientation of the separate account, in an investment restriction or material quantitative or qualitative investment requirement applicable to the separate account, or in the investment advisor of the separate account.

(6) The name of each broker or dealer handling portfolio transactions on behalf of the separate account in which the insurer or an affiliate has a material direct or indirect interest and the nature of the transactions and the amount of compensation received by each broker or dealer from business originating with the separate account during the preceding fiscal year.

(7) The names and principal occupations of each principal executive officer and each director of the insurer.

(8) The names of parent companies of the insurer and the basis of control of the insurer and the name of persons who are known to own, of record or beneficially, 10% or more of the outstanding voting securities of the company.

The provisions of this § 82.73 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected May 25, 1989, effective April 29, 1989, 19 Pa.B. 2251; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137058).

This section cited in 31 Pa. Code § 82.17 (relating to reports to the Commissioner); and 31 Pa. Code § 82.71 (relating to mailing).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.74 Warning statements for flexible premium policies.

For flexible premium policies, a report shall be sent to the policyholder if the amounts available under the policy on a policy processing day to pay the charges authorized by the policy are less than the amount necessary to keep the policy in force until the next following policy processing day. The report shall indicate the minimum payment required under the terms of the policy to keep it in force and the length of the grace period for payment of that amount.

The provisions of this § 82.74 adopted April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137059).

This section cited in 81 Pa. Code § 82.17 (relating to reports to the Commissioner); 31 Pa. Code § 82.24 (relating to mandatory policy provisions); 31 Pa. Code § 82.25 (relating to policy loan provisions); and 31 Pa. Code § 82.71 (relating to mailing).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.81 Qualifications to sell variable life insurance.

(a) No person may sell or offer for sale in this Commonwealth a variable life insurance policy unless the person is an agent and has filed with the Commissioner, in a form satisfactory to the Commissioner, evidence that the person holds a license or authorization which may be required for the solicitation or sale of variable life insurance.

(b) An examination administered by the Department for the purpose of determining the eligibility of a person for licensing as an agent will, after the effective date of this chapter, include questions concerning the history, purpose, regulation and sale of variable life insurance as the Commissioner deems appropriate.

The provisions of this § 82.81 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137059).

Public Policy

This regulation applies only to unlicensed individuals who sell or offer for sale insurance policies and does not apply where appellant is attempting to ignore the contract for commission splits based on appellee’s referrals. The public policy advanced by this provision is the preclusion of insurance sales to the public by unlicensed, and therefore untrained, inexperienced and possibly unscrupulous individuals. In this case, all the sales were made by a licensed and highly experienced agent, namely, appellant. Thus, the public policy concerns of this regulation were satisfied and did not operate to void the otherwise enforceable agreement entered by the parties. Rapp v. Lorch, 667 A.2d 240 (Pa. Super. 1995); appeal denied 675 A.2d 1250 (Pa. 1996).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.82 Reports of disciplinary actions.

A person qualified in this Commonwealth under this chapter to sell or offer to sell variable life insurance shall immediately report to the Commissioner:

(1) A suspension or revocation of his agent’s license in another state or territory of the United States.

(2) The imposition of a disciplinary sanction, including suspension or expulsion from membership, suspension or revocation of or denial of registration imposed upon him by any national securities exchange, national securities association or a Federal, State or territorial agency with jurisdiction over securities or variable life insurance.

(3) A judgment or injunction entered against him on the basis of conduct deemed to have involved fraud, deceit, misrepresentation or violation of an insurance or securities law or regulation.

The provisions of this § 82.82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial pages (137059) to (137060).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.83 Refusal to qualify agent to sell variable life insurance; suspension, revocation or nonrenewal of qualification.

The Commissioner may reject an application or suspend or revoke or refuse to renew the qualification of an agent under this section to sell or offer to sell variable life insurance, upon grounds that would bar the applicant or the agent from being licensed to sell other life insurance contracts in this Commonwealth. The rules governing proceedings relating to the suspension or revocation of the license of an agent shall also govern a proceeding for suspension or revocation of the qualification of an agent to sell or offer to sell variable life insurance.

The provisions of this § 82.83 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137060).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

31 Pa. Code § 82.91 Foreign companies.

If the law or regulation in the place of domicile of a foreign company provides a degree of protection to the policyholders and the public which is substantially similar to that provided by this chapter, the Commissioner, to the extent the Commissioner deems it appropriate, may consider compliance with the law or regulation as compliance with this chapter.

The provisions of this § 82.91 adopted August 4, 1978, effective September 5, 1978, 8 Pa.B. 2171; amended April 28, 1989, effective April 29, 1989, 19 Pa.B. 1835; corrected June 30, 1989, effective retroactive to April 29, 1989, 19 Pa.B. 2754. Immediately preceding text appears at serial page (137060).

History

• Authority: The provisions of this Chapter 82 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 82 adopted August 4, 1978, effective September 5, 1978, 8 Pa.

Chapter 84 Tables Approved for Use in Determining Minimum Nonforfeiture Standards and Minimum Standards for Valuation

31 Pa. Code § 84.1 Purpose.

This chapter is to implement section 301(c)(1) of the act (40 P.S. § 71(c)(1)) and section 410A(e)(8)(F) of the law (40 P.S. § 510.1(e)(8)(F)) which authorize the Commissioner to promulgate regulations specifying tables adopted after 1980 by the NAIC for use in determining minimum nonforfeiture standards and minimum standards for valuation.

History

• Authority: The provisions of this Chapter 84 issued under section 301(c)(1) of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 84 adopted January 10, 1986, effective immediately and will apply retroactively to January 1, 1985, 16 Pa.

31 Pa. Code § 84.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Insurance Department Act of 1921 (40 P.S. § § 1—321). Annuity 2000 Mortality Table—The mortality table developed by the Society of Actuaries Committee on Life Insurance Research and shown on page 240 of Volume XLVII of the Transactions of the Society of Actuaries (1995) and adopted as a recognized mortality table for annuities in December 1996 by the NAIC. Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Generational mortality table—A mortality table containing a set of mortality rates that decrease for a given age from one year to the next based on a combination of a period table and a projection scale containing rates of mortality improvement. Law—The Insurance Company Law of 1921 (40 P.S. § § 341—991). NAIC—The National Association of Insurance Commissioners. Period table—A table of mortality rates applicable to a given calendar year. Projection Scale G2—The table, as shown in Appendices III and IV, of annual rates, G2x, of mortality improvement by age for projecting future mortality rates beyond calendar year 2012 developed by the Society of Actuaries Committee on Life Insurance Research. 1983 Table ‘‘a’’—The mortality table developed by the Society of Actuaries Committee to Recommend a New Mortality Basis for Individual Annuity Valuation and adopted as a recognized mortality table for annuities in June 1982 by the NAIC. 1983 GAM Table—The mortality table developed by the Society of Actuaries Committee on Annuities and adopted as a recognized mortality table for annuities in December 1983 by the NAIC. 1994 GAR Table—The mortality table developed by the Society of Actuaries Group Annuity Valuation Table Task Force and shown on pages 866—867 of volume XLVII of the Transactions of the Society of Actuaries (1995) and adopted as a recognized mortality table for annuities in December 1996 by the NAIC. 2012 IAR Table—The generational mortality table developed by the Society of Actuaries Committee on Life Insurance Research containing rates, qx2012+n, derived from a combination of the 2012 IAM Period Table and Projection Scale G2, using the methodology in § 84.3a (relating to application of the 2012 IAR Mortality Table). 2012 IAM Period Table—The period table, as shown in Appendices I and II, containing loaded mortality rates for calendar year 2012, qx2012, developed by the Society of Actuaries Committee on Life Insurance Research.

The provisions of this § 84.2 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 301 and 303 of The Insurance Department Act of 1921 (40 P.S. § § 71 and 73); and section 410A of The Insurance Company Law of 1921 (40 P.S. § 510.1).

The provisions of this § 84.2 amended June 25, 1999, effective June 26, 1999, 29 Pa.B. 3208; amended July 8, 2016, effective August 8, 2016, 46 Pa.B. 3645. Immediately preceding text appears at serial pages (256923) to (256924).

History

• Authority: The provisions of this Chapter 84 issued under section 301(c)(1) of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 84 adopted January 10, 1986, effective immediately and will apply retroactively to January 1, 1985, 16 Pa.

31 Pa. Code § 84.3 1983 Table ‘‘a,’’ Annuity 2000 Mortality Table, 1983 GAM Table, 1994 GAR Table and 2012 IAR Mortality Table.

(a) The 1983 Table ‘‘a,’’ the Annuity 2000 Mortality Table excluding mortality rates independent of sex, the 1983 GAM Table, the 1994 GAR Table and the 2012 IAR Mortality Table are approved by the Commissioner as annuity mortality tables for valuation.

(b) At the option of the company, the 1983 Table ‘‘a’’ may be used in determining the minimum standard of valuation for an individual annuity or pure endowment contract issued prior to January 1, 1986, and for an annuity or pure endowment purchased prior to January 1, 1986, under a group annuity or pure endowment contract.

(c) The 1983 Table ‘‘a,’’ or the Annuity 2000 Mortality Table excluding mortality rates independent of sex shall be used in determining the minimum standard of valuation for an individual annuity or pure endowment contract issued on or after January 1, 1986, and prior to June 26, 1999.

(d) The Annuity 2000 Mortality Table excluding mortality rates independent of sex shall be used, except as provided by subsections (e) and (f), in determining the minimum standard of valuation for an individual annuity or pure endowment contract issued on or after June 26, 1999.

(e) Except as provided in subsection (f), the 2012 IAR Mortality Table shall be used for determining the minimum standard of valuation for any individual annuity or pure endowment contract issued on or after August 8, 2016.

(f) The 1983 Table ‘‘a’’ shall be used in determining the minimum standard of valuation for an individual annuity or pure endowment contract issued on or after June 26, 1999, when the contract is based on life contingencies and is issued to fund periodic benefits arising from:

(1) Settlements of claims pertaining to court settlements or out of court settlements from tort actions.

(2) Settlements of claims, such as worker’s compensation claims.

(3) Settlements of long term disability claims when a temporary or life annuity has been used instead of continuing disability payments.

(g) At the option of the company, the 1983 GAM Table or the 1994 GAR Table may be used in determining the minimum standard of valuation for an annuity or pure endowment purchased prior to January 1, 1986, under a group annuity or pure endowment contract.

(h) The 1983 GAM Table or the 1994 GAR Table shall be used in determining the minimum standard of valuation for an annuity or pure endowment purchased on or after January 1, 1986, and prior to June 26, 1999, under a group annuity or pure endowment contract.

(i) 1994 GAR Table.

(1) The 1994 GAR Table shall be used in determining the minimum standard of valuation for an annuity or pure endowment purchased on or after June 26, 1999, under a group annuity or pure endowment contract.

(2) In using the 1994 GAR Table, the mortality rate for a person age x in year (1994 + n) shall be calculated as follows:

qx1994+n = qx1994 (1-AAx)n where the values of qx1994 and AAx are as specified in the 1994 GAR Table.

The provisions of this § 84.3 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 301 and 303 of The Insurance Department Act of 1921 (40 P.S. § § 71 and 73); and section 410A of The Insurance Company Law of 1921 (40 P.S. § 510.1).

The provisions of this § 84.3 amended June 25, 1999, effective June 26, 1999, 29 Pa.B. 3208; amended July 8, 2016, effective August 8, 2016, 46 Pa.B. 3645. Immediately preceding text appears at serial pages (256924) to (256925).

History

• Authority: The provisions of this Chapter 84 issued under section 301(c)(1) of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 84 adopted January 10, 1986, effective immediately and will apply retroactively to January 1, 1985, 16 Pa.

31 Pa. Code § 84.3a Application of the 2012 IAR Mortality Table.

(a) In using the 2012 IAR Mortality Table, the mortality rate for a person age x in year (2012 + n) is calculated as follows: qx2012+n = qx2012 (1-G2x)n.

(b) The resulting qx 2012+n shall be rounded to three decimal places per 1,000, for example, 0.741 deaths per 1,000. This rounding shall occur according to the formula in subsection (a), starting at the 2012 period table rate.

(1) For example, for a male age 30, qx2012 = 0.741.

qx 2013= 0.741 * (1-0.010) [caret ] 1 = 0.73359, which is rounded to 0.734.

qx 2014= 0.741 * (1-0.010) [caret ] 2 = 0.7262541, which is rounded to 0.726.

(2) A method leading to incorrect rounding would be to calculate qx 2014 as qx 2013 * (1-0.010), or 0.734 * 0.99 = 0.727. It is incorrect to use the already rounded qx 2013 to calculate qx 2014.

The provisions of this § 84.3a issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 301 and 303 of The Insurance Department Act of 1921 (40 P.S. § § 71 and 73); and section 410A of The Insurance Company Law of 1921 (40 P.S. § 510.1).

The provisions of this § 84.3a adopted July 8, 2016, effective August 8, 2016, 46 Pa.B. 3645.

This section cited in 31 Pa. Code § 84.2 (relating to definitions).

History

• Authority: The provisions of this Chapter 84 issued under section 301(c)(1) of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 84 adopted January 10, 1986, effective immediately and will apply retroactively to January 1, 1985, 16 Pa.

31 Pa. Code § 84.5 1980 CSO and 1980 CET Tables, including Smoker and Nonsmoker Tables, with Mortality Rates Independent of Sex.

(a) Tables designated 1980 CSO-A, 1980 CSO-B, 1980 CSO-C, 1980 CSO-D, 1980 CSO-E, 1980 CSO-F, and 1980 CSO-G, with or without Ten-Year Select Mortality Factors, were adopted as recognized mortality tables for life insurance in December 1983 by the NAIC.

(b) Tables designated 1980 CET-A, 1980 CET-B, 1980 CET-C, 1980 CET-D, 1980 CET-E, 1980 CET-F, and 1980 CET-G, were adopted as recognized mortality tables for life insurance in December 1983 by the NAIC.

(c) The tables mentioned in subsection (a) are approved by the Commissioner for use in determining the minimum nonforfeiture standard for policies of ordinary insurance issued on or after the operative date of section 410A(e) of the law (40 P.S. § 510.1(e)). The tables mentioned in subsection (a) may, at the option of the company, be substituted for the Commissioner’s 1980 Standard Ordinary Mortality Table, with or without Ten-Year Select Mortality Factors, under section 410A(e)(8)(F) of the law. They are not approved by the Commissioner for use in determining the minimum standard of valuation for policies.

(d) The tables mentioned in subsection (b) are approved by the Commissioner for use in determining the minimum nonforfeiture standard for policies of ordinary insurance issued on or after the operative date of section 410A(e) of the law. The tables mentioned in subsection (b) may, at the option of the company, be substituted for the Commissioner’s 1980 Extended Term Insurance Table under section 410A(e)(8)(F) of the law. If a company elects to use a particular table mentioned in subsection (b) for paid up term insurance with accompanying pure endowment, if any, for a particular policy form, the corresponding table mentioned in subsection (a) shall be used as the minimum nonforfeiture standard for the rest of the same policy form (for example, 1980 CSO-D with 1980 CET-D). These tables are not approved by the Commissioner for use in determining the minimum standard of valuation for the policies.

(e) Tables designated 1980 CSO-SA, 1980 CSO-SB, 1980 CSO-SC, 1980 CSO-SD, 1980 CSO-SE, 1980 CSO-SF, 1980 CSO-SG, 1980 CSO-NA, 1980 CSO-NB, 1980 CSO-NC, 1980 CSO-ND, 1980 CSO-NE, 1980 CSO-NF and 1980 CSO-NG were adopted as recognized mortality tables for life insurance in December 1986 by the NAIC.

(f) Tables designated 1980 CET-SA, 1980 CET-SB, 1980 CET-SC, 1980 CET-SD, 1980 CET-SE, 1980 CET-SF, 1980 CET-SG, 1980 CET-NA, 1980 CETNB, 1980 CET-NC, 1980 CET-ND, 1980 CET-NE, 1980 CET-NF and 1980 CET-NG were adopted as recognized mortality tables for life insurance in December 1986 by the NAIC.

(g) For a policy form with separate rates for smokers and nonsmokers, the tables mentioned in subsection (e), in addition to the tables mentioned in subsection (a), are approved by the Commissioner for use in determining the minimum nonforfeiture standard for policies of ordinary insurance issued on or after the operative date of section 410A(e) of the law. The tables mentioned in subsections (a) or (e) may, at the option of the company, be substituted for the Commissioner’s 1980 Standard Ordinary Mortality Table, with or without Ten-Year Select Mortality Factors, under section 410A(e)(8)(F) of the law. They are not approved by the Commissioner for use in determining the minimum standard of valuation for policies.

(h) For a policy form with separate rates for smokers and nonsmokers, the tables mentioned in subsection (f), in addition to the tables mentioned in subsection (b), are approved by the Commissioner for use in determining the minimum nonforfeiture standard for policies of ordinary insurance issued on or after the operative date of section 410A(e) of the law. The tables mentioned in subsection (b) or (f) may, at the option of the company, be substituted for the Commissioner’s 1980 Extended Term Insurance Table under section 410A(e)(8)(F) of the law. If a company elects to use a particular table mentioned in subsection (b) or (f) for paid up term insurance with accompanying pure endowment, if any, for a particular policy form, the corresponding table mentioned in subsection (a) or (e) shall be used as the minimum nonforfeiture standard for the rest of the same policy form (for example, 1980 CSO-SD with 1980 CET-SD). These tables are not approved by the Commissioner for use in determining the minimum standard of valuation for the policies.

The provisions of this § 84.5 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); and section 410A(e)(8)(F) of The Insurance Company Law of 1921 (40 P.S. § 510.1(e)(8)(F)).

The provisions of this § 84.5 amended November 11, 1988, effective November 12, 1988, 18 Pa.B. 5072.

History

• Authority: The provisions of this Chapter 84 issued under section 301(c)(1) of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 84 adopted January 10, 1986, effective immediately and will apply retroactively to January 1, 1985, 16 Pa.

31 Pa. Code § 84.6 1980 CSO and 1980 CET Smoker and Nonsmoker Mortality Tables.

(a) The 1980 CSO Smoker and Nonsmoker Mortality Tables, with or without Ten-Year Select Mortality Factors, and the 1980 CET Smoker and Nonsmoker Mortality Tables were adopted as recognized mortality tables for life insurance in December 1983 by the NAIC.

(b) The Commissioners 1980 Standard Ordinary Mortality Table with or without Ten-Year Select Mortality Factors and the Commissioners 1980 Extended Term Insurance Table are tables prescribed for use in determining the minimum nonforfeiture standard and the minimum standard of valuation of certain policies in section 410A of the law (40 P.S. § 510.1) and sections 301 and 303 of the act (40 P.S. § § 71 and 73).

(c) Subject to the conditions in subsection (d), the tables mentioned in subsection (a) are approved by the Commissioner for use in determining the minimum nonforfeiture standard and the minimum standard of valuation for policies of ordinary insurance issued on or after the operative date of section 410A(e) of the law (40 P.S. § 510.1(e)). In determining the minimum nonforfeiture standard and the minimum standard of valuation for the policies, and subject to the conditions in subsection (d), the company at its option may make the following substitutions:

(1) The 1980 CSO Smoker and Nonsmoker Mortality Tables, with or without Ten-Year Select Mortality Factors, may be substituted for the Commissioners 1980 Standard Ordinary Mortality Table, with or without Ten-Year Select Mortality Factors.

(2) The 1980 CET Smoker and Nonsmoker Mortality Tables may be substituted for the Commissioners 1980 Extended Term Insurance Table.

(d) For a policy form with separate rates for smokers and nonsmokers, a company may use the tables in one of the following ways:

(1) Those mentioned in subsection (b) to determine the minimum nonforfeiture standard and the minimum standard for valuation.

(2) Those mentioned in subsection (b) to determine the minimum nonforfeiture standard and the minimum reserves required by section 301 of the act (40 P.S. § 71)—without regard to section 303 of the act (40 P.S. § 73)—and those mentioned in subsection (a) as the minimum valuation standard of mortality to determine the minimum reserves required by section 303 of the act (40 P.S. § 73).

(3) Those mentioned in subsection (a) to determine the minimum nonforfeiture standard and the minimum standard of valuation.

This section cited in 31 Pa. Code § 84c.3 (relating to definitions).

The provisions of this Appendix I issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 301 and 303 of The Insurance Department Act of 1921 (40 P.S. § § 71 and 73); and section 410A of The Insurance Company Law of 1921 (40 P.S. § 510.1).

The provisions of this Appendix I adopted July 8, 2016, effective August 8, 2016, 46 Pa.B. 3645.

The provisions of this Appendix II issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 301 and 303 of The Insurance Department Act of 1921 (40 P.S. § 71 and 73); and section 410A of The Insurance Company Law of 1921 (40 P.S. § 510.1).

The provisions of this Appendix II adopted July 8, 2016, effective August 8, 2016, 46 Pa.B. 3645.

The provisions of this Appendix III issued under sections 206, 506, 1501 and 1502 of The Admistrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 301 and 303 of The Insurance Department Act of 1921 (40 P.S. § § 71 and 73); and section 410A of The Insurance Company Law of 1921 (40 P.S. § 510.1).

The provisions of this Appendix III adopted July 8, 2016, effective August 8, 2016, 46 Pa.B. 3645.

This appendix cited in 31 Pa. Code § 84.2 (relating to definitions).

The provisions of this Appendix IV issued under sections 206, 506, 1501 and 1502 of The Admistrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 301 and 303 of The Insurance Department Act of 1921 (40 P.S. § § 71 and 73); and section 410A of The Insurance Company Law of 1921 (40 P.S. § 510.1).

The provisions of this Appendix IV adopted July 8, 2016, effective August 8, 2016, 46 Pa.B. 3645.

The appendix cited in 31 Pa. Code § 84.2 (relating to definitions).

History

• Authority: The provisions of this Chapter 84 issued under section 301(c)(1) of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 84 adopted January 10, 1986, effective immediately and will apply retroactively to January 1, 1985, 16 Pa.

Chapter 85 Variable Annuity and Variable Accumulation Annuity Contracts

31 Pa. Code § 85.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Insurance Company Law of 1921 (40 P. S. § § 341—991). Agent—A person, copartnership or corporation licensed under the laws of the Commonwealth as a life insurance agent. Department—The Insurance Department of the Commonwealth. Separate account—An account established under section 406.2(a) of the act (40 P. S. § 506.2(a)). Variable accumulation annuity contract—An annuity policy or contract, other than a variable annuity, under which amounts accumulated for the purchase of a fixed annuity or a fixed annuity and a variable annuity, where the accumulation values vary according to the investment experience of a separate account. The fixed annuity shall be purchased at rates at least as favorable to the policyholder as those stated in the variable accumulation annuity contract. Variable annuity contract—Any policy or contract which provides for deferred or immediate annuity payments, the amount of which, after such payments have commenced, varies according to the investment experience of a separate account maintained by the insurer for the purpose of funding this contract.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.2 Purpose.

The purpose of this chapter is to provide for the implementation of section 406.2 of the act (40 P. S. § 506.2) prescribing the qualifications for companies or fraternal benefit societies to issue variable annuity contracts and variable accumulation annuity contracts in this Commonwealth, the requirements for the form and filing of such contracts and related materials, and the qualifications for agents to offer such contracts for sale in this Commonwealth.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.3 Foreign and alien life insurance companies.

(a) If the statutes or regulations of the place of domicile of a foreign or alien insurance company prevent compliance with any specific provision of this chapter, such insurance company shall so advise the Department in writing.

(b) If the laws or regulations of the place of domicile provide a degree of protection to the policyholders and the public which, in the opinion of the Department, is substantially equal to that provided by the provisions of this chapter, the Department, to the extent deemed appropriate by it, may consider compliance with such laws or regulations to be compliance with this chapter.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.4 Departmental review.

The Commissioner is authorized to cause frequent reviews to be conducted to measure compliance with the receiving and investment requirements set forth in § 85.40(b)(1) and (4) (relating to permissible guaranteed benefits) by any insurer issuing variable annuity or variable accumulation annuity contracts with guaranteed benefits.

(1) To the extent that reserves are improperly computed or maintained and that applicable separate account assets are improperly invested, a liability will be established by the Commissioner in an offsetting amount for purposes of evaluating financial condition.

(2) Subject insurers shall not claim value as an admitted asset in any financial statement to any asset which is invested contrary to § 85.40(b)(4).

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.11 Licensing.

No company shall deliver or issue for delivery variable annuity contracts or variable accumulation annuity contracts within this Commonwealth, unless the following requirements are met:

(1) The company is licensed and authorized to transact the business of life insurance in this Commonwealth.

(2) The Department is satisfied that the condition or method of operation of the company in connection with the issuance of such contracts will not render its operation hazardous to the public or to its policyholders. In this connection, the Department may consider:

(i) The history and financial condition of the company, including the number of years the company has been transacting the business of life insurance in this Commonwealth.

(ii) The character, responsibility and general fitness of the officers and directors of the company.

This section cited in 31 Pa. Code § 85.13 (relating to wholly-owned subsidiaries).

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.12 Years in business and capital surplus.

The Department may prohibit the delivery or issuance of variable annuity contracts or variable accumulation annuity contracts within this Commonwealth by any company which has not been transacting the business of life insurance in this Commonwealth for a period of at least 5 years, or has capital and surplus, if a stock company, or an amount of surplus, if a mutual company, of less than $1.5 million.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.13 Wholly-owned subsidiaries.

A company which is a wholly-owned subsidiary of a life insurance company which has been transacting the business of life insurance in this Commonwealth for a period of at least 5 years may at the discretion of the Department be deemed to have satisfied the requirements of § 85.11(2) (relating to licensing) if either the subsidiary or the life insurance company satisfies the requirements. Any wholly-owned subsidiary qualifying to issue variable annuity contracts or variable accumulation annuity contracts by virtue of this section may continue to issue such contracts only for so long as it continues to remain a wholly-owned subsidiary of the parent company through which it was deemed to have satisfied the applicable requirements of this section, unless such subsidiary has itself satisfied the requirements.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.14 Material to be filed.

Before any company delivers or issues for delivery variable annuity contracts or variable accumulation annuity contracts, or both, within this Commonwealth it shall, in addition to complying with the applicable laws of this Commonwealth and the provisions of this chapter, file with the Department all of the following material:

(1) A certified copy of a resolution adopted by its board of directors establishing one or more separate accounts. Any amendments to this resolution or any resolution superseding it shall immediately be filed with the Department.

(2) A copy of the latest Report of Examination of the company and Annual Statement if the company has not been previously admitted.

(3) A general description of the type of variable annuity contracts and variable accumulation annuity contracts to be issued and, a statement of reserving procedures, investment objectives of each separate account that will be used, and two copies of any final prospectus registered with the Securities and Exchange Commission. If no such prospectus is available a statement of all applicable sales and administrative expenses shall be filed with the Department.

(4) A copy of any management or service contract entered into between the company and a third party or between any separate account and a third party, the terms of which contain provisions for the third party to provide managerial, investment, or sales services to any separate account. Any such contract entered into following the initial filing shall also be filed with the Department.

(5) Biographical statements concerning officers and directors of the insurance company or separate account and, if requested by the Department, of the officers and directors of the management company.

(6) Any other information as may be required by the Department.

(7) If assets are to be maintained in the separate account in excess of the reserve liability for the variable benefits funded through the separate account, a clear explanation of the purposes for which such additional assets are maintained and a statement of the basis which the company will use to determine the amounts of additional assets to be maintained for these purposes.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.21 Examination.

The investments and operation of any separate account established in connection with any variable annuity contract or a variable accumulation annuity contract shall be examined periodically by the Department in accordance with the applicable laws of the Commonwealth.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.22 Reserve liability.

The reserve liability for variable annuity contracts shall be established pursuant to the requirements of the standard valuation law, section 301 of the act (40 P. S. § 71), in accordance with actuarial procedures that recognize the variable nature of the benefits provided.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.23 Income, gains or losses.

Any income, gains, or losses realized or unrealized on each separate account shall be credited to or charged against the amount allocated to such separate account without regard to the other income, gains, or losses of the company. However, a variable annuity contract on a group basis or a variable accumulation annuity contract on a group basis may provide for the interdependence of two or more separate accounts established in conjunction with such contract.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.24 Balancing of account.

Any deficit which may arise in any separate account by virtue of mortality experience guaranteed by the life insurance company or by expense costs so guaranteed shall be adjusted by transfers from unallocated surplus or contingency reserves not required by law to such separate account so that the assets of such account shall at least be equal to the liabilities.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.25 Sale, exchange or transfer between accounts.

(a) No sale, exchange or other transfer of assets may be made by a company between any of its separate accounts or between any other investment account and one or more of its separate accounts, except a transfer for the following purposes:

(1) Establishing a separate account.

(2) Conducting the business of a separate account in accordance with the provisions of a variable annuity contract or a variable accumulation annuity contract.

(3) Making necessary adjustments for mortality experience or expense costs.

(4) Transferring to the general account any amounts in excess of the reserve liability held in the separate account.

(b) Any transfer made in accordance with subsection (a), whether into or from a separate account, shall be made by a transfer of cash, or with the approval of the Department, by a transfer of securities having a valuation which may be readily determined in the marketplace. The Department may also authorize other transfers among such accounts if, in its opinion, such transfers would be in the best interests of the contract holders, the company and the public.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.26 Annual statements.

Each life insurance company shall, at the time of its annual statement, submit a separate annual statement for the business of its separate accounts. This statement shall be in the form prescribed by the Department, and shall include details as to all of the income, disbursements, assets and liability items associated with any separate account. The Department may, in addition, require of a company from time to time such other statements concerning the business of its separate accounts as the Department may deem necessary.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.27 Statements to policyholders.

(a) Any company issuing individual variable annuity contracts or individual variable accumulation annuity contracts shall mail to the contract holder, at least once in each contract year after the first year at his last known address, a statement or statements reporting the investments held in the separate account and, in the case of contracts under which payments have not yet commenced, a statement reporting as of a date not more than three months previous to the date of mailing one of the following:

(1) The number of accumulation units credited to such contracts and the dollar value of a unit.

(2) The value of the account of the contract holder.

(b) The reporting date, once fixed, shall remain constant each year, unless the Department approves the use of a different reporting date or dates. The additional statement or statements shall also be made available to any contract holder at his request, and shall be furnished within a reasonable time from this request.

(c) The company may make a reasonable charge to the contract holder for any additional statement or statements, and may make reasonable limitations upon the number or frequency of these requests by the same contract holder.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.31 Filing requirements.

The filing requirements applicable to variable annuity contracts and variable accumulation annuity contracts shall be those filing requirements otherwise applicable under existing statutes and regulations of the Commonwealth with respect to individual and group life insurance and annuity contract form filings, to the extent appropriate.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.32 Statement indicating variability of payments.

(a) Each application form for an individual variable annuity contract shall contain a clear statement, prominently set forth immediately preceding the signature line, denoting that the contractual payments or values under the variable annuity provisions of the contract being applied for are variable and are not guaranteed as to fixed dollar amounts.

(b) Each application for an individual variable accumulation annuity contract shall contain a clear statement, prominently set forth immediately preceding the signature line, denoting that the accumulation values under the variable accumulation provisions of the contract being applied for are variable and are not guaranteed as to fixed dollar amounts.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.33 Statement of valuation procedure and fluctuation of value.

(a) Any variable annuity contract delivered or issued for delivery in this Commonwealth shall contain clear statements denoting the following:

(1) The essential features of the procedure to be used by the company in determining the dollar amount of such variable benefits or other variable contractual payments or variable values to be paid the contract holder.

(2) The fact that such benefits or other contractual payments or values may decrease or increase with investment experience, and are not guaranteed as to fixed dollar amounts.

(b) Any variable accumulation annuity contract delivered or issued for delivery in this Commonwealth shall contain clear statements denoting the following:

(1) The essential features of the procedure to be used by the company in determining the dollar amount of the accumulation values to be paid the contract holder.

(2) The fact that the accumulation values may decrease or increase with investment experience and are not guaranteed as to fixed dollar amounts.

(c) The statements required under subsections (a)(2) and (b) shall appear in a prominent position in contrasting color or prominent type on the first page of the contract and on the first page or front cover of any certificate evidencing coverage issued pursuant to any variable annuity contract or variable accumulation annuity contract on a group basis.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.34 Illustrations of payable benefits.

Illustrations of benefits payable under any contract providing benefits payable in variable amounts or accumulation values of variable amounts shall not include projections of past investment experience into the future, nor shall they attempt predictions of future investment experience of the Separate Account, provided that this is not intended to prohibit the use of hypothetical assumed rates of return, clearly designated as such, to illustrate possible levels of annuity payments.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.35 Standard policy provisions.

No individual variable annuity contract or individual variable accumulation annuity contract calling for the payment of periodic stipulated payments or premiums shall be delivered or issued for delivery in this Commonwealth unless it contains provisions which, in the opinion of the Department, are at least as favorable as the following:

(1) A minimum period of grace of 30 days or of one month, within which any stipulated payment or premium to the insurer falling due after the first may be made, during which period of grace the contract shall continue in force. The contract shall also include a statement of the basis for determining the date as of which any such payment received during the period of grace shall be applied to produce the values under the contract arising therefrom.

(2) At any time within one year from the date of default in making periodic stipulated payments or premiums to the insurer during the life of the annuitant, and unless the cash surrender value has been paid, the contract may be reinstated upon payment to the insurer of such overdue payments as required by the contract, and of all indebtedness to the insurer on the contract, including interest. The contract shall also include a statement of the basis for determining the date as of which the amount to cover such overdue payments and indebtedness shall be applied to produce the values under the contract arising therefrom.

(3) The specific options available in the event of default in a payment, which options may include an option to surrender the contract for a cash value as determined by the contract, and shall include an option to receive a paid-up annuity if the contract is not surrendered for cash, the amount of such paid-up annuity being determined by applying the value of the contract at the annuity commencement date in accordance with the terms of the contract.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.36 Stipulation of expense, mortality and investment factors.

(a) Any individual variable annuity contract or group annuity contract where accumulation values are held separately for each covered participant delivered or issued for delivery in this Commonwealth shall stipulate the expense, mortality and investment increment factors to be used in computing the dollar amount of variable benefits or other contractual payments or values thereunder and shall guarantee that the expense and mortality results shall not adversely affect such dollar amounts.

(b) Any individual variable accumulation annuity contract or group variable accumulation contract where accumulation values are held separately for each covered participant delivered or issued for delivery in this Commonwealth shall stipulate the expenses to be used in computing the dollar amount of the accumulation values, and it shall guarantee that the expense results shall not adversely affect such dollar amounts.

(c) When used in this section, the term ‘‘expense’’ may exclude some or all taxes, as stipulated in the contract.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.37 Computing dollar amounts of benefits.

In computing the dollar amounts of variable benefits or other contractual payments or values under an individual variable annuity contract the following requirements shall apply:

(1) The annual net investment increment assumption shall not exceed 6%, except with the approval of the Department.

(2) To the extent that the level of benefits may be affected by mortality results, the mortality factor shall be determined from the Annuity Mortality Table for 1949, Ultimate, or any modification of that table not having a higher mortality rate at any age, or, if approved by the Department, from another table.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.38 Disclosure of consideration to be paid.

(a) In the sale of a variable annuity contract, made in conjunction with the sale of a fixed annuity contract or a variable accumulation annuity contract, there shall be a disclosure to the prospective purchaser which shows the consideration to be paid for the variable annuity contract separately from the other charges. If any benefits or nonforfeiture values which may accrue prior to the death of the insured are involved in the presentation of such a sale, the value of such fixed annuity contract or variable accumulation annuity shall be shown separately from any other values.

(b) In the sale of a variable accumulation contract made in conjunction with the sale of a variable annuity contract or fixed annuity contract, there shall be a disclosure to the prospective purchaser which shows the consideration to be paid for the variable accumulation contract separately from the other charges. If any benefits or nonforfeiture values which may accrue prior to the death of the insured are involved in the presentation of such a sale, the value of such variable annuity contract or fixed annuity contract shall be shown separately from any other values.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.39 Disclosure of consideration for fixed benefits, variable benefits and variable accumulations.

Annuity contracts which provide for any combination of fixed benefits, variable benefits, and variable accumulations, which are specified at the time of the sale of such contracts, shall show separately the consideration to be paid for the fixed benefits, variable benefits and variable accumulation values or the proportion of such consideration to be paid for each benefit.

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

31 Pa. Code § 85.40 Permissible guaranteed benefits.

(a) The following types of benefits guaranteed as to dollar amount shall be permitted in variable annuity contracts or variable accumulation annuity contracts; any other benefits guaranteed as to dollar amount which are not described in this subsection may be permitted if the Department determines that these benefits afford the policyholders and the public protection substantially equal to that provided by the benefits described in this subsection:

(1) Minimum Death Benefit, which guarantees that, upon the death of the annuitant, the beneficiary will be paid a specified percentage of gross premium paid to date, less any payments already made. The maximum percentage of gross premium that is payable is 100%.

(2) Minimum Surrender Value, which guarantees that, prior to the commencement of annuity payments but on or after a specified policy anniversary or of a group certificate which shall not be earlier than the tenth anniversary if the issue age is less than 55 nor earlier than the fifth anniversary if the issue age is greater than or equal to 55, the cash value of the contract will not be less than some specified percentage, not to exceed 100%, of the gross premium paid to date for the contract.

(b) A separate account contract containing any of the benefits described in subsection (a) shall cause the issuer to be subject to the following additional requirements:

(1) Reserves for any minimum guarantees of variable benefits shall be maintained in the general account of the insurer and shall be determined according to a reserve formula approved in advance by the Commissioner.

(2) Any premium charges of more than 1% or charges against the separate account assets of more than an effective annual rate of .5%, to provide minimum guarantee or variable benefits, shall be separately disclosed in the contract and shall be equitably determined so as not to unfairly discriminate by age, sex, size of policy, or generation of policyholders.

(3) No insurer may issue variable annuity or variable accumulation annuity contracts providing minimum surrender value guarantees if the sum of the excess of the minimum surrender value guarantees over 1/2 of the current cash of the current cash value would exceed 20% of the insurer’s surplus. This amount may be considered as net of reinsurance ceded provided that such reinsurance contracts have prior approval of the Commissioner.

(4) Investments in separate accounts used to fund contracts containing either of the minimum guarantees set forth in paragraphs (2) or (3) shall be limited to the following:

(i) Common stock, preferred stocks, and bonds listed and traded on a national stock exchange or listed by the National Association of Securities Dealers Automated Quotations (NASDAQ).

(ii) Bonds, notes, or obligations of such governmental instrumentalities as are permitted by Pennsylvania law for the investment of assets held to satisfy capital requirements of life insurance companies.

(iii) Shares of an investment company registered pursuant to the investment Company Act of 1940 (15 U.S.C.A. § § 80a-1—80a-52).

(iv) Prime commercial paper and certificates of deposit to the extent insured.

(v) Corporate obligations which meet the requirements of section 404(d) of the act (40 P. S. § 504(d)).

(vi) Real estate located within the United States which the insurer is authorized to hold under section 406(c), (d) or (f) of the act (40 P. S. § 506(c), (d) or (f)), provided that no real estate authorized under section 406(f) is acquired if the market value of all real estate held by the separate account immediately subsequent to the acquisition would exceed 15% of the reserve liability held in the separate account.

(vii) Cash.

(viii) Policy loans.

The provisions of this § 85.40 issued under section 406.2(d) of The Insurance Company Law of 1921 (40 P. S. § 506.2(d)); The Insurance Company Law of 1921 (40 P. S. § § 101—1101); The Insurance Department Act of 1921 (40 P. S. § § 1—321); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 85.40 amended December 24, 1981, effective December 26, 1981, 11 Pa.B. 4439. Immediately preceding text appears at serial pages (36585) to (36586).

This section cited in 31 Pa. Code § 85.4 (relating to Departmental review).

History

• Authority: The provisions of this Chapter 85 issued under section 406.
• Source: The provisions of this Chapter 85 adopted September 13, 1968, amended March 17, 1978, effective April 7, 1978, 8 Pa.

Chapter 86 Premium and Retirement Deposit Funds

31 Pa. Code § 86.1 Definitions.

The following terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Premium deposit fund—Amounts paid in and held for payments of future contractual obligations of policyholders or contractholders under an individual life insurance policy or an individual annuity contract. Retirement deposit fund—Paid-in amounts and interests credited thereon held for the purchase at a future date of annuity benefits for the policyholder of an individual life policy or the contractholder of an individual annuity contract.

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.2 Purpose.

In transacting business, life insurance companies and fraternal benefit societies, for the convenience of policyholders and contractholders, accept funds for paying premiums or considerations falling due in the future. This chapter allows life insurance companies and fraternal benefit societies to accept deposits under an individual life insurance policy or an individual annuity contract only under the conditions and limitations set forth in this chapter. When this chapter was adopted, life insurance policies and annuity contracts generally provided for the payment of fixed premium amounts. Therefore, the chapter was designed to apply to fixed premium policies and contracts. In the current Pennsylvania marketplace, both fixed premium and flexible premium policies and contracts are marketed and sold and this chapter recognizes a distinction between fixed premium policies and contracts, and flexible premium policies and contracts and establishes deposit limits which are applicable to moneys held in premium deposit funds and retirement funds of both types of premium payment policies and contracts.

The provisions of this § 86.2 amended July 21, 2000, effective July 22, 2000, 30 Pa.B. 3658. Immediately preceding text appears at serial pages (265027) to (265028).

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.3 Limit on fund amounts.

(a) The maximum amount which may be held by the insurer for payment of future premiums, according to provisions in a fixed premium life insurance policy, contract, rider or endorsement, is the present value of gross premiums payable in the future discounted at the interest rate or rates guaranteed in the policy, contract, rider or endorsement.

(b) The maximum amount which may be held by the insurer for payment of future premiums, according to provisions in a flexible premium life insurance policy, contract, rider or endorsement, is the present value of the premium payments necessary to maintain the policy or contract in force to the maturity date, based on guaranteed charges and credits.

(c) The maximum amount which may be held by the insurer for payment of future annuity considerations, according to provisions in a fixed premium annuity contract, rider or endorsement, is the present value of gross considerations payable in the future under the annuity contract, rider or endorsement, discounted at the interest rate or rates guaranteed.

(d) The maximum amount which may be held by the insurer in a retirement deposit fund, established according to provisions in a fixed premium life insurance policy or fixed premium annuity contract, rider or endorsement, is the sum of gross premiums or gross considerations payable under the base life insurance policy or base annuity contract.

(e) The amount which may be held by the insurer in a retirement deposit fund, established according to provisions in a flexible premium life insurance policy, contract, rider or endorsement, is not subject to any maximum or other limit. The amounts held in a retirement deposit fund are subject to the requirements and provisions of section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1).

(f) The amount which may be held by the insurer in a premium deposit fund or a retirement deposit fund, established according to provisions in a flexible premium annuity contract, rider or endorsement, is not subject to any maximum or other limit. The amounts held in a retirement deposit fund are subject to section 410C of The Insurance Company Law of 1921 (40 P. S. § 510b) relating to standard nonforfeiture law for individual deferred annuities.

The provisions of this § 86.3 amended July 21, 2000, effective July 22, 2000, 30 Pa.B. 3658. Immediately preceding text appears at serial page (265028).

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.4 Interest rates.

The interest rate or rates guaranteed to be paid on the amount held in a premium deposit fund or a retirement deposit fund shall be clearly stated in policy, contract, rider or endorsement. Language which tends to invite misrepresentation is prohibited.

The provisions of this § 86.4 amended July 21, 2000, effective July 22, 2000, 30 Pa.B. 3658. Immediately preceding text appears at serial page (265028).

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.5 Reserve requirements.

Insurers are required to maintain reserves for a premium or retirement deposit fund according to the insurance laws and regulations of the Commonwealth.

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.6 Ownership.

Ownership of the fund may not be vested in depositors other than the policyholder or contractholder unless the policy, contract, rider or endorsement provides otherwise.

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.7 Restriction on automatic premium loan.

Unpaid premiums and considerations shall be paid from the deposit fund prior to application of any automatic premium loan unless the policyholder, contract holder or fund-owner selects otherwise.

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.8 Return of deposit funds.

The funds shall be payable in cash upon death and may be used to increase nonforteiture values for the policyholder or contract holder only.

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.9 Deferment of and charges against withdrawal.

A provision shall be included to allow the fund-owner to withdraw the fund subject solely to the condition, if stated in the policy, contract, rider or endorsement, that reserves to the insurer the right to defer payment for 6 months. Charges against withdrawal shall be disclosed in policy, contract, rider or endorsement.

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.10 Projection of results and report of fund balance.

If sales promotion literature illustrates the projected results of the retirement deposit fund, the guaranteed interest rate or rates shall be used regardless of whether or not projected results are also shown on the basis of the rate currently being paid or some lesser rate. The insurer shall furnish each owner of a retirement deposit fund with a written report on the accumulated balance of the fund at least once a year.

The provisions of this § 86.10 amended July 21, 2000, effective July 22, 2000, 30 Pa.B. 3658. Immediately preceding text appears at serial page (265029).

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.11 Deceptive practices prohibited.

Sales promotion literature and contract forms may not create the impression that the funds are the same as a savings account or deposit in a banking or saving institution and the use of documents which bear resemblance to savings bank passbooks or similar items is prohibited.

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

31 Pa. Code § 86.12 Exemption.

This chapter does not apply to variable life policies or variable annuity contracts. It also does not apply to policies, contracts, riders or endorsements issued for funding pension or profit-sharing plans which are qualified under the Internal Revenue Code of 1954 and are regulated by the Employee Retirement Income Security Act of 1974 (Pub. L. 93-406) (88 Stat. 829).

History

• Authority: The provisions of this Chapter 86 issued under sections 202 and 354 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 86 adopted March 5, 1976, effective March 6, 1976, 6 Pa.

Chapter 87 Requirements for Certain Life Insurance Policies and Sales Practices

31 Pa. Code § 87.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Charter policy—A form of life insurance policy, usually issued by a newly organized company, which is sold on the basis that its availability will be limited to a specific predetermined number of units of a fixed dollar amount and which generally provides that the policyholder shall participate in the earnings resulting from either the participating policies or the nonparticipating policies sold by the company, or perhaps both. The prospective purchaser is led to believe that he will receive a special advantage in any future distribution of earnings, profits, dividends or abatement of premium not available to those persons holding other types of policies issued by the company. Department—The Insurance Department of the Commonwealth. Profit-sharing policy—That form of life insurance policy which contains provisions representing or tending to create the understanding that the policyholder will be eligible to participate, with a special advantage not available to the persons holding other types of policies issued by the same company, in any future distribution of general corporate profits, as distinguished from a refund of the excess premiums paid by that policyholder.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.2 Purpose.

(a) This chapter identifies and prohibits certain acts, practices and contract forms which the Department considers to be unfair, deceptive and unsound methods of transacting the business of life insurance in this Commonwealth, and to establish certain requirements in the solicitation and sale of life insurance buying to the end that policyholders and the insurance-buying public may not be misinformed or misled concerning contracts of life insurance or annuities purchased by them.

(b) This chapter serves the best interests of the public and is not directed at a particular company or group of companies or agent or group of agents.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.3 Guaranteed annual endowments.

(a) A life insurance policy containing a series of pure guaranteed annual endowments evidenced by coupons, passbooks or similar devices generally identified with investment or banking operations will not be approved for use and the policy heretofore approved may not be issued or delivered in this Commonwealth on or after February 26, 1968.

(b) Another life insurance policy containing a series of pure guaranteed annual endowments will not be approved for use and the policy heretofore approved may not be issued or delivered in this Commonwealth on or after February 26, 1968, unless all of the following requirements are satisfied:

(1) The gross premium for the pure guaranteed annual endowment benefit shall be shown prominently and separately in the policy, distinct from the gross premium for the life insurance benefit.

(2) The insured shall be entitled to withdraw the pure guaranteed annual endowments not less frequently than at the end of the second policy year and at the end of each policy year thereafter. The amount of the endowments available for withdrawal may not be less than the aggregate premium paid for the endowments less any prior withdrawals.

(3) Payment of a pure guaranteed annual endowment may not be made contingent upon the payment of premiums falling due on or after the time the pure guaranteed annual endowment benefit has matured.

(4) The separately stated gross premium for the series of pure guaranteed annual endowments shall be based on reasonable assumptions and shall be consistent with the basic policy form as to interest, mortality and expense.

(5) The amount of each of the pure guaranteed annual endowments shall be expressed in dollars, both in the policy and in sales or advertising material relating thereto, not as a percentage of a premium or benefit.

(6) A pure guaranteed annual endowment may not be described, either in the policy or in sales or advertising material, as anything other than a guaranteed benefit for which a premium is being paid by the policyholder.

(7) At the time the policy form is filed with the Department for approval, it shall be accompanied by the materials, including any sales presentation ‘‘kit’’ which the insurance company proposes to use in connection with the policy.

(c) Nothing in subsection (a) or (b) may apply to a policy in which the amount of a pure endowment or periodic benefit or benefits payable during a policy year is greater than the total annual premium for the year.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.4 Charter policy prohibited.

(a) Charter policies are an unfair method of competition. They purport to offer certain benefits which are not authorized by statute and are without reasonable expectation of achievement. The policies misrepresent the responsibility and obligation of an insurance company for the equitable distribution of dividends or abatement of premiums.

(b) A charter policy may not be approved for use and a charter policy heretofore approved may not be issued or delivered in this Commonwealth on or after February 26, 1968.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.5 Profit-sharing policy prohibited.

(a) Profit-sharing policies are not permitted by statute and no profit-sharing policy will be approved for use and no profit-sharing policy heretofore approved shall be issued or delivered in this Commonwealth on or after February 26, 1968.

(b) Nothing contained in subsection (a) is intended to apply to variable annuity contracts to the extent that such are permitted under the laws of the Commonwealth and prescribed in Chapter 85 (relating to variable annuity and variable accumulation annuity contracts).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.6 Policy name or title.

An insurance company, insurance agent or insurance company representative may not deliver within this Commonwealth, or issue for delivery within this Commonwealth, a policy of life insurance without the use of the words ‘‘life insurance’’ in its name or title or the use of other language clearly indicating that the policy is a policy of life insurance.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.7 Use of certain terms.

The use of the terms ‘‘Investment,’’ ‘‘Investment Plan,’’ ‘‘Expansion Plan,’’ ‘‘Profit,’’ ‘‘Profits,’’ ‘‘Profit-Sharing,’’ and other similar terms in connection with a policy of life insurance or an annuity contract in a context or under such circumstances or conditions as to have the capacity or tendency to mislead a purchaser or prospective purchaser of the policy or contract to believe that he will receive, or that it is possible that he will receive, something other than a life insurance policy or annuity contract or some benefit not provided in the policy or contract or some benefit not available to other persons of the same class and equal expectation of life is unlawful and is prohibited.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.8 Twisting.

An insurance company, insurance agent, insurance broker, solicitor or insurance company representative may not, as a competitive or twisting device, inform a policyholder or prospective policyholder that an insurance company was required to change a policy form or related material to comply with this chapter.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.9 Mutual funds.

(a) A life insurance company licensed in this Commonwealth and planning to merchandise mutual funds shall, prior to the merchandising, file with the Department complete details of the plan.

(b) If, after review, the Department finds the merchandising plan unobjectionable, it shall notify the insurance company in writing of the finding.

The provisions of this § 87.9 adopted September 18, 1969.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.10 Penalties.

A violation of this chapter by whatever means, including but not being limited to the use of certain policy forms or presentations, whether involving language or illustrations disseminated by means of sales kits, policy jackets or covers, letters, personal confrontations, visual aids or other media, shall be deemed to be a violation of the insurance laws of the Commonwealth and shall subject a person, firm or corporation so violating this chapter to the penalties provided by law.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.11 Existing policies and contracts.

This chapter does not affect the validity of any life insurance policy or annuity contract in force on the effective date hereof. However, the previous approval by the Department of any form of life insurance policy or annuity contract prohibited by this chapter was withdrawn, effective February 26, 1968, and the policy or contract may not be sold after that date.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.12 Limited benefit life policies.

(a) The Insurance Commissioner has disapproved any further issue of limited benefit life policies. Limited benefit life policies are those plans which provide only the following or similar coverages during certain specified periods.

(1) For natural death during a specified period, a return of premiums plus interest.

(2) For accidental death during the specified period, the face amount of the policy.

(3) For death from any cause after the specified period, the face amount of the policy.

(b) This type of policy purports to offer life insurance coverage when it does not do so during the initial period, lends itself to misrepresentation, has the capacity and tendency to mislead the purchaser, fails to provide the coverage, benefits and provisions required by law and, therefore, is contrary to the public interest.

(c) A life insurance policy where the benefits payable are not at least as great as the following shall be considered a limited benefit life policy, and thereby prohibited by subsection (a):

(1) The death benefit is level in the fourth and subsequent years; the amount of this death benefit is known as ultimate amount.

(2) The death benefit in the first year is more than 120% of the total gross premiums due and payable through the first year is at least:

(i) Five percent of the ultimate amount for issue ages over 55.

(ii) Ten percent of the ultimate amount for issue ages 46-55.

(iii) Fifteen percent of the ultimate amount for issue ages 36-45.

(iv) Thirty percent of the ultimate amount for issue ages under 36.

(3) The death benefit on the second year is more than 130% of the total gross premiums due and payable through the second year and is at least:

(i) Fifteen percent of the ultimate amount for issue ages over 55.

(ii) Thirty percent of the ultimate amount for issue ages 46-55.

(iii) Forty percent of the ultimate amount for issue ages 36-45.

(iv) Sixty percent of the ultimate amount for issue ages under 36.

(4) The death benefit in the third policy year is more than 150% of the total gross premiums due and payable through the third year and is at least:

(i) Forty percent of the ultimate amount for issue ages over 55.

(ii) Sixty percent of the ultimate amount for issue ages 46-55.

(iii) Eighty percent of the ultimate amount for issue ages 36-45.

(iv) One hundred percent of the ultimate amount for issue ages under 36.

(d) Policies such as conventional jumping juvenile policies, increasing or decreasing term policies, increasing whole life policies issued or marketed in conjunction with term insurance policies, policies in which the death benefit is graded because the insured as a result of individual underwriting has been determined to be uninsurable on a standard basis, policies made available through employers to provide benefits for employes, and postretirement life policies are not considered limited benefit life insurance policies; and issuance thereof is permitted.

The provisions of this § 87.12 adopted March 17, 1972, 2 Pa.B. 457, amended through July 13, 1979, effective July 14, 1979, 9 Pa.B. 2337. Immediately preceding text appears at serial page (36590).

This section cited in 31 Pa. Code § 90c.16 (relating to death benefit dollar amounts).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.13 Modified premium life insurance policies.

(a) Description of modified premium life products. Modified premium life products shall conform with the following:

(1) Modified premium term insurance is a contract of insurance which involves the payment of an additional first-year premium which is returned to the policyholder at the end of a selected period of years, usually 8 or 10, increased by both interest and forfeitures of those who terminate their contracts during the term period.

(2) Modified premium whole life is similar to modified premium term insurance except that the term insurance benefit is converted to a whole life plan at attained age. This conversion to whole life coverage may be automatic or elected or the coverage period may be continuous. In some policies, the increased additional premium benefit is not paid out in cash upon conversion to whole life. After the conversion, the nonforfeiture values of the whole life policy may or may not be augmented by the value of this additional premium. Some converted policies provide nonforfeiture values which progress so that the additional premium gradually disappears over the life of the policy. Some modified premium whole life policies offer the policyholder the option to ‘‘roll over’’ the value and start a new modified premium whole life policy instead of continuing on the original contract. In this case and depending upon the policy design, some or all of the augmented premium from the original coverage is used as the initial large premium for the new coverage; thus, it is possible for a modified premium whole life insurance policy to be rolled over several times so that it in effect becomes a series of renewable modified premium life insurance policies.

(3) Another life insurance product which is similar to a modified premium life product and is determined by the Insurance Commissioner to be a modified premium life product will be subject to the requirements of this chapter.

(b) Explanation. To avoid possibilities of misunderstanding of the nature of modified premium life products, the products shall be carefully sold and fully explained. This section sets forth minimum disclosure requirements; also, this section sets forth minimum nonforfeiture requirements for modified premium life products.

(c) Minimum disclosure requirements for modified premium life products. Minimum disclosure requirements for modified premium life products shall conform with the following:

(1) Advertisements, sales materials and sales presentations of modified premium life products which fail to fully and fairly inform an applicant or prospective insured as to future premium changes, benefits and related options constitute a misrepresentation as to material facts. Misleading statements or questions may not be made in defining or comparing other types of life insurance products; furthermore, comparison used in solicitations shall be accurate, fair and complete.

(2) A disclosure shall be included in conspicuous print on the first page or specifications page of the policy indicating that, if the policy is terminated prior to a certain policy year, all or a portion of the additional first-year premium will be forfeited.

(3) If the policy contains a provision permitting voluntary additional deposits as provided for by Chapter 86 (relating to premium and retirement deposit funds), the nature thereof shall be disclosed. The disclosure shall distinguish the deposit provision and the rights of the insured thereunder from the additional first-year premium.

(4) If an annuity policy or rider is solicited in connection with a modified premium life product, the following requirements apply:

(i) The nature of the annuity coverage shall be disclosed. The disclosure shall distinguish the annuity coverage and the rights of the annuitant thereunder from the additional first-year premium.

(ii) If provided by a policy, the annuity coverage shall provide annuity benefits which are available under annuity policies generally offered by the insurer; if provided by a rider, the rider shall provide annuity benefits which are available under annuity riders generally offered by the insurer.

(iii) The continuation of the annuity coverage shall be independent of the continuation of the modified premium life product. If the annuity coverage is provided by a rider, the rider shall contain a right of conversion to an annuity policy which, at the option of the insured, provides benefits that are no less favorable than those contained in the converted annuity rider.

(iv) An illustrative disclosure concerning the annuity coverage shall be based on the guaranteed interest rate or rates provided by the annuity policy or rider. Excess interest payments provided by the annuity policy or rider can be illustrated separately but only in addition to the guaranteed rate illustration.

(5) The term ‘‘deposit’’ may not be used in referring to the additional first-year premium.

(6) A disclosure form shall be given to every prospective purchaser of a modified premium life product no later than the time the application form is signed by the applicant. The disclosure form shall be in addition to but can be included in the disclosure statement required by Chapter 83 (relating to disclosures in solicitation of life insurance). The form shall contain amounts pertaining to the specific case and shall show the following amounts for each of the first 20 policy years and representative policy years thereafter sufficient to clearly illustrate the premium and benefit patterns. The disclosure form must also contain the following:

(i) The amount of the annual premium payable for the modified premium life policy, each insurance rider and annuity policy or rider, with the premium amount for each shown separately.

(ii) The guaranteed amounts payable upon death at the end of the policy year as provided by the modified premium life policy, each insurance rider and annuity policy or rider, with the amount for each shown separately.

(iii) The guaranteed cash surrender values at the end of the year of the modified premium life policy, each insurance rider and annuity policy or rider, with values for each shown separately. A guaranteed endowment amount provided by the modified premium life policy may not be included in the illustrated cash values.

(iv) The cash dividends payable at the end of the policy year as provided by the modified premium life policy, each insurance rider and annuity policy or rider, with the amount for each shown separately. Dividends need not be illustrated beyond the 20th policy year.

(v) A guaranteed endowment amount payable under the modified premium life policy.

(7) If the modified premium life policy provides for policy change options, the nature of each option shall be disclosed. The disclosure shall set forth a reasonably complete explanation of the options, including the guaranteed premium rates and insurance benefits. This disclosure shall be provided to the prospective purchaser no later than the time the application form is signed by the applicant and can be included in the disclosure statement required by Chapter 83.

(8) In the case of replacement situations, the premium changes and policy change options shall be fully disclosed to the prospective purchaser. This disclosure can be included in the replacement statement required by Chapter 81 (relating to replacement of life insurance and annuities). In addition, a copy of the disclosure statement required by paragraph (6) shall be furnished to the replaced company on request.

(d) Certifications and maintenance of disclosure form delivery. Certifications and maintenance of disclosure form delivery shall conform with the following:

(1) The agent or representative shall submit to the insurer with or as a part of the insurance application a statement, signed by him, certifying that the written disclosure form was given no later than the time that the application was signed by the applicant.

(2) The insurer shall maintain the agent or representative’s certification of disclosure-form delivery in its appropriate files for at least 3 years or until the conclusion of the next succeeding regular examination by the Insurance Department of its domicile, whichever is later. The absence of the certification from the appropriate files of the insurer shall constitute prima facie evidence that no disclosure form was provided to the applicant of a modified premium life policy.

(e) Minimum nonforfeiture requirements for modified premium life products. Minimum nonforfeiture requirements for modified premium life products shall conform with the following:

(1) In the case of modified premium term insurance, nonforfeiture values shall be at least as great as those calculated by applying section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1) to the policy. The present value of the future guaranteed benefits used in the calculation of the adjusted premiums for the policy shall be equal to: to present value, at the date of issue of the policy, of the sum of the guaranteed term insurance benefits provided for by the policy up to the end of the term period plus the pure endowment benefit provided for by the policy at the end of the term period.

(2) In the case of modified premium whole life insurance, minimum nonforfeiture value requirements shall be determined by applying section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1) separately to the term coverage period and the whole life coverage period. If a pure endowment is not paid out in cash to the policyholder upon conversion to whole life insurance, minimum nonforfeiture values for the whole life insurance policy may be not less than those computed under section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1) for the whole life insurance coverage plus the value of the pure endowment benefit accumulated at a rate of interest specified in the policy for accumulating that benefit.

(3) In the case of modified premium life products which differ from those described in subsection (a)(1) and (2), the procedures for determining minimum nonforfeiture value requirements under this subsection shall be consistent with the requirements of paragraphs (1) and (2) and the intent of section 410A of The Insurance Company Law of 1921 (40 P. S. § 510.1).

(4) In no event may the calculation procedures set forth in this subsection be construed as permitting a nonforfeiture value lower than those which would otherwise be required in the absence of this subsection.

(f) Fraternal benefit societies. This section applies to fraternal benefit societies authorized to transact the business of life insurance in this Commonwealth.

(g) Compliance. Only those modified premium life insurance policies which are in complete compliance with the requirements of this subchapter may be sold and issued in this Commonwealth.

(h) Penalties. Failure to comply with this section will subject the violator to penalties prescribed by section 354 of The Insurance Company Law of 1921 (40 P. S. § 477b) and other statutes and regulations which apply.

The provisions of this § 87.13 adopted August 6, 1971, 1 Pa.B. 1619; amended December 28, 1979, effective February 27, 1980, 9 Pa.B. 4251. Immediately preceding text appears at serial page (7730).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.21 Scope.

This section and § § 87.22—87.42 apply to life insurance companies, brokers, agents, solicitors or other representatives of the insurance companies carrying on business within this Commonwealth.

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.22 Statements regarding status of industry or company.

A life insurance company, broker, agent, solicitor or other representative may not make a statement or reference relating to the growth of the life insurance industry or to the tax status of life insurance companies in connection with a solicitation of an application for life insurance in a context which could reasonably be understood to interest a prospect in the purchase of shares of stock in an insurance company rather than in the purchase of a life insurance policy.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.23 Implying that insured is stockholder.

(a) A life insurance company, broker, agent, solicitor or other representative may not make a statement which reasonably gives rise to the inference that an insured or a prospective insured, by virtue of purchasing a policy of life insurance, will enjoy a status common to a stockholder or will acquire a stock ownership interest in the insurance company.

(b) Nothing in subsection (a) is intended to prohibit the practice of pointing out those aspects in which the status of a policyholder in a mutual life insurance company is similar to that of a stockholder in a stock life insurance company.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.24 Implying that the policy was sold by the investment department of the company.

A life insurance company, broker, agent, solicitor or other representative may not make a reference to or statement concerning an insurance company’s ‘‘Investment Department,’’ ‘‘Insured Investment Department’’ or similar terminology implying that the policy was sold or issued by the investment department of the life insurance company.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.25 Implying special treatment.

(a) A life insurance company, broker, agent, solicitor or representative may not make a statement or reference which would reasonably tend to imply that by purchasing a policy the purchaser or prospective purchaser will become a member of a limited group of persons who may receive special advantages or favored treatment in the payment of dividends, unless the benefits are specifically provided in the insurance contract.

(b) Subsection (a) does not apply to policies under which insured persons of one class of risk may receive dividends at a higher rate than persons of another class of risk.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.26 Implying limited availability of policy.

A life insurance company, solicitor, broker, agent or representative may not state or imply that only a limited number of persons, or a limited class of persons will be eligible to buy a particular kind of policy, unless the limitation is related to recognized underwriting practices and may be verified by the underwriting practices of the insurance company.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.27 Implying that insured will share in surplus company earnings.

A life insurance company, broker, agent, solicitor or representative may not state or imply that policyholders who are said to act as ‘‘centers of influence’’ for an insurance company will share, because of so acting, in the surplus earnings of the company in some manner not available to other policy holders who are otherwise in the same class.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.28 Reference to payment as ‘‘deposit.’’

A life insurance company, broker, agent, solicitor or representative may not describe or refer to premium payments in language which states that the payment is a ‘‘deposit,’’ unless either of the following apply:

(1) The payment establishes a debtor-creditor relationship between the life insurance company and the policyholder and a showing is made as to when and how the deposit may be withdrawn.

(2) The term is used in conjunction with the word ‘‘premium’’ in such a manner as to indicate clearly the true character of the payment.

This section cited in 31 Pa. Code § 87.21 (relating to scope); 31 Pa. Code § 90c.8 (relating to prohibited terminology); 31 Pa. Code § 90d.6 (relating to prohibited terminology); 31 Pa. Code § 90e.8 (relating to prohibited terminology); 31 Pa. Code § 90f.9 (relating to prohibited terminology); 31 Pa. Code § 90g.9 (relating to prohibited terminology); and 31 Pa. Code § 90h.7 (relating to prohibited terminology).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.29 Illustration of future dividends.

A life insurance company, broker, agent, solicitor or representative may not provide an illustration or projection of future dividends on a policy, unless either of the following apply:

(1) The illustration or projection is based upon the experience currently used by the insurance company for dividends or upon a scale adopted by the company.

(2) The illustration or projection clearly indicates that the dividends shown are not guaranteed.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.30 Implying that payment of dividends is assured.

A life insurance company, broker, agent, solicitor or representative may not use the words ‘‘dividends,’’ ‘‘cash dividends,’’ ‘‘surplus’’ or similar phrases to state or imply that the payment of dividends is guaranteed or certain to occur.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.31 Sharing in percentage of surplus.

(a) A life insurance company, broker, agent, solicitor or representative may not state or imply that a purchaser of a policy will share in a stated percentage or portion of the earnings of the insurance company.

(b) Subsection (a) is not intended to prohibit a representation that a holder of a participating life insurance policy will participate in the share of the divisible surplus, if any, apportioned to the policy by the insurance company.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.32 Statements concerning projected dividends.

A life insurance company, broker, agent, solicitor or representative may not make a statement or imply that projected dividends under a participating policy will be or may be sufficient to assure the receipt of benefits, such as a paid-up policy, without the further payment of premiums, unless the statement is accompanied by an adequate explanation as to what benefits or coverage would be provided or discontinued at the time and the conditions under which this would occur.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.33 Explanation of nonforfeiture benefits.

A life insurance company, broker, agent, solicitor or representative may not state that the insured is guaranteed certain benefits if the policy is allowed to lapse without making an adequate explanation of the nonforfeiture benefits.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.34 Describing policy as ‘‘units of participation.’’

A life insurance company, broker, agent, solicitor or representative may not describe a life insurance policy or premium payments therefor in terms of ‘‘units of participation,’’ unless accompanied by other language clearly indicating the reference to a life insurance policy or to premium payments, as the case may be.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.35 Misleading prepared answers.

A life insurance company, broker, agent, solicitor or representative may not include in sales kits and prepared sales presentations proposed answers, to be used in response to questions from a prospect as to whether life insurance is being sold, which are designed to avoid a clear and unequivocal statement that life insurance is the subject matter of the solicitation.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.36 Illustrations using dollar amounts.

A life insurance company, broker, agent, solicitor or representative may not display to a prospective policyholder material which includes illustrations, using dollar amounts, in connection with the proposed sale of a life insurance policy or endowment benefits, unless the material clearly identifies the source of the dollar amounts and the subject to which the amounts pertain.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.37 Profit from policy lapse or surrender.

A life insurance company, broker, agent, solicitor or representative may not make a general statement that insurance companies make a profit as a result of policy lapses or surrenders.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.38 Misleading comparisons to other companies.

A life insurance company, broker, agent, solicitor or representative may not make unfair or misleading comparisons to the past experience of other life insurance companies as a means of projecting possible experience of the soliciting company if those comparisons are designed to enhance the characteristics of the policy being sold by confining the comparisons to companies having favorable experience with that type of policy without a fair disclosure of other companies which have had unfavorable experience with that type of policy, when it is within the knowledge of the company, broker, agent, solicitor or other company representative that other companies have had an unfavorable experience.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.39 Misrepresentation of pure annual endowment benefits.

A life insurance company, broker, agent, solicitor or representative may not represent pure annual endowment benefits as earnings on premiums invested, or represent that a pure annual endowment benefit in a policy is anything other than a guaranteed benefit for which a premium is being paid by the policyholder.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.40 False comparison with other policies.

A life insurance company, broker, agent, solicitor or representative may not state that a policy contains certain features which are not found in other life insurance policies, unless that is true.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.41 Misrepresentation of options to purchase insurance.

A life insurance company, broker, agent, solicitor or representative may not represent an option to purchase insurance in the future in such a manner that the policyholder might reasonably infer that he is purchasing term insurance or some other form of life insurance which would result in a payment to the beneficiary in the event of the death of the policyholder.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

31 Pa. Code § 87.42 Misrepresenting the nature of the policy.

A life insurance company, broker, agent, solicitor or representative may not make a reference to a policy of life insurance or an annuity contract misrepresenting the true nature of the policy or contract.

This section cited in 31 Pa. Code § 87.21 (relating to scope).

History

• Authority: The provisions of this Chapter 87 issued under sections 635 and 637—639 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 87 adopted January 26, 1969, unless otherwise noted.

Chapter 88 Individual Accident and Sickness Insurance Minimum Standards

31 Pa. Code § 88.1 Purpose.

(a) The purpose of this chapter is to implement the act of May 18, 1976 (P. L. 123, No. 54) (40 P. S. § § 776.1—776.7) so as to provide for reasonable standardization of terms and coverages contained in individual accident and health insurance policies, nongroup subscriber contracts issued by health plan corporations and nonprofit health service plans and certificates issued by fraternal benefit societies. This chapter does not apply to credit accident and health insurance.

(b) In addition, it is the purpose of this chapter to facilitate public understanding and comparison of the terms, benefits and conditions of individual policies or contracts, to eliminate provisions which may be misleading or unreasonably confusing in connection either with purchase of the coverage or with the settlement of claims and to provide for full disclosure of these matters in the sale of policies or contracts.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.2 Applicability and scope.

This chapter applies to, and the term ‘‘policy’’ includes, all individual accident and health insurance policies, nongroup subscriber contracts of health plan corporations and nonprofit health service plans, and certificates issued by fraternal benefit societies delivered or issued for delivery in this Commonwealth on and after the effective date hereof. This chapter does not apply to credit accident and health insurance nor to individual policies or contracts issued pursuant to a conversion privilege under a group policy as required by section 621.2 of the act of May 17, 1921 (P. L. 682, No. 284) (40 P. S. § 756.2). The requirements contained in this chapter are in addition to any statutory requirements and any chapters previously adopted, except to the extent that the previous chapters are expressly inconsistent herewith, in which case the terms of this chapter are controlling.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.11 Terms of renewability.

Each policy of accident and health insurance covered by this chapter shall include a renewal, continuation or nonrenewal provision. The language or specifications of the provision must be consistent with the type of contract to be issued such as noncancellable and guaranteed renewable, guaranteed renewable, renewable at the option of the insurer, single term nonrenewable, and the like. Such provision must be appropriately captioned and commence or be referenced on the first page of the policy and on the filing back, if any, and must clearly state the duration, where limited, of renewability and the duration of the term of coverage for which the policy is issued and for which it may be renewed. Policies which allow for a change in premiums shall specify the conditions under which rate changes may be made by insurer.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.12 Noncancellable and guaranteed renewable policy.

(a) All such policies must be renewable to at least age 60, subject to the timely payment of premiums, and shall provide that the company cannot cancel the policy and that the company cannot increase the premium.

(b) In a family policy covering both husband and wife the age of the younger spouse must be used as the basis for meeting the age and durational requirements of the definitions of ‘‘noncancellable’’ and ‘‘guaranteed renewable.’’ However, this requirement shall not prevent termination of coverage of the older spouse upon attainment of the stated age limit, such as age 60, so long as the policy may be continued in force as to the younger spouse to the age or for the durational period as specified in said definition.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.13 Guaranteed renewable policy.

All such policies must be renewable to at least age 65, subject to the timely payment of premiums, and shall provide that the company cannot cancel the policy. However, the insurer may reserve the right to change the premium on a class basis. Such right shall be clearly expressed within the renewal provision and referenced in the caption of such provision. The insurer may include a policy provision for termination or nonrenewal of disability income policies prior to age 65 when the insured is no longer subject to the risk of loss of income as a result of accident or sickness.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.14 Renewable subject to consent of company and variants thereof.

(a) The renewal provision of a policy characterized as renewable subject to the consent of the company shall be appropriately captioned as one of the following:

(1) ‘‘Renewable Subject to Consent of Company.’’

(2) ‘‘Renewable Subject to Company Consent.’’

(3) ‘‘Renewable at Option of Company.’’

(b) The designated captions are without prejudice to the right of the insurer to submit another caption, subject to the approval of the Commissioner, which it believes is equally clear or more definitive as to the subject matter of said provision.

(c) The provision shall clearly declare that renewal of the policy is subject to the consent of the insurer and that the premium rate applicable to such policy shall be that currently in use on each renewal date of the policy.

(d) Policy nonrenewal shall be limited to the renewal date occurring on, or after and nearest, each anniversary of the policy. Nonrenewal shall not be based on the deterioration of mental or physical health of any individual covered under the policy.

(e) If the insurer reserves the right of cancellation, notice of the existence of the provision shall be cross-referenced in the renewal provision.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.15 Qualified right of renewal.

(a) A renewal provision, other than enumerated in this chapter, may grant to the insured the right of renewal by timely payment of premiums up to a stated age, if any, subject to the reserved right of the insurer to terminate all such policies on a specified basis upon the giving of a specified period of notice, which shall be set forth in the appropriate provision of the policy.

(b) The right of the insured to renew the policy may be conditioned upon the continuation of a specified status, such as an employee of a named employer, member of a named organization, while engaged in a specific occupation associated with such employment of such organization, residence in a given state or geographic area, insured under a given form of insurance having like form number identification.

(c) The rights of the insured and of the insurer shall be clearly set forth in the renewal provision. Such shall include the specified age limit, if any, requirements as to the professional or occupational status, if any, and requirements as to the continuing relationship, if any, of the employe or member.

(d) Continuance of insurance after the insured ceases to be eligible for coverage under the plan may be at the option of the insurer. In the event a different table of premium rates is to be applicable with respect to renewals occurring thereafter, such fact shall be declared in the renewal provision.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.16 Single term nonrenewable policy.

A policy characterized as a single term nonrenewable policy shall include a provision appropriately captioned, for example, ‘‘this policy is not renewable’’ or words of similar import. Such provision must identify or reference the proper part of the contract within which the term or duration of the coverage is specified.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.17 Renewable at the option of the insured.

Policies which may not be characterized as noncancellable and guaranteed renewable or guaranteed renewable under existing definitional requirements solely because such policy may not be continuable to age 60 or for a minimum period of five years, may use a renewal provision caption, subject to the approval of the Commissioner, which states that the right of renewal is vested in the insured for a stated period of years, to a stated age, to the occurrence of a stated event or during the continuance of a given status such as employment or membership.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.18 Conditional or limited continuance.

Policies which provide a qualified right of continuance after expiration of the period during which such policy is noncancellable and guaranteed renewable or guaranteed renewable must clearly specify the conditions, such as continued gainful employment, which must be fulfilled to permit continuance of the policy. If premiums are to be based on an attained age or on a step rate basis, such must be declared in the renewal provision. The age limit, if any, to which any policy may be renewed shall be declared in the renewal provision.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.31 Family member.

A family policy providing hospital, surgical, medical expense, hospital confinement indemnity, or accident only insurance shall include provisions which specify the identity and qualifications applicable to those family members who may become insured under the policy initially or by subsequent addition.

This section cited in 31 Pa. Code § 88.35 (relating to accidental injuries).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.32 Eligibility.

Eligible family members may include the insured, the insured’s spouse, children of the insured, and of the insured’s spouse who are under a specified age not to exceed 19, unless a dependency test is specified, and any other person dependent upon the insured. However, newborn children of any insured shall be covered pursuant to act of August 1, 1975 (P.L. 157, No. 81) (40 P. S. § § 771—774).

This section cited in 31 Pa. Code § 88.35 (relating to accidental injuries).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.33 Subsequent eligibility.

The provisions concerning eligibility shall, for persons who may become insured subsequent to policy issuance, state the condition under which such coverage may become effective. Such conditions may include:

(1) qualifications for automatic coverage and the duration thereof;

(2) required evidence of insurability;

(3) the necessity of application or notice from the insured;

(4) any requirements as to the payment of premiums as to such addition; and

(5) the time within which action is to be taken by the insured.

This section cited in 31 Pa. Code § 88.35 (relating to accidental injuries).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.34 Time limit on defenses.

In family policies providing for the addition of newly eligible family members, the Time Limit on Certain Defenses provision, section 618(A)(2) of the Insurance Company Law (40 P. S. § 753(A)(2)) may be modified to provide for a new contestable period for each new member so added, but shall not provide for a new contestable period for the policy.

This section cited in 31 Pa. Code § 88.35 (relating to accidental injuries).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.35 Accidental injuries.

A family policy providing benefits for accidental injuries such as accidental death, dismemberment, loss of sight, indemnity for fractures or dislocations, and the like shall provide an option to include all insureds under the contract and not just the principal insured. The level of benefits for covered dependents may be different than the benefits for the principal insured. Provisions decribing eligibility of family members, the adding of family members and the termination of insurance as to such family members will generally follow the pattern specified in § § 88.31—88.41 (relating to conditions of eligibility and termination of insurance). Generally, causes of termination of coverage of individual family members will be predicated on age, cessation of dependency which would include legal separation, termination of marriage by divorce and similar occurrences.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.41 Family policy provisions.

A family policy providing hospital, surgical, medical expense, hospital confinement indemnity or accident only insurance shall include provisions which shall specify the following:

(1) As to the insured, the age or event, if any, upon which coverage under the policy will terminate such as age 65, eligibility for Medicare.

(2) As to the spouse, the age or event, if any, upon which coverage under the policy will terminate such as age 65, eligibility for Medicare, legal separation, divorce, or annulment.

(3) As to child, the age or event upon which coverage under the policy will terminate such as age 19, marriage of the child, cessation of dependency. The policy shall provide that coverage of an unmarried dependent child shall not terminate if that child is incapable of self-sustaining employment by reason of mental retardation or physical handicap, under section 617(A)(9) of the Insurance Company Law of 1921 (40 P. S. § 752(A)(9)).

(4) For other family members, the age or event, if any, or such other reasons as are appropriate for termination of coverage as to persons not coming within paragraph (1), (2) or (3).

(5) A noncancellable and guaranteed renewable or guaranteed renewable policy may not provide for termination of coverage of the spouse solely because of the occurrence of an event specified for termination of coverage of the insured, other than nonpayment of premium. The provisions shall provide that in the event of the insured’s death the spouse of the insured, if covered under the policy, shall become the insured.

(6) The provisions shall provide that if the insurer accepts the premium for coverage extending beyond the date, age, or event specified for termination as to an insured family member, then coverage as to such person shall continue during the period for which an identifiable premium was accepted, except where such acceptance was predicated on a misstatement of age.

(7) The provisions shall provide that, in the event of cancellation or refusal to renew by the insurer, where permitted by law, except for nonpayment of premium, of a policy providing pregnancy benefits, such policy shall provide for an extension of benefits as to pregnancy commencing while the policy is in force and for which benefits would have been payable had the policy continued in force.

(8) The provisions shall provide that termination of the policy by the insurer shall be without prejudice to any continuous loss which commenced while the policy was in force, but the extension of benefits beyond the period the policy was in force may be predicated upon the continuous disability of the insured person, limited to the duration of the policy benefit period or to the payment of the maximum benefits.

(9) The termination provision may provide for the termination or suspension of coverage if the insured individual becomes eligible for Medicare under the Social Security Act (42 U.S.C.A. § 1395 et seq ).

This section cited in 31 Pa. Code § 88.35 (relating to accidental injuries).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.51 Applicability of conditions.

The policy must clearly disclose the intent of the insurer as to the applicability or nonapplicability of coverage relating to preexisting conditions. If coverage of the policy is not to be applicable to preexisting conditions, the policy shall specify, in substance, that coverage pertains solely to accidental bodily injuries resulting from accidents occurring after the effective date of coverage, and that sickness is limited to that which is diagnosed or treated subsequent to the effective date of coverage or expiration of the probationary period, if any.

The provisions of this § 88.51 amended June 27, 1980, effective June 28, 1980, 10 Pa.B. 2591. Immediately preceding text appears at serial page (36604).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.52 Definition.

The following words and terms, when used in these § § 88.51—88.53, have the following meanings, unless the context clearly indicates otherwise: Preexisting condition—A condition for which medical advice or treatment was recommended by a physician or received from a physician within a 5-year period preceding the effective date of the coverage of the insured person.

Construction; Ambiguity

The fact that State insurance regulations contain a definition of ‘‘preexisting condition’’ that is virtually identical to that contained in an insured’s policy does not conclusively demonstrate that the policy definition is unambiguous. Lawson v. Fortis Insurance Co., 146 F. Supp.2d 737 (E.D. Pa. 2001); affirmed 301 F.3d 159 (3rd Cir. Pa. 2002).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.53 Simplified application form.

Notwithstanding the provisions of section 618 (A)(2) of The Insurance Company Law of 1921 (40 P. S. § 753 (A)(2)), if an insurer elects to use a simplified application form, with or without a question as to the health of the applicant at the time of application, but without any questions concerning the health history or medical treatment history of the insured, the policy must cover any loss occurring after 12 months from the effective date of the insured person’s coverage from any preexisting condition not specifically excluded from coverage by terms of the policy, and, except as so provided, the policy or contract shall not include wording that would permit a defense based upon preexisting conditions. Changes to policies or contracts required under this section, including changes to premium rates applicable thereto, shall be permitted by endorsement or rider.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.61 Period of time.

Probationary or waiting periods shall relate to that period of time which may be specified in the policy and which must follow the date a person is initially insured under the policy, or following reinstatement of a policy, before the coverage or coverages of the policy shall become effective as to such person. A probationary or waiting period shall not be used with respect to any loss resulting from accidental injuries as defined in the policy. However, as to loss resulting from sickness a policy may specify a probationary or waiting period which shall not exceed 30 days, except as follows:

(1) For normal pregnancy and childbirth, 30 days where the probationary or waiting period is expressed in terms of the inception of the pregnancy.

(2) For elective surgery, not to exceed six months. The following is a list of surgical procedures which may be considered elective surgery:

(i) Cataract operations.

(ii) Strabismus operations.

(iii) Tonsilectomies, adenoidectomies.

(iv) Herniotomies.

(v) Arthrotomies.

(vi) Hemorrhoidectomies.

(vii) Laminectomies.

(viii) Varicose veins.

(ix) Gall bladder.

(x) Appendectomies concurrent with gall bladder operation.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.71 Clarity.

The limitations on the risk undertaken, whether applicable to amounts, duration of benefits, or age or other matters, must be specified with clarity and certainty in the appropriate provision of the contract.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.81 Exception or exclusion.

An exception or exclusion is any provision in a policy whereby coverage for a specific hazard is entirely eliminated. It is statement of a risk not assumed under the terms and provisions of the contract.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.82 Reduction.

A reduction is a provision which takes away some portion, but not all, of the coverage of the policy under certain specific conditions. Such reduction relates to a risk, which although assumed by the insurer, payment upon the occurrence of such loss is limited to some amount or period less than would be otherwise payable had such reduction clause not been used.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.83 Clear expression.

Exceptions, exclusions, and reductions must be clearly expressed as a part of the benefit provision to which such applies, or if applicable to more than one benefit provision, shall be set forth as a separate provision and appropriately captioned. The use of general policy exclusions and the scope thereof will, of necessity, vary with the type of benefits afforded in a given policy, subject to the requirement that said exclusions are reasonable in light of the nature of benefits afforded.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.84 Listing of exclusions.

The following is a list of the exclusions which shall be permitted in addition to those specified under § 618 of The Insurance Company Law of 1921 (40 P. S. § 753). The wording of the exclusions is illustrative and is intended to indicate the general intent of the Department. Alternate wording is permissible as long as the meaning preserves the general intent of the exclusions, as follows:

(1) General exclusions shall conform with the following:

(i) Loss sustained or expenses incurred while on active duty as a member of the armed forces of any nation, or losses sustained or expenses incurred as a result of act of war whether declared or undeclared.

(ii) Suicide or intentionally self-inflicted injuries.

(iii) Sickness or injury covered by any Workmen’s Compensation Act or Occupational Disease Law or by United States Longshoreman’s Harbor Worker’s Compensation Act (33 U.S.C.A. § § 901—950).

(iv) Mental, nervous, or emotional disorders.

(v) Aviation hazards except while flying as a fare-paying passenger on a commercial airline.

(vi) Participation in a riot or insurrection.

(vii) Cosmetic surgery, except when necessitated by covered sickness or injury.

(viii) Named hazardous occupations.

(ix) Named hazardous sports or hobbies.

(x) Normal pregnancy, childbirth, and miscarriage.

(xi) Exclusions which, in the opinion of the Commissioner, are justified by special circumstances or the particular coverage of the policy.

(2) Exclusions pertaining to hospital or basic coverage and major medical policies may include the following:

(i) Eye examinations, refractions, eye glasses, contact lenses or hearing aids, or hearing examinations.

(ii) Any services, use of a facility, or supply which is not recommended or approved by a licensed medical or dental practitioner practicing within the scope of the practitioner’s license.

(iii) Charges for services, use of facilities, or supplies that neither the insured nor any other covered person is legally obligated to pay.

(iv) Routine physical examinations.

(v) Dentistry, dental x-rays or dental services, dental prosthetic appliances, except expenses otherwise covered on account of accidental bodily injury to sound natural teeth.

(vi) Expenses of a covered person for cosmetic surgery, except expenses otherwise covered which are necessary for repair of an accidental bodily injury.

(vii) Expenses for transportation except local ambulance services for the insured or covered person.

(viii) Sickness or injuries to the extent that any covered person under the policy is eligible to receive benefits under ‘‘Medicare’’ for the expenses incurred. This exclusion may include other specifically enumerated national, state, or other governmental plans. It may not include or be interpreted to include plans which may possibly be enacted at some future time.

(ix) Services performed by the insured’s spouse, child, parent, brother, or sister or persons who ordinarily reside in the household of the insured.

(x) Medical care of members of the armed forces in a United States Government facility.

(xi) Specified foot conditions.

This section cited in 31 Pa. Code § 88.86 (relating to waivers).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.85 Unusual limitations, reductions, restrictions.

Any policy which contains unusual limitations, reductions, or conditions of such a restrictive nature that the payment of benefits under such policies is limited in frequency or in amounts shall carry the legend ‘‘This Is A Limited Policy—Read It Carefully’’ imprinted in not less than 18-point outline type of contrasting color diagonally across the face and filing back, if any, of the policy.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.86 Waivers.

The listing of specified exclusionary subjects set forth in § 88.84 (relating to listing of exclusions) may not impair or limit the use of waivers to exclude, limit or reduce coverage or benefits for specifically named or described preexisting diseases, physical condition or extra hazardous activity. Where waivers are required as a condition of issuance, renewal or reinstatement, signed acceptance by the insured is required unless on initial issuance the full text of the waiver is contained either on the first page or specification page of the policy or unless notice of the waiver appears on the first page or specification page.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.87 Military service exclusions.

If a policy contains a military service exclusion or a provision suspending coverage during military service, and if the premiums are either reduced or refunded for the period of the military service, the policy shall clearly so state the following:

(1) As to policies other than noncancellable and guaranteed renewable and guaranteed renewable policies, the following provisions apply:

(i) If the policy contains a ‘‘status’’ type of exclusion which excludes all coverages applicable to an insured person while in military service on full time active duty, the policy shall provide, upon receipt of written request, for refund of premiums as applicable to such person on a pro rata basis.

(ii) If the policy contains a ‘‘causation’’ type exclusion, that is loss resulting from military service while an insured person is on full time active duty, refund of premium is not required since the policy would be operative as to any other loss not resulting from military service causes.

(iii) A provision for voluntary suspension of coverage as to an insured person during military service may be used and if an identifiable premium is charged as to such person, then upon written request for suspension a pro rata premium must be refunded.

(2) As to noncancellable and guaranteed renewable and guaranteed renewable policies, the following provisions apply:

(i) The policy may provide for refund of the entire premium for the period of military service or for a partial refund of the premium from the date the insurer receives notice and it may adjust the refund for a change in reserves during the period of suspension.

(ii) The policy may contain a military service exclusion or may provide for suspension of coverage upon entry into military service with the right of reinstatement upon termination of service within a specified period of not less than 60 days without evidence of insurability.

(iii) The insurer may charge a partial premium during the period of suspension which will anticipate accumulation of reserves required by law or regulation and related cost factors.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.91 Definitions.

(a) ‘‘Elimination period’’ means the initial period of time, during the continuance of a condition insured against and specified in respect to a particular benefit, for which the benefit will not be paid.

(b) The periods shall be clearly expressed in the policy schedule or benefits page and referenced in the benefit provision to which the elimination period applies.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.101 Application forms.

Application forms shall contain a question to elicit information as to whether the insurance to be issued is to replace any other accident and health insurance presently in force. A supplementary application or other form to be signed by the applicant containing such a question may be used.

This section cited in 31 Pa. Code § 88.102 (relating to delivery to applicant); and 31 Pa. Code § 90c.3 (relating to replacement questions for life insurance).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.102 Delivery to applicant.

Upon determining that a sale will involve replacement, an insurer, other than a direct response insurer or its agent, shall furnish the applicant at the time of completing the application, the notice described in § 88.103 (relating to notice form). One copy of such notice shall be furnished to the applicant and an additional copy signed by the applicant shall be retained by the insurer. A direct response insurer shall deliver to the applicant upon issuance of the policy the notice described in § 88.104 (relating to notice form for direct response insurer). In no event, however, will § § 88.101—88.104 (relating to requirements for replacement) apply to the solicitation of single premium nonrenewable policies and accident only policies.

This section cited in 31 Pa. Code § 88.103 (relating to notice form); and 31 Pa. Code § 88.104 (relating to notice form for direct response insurer).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.103 Notice form.

The notice required by § 88.102 of this title (relating to delivery to applicant) for an insurer, other than a direct response insurer, shall provide, in substantially the following form:

According to (your application) (information you have furnished), you intend to lapse or otherwise terminate existing accident and sickness insurance and replace it with a policy to be issued by (COMPANY NAME) Insurance Company. Your new policy provides 10 days after receipt of the policy within which you may decide whether you desire to keep the policy. For your own information and protection you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new policy.

(1) Health conditions which you may presently have, (pre-existing conditions) may not be immediately or fully covered under the new policy. This could result in denial or delay of a claim for benefits under the new policy, whereas a similar claim might have been payable under your present policy.

(This subsection may be modified if pre-existing conditions are covered under the new policy).

(2) Even though some of your present health conditions may be covered under the new policy, these conditions may be subject to certain waiting periods under the new policy before coverage is effective.

(3) You may wish to secure the advice of your present insurer or its agent regarding the proposed replacement of your present policy. This is not only your right, but is also in your best interests to make sure you understand all the relevant factors involved in replacing your present coverage.

(4) If, after due consideration, you still wish to terminate your present policy and replace it with new coverage, be certain to truthfully and completely answer all questions on the application concerning your medical/health history. Failure to include all material medical information on an application may provide a basis for the company to deny any future claims and to refund your premium as though your policy had never been in force.

After the application has been completed and before you sign it, re-read it carefully to be certain that all information has been properly recorded.

above Notice to Applicant’ was delivered to me on:

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.104 Notice form for direct response insurer.

The notice required by § 88.102 (relating to delivery to applicant) for a direct response insurer shall provide, in substantially the following form:

According to (your application) (information you have furnished) you intend to lapse or otherwise terminate existing accident and sickness insurance and replace it with the policy delivered herewith issued by (Company Name) Insurance Company. Your new policy provides 10 days within which you may decide without cost whether you desire to keep the policy. For your own information and protection you should be aware of and seriously consider certain factors which may affect the insurance protection available to you under the new policy.

(1) Health conditions which you may presently have, (pre-existing conditions) may not be immediately or fully covered under the new policy. This could result in denial or delay of a claim for benefits under the new policy, whereas a similar claim might have been payable under your present policy.

(This section may be modified if pre-existing conditions are covered under the new policy.)

(2) Even though some of your present health conditions may be covered under the new policy, these conditions may be subject to certain waiting periods under the new policy before coverage is effective.

(3) You may wish to secure the advice of your present insurer or its agent regarding the proposed replacement of your present policy. This is not only your right, but it is also in your best interests to make sure you understand all the relevant factors involved in replacing your present coverage.

(4) (To be included only if the application is attached to the policy.) If, after due consideration, you still wish to terminate your present policy and replace it with new coverage read the copy of the application attached to your new policy and be sure that all questions are answered fully and correctly. Omissions or misstatements in the application could cause an otherwise valid claim to be denied. Carefully check the application and write to (Company Name and Address) within 10 days if any information is not correct and complete, or if any past medical history has been left out of the application.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.111 Confinements or disabilities.

A policy may contain provisions relating to recurrent confinements or recurrent disabilities; provided however, a recurrent confinement or recurrent disability provision may not specify that such confinement or such disabilities be separated by a period greater than 6 months.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.121 Applications.

(a) Opinion-type questions regarding the past or present health of the applicant should provide that the applicant is to answer to the best of his knowledge and belief.

(b) No provision shall be permitted in an application which changes the terms of the policy to which it is attached.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.122 Assessable policy.

The words ‘‘This Is An Assessable Policy’’ shall be printed prominently on the policy face and filing back, if any, of each assessable policy in at least 16-point type.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.123 Use of certain words and terms.

(a) A policy containing, as part of its title, words such as ‘‘special’’ or ‘‘preferred’’ which are used in a misleading fashion, or words such as ‘‘Union,’’ ‘‘Labor,’’ ‘‘Miner,’’ and the like in its title which could associate it with a particular organization, association, or business will not be approved.

(b) Policies which are to be issued to supplement Medicare shall not have policy titles or headings which could in any way confuse them with the Federal Medicare Program.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.124 Suspension and termination.

No policy shall contain a provision for its automatic termination upon the happening of any loss, except a loss which has exhausted all possible benefits under the policy.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.125 Multiple benefits.

Policies which contain multiple benefit provisions shall not limit the payment of a specific benefit based on the fact that another benefit is paid under the same policy.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.126 Miscellaneous policy provisions.

(a) If the policy provides for any reduction in benefits because of the attainment of a specified age limit, reference thereto shall be set forth on the first or specifications page. For this purpose, a reduction in a benefit period is a reduction in benefits requiring such reference.

(b) No reduction of benefits by reason of a change in employment status or change in income of the insured shall be permitted, unless clearly set forth in the policy under an appropriate caption.

(c) Dependency status may not be defined by sex.

(d) Any policy providing coverage for hospital, surgical, or medical expense for the recipient in a transplant operation shall also provide for the reimbursement of any medical expenses of a live donor to the extent that benefits remain and are available under the policy of the recipient after the benefits for the recipient’s own expenses have been paid.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.131 Hospital.

(a) The term may be defined in relation to its status, facilities, and available services or to reflect its accreditation by the Joint Commission on Accreditation of Hospitals or the American Osteopathic Association. No definition of the term ‘‘hospital’’ shall be more restrictive than one requiring that the hospital:

(1) Be an institution operated pursuant to law which is licensed or approved as a hospital by the responsible state agency.

(2) Be primarily engaged in providing medical care and treatment of sick or injured persons on an in-patient basis for which a charge is made.

(3) Provide 24 hour nursing service by or under supervision of registered graduate professional nurses (R.N.’s).

(b) The definition of the term ‘‘hospital’’ may state that the term shall not be inclusive of:

(1) Any military or veterans hospital or soldiers home or any hospital contracted for or operated by any national government or agency thereof for the treatment of members or ex-members of the armed forces.

(2) Convalescent homes, convalescent, rest or nursing facilities.

(3) Facilities primarily for the aged, drug or alcoholic rehabilitation, and those primarily affording custodial or educational care.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.132 Convalescent nursing home, extended care facility or skilled nursing facility.

(a) The terms ‘‘convalescent nursing home,’’ ‘‘extended care facility’’ or ‘‘skilled nursing facility’’ may be defined in relation to their status, facilities and available services. No definition of the home or facility shall be more restrictive than one requiring that it:

(1) Be operated pursuant to law.

(2) Be approved for payment of Medicare benefits or be qualified to receive such approval, if so requested.

(3) Be primarily engaged in providing, in addition to room and board accommodations, skilled nursing care under the supervision of a duly licensed physician.

(4) Provide continuous 24 hours a day nursing service by or under the supervision of a registered graduate professional nurse (R.N.).

(5) Maintain a daily medical record of each patient.

(b) The definition of such home or facility may provide that such term shall not be inclusive of:

(1) Any home, facility or part thereof used primarily for rest.

(2) A home or facility for the aged or for the care or treatment of drug and alcohol abuse.

(3) A home or facility primarily used for the care and treatment of mental disease or disorders or custodial or educational care.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.133 Accident, accidental injury.

(a) The definition of accident, accidental injury shall employ ‘‘result’’ language and shall not include words which establish an accidental means test or use words such as ‘‘external, violent, visible wounds’’ or similar words of description or characterization.

(b) No definition shall be more restrictive than the following: Injury or injuries, for which benefits are provided, means accidental bodily injuries sustained by the insured person which are the direct and independent cause of the loss and occur while the insurance is in force. The definition may provide that injuries shall not include injuries for which benefits are provided under any workmen’s compensation, employer’s liability or similar law.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.134 Sickness.

No definition of ‘‘sickness’’ shall be more restrictive than the following: ‘‘sickness’’ shall mean sickness or disease of an insured person which is diagnosed or treated after the effective date of insurance and while the insurance is in force. Such definition may provide for a probationary period which shall not exceed 30 days. However, the definition shall clearly state that illnesses diagnosed or treated during the probationary period shall be covered subject to the Time Limit on Certain Defenses. The definition may be further modified to exclude sickness or disease for which benefits are provided under any workmen’s compensation, occupational disease, employer’s liability, or similar law.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.135 Physician.

The insurer may define ‘‘physician’’ or the policy may include words such as qualified physician’’ or ‘‘duly licensed physician.’’ The use of such words requires an insurer to recognize and to accept, to the extent of its obligation un- der the contract, all providers of medical care and treatment when such services are within the scope of the provider’s licensed authority and are provided pursuant to applicable laws.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.136 Nurses.

The definition or description of ‘‘nurse’’ may be restricted to a type of nurse, such as registered graduate professional nurse (R.N.), a licensed practical nurse (L.P.N.), or a licensed vocational nurse (L.V.N.). If the words ‘‘nurse,’’ ‘‘trained nurse,’’ or ‘‘registered nurse’’ are used without a specific definition, then the use of such terms requires the insurer to recognize the services of any individual who qualifies under such terminology in accordance with the applicable statutes or administrative rules of the licensing or registry board of the state.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.137 Total disability.

(a) For the first 24 months after the commencement of a loss, ‘‘total disability’’ shall be defined as the inability of the insured to perform all the substantial and material duties of his regular occupation. After 24 months of continuous disability, total disability may be defined as the inability of the insured to perform all of the substantial and material duties of any occupation for which he is reasonably suited by reason of education, training, or experience. The definition may require that the insured not in fact be engaged in any occupation for wage or profit.

(b) Total disability may be defined in relation to the inability of the person to perform duties but such inability may not be based solely upon the ability of an individual to:

(1) Perform ‘‘any occupation whatsoever’’ or ‘‘any occupational duty.’’

(2) Engage in any training or rehabilitation program.

(c) The definition may require regular care and attendance by a physician, other than the insured or a member of the insured’s immediate family. The definition may require that the total disability be ‘‘continuous’’ or ‘‘uninterrupted’’ for a specified period of time or to a specified age which shall be consistent with the type of coverage afforded.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.138 Partial disability.

Partial disability may be defined in relation to one’s inability to perform one or more but not all of the ‘‘major,’’ ‘‘important,’’ or ‘‘essential’’ duties of his employment or occupation or may be related to a ‘‘percentage’’ of time worked or to a ‘‘specified number of hours’’ or to ‘‘compensation.’’ Where a policy provides total disability benefits and partial disability benefits, only one elimination period may be required.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.139 Residual disability.

Residual disability shall be defined in relation to the individual’s reduction in earnings and may be related either to the inability to perform some part of the ‘‘major,’’ ‘‘important,’’ or ‘‘essential duties’’ of employment or occupation, or to the inability to perform all usual business duties for as long as is usually required. A policy which provides for residual disability benefits may require a qualification period, during which the insured must be continuously totally disabled before residual disability benefits are payable. The qualification period for residual benefits may be longer than the elimination period for total disability. In lieu of the term ‘‘residual disability,’’ the insurer may use ‘‘proportionate disability’’ or other term of similar import which in the opinion of the Commissioner adequately and fairly describes the benefit.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.140 Medicare.

A hospital, surgical, or medical expenses policy which relates its coverage to eligibility for Medicare or Medicare benefits shall include a definition of Medicare. Such may be substantially defined as ‘‘The Health Insurance for the Aged Act, Title XVIII of the Social Security Amendments of 1965 as then Constituted or Later Amended,’’ or ‘‘Title I, Part I of Public Laws 89-97 as enacted by the Eighty-Ninth Congress of the United States of America and popularly known as the Health Insurance for the Aged Act, as then constituted and any later amendments or substitutes thereof,’’ or words of similar import.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.141 Mental or nervous disorders.

Mental, nervous, or emotional disorder means a neurosis, psychoneurosis, psychopathy, or psychosis. The definition may include mental, nervous or emotional disorders without demonstrable organic origin.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.142 Debit plan policies.

These policies are those which are issued on a weekly premium paying basis and in which the premiums are collectible weekly by an agent of the insurance company.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.143 One period of confinement.

One period of confinement means one or more separate or combined periods of confinement in a hospital, for the same or related causes not separated by an interval of at least 6-consecutive months between the end of one such period and the beginning of the succeeding period. When succeeding confinements for the same or related causes are separated by such a 6-month interval, the second confinement will be considered a new period of confinement and any applicable benefit limits will be restored.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.151 Compliance.

If a policy contains a conversion privilege, it shall comply, in substance, with the following:

(1) The caption of the provision shall be ‘‘Conversion Privilege,’’ or words of similar import. The provision shall indicate the persons eligible for conversion. The circumstances applicable to the conversion privilege, including any limitations on the conversion, and the person by whom the conversion privilege may be exercised, shall be described in the provision. The provision may indicate that the privilege is subject to the underwriting standards of the insurer relating to overinsurance.

(2) A business overhead expense policy issued on a guaranteed renewable basis, on a noncancellable basis, or a renewable at the option of the insurer basis may, at the option of the insurer, provide for continuation as a loss of time policy upon termination of the business interest.

(3) When a policy is issued pursuant to the exercise of a conversion privilege the converted policy or a rider attached thereto shall reflect the relative rights of each person covered under the converted policy.

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.161 Minimum standards.

The following minimum standards for benefits are prescribed for the categories of coverage noted in the following sections.

This section cited in 31 Pa. Code § 88.169 (relating to specified disease and specified accident coverage); and 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.162 Basic hospital expense coverage.

(a) A policy which provides ‘‘Basic Hospital Expense Coverage’’ is defined as providing coverage for a period of not less than 31 days, during any one period of confinement for each person insured under the policy for the expense incurred for necessary treatment and services rendered as a result of an injury or sickness for at least the following:

(1) Daily hospital room and board in an amount not less than the average semi-private room rate in the community in which theinsured resides or $30 per day.

(2) Miscellaneous hospital service up to ten times the daily hospital room and board benefit for the expense incurred for the charges made by the hospital for services and supplies rendered by the hospital and provided for use only during the period of confinement.

(3) Hospital outpatient services consisting of the following:

(i) Hospital services on the day surgery is performed.

(ii) Hospital services rendered within 72 hours after accidental injury, in an amount not less than $50.

(iii) X-ray and laboratory tests to the extent that benefits for these services would have been provided to an extent not less than $100 if rendered to an inpatient of the hospital.

(b) Benefits provided under subsections (a)(1) and (a)(2) may be provided subject to a combined deductible amount not in excess of $100.

This section cited in 31 Pa. Code § 88.169 (relating to specified disease and specified accident coverage); 31 Pa. Code § 88.171 (relating to supplemental insurance coverage); 31 Pa. Code § 88.186 (relating to basic hospital expense coverage form); and 31 Pa. Code § 88.188 (relating to basic hospital and medical-surgical expense form).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.163 Basic medical-surgical expense coverage.

A policy which provides ‘‘Basic Medical-Surgical Expense Coverage’’ is defined as providing coverage for each person insured under the policy for the expense incurred for the necessary services rendered by a physician for treatment of an injury or sickness for at least the following:

(1) Surgical services on a fee schedule basis with a maximum of $350 based on an acceptable relative value scale of surgical procedures.

(2) Anesthesia services, consisting of administration of necessary general anesthesia and related procedures in connection with covered surgical service rendered by a physician other than the physician or his assistant performing the surgical services, to a minimum of 15% on an expense incurred basis of the surgical service benefit provided.

(3) In-hospital medical services, consisting of physician services rendered to a person who is a bed patient in a hospital for treatment of sickness or injury other than that for which surgical care is required, in an amount not less than $5.00 per call, one call per day, for at least 21 such calls during ‘‘one period of confinement.’’

(4) Surgical schedules contained in the policy shall include a provision providing coverage for procedures not specifically listed in the schedules and not otherwise excluded by the policy, and benefits therefore, shall be consistent with the benefits for comparable procedures.

(5) Two or more surgical procedures performed on the same surgical occasion and through the same incisions shall be covered to the extent that payment is provided for the most expensive procedure. Operations performed during the same surgical session, but not through the same incision, shall be covered to the extent that 100% payment is provided for the most expensive operation and 50% payment for the remaining total.

(6) Whenever a policy is written that provides at least the coverages required for both basic hospital expense coverage and basic medical-surgical expense coverages, the allowable deductible may be applied to the combined coverage.

This section cited in 31 Pa. Code § 88.169 (relating to specified disease and specified accident coverage); 31 Pa. Code § 88.171 (relating to supplemental insurance coverage); 31 Pa. Code § 88.187 (relating to basic medical-surgical expense coverage form); and 31 Pa. Code § 88.188 (relating to basic hospital and medical-surgical expense form).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.164 Hospital confinement indemnity coverage.

A policy of ‘‘Hospital Confinement Indemnity Coverage’’ provides daily benefits for hospital confinement on an indemnity basis in an amount not less than $10 per day and for not less than 31 days during any one period of confinement for each person insured under the policy.

This section cited in 31 Pa. Code § 88.169 (relating to specified disease and specified accident coverage); 31 Pa. Code § 88.171 (relating to supplemental insurance coverage); and 31 Pa. Code § 88.189 (relating to hospital confinement indemnity coverage form).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.165 Major medical expense coverage.

A policy of ‘‘Major Medical Expense Coverage’’ provides hospital, medical, and surgical coverage as follows:

(1) The aggregate maximum is not less than $10,000 per covered person.

(2) The copayment by a covered person is not more than 25% of covered charges except that the copayment percentage applicable to paragraph (7) of § 88.166 of this title (relating to coverage of each covered person) may not be more than 50%.

(3) The deductible shall be stated on a per person, per family, per illness, per benefit period, or per year basis, or a combination of such bases. The deductible shall be not more than 5% of the maximum limit under the coverage unless the policy is written to complement underlying hospital and medical insurance in which case such deductible may be increased by the amount of the benefits provided by such underlying insurance. If the deductible includes benefits provided by underlying hospital and medical insurance, it shall be known as a variable deductible and shall be subject to the following requirements:

(i) The sales material and policy forms for this type of coverage shall clearly and fully describe the variable deductible provision.

(ii) Sales material describing the variable deductible shall be left with the applicant at the time the application is executed.

(iii) The policy shall contain a provision which will permit the insured to increase or decrease his basic deductible to reflect his changing needs and changes in his other medical coverage. Such change will be permitted on any policy whenever subject to an appropriate adjustment of premiums. No evidence of insurability shall be required in connection with a decrease in the basic deductible.

(iv) The minimum basic dollar deductible shall be $750.

(v) Policies shall provide for claim payments on a pro rata basis in the event that other policies of the insured contain similar deductible provisions.

(vi) The insurance company shall remind the insured of his right to adjust the deductible with each renewal notice. This may be accomplished by a question or questions on the renewal notice. These questions would concern themselves with any changes in the basic benefits of the policyholder.

(vii) An explanation of the variable deductible provision shall be included in the outline of coverage and shall be worded substantially similar to the following:

Your Major Medical Expense Policy is designed to coordinate its coverage with benefits provided under other medical expense coverage. This is done by a deductible amount’ which is the flat amount of the Basic Deductible shown on page

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.166 Coverage for each covered person.

Major Medical Expense Coverage must provide for each covered person the following:

(1) Hospital room and board expenses, prior to application of the copayment percentage, for not less than $50 daily or in lieu thereof the average daily cost of a semi-private room rate in the area where the insured resides for a period of not less than 31 days for any period of continuous hospital confinement.

(2) Miscellaneous hospital services, prior to application of the copayment percentage, for an aggregate maximum of not less than $1,500, or 15 times the daily room and board rate if specified in dollar amounts.

(3) Surgical fees, prior to application of the copayment percentage, to a maximum of not less than $600 for the most severe operation with the amounts provided for other operations reasonably related to such maximum amount.

(4) Anesthesia services, prior to application of the copayment percentage, for a maximum of not less than 15% of the covered surgical fees or, alternatively, if the surgical schedule is based on relative values, not less than the amount provided therein for anesthesia services at the same unit value as used for the surgical schedule.

(5) Doctor visits, in or out of the hospital, with minimum dollar amounts per visit, prior to application of the copayment percentage, equal to not less than $10 per visit, covering not less than one visit per day and for an aggregate maximum of such covered charges of not less than $600.

(6) Out-of-hospital diagnostic X-rays and tests, prior to application of the copayment percentage, for an aggregate maximum of such covered charges of not less than $600.

(7) Not fewer than three of the following additional benefits prior to application of the copayment percentage, for an aggregate maximum of such covered charges of not less than $1,000:

(i) In-hospital private duty registered nurse services.

(ii) Diagnosis and treatment by a radiologist or physiotherapist.

(iii) Rental of special medical equipment, as defined by the insurer in the policy.

(iv) Artificial limbs or eyes; casts, splints, trusses, or braces.

(v) Treatment for functional nervous disorders, and mental and emotional disorders.

(vi) Out-of-hospital prescription drugs and medications.

This section cited in 31 Pa. Code § 88.165 (relating to major medical expense coverage); 31 Pa. Code § 88.169 (relating to specified disease and specified accident coverage); and 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.167 Disability income protection coverage.

(a) A policy of ‘‘Disability Income Protection Coverage’’ provides for periodic payments, weekly or monthly, for a specified period during the continuance of disability resulting from either sickness or injury or a combination thereof. This section does not apply to those policies providing business buyout coverage. Disability Income Protection Coverage must:

(1) Provide that periodic payments which are payable at ages after 62 and reduced solely on the basis of age are at least 50% of the amounts payable prior to 62.

(2) Contain an elimination period no greater than:

(i) 90 days in the case of a coverage providing a benefit of 1 year or less.

(ii) 180 days in the case of coverage providing a benefit of more than one year but not greater than 2 years.

(iii) 365 days in all other cases during the continuance of disability resulting from sickness or injury.

(3) Have a maximum period of time for which it is payable during disability of at least 6 months.

(b) The coverage shall not require a loss from accidental injury to commence within less than 30 days after the date of an accident, nor may any such accident policy which the insurer may cancel or refuse to renew require that it be in force at the time the loss commences, if the accident occurred while the policy was in force.

(c) Benefits for specific injury due to accident shall not be in lieu of sickness benefits, unless the specific benefit exceeds the sickness benefit.

(d) No policy which contains a disability income benefit or a similar type benefit may require an insured person to be confined to his residence due to sickness or injury as a condition for any such benefit, any change in the amount of such benefit or any change in duration of coverage of such benefit.

(e) No policy of accident and health insurance will be approved which contains a provision that the disability period shall be considered to commence with the date on which written notice is actually received by the company.

(f) Policies which limit benefits for loss of time to specified items, such as business overhead policies, shall provide for a premium refund in accordance with a short rate table in the event that none of the items to be indemnified exist at the time the policy is cancelled, for example, where a professional person discontinues his office, but only if the insured requests cancellation of the policy and gives timely notice. Any premium refund may be limited to one year’s premium.

This section cited in 31 Pa. Code § 88.169 (relating to specified disease and specified accident coverage); 31 Pa. Code § 88.171 (relating to supplemental insurance coverage); and 31 Pa. Code § 88.191 (relating to disability income protection coverage form).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.168 Accident only coverage.

(a) ‘‘Accident Only Coverage’’ is a policy of accident insurance which provides coverage, singly or in combination, for death, dismemberment, disability, or hospital and medical care caused by accident.

(b) ‘‘Accident Only’’ policies shall provide continuous 24-hour coverage. The amount of benefits payable shall not vary with respect to when, where, or how the accident occurs except with respect to benefits for the general classifications of ‘‘Common Carrier’’ and ‘‘Private Passenger Automobile.’’

(c) Accidental death and dismemberment benefits shall be payable irrespective of total disability. Disability income benefits, if provided, shall not require the loss to commence less than 30 days after the date of the accident, nor may any policy which the insurer may cancel or refuse to renew require that it be in force at the time disability commences if the accident occurred while the policy was in force.

(d) The amount of the accidental death benefit shall not be less than $1,000.

(e) The amount of the dismemberment benefit shall not be less than:

(1) $500 in the case of a single dismemberment; and

(2) $1,000 in the case of a double dismemberment.

This section cited in 31 Pa. Code § 88.169 (relating to specified disease and specified accident coverage); 31 Pa. Code § 88.171 (relating to supplemental insurance coverage); and 31 Pa. Code § 88.192 (relating to accident only coverage form).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.169 Specified disease and specified accident coverage.

(a) ‘‘Specified Disease Coverage’’ is a policy which provides coverage for each person insured under the policy for specifically named diseases with a deductible amount not in excess of $250 and an overall aggregate benefit limit of not less than $5,000 and a benefit period of not less than 2 years for at least the following incurred expenses:

(1) Hospital room and board for semi-private accommodations and other hospital furnished medical services or supplies.

(2) Treatment by a legally qualified physician or surgeon.

(3) Private duty services of a registered nurse (R.N.).

(4) X-ray, radium and other therapy procedures used in diagnosis and treatment.

(5) Professional ambulance for local service to or from a local hospital.

(6) Blood transfusions, including expense incurred for blood donors.

(7) Drugs and medicines prescribed by a physician.

(8) The rental of an iron lung or similar mechanical apparatus. Braces, crutches and wheel chairs as deemed necessary by the attending physician for the treatment of the disease.

(9) Emergency transportation if in the opinion of the attending physician it is necessary to transport the insured to another locality for treatment of the disease.

(10) Policies may contain no ‘‘inside limits.’’

(b) ‘‘Specified disease coverage’’ is a policy which provides benefits for each person insured under the policy for specifically named diseases for the following:

(1) Hospital confinement in an amount of at least $100 per day for at least 500 days.

(2) Surgical expenses equal to reasonable and customary charges not to exceed an overall lifetime maximum of $3,500.

(3) Radium, cobalt, chemotherapy or X-ray therapy expenses while not hospital confined to at least $1,000. The therapy benefit shall be restored after an insured is treatment or hospitalization free for at least 12 months.

(c) A policy of ‘‘Specified Accident Coverage’’ provides coverage for a specifically identified kind of accident for each person insured under the policy for accidental death or accidental death and dismemberment combined, and may include coverage for disability or hospital and medical care with a benefit amount of no less than $1,000 for accidental death, $1,000 for double dismemberment and $500 for single dismemberment. Benefit amounts may not be so limited as to be unjust, unfair or misleading to the public. Benefits for disability, hospital or medical care shall be subject to the limits set forth in § § 88.161—88.171 (relating to minimum standards for benefits).

This section cited in 31 Pa. Code § 88.193 (relating to specified disease or specified accident coverage form).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.171 Supplemental insurance coverage.

A policy of ‘‘Supplemental Insurance Coverage’’ provides benefits that are less than the minimum standards for benefits required under § § 88.161—88.168. The policies or contracts may be delivered or issued for delivery in this Commonwealth only if the outline of coverage is completed and delivered as required by § § 88.181—88.195 (relating to outline of coverage). Supplemental policies shall clearly state that the coverage provided is intended only to supplement other basic coverages. This disclosure shall be part of the policy title, policy description or schedule page.

This section cited in 31 Pa. Code § 88.169 (relating to specified disease and specified accident coverage); and 31 Pa. Code § 88.195 (relating to supplemental insurance coverage form).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.181 Prohibition.

No policy may be delivered or issued for delivery in this Commonwealth unless an appropriate outline of coverage, as prescribed by this chapter, either accompanies the policy or contract or is delivered at the time application is made.

The provisions of this § 88.181 issued under The Insurance Company Law of 1921 (40 P. S. § § 341—991); amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and sections 354 and 616 of The Insurance Company Law of 1921 (40 P. S. § § 477b and 751).

The provisions of this § 88.181 amended September 18, 1981, effective September 20, 1982, 11 Pa.B. 3214; amended September 15, 1989, effective September 16, 1989, 19 Pa.B. 3945. Immediately preceding text appears at serial page (65167).

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.182 Disclosure statement.

In the event that a policy or contract is issued on a basis other than that applied for, a disclosure statement properly describing the policy or contract must accompany the policy or contract when it is delivered and contain the following statement, in no less than 12-point type, immediately above the company name: ‘‘NOTICE: Read this outline of coverage carefully. It is not identical to the outline of coverage provided upon application and the coverage originally applied for has not been issued.’’

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.183 Changes in terminology.

Appropriate changes in terminology shall be made in outlines of coverage in the case of contracts of hospital plan corporations, or professional health service corporations. In any other case where the prescribed outline is inappropriate for the coverage provided by the policy or contract, an alternate outline shall be submitted to the Commissioner for prior approval.

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.184 Print.

The outlines of coverage required by this chapter shall be plainly printed in light-faced type of a style in general use, the size of which shall be uniform and not less than ten-point with a lower-case unspaced alphabet length not less than 120-point.

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.185 Text.

In the outline of coverage forms that follow, only the material appearing in brackets is to be composed by the insurer in language appropriate for the coverage provided. All other material shall appear in exactly the form set forth in this chapter.

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.186 Basic hospital expense coverage.

An outline of coverage, in the form prescribed in this section, shall be issued in connection with policies meeting the standards of § 88.162 (relating to basic hospital expense coverage). The items included in the outline must appear in the sequence prescribed:

(1) Read Your Policy Carefully—This outline provides a very brief description of the important features of your policy. This is not the insurance contract and only the actual policy provisions will control. The policy itself sets forth in detail the rights and obligations of both you and your insurance company. It is, therefore, important that you READ YOUR POLICY CAREFULLY!

(2) Basic Hospital Expense Coverage—Policies of this category are designed to provide, to persons covered, coverage for hospital expenses incurred as a result of a covered accident or sickness. Coverage is provided for daily hospital room and board, miscellaneous hospital services, and hospital out-patient services, subject to any limitations set forth in the policy. Coverage is not provided for physicians or surgeons fees or unlimited hospital expenses. (*NOTE: Immediately preceding sentence may be appropriately modified, if necessary, to reflect coverage provided.)

(3) (A brief specific description of the benefits contained in this policy, in the following order:

(a) Daily hospital room and board;

(b) Miscellaneous hospital services;

(c) Hospital out-patient services; and

(d) Other benefits, if any.

*NOTE: The above description of benefits shall be stated clearly and concisely, and shall include a description of benefit amounts; durations or limits, elimination periods, inner limits, deductible or co-payment provisions and any other items appropriate to the coverage provided.)

(4) (A description of the exceptions, reductions, and limitations contained in the policy or contract, including the pre-existing conditions provisions, if any, and the circumstances under which any reduction becomes operative.)

(5) (A description of the terms and conditions of renewability of the policy or contract, including any limitation by age, time or event, rights to change premium, status requirements and any other matters appropriate to the terms and conditions of renewability (including any rights of cancellation reserved to the insured).)

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.187 Basic medical-surgical expense coverage.

An outline of coverage, in the form prescribed in this section, shall be issued in connection with policies meeting the standards of § 88.163 (relating to basic medical-surgical expense coverage). The items included in the outline must appear in the sequence prescribed:

(1) Read Your Policy Carefully—This outline provides a very brief description of the important features of your policy. This is not the insurance contract and only the actual policy provisions will control. The policy itself sets forth in detail the rights and obligations of both you and your insurance company. It is, therefore, important that you READ YOUR POLICY CAREFULLY!

(2) Basic Medical-Surgical Expense Coverage—Policies of this category are designed to provide, to persons insured, coverage for medical-surgical expenses incurred as a result of a covered accident or sickness. Coverage is provided for surgical services, anesthesia services, and in-hospital medical services, subject to any limitations set forth in the policy. Coverage is not provided for hospital expenses or unlimited medical-surgical expenses. (*NOTE: Immediately preceding sentence may be appropriately modified, if necessary, to reflect coverage provided.)

(3) (A brief specific description of the benefits contained in this policy , in the following order:

(a) Surgical services;

(b) Anesthesia services;

(c) In-hospital medical services; and

(d) Other benefits, if any.

*NOTE: The above description of benefits shall be stated clearly and concisely, and shall include a description of benefit amounts, durations or limits, elimination periods, inner limits, deductible or co-payment provisions and any other items appropriate to the coverage provided.)

(4) (A description of the exceptions, reductions and limitations contained in the policy or contract, including the pre-existing conditions provisions, if any, and the circumstances under which any reduction becomes operative.)

(5) (A description of the terms and conditions of renewability of the policy or contract, including any limitation by age, time or event, rights to change premium, status requirements and any other matters appropriate to the terms and conditions of renewability (including any rights of cancellation reserved to the insured).)

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.188 Basic hospital and medical-surgical expense form.

An outline of coverage, in the form prescribed in this section, shall be issued in connection with policies meeting the standards of § § 88.162 and 88.163 (relating to basic hospital expense coverage; and basic medical-surgical expense coverage). The items included in the outline must appear in the sequence prescribed:

(1) Read Your Policy Carefully—This outline provides a very brief description of the important features of your policy. This is not the insurance contract and only the actual policy provisions will control. The policy itself sets forth in detail the rights and obligations of both you and your insurance company. It is, therefore, important that you READ YOUR POLICY CAREFULLY!

(2) Basic Hospital and Medical-Surgical Expense Coverage —Policies of this category are designed to provide, to persons insured, coverage for hospital and medical-surgical expenses incurred as a result of a covered accident or sickness. Coverage is provided for daily hospital room and board, miscellaneous hospital services, hospital out-patient services, surgical services, anesthesia services, and in-hospital medical services, subject to any limitations set forth in the policy. Coverage is not provided for unlimited hospital or medical-surgical expenses. (*NOTE: Immediately preceding sentence may be appropriately modified, if necessary to reflect coverage provided.)

(3) (A brief specific description of the benefits contained in this policy, in the following order:

(a) Daily hospital room and board;

(b) Miscellaneous hospital services;

(c) Hospital out-patient services;

(d) Surgical services;

(e) Anesthesia services;

(f) In-hospital medical services; and

(g) Other benefits, if any.

*NOTE: The above description of benefits shall be stated clearly and concisely, and shall include a description of benefit amounts; durations or limits, elimination periods, inner limits, deductible or co-payment provisions and any other items appropriate to the coverage provided.)

(4) (A description of the exceptions, reductions, and limitations contained in the policy or contract, including the pre-existing conditions provisions, if any, and the circumstances under which any reduction becomes operative.)

(5) (A description of the terms and conditions of renewability of the pol- icy or contract, including any limitation by age, time or event, rights to change premium, status requirements and any other matters appropriate to the terms and conditions of renewability (including any rights of cancellation reserved to the insured).)

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.189 Hospital confinement indemnity coverage.

An outline of coverage, in the form prescribed in this section, shall be issued in connection with policies meeting the standards of § 88.164 of this title (relating to hospital confinement indemnity coverage). The items included in the outline must appear in the sequence prescribed:

(1) Read Your Policy Carefully—This outline provides a very brief description of the important features of your policy. This is not the insurance contract and only the actual policy provisions will control. The policy itself sets forth in detail the rights and obligations of both you and your insurance company. It is, therefore, important that you READ YOUR POLICY CAREFULLY!

(2) Hospital Confinement Indemnity Coverage—Policies of this category are designed to provide, to persons insured, coverage in the form of a fixed daily benefit during periods of hospitalization resulting from a covered accident or sickness, subject to any limitations set forth in the policy. Such policies do not provide any benefits other than the fixed daily indemnity for hospital confinement. (*NOTE: Immediately preceding sentence may be appropriately modified, if necessary, to reflect coverage provided.)

(3) (A brief specific description of the benefits contained in this policy, in the following order:

(a) Daily benefit payable during hospital confinement; and

(b) Duration of benefit described in (a).

(c) Any other benefits provided by the policy.

*NOTE: The above description of benefits shall be stated clearly and concisely, and shall include a description of benefit amounts, durations or limits, elimination periods, inner limits, deductible or co-payment provisions and any other items appropriate to the coverage provided.)

(4) (A description of the exceptions, reductions and limitations contained in the policy or contract, including the pre-existing conditions provisions, if any, and the circumstances under which any reduction becomes operative.)

(5) (A description of the terms and conditions of renewability of the policy or contract, including any limitation by age, time or event, rights to change premium, status requirements and any other matters appropriate to the terms and conditions of renewability (including any rights of cancellation reserved to the insured).)

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.190 Major medical expense coverage.

An outline of coverage, in the form prescribed in this section, shall be issued in connection with policies meeting the standards of § 88.165 of this title (relating to major medical expense coverage). The items included in the outline must appear in the sequence prescribed:

(1) Read Your Policy Carefully—This outline provides a very brief description of the important features of your policy. This is not the insurance contract and only the actual policy provision will control. The policy itself sets forth in detail the rights and obligations of both you and your insurance company. It is, therefore, important that you READ YOUR POLICY CAREFULLY!

(2) Major Medical Expense Coverage—Policies of this category are designed to provide, to persons insured, coverage for major hospital, medical, and surgical expenses incurred as a result of a covered accident or sickness. Coverage is provided for daily hospital room and board, miscellaneous hospital services, surgical services, anesthesia services, in-hospital medical services, out of hospital care, and prosthetic appliances, subject to any deductibles co-payment provisions, or other limitations which may be set forth in the policy. Basic hospital or basic medical insurance coverage is not provided. (*NOTE: Immediately preceding sentence may be appropriately modified, if necessary, to reflect coverage provided.)

(3) (A brief specific description of the benefits contained in this policy, in the following order:

(a) Daily hospital room and board;

(b) Miscellaneous hospital services;

(c) Surgical services;

(d) Anesthesia services;

(e) In-hospital medical services;

(f) Out of hospital care;

(g) Prosthetic appliances; and

(h) Other benefits, if any.

*NOTE: The above description of benefits shall be stated clearly and concisely, and shall include a description of benefit amounts, durations or limits, elimination periods, inner limits, deductible or co-payment provisions and any other items appropriate to the coverage provided.)

(4) (A description of the exceptions, reductions and limitations contained in the policy or contract, including the pre-existing conditions provisions, if any, and the circumstances under which any reduction becomes operative.)

(5) (A description of the terms and conditions of renewability of the policy or contract, including any limitation by age, time or event, rights to change premium, status requirements and any other matters appropriate to the terms and conditions of renewability (including any right of cancellation reserved to the insured).)

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.191 Disability income protection coverage form.

An outline of coverage, in the form prescribed in this section, shall be issued in connection with policies meeting the standards of § 88.167 (relating to disability income protection coverage). The items included in the outline must appear in the sequence prescribed:

(1) Read Your Policy Carefully—This outline provides a very brief description of the important features of your policy. This is not the insurance contract and only the actual policy provisions will control. The policy itself sets forth in detail the rights and obligations of both you and your insurance company. It is, therefore, important that you READ YOUR POLICY CAREFULLY!

(2) Disability Income Protection Coverage—Policies of this category are designed to provide, to persons insured, coverage for disabilities resulting from a covered accident or sickness, subject to any limitations set forth in the policy. Coverage is not provided for basic hospital, basic medical-surgical, or major-medical expenses. (*NOTE: Immediately preceding sentence may be appropriately modified, if necessary, to reflect coverage provided.)

(3) (A brief specific description of the benefits contained in this policy:

*NOTE: The description of benefits shall be stated clearly and concisely, and shall include a description of benefit amounts, durations or limits, elimination periods, inner limits, deductible or co-payment provisions and any other items appropriate to the coverage provided.)

(4) (A description of the exceptions, reductions and limitations contained in the policy or contract, including the pre-existing conditions provisions, if any, and the circumstances under which any reduction becomes operative.)

(5) (A description of the terms and conditions of renewability of the policy or contract, including any limitation by age, time or event, rights to change premium, status requirements and any other matters appropriate to the terms and conditions of renewability (including any rights of cancellation reserved to the insured).)

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.192 Accident only coverage form.

An outline of coverage, in the form prescribed in this section, shall be issued in connection with policies meeting the standards of § 88.168 (relating to accident only coverage). The items included in the outline must appear in the sequence prescribed:

(1) Read Your Policy Carefully—This outline provides a very brief description of the important features of your policy. This is not the insurance contract and only the actual policy provisions will control. The policy itself sets forth in detail the rights and obligations of both you and your insurance company. It is, therefore, important that you READ YOUR POLICY CAREFULLY!

(2) Accident Only Coverage—Policies of this category are designed to provide, to persons insured, payment for certain losses resulting from a covered accident ONLY, subject to any limitations contained in the policy. Coverage is not provided for any loss due to sickness. Coverage is not provided for basic hospital, basic medical-surgical, or major-medical expenses.

(*NOTE: Immediately preceding sentence may be appropriately modified, if necessary, to reflect coverage provided.)

(3) (A brief specific description of the benefits contained in this policy:

*NOTE: The above description of benefits shall be stated clearly and concisely, and shall include a description of benefit amounts, durations or limits, elimination periods, inner limits, deductible or co-payment provisions and any other items appropriate to the coverage provided.)

(4) (A description of the exceptions, reductions and limitations contained in the policy or contract, including the pre-existing conditions provisions, if any, and the circumstances under which any reduction becomes operative.)

(5) (A description of the terms and conditions of renewability of the policy or contract, including any limitation by age, time or event, rights to change premium, status requirements and any other matters appropriate to the terms and conditions of renewability (including any rights of cancellation reserved to the insured).)

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.193 Specified disease or specified accident coverage form.

An outline of coverage, in the form prescribed in this section, shall be issued in connection with policies meeting the standards of § 88.169 (relating to specified disease or specified accident coverage). The coverage shall be identified by the appropriate bracketed title. The items included in the outline must appear in the sequence prescribed:

(1) Read Your Policy Carefully—This outline provides a very brief description of the important features of your policy. This is not the insurance contract and only the actual policy provisions will control. The policy itself sets forth in detail the rights and obligations of both you and your insurance company. It is, therefore, important that you READ YOUR POLICY CAREFULLY!

(2) (Specified Disease) (Specified Accident) Coverage—Policies of this category are designed to provide, to persons insured, restricted coverage paying benefits ONLY when certain losses occur as a result of (specified diseases) or (specified accidents). Coverage is not provided for basic hospital, basic medical-surgical, or major-medical expenses. (*NOTE: Immediately preceding sentence may be appropriately modified, if necessary, to reflect coverage provided.)

(3) (A brief specific description of the benefits contained in this policy:

*NOTE: The above description of benefits shall be stated clearly and concisely, and shall include a description of benefit amounts, durations or limits, elimination periods, inner limits, deductible or co-payment provisions and any other items appropriate to the coverage provided.)

(4) (A description of the exceptions, reductions and limitations contained in the policy or contract, including the pre-existing conditions provisions, if any, and the circumstances under which any reduction becomes operative.)

(5) (A description of the terms and conditions of renewability of the policy or contract, including any limitation by age, time or event, rights to change premium, status requirements and any other matters appropriate to the terms and conditions of renewability (including any rights of cancellation reserved to the insured).)

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

31 Pa. Code § 88.195 Supplemental insurance coverage form.

An outline of coverage, in the form prescribed in this section, shall be issued in connection with policies meeting the standards of § 88.171 (relating to supplemental insurance coverage). The coverage shall be identified by the appropriate bracketed title. The items included must appear in the sequence prescribed:

(1) Read Your Policy Carefully—This outline of coverage provides a very brief description of the important features of your policy. This is not the insurance contract and only the actual policy provisions will control. The policy itself sets forth in detail the rights and obligations of both you and your insurance company. It is, therefore, important that you READ YOUR POLICY CAREFULLY!

(2) (Supplemental Insurance Coverage)—Policies of this category are designed to provide, to persons insured, limited or supplemental coverage.

(3) (A brief specific description of the benefits, including dollar amounts contained in this policy:

*NOTE: The above description of benefits shall be stated clearly and concisely, and shall include a description of benefit amounts, durations or limits, elimination periods, inner limits, deductible or co-payment provisions and any other items appropriate to the coverage provided. Proper disclosure of benefits which vary according to accidental cause shall be made.)

(4) (A description of any policy provisions which exclude, eliminate, restrict, reduce, limit, delay, or in any other manner operate to qualify payment of the benefits described in (3) above.)

(5) (A description of policy provisions respecting renewability or continuation of coverage, including age restrictions or any reservation of right to change premiums.)

This section cited in 31 Pa. Code § 88.171 (relating to supplemental insurance coverage).

History

• Authority: The provisions of this Chapter 88 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 88 adopted June 23, 1978, effective June 24, 1978, 8 Pa.

Chapter 90 Hospital Expense Benefits

31 Pa. Code § 90.1 Definition of territories.

(a) For purposes of the determination by the Commissioner of the maximum dollar amounts for hospital room and board daily expense benefits under section 621.2(d)(10) of The Insurance Company Law of 1921 (40 P. S. § 756.2(d)(10)), the Commonwealth is divided into five territories as follows:

(1) Philadelphia Area, including counties of Bucks, Montgomery, Chester, Delaware and Philadelphia.

(2) Allentown Area, including counties of Lehigh and Northampton.

(3) Harrisburg South Central Area, including counties of Centre, Union, Northumberland, Montour, Columbia, Schuylkill, Snyder, Mifflin, Juniata, Perry, Dauphin, Lebanon, Lancaster, York, Adams, Franklin, Fulton, Cumberland and Berks.

(4) Pittsburgh Area, including counties of Erie, Warren, McKean, Potter, Crawford, Mercer, Venango, Forest, Elk, Cameron, Lawrence, Butler, Clarion, Armstrong, Jefferson, Indiana, Clearfield, Cambria, Beaver, Allegheny, Westmoreland, Blair, Huntingdon, Washington, Green, Fayette, Somerset and Bedford.

(5) Wilkes-Barre Area, including counties of Tioga, Bradford, Susquehanna, Wayne, Clinton, Lycoming, Sullivan, Wyoming, Lackawanna, Pike, Luzerne, Carbon and Monroe.

(b) The maximum dollar amounts for hospital room and board daily expense benefits will be determined by the Commissioner by using the average hospital semiprivate room and board daily charge for each territory set forth in subsection (a), as reported to the Commissioner by Blue Cross.

(c) The maximum dollar amounts for hospital room and board daily expense benefits for these territories will be submitted to the Legislative Reference Bureau for recommended publication as a notice in the Pennsylvania Bulletin at intervals required by statute and for recommended codification, in the Pennsylvania Code, as subsection (d).

The provisions of this § 90.1 issued under The Insurance Department Act of 1921 (40 P. S. § § 1—321); amended under: sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); The Insurance Department Act of 1921 (40 P. S. § § 1—321); and The Insurance Company Law of 1921 (40 P. S. § § 341—991).

The provisions of this § 90.1 amended August 14, 1981, effective November 13, 1981, 11 Pa.B. 2848; amended January 23, 1987, effective April 24, 1987, 17 Pa.B. 385. Immediately preceding text appears at serial page (79704).

History

• Authority: The provisions of this § 90.
• Source: The provisions of this Chapter 90 adopted June 3, 1977, effective June 4, 1977, 7 Pa.

Part V Marine Insurance

Chapter 91 Nation-Wide Marine Insurance Definition

31 Pa. Code § 91.1 General.

The Insurance Department of the Commonwealth has adopted the ‘‘Nation-Wide Definition’’ of ‘‘marine insurance,’’ which was adopted by the National Association of Insurance Commissioners on June 12, 1953 at San Francisco, California, subject to the modifications set forth in this chapter.

History

• Authority: The provisions of this Chapter 91 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 91 adopted June 30, 1953, amended through December 22, 1964, unless otherwise noted.

31 Pa. Code § 91.2 Purpose.

(a) The purpose of this chapter is to describe the kinds of risks and coverages which may be identified under State insurance laws as marine, inland marine, or transportation insurance, but does not include all of the kinds of risks and coverages which may be written, classified, or identified under marine, inland marine, or transportation insuring powers, nor shall it be construed to mean that the kinds of risks and coverages are solely marine, inland marine, or transportation insurance in all instances.

(b) This chapter shall not be construed to restrict or limit in any way the exercise of any insuring powers granted under charters and licenses, whether used separately, in combination, or otherwise.

History

• Authority: The provisions of this Chapter 91 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 91 adopted June 30, 1953, amended through December 22, 1964, unless otherwise noted.

31 Pa. Code § 91.3 Imports—coverage.

Imports may be covered wherever the property may be and without restriction as to time, provided the coverage of the issuing companies includes the hazards of transportation.

The provisions of this § 91.3 issued under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411, and 412); and The Fire, Marine and Inland Marine Rate Regulatory Act (40 P. S. § § 1221—1238).

The provisions of this § 91.3 amended September 4, 1981, effective December 4, 1981, 11 Pa.B. 3046. Immediately preceding text appears at serial page (14250).

History

• Authority: The provisions of this Chapter 91 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 91 adopted June 30, 1953, amended through December 22, 1964, unless otherwise noted.

31 Pa. Code § 91.4 Imports—character.

An import, as a proper subject of marine or transportation insurance, shall be deemed to maintain its character as such so long as the property remains segregated in such a way that it may be identified and has not become incorporated and mixed with the general mass of property in the United States, and shall be deemed to have been completed if any of the following occurs:

(1) The property is sold and delivered by the importer, factor, or consignee.

(2) The property is removed from the place of storage and placed on sale as part of the importer’s stock in trade at a point of sale distribution.

(3) The property is delivered for manufacture, processing, or change in form to the premises of the importer or of another used for any such purposes.

The provisions of this § 91.4 issued under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and The Fire, Marine and Inland Marine Rate Regulatory Act (40 P. S. § § 1221—1238).

The provisions of this § 91.4 amended September 4, 1981, effective December 4, 1981, 11 Pa.B. 3046. Immediately preceding text appears at serial page (14250).

History

• Authority: The provisions of this Chapter 91 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 91 adopted June 30, 1953, amended through December 22, 1964, unless otherwise noted.

31 Pa. Code § 91.5 Exports.

(a) Exports may be covered by marine and transportation insurance wherever the property may be without restriction as to time, provided the coverage of the issuing companies includes the hazards of transportation.

(b) An export, as a proper subject of marine or transportation insurance, shall be deemed to acquire its character as such when designated or while being prepared for export and retain that character unless diverted for domestic trade, and if so diverted, the provisions set forth in § 91.6 (relating to domestic shipments) shall apply, provided, however, that this section shall not apply to long-established methods of insuring certain commodities, for example, cotton.

History

• Authority: The provisions of this Chapter 91 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 91 adopted June 30, 1953, amended through December 22, 1964, unless otherwise noted.

31 Pa. Code § 91.6 Domestic shipments.

(a) Domestic shipments on consignment for sale or distribution, exhibit, trial, or approval or auction—while in transit in the custody of others, and while being returned—may be covered by marine and transportation insurance provided that in no event shall the policy cover shipments on premises owned, leased, or operated by the consignor.

(b) Domestic shipments not on consignment may be covered by marine or transportation insurance provided that the coverage of the issuing companies includes the hazards of transportation beginning and ending within the United States and that such shipments shall not be covered at manufacturing premises nor after arrival at premises owned, leased, or operated by assured or purchaser.

The provisions of this § 91.6 issued under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and The Fire, Marine and Inland Marine Rate Regulatory Act (40 P. S. § § 1221—1238).

The provisions of this § 91.6 amended September 4, 1981, effective December 4, 1981, 11 Pa.B. 3046. Immediately preceding text appears at serial page (7768).

This section cited in 31 Pa. Code § 91.5 (relating to exports).

History

• Authority: The provisions of this Chapter 91 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 91 adopted June 30, 1953, amended through December 22, 1964, unless otherwise noted.

31 Pa. Code § 91.7 Bridges, tunnels, and other instrumentalities of transportation and communication.

(a) Bridges, tunnels, and other instrumentalities of transportation and communication excluding buildings, their improvements and betterments, their furniture and furnishings, their fixed contents, and their supplies held in storage may be covered by marine and transportation insurance.

(b) The insurance coverage set forth in subsection (a) shall include all of the following:

(1) Bridges, tunnels, and other similar instrumentalities, including auxiliary facilities and equipment attendant thereto.

(2) Piers, wharves, docks, slips, dry docks and marine railways.

(3) Pipelines, including on-line propulsion, regulating, and other equipment appurtenant to such pipelines, but excluding all property at manufacturing, producing, refining, converting, treating, or conditioning plants.

(4) Power transmission and telephone and telegraph lines excluding all property at generating, converting, or transforming station, substations, and exchanges.

(5) Radio and television communication equipment in commercial use as such, including towers and antennae with auxiliary equipment and appurtenant electrical operating and control apparatus.

(6) Outdoor cranes, loading bridges, and similar equipment used to load, unload, and transport.

The provisions of this § 91.7 issued under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and The Fire, Marine and Inland Marine Rate Regulatory Act (40 P. S. § § 1221—1238).

The provisions of this § 91.7 amended September 4, 1981, effective December 4, 1981, 11 Pa.B. 3046. Immediately preceding text appears at serial page (7769).

History

• Authority: The provisions of this Chapter 91 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 91 adopted June 30, 1953, amended through December 22, 1964, unless otherwise noted.

31 Pa. Code § 91.8 Property floater risks.

(a) Personal property floater policies may cover any of the following, individually or generally:

(1) Personal effects floater policies.

(2) The personal property floater.

(3) Government service floaters.

(4) Personal fur floaters.

(5) Personal jewelry floaters.

(6) Wedding present floaters for not exceeding 90 days after the date of the wedding.

(7) Silverware floaters.

(8) Fine arts floaters covering paintings; etchings; pictures; tapestries; art glass windows; and other bona fide works of art of rarity, historical value, or artistic merit.

(9) Stamp and coin floaters.

(10) Musical instrument floaters. Radios, televisions, record players, and combinations thereof are not deemed musical instruments.

(11) Mobile articles, machinery, and equipment floaters—excluding motor vehicles designed for highway use, and auto homes, trailers, and semitrailers except when hauled by tractors not designed for highway use—covering identified property of a mobile or floating nature pertaining to or usual to a household. Such policies shall not cover furniture and fixtures not customarily used away from premises where such property is usually kept.

(12) Live animal floaters.

(b) Commercial property floater policies covering property pertaining to a business, profession, or occupation may cover any of the following:

(1) Radium floaters.

(2) Physicians’ and surgeons’ instrument floaters. Such policies may include coverage of such furniture, fixtures, and tenant assured’s interest in such improvements and betterments of buildings as are located in the portion of the premises occupied by the assured in the practice of his profession.

(3) Pattern and die floaters.

(4) Theatrical floaters, excluding buildings and their improvements and betterments, and furniture and fixtures which do not travel about with theatricaltroupes.

(5) Film floaters, including builders’ risk during the production and coverage on completed negatives and positives and sound records.

(6) Salesmen’s samples floaters.

(7) Exhibition policies on property while on exhibitions and in transit to or from such exhibitions.

(8) Live animal floaters.

(9) Builders’ risks and installation risks covering interest of owner, seller, or contractor against loss or damage to machinery, equipment, building materials, or supplies being used with, and during the course of installation, testing, building, renovating, or repairing. Such policies may cover at points or places where work is being performed, while in transit and during temporary storage or deposit, property designated for and awaiting specific installation, building, renovating, or repairing. Such coverage shall be limited to builders’ risks or installation risks where perils in addition to fire and extended coverage are to be insured. If written for account of owner, the coverage shall cease upon completion and acceptance thereof; or, if written for account of a seller or contractor, the coverage shall terminate when the interest of the seller or contractor ceases.

(10) Mobile articles, machinery and equipment floaters (excluding motor vehicles designed for highway use and auto homes, trailers, and semitrailers, except when hauled by tractors not designed for highway use and snow plows constructed exclusively for highway use) covering identified property of a mobile or floating nature, not on sale or consignment, or in course of manufactur, which has come into the custody or control of parties who intend to use such property for the purpose for which it was manufactured or created. Such policies shall not cover furniture and fixtures not customarily used away from premises where such property is usually kept.

(11) Property in transit to or from and in the custody of bailees not owned, controlled, or operated by the bailor. Such policies shall not cover the property of the bailee at his premises.

(12) Installment sales and leased property. Policies may cover property sold under conditional contract of sale, partial payment contract, or installment sales contract or property leased but may not cover motor vehicles designed for highway use. Such policies shall cover in transit but shall not extend beyond the termination of the seller’s or lessor’s interest. This paragraph is not intended to include machinery and equipment under certain ‘‘lease-back’’ contracts.

(13) Garment contractors floaters.

(14) Furriers or fur storer’s customer’s policies, that is policies under which certificates or receipts are issued by furriers or fur storers, covering specified articles which are the property of the customers.

(15) Accounts receivable policies, valuable papers and records policies.

(16) Floor plan policies, covering property for sale while in the possession of dealers under a floor plan or any similar plan under which the dealer borrows money from a bank or lending institution with which to pay the manufacturer, provided all of the following apply:

(i) Such merchandise is specifically identifiable as encumbered to the bank or lending institution.

(ii) The right of the dealer to sell or otherwise dispose of such merchandise is conditioned upon its being released from encumbrance by the bank or lending institution.

(iii) Such policies cover in transit and do not extend beyond the termination of the interest of the dealer.

(iv) Such policies shall not cover automobiles or motor vehicles, merchandise for which the collateral of the dealer is the stock or inventory as distinguished from merchandise specifically identifiable as encumbered to the lending institution.

(17) Sign and street clock policies, covering neon signs, automatic or mechanical signs, and street clocks, while in use as such.

(18) Fine arts policies covering paintings, etchings, pictures, tapestries, art glass windows, and other bona fide works of art of rarity, historical value, or artistic merit for account of museums, galleries, universities, businesses, municipalities, and other similar interests.

(19) Policies covering property which, when sold to the ultimate purchaser, may be covered specifically by the owner under inland marine policies.

(i) Such policies include the following:

(A) Musical instrument dealers policies, covering property consisting principally of musical instruments and their accessories. Radios, televisions, record players, and combinations thereof are not deemed musical instruments.

(B) Camera dealers policies, covering property consisting principally of cameras and their accessories.

(C) Furrier’s dealers policies, covering property consisting principally of furs and fur garments.

(D) Equipment dealers policies, covering mobile equipment consisting of binders, reapers, tractors, harvesters, harrows, tedders, and other similar agricultural equipment and accessories therefor; construction equipment consisting of bulldozers, road scrapers, tractors, compressors, pneumatic tools, and similar equipment and accessories therefor; but excluding motor vehicles designed for highway use.

(E) Stamp and coin dealers policies covering property of philatelic and numismatic nature.

(F) Jewelers’ block policies.

(G) Fine arts dealers policies.

(ii) Such policies may include coverage of money in locked safes or vaults on the assured’s premises. Such policies also may include coverage of furniture, fixtures, tools, machinery, patterns, molds, dies, and tenant insured’s interest in improvements of buildings.

(20) Wool growers floaters.

(21) Domestic bulk liquids policies, covering tanks and domestic bulk liquids stored therein.

(22) Difference in conditions coverage excluding fire and extended coverage perils.

(23) Electronic data processing policies.

(c) Unless otherwise permitted, nothing set forth in subsection (b) shall be construed to permit marine or transportation policies to cover any of the following:

(1) Storage of assured’s merchandise, except as otherwise provided.

(2) Merchandise in the course of manufacture, the property of and on the premises of the manufacturer.

(3) Furniture and fixtures and improvements and betterments to buildings.

(4) Moneys and securities in safes, vaults, safety deposit vaults, banks, or assured’s premises, except while in the course of transportation.

The provisions of this § 91.8 issued under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § 66, 186, 411 and 412); and The Fire, Marine and Inland Marine Rate Regulatory Act (40 P. S. § § 1221—1238).

The provisions of this § 91.8 amended September 4, 1981, effective December 4, 1981, 11 Pa.B. 3046. Immediately preceding text appears at serial pages (7769), (14251), (14252), (48132), and (48133).

This section cited in 31 Pa. Code § 112.3 (relating to explanation of submission of rates).

History

• Authority: The provisions of this Chapter 91 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 91 adopted June 30, 1953, amended through December 22, 1964, unless otherwise noted.

Part VI Mutual Insurance

Chapter 107 Assessment Provisions in Mutual Insurance Company Policies

31 Pa. Code § 107.1 Contingent liability required.

Consistent with the expression of the ‘‘maximum premium’’ payable as required by section 806 of The Insurance Company Law of May 1921 (40 P. S. § 916), each assessable policy issued in this Commonwealth shall cause the insured to assume a contingent liability for assessment for each one year period during which his policy is in force.

History

• Authority: The provisions of this Chapter 107 issued under sections 354 and 808 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 107 adopted November 1, 1974, 4 Pa.

31 Pa. Code § 107.2 Disclosure.

(a) The ‘‘Contingent Liability’’ of the insured and the ‘‘Time for Assessment’’ shall be clearly and prominently located in each policy in such manner as to alert and fully disclose to the insured the nature and terms of his contractual agreement regarding contingent liability. It shall be made clear that the amount of contingent liability assumed by an insured will be equal to the maximum assessment which the company may make.

(b) The Commissioner shall deem policy forms which include the notice ‘‘THIS IS AN ASSESSABLE POLICY,’’ printed in accordance with § 133.9 (relating to assessable policy) and equally prominent language referring to the page and paragraph or section number, if any, where the assessment provisions are located, to have satisfied the disclosure requirements of this section.

The provisions of this § 107.2 amended November 14, 1975, 5 Pa.B. 2980. Immediately preceding text appears at serial page (18377).

History

• Authority: The provisions of this Chapter 107 issued under sections 354 and 808 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 107 adopted November 1, 1974, 4 Pa.

31 Pa. Code § 107.3 Minimum amount of contingent liability.

(a) No assessable policy form submitted for Department approval after February 1, 1975, will be approved unless contract language comparable to the following subsections, where applicable, is included. Calculation of the actual amount of contingent liability, where possible, is acceptable.

(b) Where the policy states an annual premium which remains constant for all years, the contingent liability for each year the policy is in force shall be an amount equal to the annual premium stated in the policy.

(c) Where the policy states an annual premium which varies from year to year for any reason, the contingent liability required for each year the policy is in force shall be an amount equal to the average yearly cost or premium of the policy for the period it has been in effect.

(d) Where the policy does not state an annual premium other than an initial maintenance charge or policy writing fee which is not designed to form a fund for the payment of losses, the contingent liability for assessment shall not be greater than the proportionate share of losses, loss adjustment expenses and reasonable operational expenses sustained by the insurer during the most recent annual assessment period or applicable portion thereof.

(e) Where any policy is terminated for any reason before being in force for 1 year, the contingent liability required shall be an appropriate pro rata amount of the contingent liability otherwise required.

The provisions of this § 107.3 amended November 14, 1975, 5 Pa.B. 2980. Immediately preceding text appears at serial pages (18377) and (18378).

History

• Authority: The provisions of this Chapter 107 issued under sections 354 and 808 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 107 adopted November 1, 1974, 4 Pa.

31 Pa. Code § 107.4 Time for collection of assessment.

Procedures for the collection of the contingent liability for assessment assumed by each policyholder may be initiated at any time within two years from the date of expiration or cancellation of the policy. In no case shall an assessment be made or collection procedures begun for losses incurred by the company more than two years prior to the date of the making of such assessment.

History

• Authority: The provisions of this Chapter 107 issued under sections 354 and 808 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 107 adopted November 1, 1974, 4 Pa.

31 Pa. Code § 107.5 Inconsistent provisions.

This chapter will supersede the provisions of any other regulation, rule, or order inconsistent with the provisions of this chapter, to the extent of such inconsistency.

The provisions of this § 107.5 amended November 14, 1975, 5 Pa.B. 2980. Immediately preceding text appears at serial page (18378).

History

• Authority: The provisions of this Chapter 107 issued under sections 354 and 808 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 107 adopted November 1, 1974, 4 Pa.

31 Pa. Code § 107.6 Existing contracts.

The provisions of this chapter are not intended and shall not be construed to alter, amend, or otherwise affect the validity of any contract of insurance presently in force. Upon renewal of existing contracts, however, the provisions of this chapter shall be complied with.

History

• Authority: The provisions of this Chapter 107 issued under sections 354 and 808 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 107 adopted November 1, 1974, 4 Pa.

31 Pa. Code § 107.7 Compliance with this chapter.

(a) Compliance may be made by issuance of riders to the policy or by amendment of the policy itself. After the effective date of this chapter, no new policy forms will be approved which do not comply with this chapter. All policies issued after December 31, 1977, must include the required terms in the policy itself, rather than by rider or endorsement.

(b) Present supplies of policy forms may, if endorsed by approved riders incorporating the assessment conditions, be used by all companies until exhausted or until December 31, 1977, whichever occurs first.

(c) New policy or rider forms shall be submitted to the Insurance Department for review. Approval thereof shall be obtained prior to the use of such forms for any purpose.

(d) This chapter shall become effective February 1, 1975.

The provisions of this § 107.7 amended November 14, 1975, effective November 15, 1975, 5 Pa.B. 2980. Immediately preceding text appears at serial page (18379).

History

• Authority: The provisions of this Chapter 107 issued under sections 354 and 808 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 107 adopted November 1, 1974, 4 Pa.

Part VII Property, Fire and Casualty Insurance

Chapter 112 Policies Covering Personal Property Pledged as Collateral

31 Pa. Code § 112.1 Purpose.

The purpose of this chapter is to establish standards for policies of insurance covering personal property pledged by debtors as collateral to secure a loan or personal property purchased by a credit transaction; to set forth procedures for rate regulation, premium refunds, loss adjustment; to provide requirements for notice of proposed insurance, filing of forms, collection of premiums and maintenance of statistics.

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Cash proceeds—The actual amount of cash received by a debtor after deducting from the cash advance the premium for credit life insurance, credit accident and health insurance and for insurance on personal property pledged by debtors as collateral to secure a loan or personal property purchased by a credit transaction. Commissioner—The Insurance Commissioner. Credit transactions, transactions involving a debtor pledging personal property as collateral—Installment or deferred payment plans; revolving credit plans; bailment lease; security interests created by contract including pledge; assignment, chattel mortgage, chattel trust, trust deed, factor’s lien equipment trust, conditional sale, trust receipt, other lien or title retention contracts and lien or consignment intended as security or other similar secured or credit transaction plans or leased property; or household goods insured by an installment floater. Creditor—The lender of money or vendor or lessor of goods, services, property rights or privileges for which payment of the indebtedness is arranged through a credit transaction or a transaction involving a debtor pledging personal property as collateral or a successor to the right, title or interest of the lender, vendor or lessor and an affiliate, associate or subsidiary of any of them or a director, officer or employe of any of them or another person in any way associated with any of them. Debtor—A borrower of money or guarantor of the borrower, or a purchaser of goods, services, property rights or privileges for which payment is arranged through a credit transaction or a transaction involving a debtor pledging personal property as collateral. Identifiable charge—The amount a creditor charges a debtor or collects from him for policies of insurance other than credit life and credit accident and health insurance. Personal property pledged by a debtor as collateral and personal property purchased under a credit transaction—Only the personal property of the debtor used for his personal use and not used in a business, trade or profession of the debtor. Further, the personal property may not include mobile homes, recreational vehicles or motor vehicles designed for highway use. Policies, policies of insurance—Contracts of credit property insurance insuring against loss of or damage to personal property, covering a creditor’s security interest or a debtor’s interest in such property when the insurance is written as part of a credit transaction or a transaction involving a debtor pledging personal property as collateral and shall include a master policy, endorsement, rider, cover note, memorandum, certificate or other instrument or evidence of the insurance.

The provisions of this § 112.2 amended November 22, 1974, 4 Pa.B. 2419. Immediately preceding text appears at serial page (14259).

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.3 Explanation of submission of rates.

(a) ‘‘Risks and coverages of Installment Sales and Leased property’’ has been deleted from the Nation-Wide Marine Definition, 31 Pa. Code § 91.8 (relating to personal property floater risks). Therefore, this class of risk and type of coverage will no longer be considered uncontrolled and unfiled.

(b) On and after March 1, 1974, all insurance companies insuring personal property purchased under a credit transaction or a credit transaction involving a debtor pledging personal property as collateral must submit rates involving such policies of insurance to the Commissioner for prior approval. Rates currently in use shall be submitted for review by the Commissioner within 90 days of the date of publication of this chapter. The submission of new rates or submission of rates currently in use for review shall be in accordance with provisions of the Fire, Marine and Inland Marine Rate Regulatory Act (40 P. S. § 1221 et seq.).

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.4 Writing of policies.

(a) Policies may be written single interest or dual interest.

(b) No policy shall be written as excess insurance. Policies insuring specific items of purchase or items pledged as collateral shall be primary insurance.

(c) Policies of insurance shall not be used without the prior approval of the Commissioner.

(d) There shall be no minimum premium charged.

The provisions of this § 112.4 amended November 22, 1974, 4 Pa.B. 2419. Immediately preceding text appears at serial page (14260).

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.5 Policy requirements.

All policies of insurance issued in this Commonwealth insuring personal property through a transaction involving a debtor pledging personal property as collateral or personal property purchased under a credit transaction or their equivalent, the premium or cost of which is paid as an identifiable charge, in whole or in part by the debtor, shall be written for the full term for which the premium is charged and shall contain full and complete information on the following:

(1) Perils insured against.

(2) Amount of insurance covering the article purchased or offered as security or pledged as collateral.

(3) Rate charged for each $100 of insurance.

(4) Amount of the gross premium charged for each peril insured against when the premium is divisible and the aggregate premium charged for all perils insured against when the premium is not divisible.

(5) Effective date of insurance to be provided and the term of insurance to be provided.

(6) The personal property insurance premium shall be based upon actual cash value of the personal property purchased in a time sales finance transaction. In a consumer loan transaction, the personal property insurance premium shall be based upon the lesser of the amount of the cash proceeds or the actual cash value of the personal property offered as security or pledged as collateral. The amount of personal property insurance shall not include any finance charge, service charge, or similar charge or any fee including but not limited to those designated as service, notary, prothonotary, recording, or registration fees and shall not include any life insurance premium, accident and health insurance premium or personal property insurance premium.

(7) Memorandum or certificate of insurance or other evidence of insurance must be given each insured debtor within 30 days after an indebtedness is incurred and should be readily identifiable with the master policy in question and shall contain all conditions and exclusions of the master policy including but not limited to information designated in this section. At the time an indebtedness is incurred, the debtor shall receive a copy of the Security Agreement, Financing Statement, or similar document evidencing among other items personal property insurance coverage afforded the debtor. All changes in policy terms and conditions shall be evidenced by an endorsement forwarded directly by the insurer to both the debtor and creditor.

The provisions of this § 112.5 amended through December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164. Immediately preceding text appears at serial page (21944).

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.6 Purchase and sale of insurance.

(a) Purchase of insurance by debtor shall be voluntary.

(b) Policies of insurance shall not be sold if debtor has valid and collectible insurance on the same collateral to offer to the creditor and a loss payable endorsement is provided to the creditor for its protection. In the case of a credit transaction sale, or a transaction involving a debtor pledging personal property as collateral, no policies of insurance shall provide in any one kind of coverage an amount which exceeds the price of the personal property purchased in a time sales finance transaction, or the lesser of the amount of the cash proceeds or the actual cash value of the personal property offered as security or pledged as collateral. No debtor’s policy of insurance shall be extended beyond the time period of the loan or financial arrangement unless at the written request of the insured debtor. If the insured debtor does not so request in writing an extension of the insurance policy term, a pro rata refund of the premium shall be made by the insurer or creditor to the debtor when the indebtedness is discharged by prepayment or otherwise prior to the expiration of the term of the insurance policy.

The provisions of this § 112.6 amended through June 12, 1975, 5 Pa.B. 1558. Immediately preceding text appears at serial page (18383).

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.7 Cancellation of insurance.

(a) No debtor’s insurance shall be cancelled without due written notice by the insurer to the debtor unless the cancellation is at the request of the debtor. A request for cancellation by the insurer shall be inoperative when made by a creditor or assigns until or unless the insurer shall have given the debtor notice in writing of such request for cancellation.

(b) In the event of a termination of a master policy of insurance by the insurer there shall be at least 30 days written notice given to the creditor and the debtor and during such 30-day period existing policies shall remain in effect.

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.8 Return of insurance premium.

(a) In the event of cancellation of a debtor’s policy of insurance on repossession of personal property, the insurer or the creditor shall return any unearned premium on such policy to the debtor on a pro rata basis from date of cancellation. Any unearned premium amounting to less than $1.00 need not be returned to the debtor. If a policy of insurance covering such personal property is issued by a mutual insurer or a participating stock insurer, the debtor shall be entitled to the benefit of any dividend plan under an individual policy of insurance. There shall be no minimum retained retention of premium. In situations wherein a repossession is preceded by a total or constructive total loss of personal property the insurer shall compute its loss liability in accordance with the insurance provisions of the policy and shall forward a notice directly to the debtor or to his estate’s personal representative which accurately states the amount of liability under the policy of insurance, the computation basis thereof and the amount of loss payment to the lender or lien-holder.

(b) The insurer, or the creditor, after due written notice of full payment and satisfaction of lien, shall return any unearned premium on a debtor’s policy of insurance to the debtor on a pro rata basis from date of termination. Any unearned premium amounting to less than $1.00 need not be returned to the debtor. If a policy of insurance covering such personal property is issued by a mutual insurer or a participating stock insurer, the debtor shall be entitled to the benefit of any dividend plan under any individual policy of insurance. A minimum retained retention of premium shall not exceed $1.00.

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.9 Responsibility of insurer.

(a) No insurer or representative of insurer shall agree with or permit any person, firm, or corporation other than its own employes or attorneys or adjusters or independent adjusters to adjust or pay claims under debtor’s policies. No agent, broker or other person having a retrospective commission arangement or other beneficial interest in such policy of insurance shall partake in the selection, designation, or employment of, any insurance carrier’s employe, adjuster, or attorney, nor shall provide any office facilities for any insurance carrier’s employe, attorney or adjuster, nor shall such agent, broker, or other person having a retrospective commission or other beneficial interest in any policy of insurance act in any capacity directly or indirectly in the adjustment of a loss, in behalf of the insurance carrier.

(b) No insurer or representative of insurer shall enter into or renew any agreement with any agent, broker or other person which permits the retention or withholding by such person for the purpose of payment of losses, or loss adjustment expense, any portion of premiums collected under policies of insurance issued by the insurer. Nothing in this subsection shall prohibit reasonable contingent commission arrangements based on underwriting results.

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.10 Insurance solely for the interest of the creditor.

(a) If a policy of insurance provides insurance solely for the interest of the creditor, the insurer issuing such policy of insurance shall provide notice to the debtor that debtor’s interest is not protected.

(b) Any company, agent, or broker who writes, arranges for, or obtains such insurance shall provide that the debtor be clearly advised in writing of the fact such insurance is for the sole protection of the creditor.

(c) In such single interest cases, no identifiable charge shall be made to the debtor for such insurance.

(d) Such policies of insurance also shall provide, except for willful acts, an express waiver of subrogation against the debtor or his assignee.

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.11 Reporting of experience and expenses.

Experience and expenses shall be reported annually by May 1st of the following year on all business written in the Commonwealth of Pennsylvania, such experience and expense data shall include at the minimum exposures, premium written (gross basis, before experience refunds or dividends); premium earned; losses, both paid and incurred; number of claims paid and incurred. Also loss adjustment expenses, both allocated and unallocated; production expenses incurred, commission and other expenses; general expenses incurred; taxes, licenses and fees incurred; total expenses incurred and gain or loss from underwriting. Reports are to be presented to the Insurance Department in the manner prescribed in the following forms:

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

31 Pa. Code § 112.12 Enforcement.

A person, agent, broker, corporation, firm, partnership or association or an insurance company, association or exchange failing to comply with the provisions of this chapter shall be considered when appropriate in violation of any of the following acts or specified sections thereof and subject to penalties as follows:

(1) The Fire, Marine and Inland Marine Rate Regulatory Act, act of June 11, 1947 (P. L. 551, No. 247) as reenacted and amended by section 1 of the act of August 23, 1961 (P. L. 1053) (40 P. S. § 1233) and penalties specified in section 3 (40 P. S. § 1235) of that act.

(2) Section 346 of the Insurance Company Law of 1921 (40 P. S. § 471) and penalties specified in section 350 (40 P. S. § 475) of that act.

(3) Section 354 of The Insurance Company Law of 1921 (40 P. S. § 477b) and penalties specified in that section.

(4) Section 635 of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § 275) and penalties specified in section 639 (40 P. S. § 279) of that act.

(5) Section 5(a)(4) of The Unfair Insurance Practices Act (40 P. S. § § 1171.5(a)(4)) and penalties specified in sections 9—11 (40 P. S. § § 1171.9—1171.11) of that act.

History

• Authority: The provisions of this Chapter 112 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 112 adopted January 18, 1974, Pa.

Chapter 115 Public Adjuster Contracts

31 Pa. Code § 115.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608). Active officer—An individual designated by the corporation as an officer of record for the public adjuster agency license. Active partner—An individual designated by the partnership as a partner of record for the public adjuster agency license. Business day—A day other than a Saturday, Sunday or holiday. Commissioner—The Insurance Commissioner of the Commonwealth. Execution date—The date that a public adjuster contract has been signed by all parties. Insurance company—An insurance company, association or exchange authorized to transact insurance business in this Commonwealth. Resident—A person whose business address or legal residence is located in this Commonwealth.

The provisions of this § 115.1 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.1 amended January 17, 2003, effective January 18, 2003, 33 Pa.B. 346. Immediately preceding text appears at serial page (281725).

This section cited in 31 Pa. Code § 146a.2 (relating to definitions).

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.2 Contents of public adjuster contracts, minimum standards.

(a) A public adjuster contract shall contain, at a minimum, the following information:

(1) The title of the contract to read: Public Adjuster Contract.

(2) The name, business name, address and telephone number of the public adjuster.

(3) The name and address of the insured.

(4) The consideration expressed as a percentage of any payments to be received on the negotiated claim, or as a maximum dollar amount.

(5) A space provided for the execution date (month, day, year) of the contract.

(6) A space provided for the signature of the insured and the public adjuster.

(7) A provision setting forth the insured’s right to cancel, which shall be printed in prominent type on the first page of the public adjuster contract in substantially the following form:

You, the insured, may cancel this contract at any time prior to midnight of the fourth calendar day after the execution date of this contract. If you exercise your right to cancel this contract, you will be liable for reasonable and necessary emergency out-of-pocket expenses or services which were paid for or incurred by the public adjuster to protect the interests of the insured during the period preceding cancellation.

If you cancel this contract, anything of value given by you under the contract will be returned to you within 15 business days following the receipt by the public adjuster of your cancellation notice, and any security interest arising out of the contract will be cancelled. To cancel this contract, mail, fax or deliver in person a signed and dated copy of this notice or any other written notice, indicating your intent to cancel and the date thereof to (name of public adjuster) at (business address of public adjuster) not later than midnight of (date). I hereby cancel this contract.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.3 Additional procedures.

(a) Each insured shall be:

(1) Verbally informed by the public adjuster at the time of signing the contract of the right to cancel.

(2) Furnished with a copy of the executed public adjuster contract.

(b) Before furnishing the approved notice to the insured setting forth the insured’s right to cancel the contract, the notice shall be completed by entering the name of the public adjuster; the address of the public adjuster’s place of business; the execution date of the contract; and the date, not earlier than the fourth business day following the execution date of the contract, by which the insured may give notice of cancellation.

(c) The cancellation period provided for in this chapter may not begin until the insured has been informed of the insured’s right to cancel and has been provided with the approved notice setting forth the insured’s right to cancel.

(d) Within 15 business days after the receipt of the cancellation notice, the public adjuster shall:

(1) Refund payments made under the contract.

(2) Cancel and return negotiable instruments executed by the insured in connection with the contract.

(3) Take action necessary or appropriate to promptly terminate any security interest created under the contract.

(e) A contract may not be negotiated, transferred, sold or assigned by the public adjuster to a finance company or other third party prior to midnight of the fifth business day following the execution date of the contract.

(f) If an insured exercises the insured’s right to cancel the contract, the insured shall be liable for reasonable and necessary emergency out-of-pocket expenses or services which were paid for or incurred by the public adjuster during the period preceding cancellation.

The provisions of this § 115.3 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.3 amended January 17, 2003, effective January 18, 2003, 33 Pa.B. 346. Immediately preceding text appears at serial pages (281726) and (256121).

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.4 Inducing cancellation of contract prohibited.

No insurance company, its employes, officers or agents or a public adjuster or an employe, officer or agent thereof, may induce or attempt to induce an insured to cancel an existing contract with a public adjuster.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.7 Penalties.

A violation of this chapter will be subject to penalties set forth in:

(1) Section 6 of the act (40 P. S. § 1606), regarding revocation, and the like, of license.

(2) Section 7 of the act (40 P. S. § 1607), regarding violations.

(3) Section 8 of the act (40 P. S. § 1608), regarding administration and enforcement.

(4) The Unfair Insurance Practices Act (40 P. S. § § 1171.1—1171.15), if the public adjuster:

(i) Demonstrates a pattern or practice of violating this chapter.

(ii) Commits a single violation of this chapter, that is so flagrant in nature as to warrant sanctions.

The provisions of this § 115.7 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.7 amended January 17, 2003, effective January 18, 2003, 33 Pa.B. 346. Immediately preceding text appears at serial page (256121).

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.8 Filing and approval of contracts.

Applications for licensure and contract forms shall be submitted to the Insurance Department, Bureau of Producer Services, for filing and approval by the Commissioner.

The provisions of this § 115.8 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.8 amended January 17, 2003, effective January 18, 2003, 33 Pa.B. 346. Immediately preceding text appears at serial page (256122).

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.9 Additional consumer protection.

A public adjuster shall:

(1) Notify the insurer, within 5 business days of the execution date of the contract, of the public adjuster’s representation to facilitate the processing of claims.

(2) Communicate in writing, to the insured, within 5 business days, all settlement offers from an insurer so that the insured is made aware of all the options.

(3) Reply to written communications from an insurer, with respect to a claim, in writing within 5 business days, only if the communication from the insurer requires a response.

The provisions of this § 115.9 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.9 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

This section cited in 31 Pa. Code § 115.11 (relating to examination requirement; and 31 Pa. Code § 115.16 (relating to general application requirements).

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.11 Examination requirement.

Applicants for public adjuster and public adjuster solicitor licenses shall be required to successfully complete an examination, except as provided for in § 115.12 (relating to examination requirements for nonresident applicants). Applicants seeking a license shall apply for examination directly to the testing facility. See § 115.14 (relating to administration of examination).

The provisions of this § 115.11 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.11 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.12 Examination requirements for nonresident applicants.

A nonresident applicant for a license shall:

(1) Submit, along with the application, a letter or other official document from the regulatory authority of the jurisdiction where the applicant holds a license, confirming the applicant’s licensure in good standing for the same type of license for which application is being made with the Department, whether qualification is under a written examination or whether licensure preceded the requirement of a written examination.

(2) Be subject to reciprocal agreements between the Department and the regulatory authority of the confirming jurisdiction.

(3) Be required to pass the appropriate examination if unable to produce a license or letter of certification of licensure from the confirming regulatory authority which is satisfactory to the Department.

The provisions of this § 115.12 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this 115.12 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

This section cited in 31 Pa. Code § 115.11 (relating to examination requirement); and 31 Pa. Code § 115.16 (relating to general application requirements).

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.13 Qualifications for examination.

An individual, or officer of a corporation, partner in a partnership or member of an association, who is 18 years of age or older, who can read and write in the English language and, for a resident applicant, who maintains a bona fide business office or legal residence in this Commonwealth, may take a public adjuster/public adjuster solicitor examination upon payment of the applicable fee and submission of an application form.

The provisions of this § 115.13 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.13 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.14 Administration of examination.

The Commissioner may delegate to a person or corporation, by contract, the authority for administering and scoring examinations. An eligible delegatee shall guarantee to adhere to the following standards:

(1) Examinations shall be offered at regular intervals at least 12 times each year.

(2) Testing shall be conducted in locations throughout this Commonwealth and other designated locations. Examples of other designated locations include testing facilities that the administrator of testing may have in other states, or Internet testing offered by the administrator.

(3) Test security shall be strictly maintained, and a set of security rules shall be developed by the testing facility, which shall be approved by the Commissioner.

(4) Bias or favoritism towards an applicant will not be permitted by the testing facility.

(5) The testing facility shall develop a comprehensive brochure describing, at a minimum, applicable fees, the nature of examination questions and providing sample questions. The brochure shall be distributed to an applicant at the time of registration for examination or, upon request, at any other reasonable time.

(6) The location of the testing facilities is available on the Department’s website at www.insurance.state.pa.us or upon request from the Department.

The provisions of this § 115.14 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.14 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

This section cited in 31 Pa. Code § 115.11 (relating to examination requirement).

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.15 Scope of examination.

Examinations shall be designed by the testing facility to test the adequacy of an applicant’s knowledge of general principles of insurance, insurance laws of the Commonwealth and the business of adjusting losses.

The provisions of this § 115.15 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.15 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.16 General application requirements.

Applicants for a license shall follow the following procedures:

(1) An active officer of a corporation, active partner in a partnership or member of an association shall be required to take a written examination unless the requirement is waived under § 115.12 (relating to examination requirements for nonresident applicants) or unless the active officer, active partner or member is a currently licensed public adjuster.

(2) Persons who have passed the examination may apply to the Department for a license. The applicant shall attach a certification from the testing facility attesting that the applicant passed the examination. The certification from the testing facility is not required if the testing facility reports test scores directly to the Department.

(3) Test scores and results remain valid for 1 year from the date of the examination. Applications received with test results in excess of 1 year will be denied.

The provisions of this § 115.16 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.16 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.17 Completion of application and renewal application forms.

Public adjusters and public adjuster solicitors shall complete application and renewal forms fully and accurately, and shall submit the required fees. Those applications and renewal forms submitted to the Department which are not complete and accurate or accompanied by required fees, will be returned for correction together with written notice of the reason for the return of the applications or renewal forms.

The provisions of this § 115.17 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.17 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.18 Application procedures for individual persons.

(a) An individual shall complete the application for an initial license. Accompanying the application shall be:

(1) The appropriate application fee.

(2) A bond as required by statute.

(3) A receipt from the surety stating that the premium has been paid in full on the bond.

(4) A copy of the contract to be used in this Commonwealth.

(b) An applicant for a public adjuster solicitor license shall also obtain and present with the application a letter of intent from a licensed public adjuster to employ the applicant as a public adjuster solicitor.

(c) Applications shall be subscribed and sworn to before a notary public.

(d) Applications executed more than 3 months prior to the date of filing with the Department will not be accepted.

(e) Making a false statement in an application may constitute a ground for license denial or revocation.

(f) Initial licenses will be valid as of the date issued by the Department until the expiration date stated on the license, unless earlier revoked by the Commissioner.

(g) Before a license is granted, the applicant shall first answer and submit, in writing and under oath, interrogatories on forms prepared by the Department.

(h) When the Commissioner is satisfied that the applicant is worthy of a license, and that the applicant has passed the examination or qualified for a waiver, and has paid any appropriate fees, the Commissioner will issue a license stating that the licensee has been authorized by the Department to transact business as a public adjuster or public adjuster solicitor within this Commonwealth.

The provisions of this § 115.18 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.18 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.19 Denial of application.

The applicant may be denied a license for any of the following reasons. The applicant:

(1) Has provided incorrect, misleading or incomplete answers to interrogatories on forms incidental to applying for a license.

(2) Has been denied a license or has had an existing license revoked, suspended or not renewed by the Department or a regulatory authority in another state, territory or possession of the United States, or in the District of Columbia, or the Canadian provinces.

(3) Does not possess the professional competence and trustworthiness required to engage in the business of being a public adjuster or public adjuster solicitor.

(4) Has pleaded guilty, entered a plea of nolo contendere or has been found guilty of a felony in a court of competent jurisdiction, or has pleaded guilty, entered a plea of nolo contendere, or been found guilty of criminal conduct which relates to the applicant’s suitability to engage in the business of being a public adjuster or public adjuster solicitor.

(i) Examples of criminal violations which the Department may consider related to the applicant’s suitability to engage in the business of being a public adjuster or public adjuster solicitor including unlawful practices as set forth in sections 6(a)(1)—(3), (5)—(7) and (12) of the act (63 P. S. § 1606(a)(1)—(3), (5)—(7) and (12)), embezzlement, obtaining money under false pretenses, conspiracy to defraud, bribery or corrupt influence, perjury or false swearing, unlicensed activity or a criminal offense involving moral turpitude or harm to another.

(ii) Examples of violations or incidents which the Department will not consider related to the applicant’s suitability to engage in the business of being a public adjuster or public adjuster solicitor are all summary offenses, records of arrests if there is no conviction or a crime based on the arrest, convictions which have been annulled or expunged or convictions for which the applicant has received a pardon from the Governor.

(5) Fails to comply with the insurance-related provisions in sections 320 and 603(a) of the Violent Crime Control and Law Enforcement Act of 1994 (18 U.S.C.A. § § 1033 and 1034), if applicable.

(6) Has unpaid and overdue amounts, including fees and civil penalties, owing to the Department.

The provisions of this § 115.19 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.19 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.20 Partnership or corporation application procedures.

Procedures for partnerships or corporations are as follows:

(1) Partnerships or corporations shall apply for licensure using the appropriate licensing application form. The form shall be signed in the name of the partnership or corporation by each active partner or active officer, and be accompanied by the appropriate licensing application form for each active partner or active officer who is not currently licensed. Accompanying the licensing application shall be:

(i) The appropriate application fee.

(ii) A bond as required by statute.

(iii) A receipt from the surety stating the premium has been paid in full on the bond.

(iv) A copy of the contract to be used in this Commonwealth.

(v) A copy of the articles of incorporation as filed with the Department of State, Corporation Bureau.

(vi) A copy of the public adjuster license of each active partner or active officer, if applicable.

(2) Employees of partnerships and corporations who apply for a license shall apply in their individual capacity.

(3) The worthiness of a partnership or corporation is determined by the worthiness of the active partner or the active officer.

(4) The application shall be subscribed and sworn to before a notary public.

(5) Applications executed more than 3 months prior to the date of filing with the Department will not be accepted.

(6) Making a false statement in an application may constitute a ground for license denial or revocation.

(7) Initial licenses will be valid as of the date issued by the Department until the expiration date stated on the license, unless earlier revoked by the Commissioner.

(8) Before a license is granted, the applicant shall first answer and submit, in writing and under oath, interrogatories on forms prepared by the Department. When the Commissioner is satisfied that the applicant is worthy of a license and has paid any appropriate fees, the Commissioner will issue a license stating that the licensee has been authorized by the Department to transact business as a public adjuster or public adjuster solicitor within this Commonwealth.

The provisions of this § 115.20 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.20 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

31 Pa. Code § 115.21 Renewal of license.

License renewal procedures are as follows:

(1) Mailing of a license renewal form to the last known address of the licensee will satisfy the Department’s obligation to provide the appropriate forms and notices.

(2) A license can be renewed only upon submission, electronic or otherwise, of a completed renewal form, payment of the required fees and an attestation or a receipt from a surety stating the premium on the bond, as required, has been paid in full.

(3) Licenses shall be renewed annually on the anniversary of the effective date of the initial license.

(4) Corporations shall provide to the Department the names of each active officer with the renewal form to be eligible for license renewal. Partnerships shall provide to the Department the names of each active partner with the renewal form to be eligible for license renewal.

(5) Failure to complete and submit the renewal form and required fee by the expiration date shall be deemed voluntary termination by the public adjuster or public adjuster solicitor. Failure to correct and resubmit application renewal forms returned by the Department under this section, prior to the expiration date of the license, or within 15 days of the date the forms were mailed by the Department, whichever is greater, will be deemed voluntary termination by the public adjuster or public adjuster solicitor. Renewal forms received by the Department after expiration will be denied; except that renewal forms returned by the Department under this section and resubmitted as instructed by the Department after expiration but within 15 days of the date the incomplete forms were mailed by the Department to the applicant will be accepted.

The provisions of this § 115.21 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the act of December 20, 1983 (P. L. 260, No. 72) (63 P. S. § § 1601—1608).

The provisions of this § 115.21 adopted January 17, 2003, effective January 18, 2003, 33 Pa.B. 346.

History

• Authority: The provisions of this Chapter 115 issued under act of April 25, 1921 (P.
• Source: The provisions of this Chapter 115 adopted May 16, 1980, effective August 15, 1980, 10 Pa.

Chapter 116 Discounting of Worker’s Compensation Loss Reserves

31 Pa. Code § 116.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings: Actuary—A member of the American Academy of Actuaries or an individual who has demonstrated to the satisfaction of the Department that he has the educational background necessary for the practice of actuarial science and that he has not less than 7 years’ actuarial experience. Annual statement—The National Association of Insurance Commissioners (NAIC) convention blank for property and casualty companies adopted by the Commissioner under section 320 of The Insurance Company Law of 1921 (40 P. S. § 443). Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Insurance company—A licensed stock or mutual fire or casualty insurer, licensed reciprocal insurance exchange, employers mutual liability insurance association organized under section 636 of the Insurance Company Law of 1921 (40 P. S. § 781) or the State Workmen’s Insurance Fund. Loss adjustment expense reserves—The amount set aside as of the annual statement date to provide for the future costs of settling worker’s compensation losses whether or not specifically allocated to a given claim. Loss reserves—The amount set aside as of the annual statement date to provide for the payment of future losses under worker’s compensation policies issued by insurance companies.

This section cited in 31 Pa. Code § 118.1 (relating to definitions).

History

• Authority: The provisions of this Chapter 116 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 116 adopted February 20, 1987, effective February 21, 1987, 17 Pa.

31 Pa. Code § 116.4 Restrictions on discounting loss reserves.

The discounting of workers’ compensation loss reserves is subject to the following limitations:

(1) The loss reserves on the insurance company’s annual statement calculated under this section may not be less than those required in section 313 of The Insurance Department Act of 1921 (40 P. S. § 112).

(2) Unless otherwise permitted by paragraphs (3) and (4), an insurance company is not permitted to assume an interest rate greater than the current yield to maturity on a United States Treasury debt instrument with maturities consistent with the expected payout of the liabilities.

(3) An insurance company may request an exception to the maximum interest rate in paragraph (2) if the insurance company can demonstrate to the satisfaction of the Commissioner that its investment yield justifies a higher interest rate assumption. The Commissioner may require the insurance company to submit additional documentation to support its request for approval of a higher interest rate assumption. The Commissioner will act upon requests for exceptions made under this paragraph within 90 days of the date the request is received by the Department.

(4) Insurers having used the previous allowed maximum discount of 6% may continue to use the discount factors previously allowed for accident years 2001 and prior, pertaining to policies issued on or prior to August 11, 2001, as long as they continue to demonstrate that they hold sufficient assets to support the 6% interest rate assumption.

The provisions of this § 116.4 amended under The Insurance Company Law of 1921 (40 P. S. § § 341—999); The Insurance Department Act of 1921 (40 P. S. § § 1—321); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 116.4 amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4423. Immediately preceding text appears at serial page (254695).

History

• Authority: The provisions of this Chapter 116 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 116 adopted February 20, 1987, effective February 21, 1987, 17 Pa.

31 Pa. Code § 116.5 Actuarial statement of opinion.

(a) The actuarial statement of opinion required to be submitted with the annual statement shall include the opinion of an actuary with respect to the following:

(1) The adequacy of workers compensation loss reserves on an undiscounted basis.

(2) The sufficiency of the investment yield on invested assets to fund the discount.

(3) The reasonableness of the matching of the invested assets and loss reserves attributable to the workers’ compensation business to provide an adequate income stream to fund the discount.

(b) The actuarial statement of opinion, as it pertains to discounting, shall be determined in accordance with Actuarial Standard of Practice No. 20, Discounting of Property and Casualty Loss and Loss Adjustment Expense.

The provisions of this § 116.5 amended under The Insurance Company Law of 1921 (40 P. S. § § 341—999); The Insurance Department Act of 1921 (40 P. S. § § 1—321); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 116.5 amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4423. Immediately preceding text appears at serial pages (254695) to (254696).

This section cited in 31 Pa. Code § 116.6 (relating to reserves for loss adjustment expenses).

History

• Authority: The provisions of this Chapter 116 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 116 adopted February 20, 1987, effective February 21, 1987, 17 Pa.

31 Pa. Code § 116.6 Reserves for loss adjustment expenses.

(a) Loss adjustment expense reserves shall be calculated with the following standards:

(1) Insurance companies are not permitted to discount loss adjustment expense reserves which are not applicable to specific claims.

(2) Insurance companies are permitted to discount loss adjustment expense reserves which are allocable to specific claims if they can demonstrate, to the satisfaction of the Commissioner, the validity of their assumptions underlying the calculation of the reserves. The insurance company shall provide an actuarial statement of opinion which includes the opinion of the actuary with respect to the criteria in § 116.5 (relating to actuarial statement of opinion).

(b) In evaluating an insurance company’s request to discount allocated loss adjustment expense reserves, the Commissioner will consider the company’s specific loss adjustment expense pattern and the interest rate assumption.

The provisions of this § 116.6 amended under The Insurance Company Law of 1921 (40 P. S. § § 341—999); The Insurance Department Act of 1921 (40 P. S. § § 1—321); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 116.6 amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4423. Immediately preceding text appears at serial page (254696).

This section cited in 31 Pa. Code § 116.8 (relating to increased loss reserves and loss adjustment expense reserves).

History

• Authority: The provisions of this Chapter 116 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 116 adopted February 20, 1987, effective February 21, 1987, 17 Pa.

31 Pa. Code § 116.8 Increased loss reserves and loss adjustment expense reserves.

The Commissioner may require an insurance company to maintain loss reserves at a greater level than those which result from the application of this chapter, and allocated loss adjustment expense reserves at a level greater than those calculated under § 116.6 (relating to reserves for loss adjustment expenses) when the Commissioner determines it is necessary to insure that reserves are established at an adequate level.

The provisions of this § 116.8 amended under The Insurance Company Law of 1921 (40 P. S. § § 341—999); The Insurance Department Act of 1921 (40 P. S. § § 1—321); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 116.8 amended August 10, 2001, effective August 11, 2001, 31 Pa.B. 4423. Immediately preceding text appears at serial page (254697).

History

• Authority: The provisions of this Chapter 116 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 116 adopted February 20, 1987, effective February 21, 1987, 17 Pa.

Chapter 118 Discounting of Medical Malpractice Loss Reserves

31 Pa. Code § 118.1 Definitions.

(a) The definitions utilized in Chapter 116 (relating to discounting of worker’s compensation loss reserves) are incorporated for use in this chapter except that language utilizing the term ‘‘worker’s compensation’’ shall be amended for use in this chapter utilizing the term ‘‘medical malpractice.’’

(b) For purposes of this chapter, the definition of ‘‘insurance company’’ in § 116.1 (relating to definitions) also includes the Pennsylvania Professional Liability Joint Underwriting Association, an insurance entity created under section 801 of the Health Care Services Malpractice Act (40 P. S. § 1301.801).

(c) The term ‘‘independent actuary’’ as used in § 118.4(a) (relating to actuarial certification) means a fellow or associate of the Casualty Actuarial Society with appropriate experience in responsible actuarial work, including medical malpractice, who is not an officer, director or employee of the insurer whose reserves he is certifying.

(d) Other definitions: Act—The Insurance Department Act of 1921 (40 P. S. § § 1—297-4). Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth.

The provisions of this § 118.1 amended June 15, 2001, effective June 16, 2001, 31 Pa.B. 3191. Immediately preceding text appears at serial page (265031).

History

• Authority: The provisions of this Chapter 118 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 118 adopted November 30, 1990, effective December 1, 1990, 20 Pa.

31 Pa. Code § 118.2 Reporting and data collection requirements.

For loss reserves established by insurance companies under sections 312—316 of the act (40 P. S. § § 111—115), a company is permitted to discount the medical malpractice reserves to their present value if the company complies with the following requirements. The insurance company shall:

(1) File an annual actuarial certification of its medical malpractice loss reserves and loss adjustment expense reserves with the Department simultaneously with the filing of the company’s annual statement.

(2) Provide a written notice to the Department stating its intent to maintain separate data regarding the company’s loss payment patterns for allocated loss adjustment expenses and losses. This data shall be regularly compiled and submitted to the Department upon request.

(3) Comply with existing annual statement instructions for reporting loss and loss adjustment expense reserves including completion of supplemental Schedule P, Part 4C of the annual statement.

(4) File with its annual statement a description of the underlying assumptions for the calculation of the discount to present value of its loss reserves and allocated loss adjustment expense reserves.

The provisions of this § 118.2 amended June 15, 2001, effective June 16, 2001, 31 Pa.B. 3191. Immediately preceding text appears at serial pages (265031) to (265032).

History

• Authority: The provisions of this Chapter 118 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 118 adopted November 30, 1990, effective December 1, 1990, 20 Pa.

31 Pa. Code § 118.3 Restrictions on discounting loss reserves.

The discounting of loss reserves is subject to the following limitations:

(1) The loss reserves discounted to present value in accordance with this chapter may not be less than those required in accordance with section 313(b) of the act (40 P. S. § 112(b)).

(2) The maximum rate of interest which an insurer may assume for purposes of discounting is 6%.

(3) An insurer may request an exception to the maximum interest rate in paragraph (2) if the insurer can demonstrate to the satisfaction of the Commissioner that its investment yield justifies a higher interest rate assumption. The Commissioner may require the insurer to submit additional documentation to support its request for approval of a higher interest rate assumption. The Commissioner will act upon requests for exceptions made under this paragraph within 90 days of the date the request is received by the Insurance Department.

(4) An insurer may not discount loss reserves or loss adjustment expense reserves for policies with an effective date on or after June 16, 2001.

(5) An insurer may not discount loss reserves or loss adjustment expense reserves after December 31, 2010.

The provisions of this § 118.3 amended June 15, 2001, effective June 16, 2001, 31 Pa.B. 3190. Immediately preceding text appears at serial page (265032).

History

• Authority: The provisions of this Chapter 118 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 118 adopted November 30, 1990, effective December 1, 1990, 20 Pa.

31 Pa. Code § 118.4 Actuarial certification.

(a) The actuarial certification required in accordance with this chapter shall be prepared by an independent actuary and filed by the insurer with its annual statement.

(b) The actuarial certification shall be filed each year in which the insurer discounts its loss reserves.

(c) The actuarial certification shall include the opinion of an independent actuary with respect to the following:

(1) The adequacy of medical malpractice loss reserves on an undiscounted basis.

(2) The sufficiency of the investment yield on invested assets to fund the discount.

(3) The reasonableness of the matching of the invested assets and loss reserves attributable to the medical malpractice business to provide an adequate income stream to fund the discount.

This section cited in 31 Pa. Code § 118.1 (relating to definitions); and 31 Pa. Code § 118.5 (relating to reserves for loss adjustment expenses).

History

• Authority: The provisions of this Chapter 118 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 118 adopted November 30, 1990, effective December 1, 1990, 20 Pa.

31 Pa. Code § 118.5 Reserves for loss adjustment expenses.

(a) Loss adjustment expense reserves shall be calculated in accordance with the following standards:

(1) Insurance companies are not permitted to discount loss adjustment expense reserves which are not allocable to specific claims.

(2) Insurance companies are permitted to discount loss adjustment expense reserves which are allocable to specific claims if:

(i) The company demonstrates, to the satisfaction of the Commissioner, the validity of the assumptions underlying the calculation of the reserves.

(ii) The actuarial certification which includes the opinion of an independent actuary with respect to the criteria in § 118.4 (relating to actuarial certification) is applicable to the loss adjustment expense reserves as well as the loss reserves.

(b) In evaluating an insurance company’s request to discount allocated loss adjustment expense reserves, the Commissioner will consider the company’s specific loss adjustment expense payment pattern and the interest rate assumption.

History

• Authority: The provisions of this Chapter 118 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 118 adopted November 30, 1990, effective December 1, 1990, 20 Pa.

31 Pa. Code § 118.6 Increased loss reserves and loss adjustment expense reserves.

Under section 316 of the act (40 P. S. § 115), the Commissioner may require an insurance company to restate its loss reserves or its allocated loss adjustment expense reserves by reducing or eliminating the discount if the Commissioner determines it is necessary to insure that reserves are established at an adequate level.

The provisions of this § 118.6 amended June 15, 2001, effective June 16, 2001, 31 Pa.B. 3190. Immediately preceding text appears at serial page (265033).

History

• Authority: The provisions of this Chapter 118 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 118 adopted November 30, 1990, effective December 1, 1990, 20 Pa.

Chapter 119 Anti-Fraud—Statement of Policy

31 Pa. Code § 119.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Workers’ Compensation Act (77 P. S. § § 1—1041.4). Department—The Insurance Department of the Commonwealth.

History

• Source: The provisions of this Chapter 119 adopted August 27, 1993, effective August 31, 1993, 23 Pa.

31 Pa. Code § 119.11 Insurance claims fraud reporting, investigation and prosecution.

Insurers, as defined in section 1101 of the act (77 P. S. § 1039.1) should report an incidence of workers’ compensation insurance fraud to State and local criminal law enforcement agencies.

(1) Sections 1106 and 1107 of the act (77 P. S. § § 1039.6 and 1039.7) provide incentives for active reporting of fraud by an express grant of civil and criminal immunity to insurers and their representatives and the opportunity to pursue restitution through judicial proceedings.

(2) Section 1109 of the act (77 P. S. § 1039.9) expressly authorizes district attorneys or the Attorney General, or both, to investigate and prosecute instances of fraud as identified in Article XI of the act (77 P. S. § § 1039.1—1039.12).

(3) The Department will look to insurers to report an incidence of fraud directly to district attorneys or the Attorney General, or both, and, when practical, seek court ordered restitution to compensate for fraud-related losses.

History

• Source: The provisions of this Chapter 119 adopted August 27, 1993, effective August 31, 1993, 23 Pa.

31 Pa. Code § 119.21 Department referrals to criminal law enforcement authorities.

Section 1202 of the act (77 P. S. § 1040.2) authorizes the Department to report to and cooperate with criminal law enforcement agencies with respect to Article XI of the act (77 P. S. § § 1039.1—1039.12). Department actions under this section will be limited to cases in which the incidence of fraud involves the specific acts of insurers, agents, brokers or other entities required to be licensed to engage in the business of insurance in this Commonwealth. The Department’s actions under this section may be in addition to or in lieu of its exercise of its civil jurisdiction over entities engaged in the business of insurance in this Commonwealth. In addition, when an insurer makes a direct case referral involving an agent or broker to a criminal law enforcement authority, the insurer shall also refer the matter to the Department for possible civil action under the insurance laws and regulations of the Commonwealth.

History

• Source: The provisions of this Chapter 119 adopted August 27, 1993, effective August 31, 1993, 23 Pa.

31 Pa. Code § 119.22 Institution and maintenance of anti-fraud plans.

(a) Section 1203 of the act (77 P. S. § 1040.3) requires insurers, as defined in section 1101 of the act (77 P. S. § 1039.1), to institute and maintain an insurance anti-fraud plan. This requirement applies to a workers’ compensation insurer with workers’ compensation premium volume as of August 31, 1993. Workers’ compensation insurers which become licensed or commence a writing premium volume, or both, after August 31, 1993, should institute and maintain an anti-fraud plan within 4 months of commencing to write business. Maintenance of the anti-fraud plan includes its ongoing implementation and operation by insurers. Since a substantial number of workers’ compensation insurers also actively write motor vehicle insurance, the Department encourages insurers to merge their workers’ compensation anti-fraud initiatives into their established motor vehicle insurance anti-fraud plans established under 75 Pa.C.S. Chapter 18 (relating to motor vehicle insurance fraud). The content of each insurers’ workers’ compensation anti-fraud plan should reflect the following minimum requirements:

(1) Policies and procedures established by the insurer to prevent workers’ compensation insurance fraud. The policies and procedures should cover all aspects of the insurer’s operation and recognize the wide variety of potential fraudulent activity. Procedures should address internal fraud, fraud involving the integrity and security of company data including electronic data processed information, fraud involving employes or company representatives, and fraud resulting from misrepresentation on applications and renewals for insurance coverage and claims fraud. Detailed information should be provided describing existing procedure manuals, internal policies, guidelines and employe training programs implemented by the insurer to prevent fraud. It is recommended that specific policies and procedures be either included in the anti-fraud plan or, if the policies and procedures are voluminous, appropriately summarized.

(2) Policies and procedures established by the workers’ compensation insurer to detect and investigate possible insurance fraud in the claims process. Reference should be made to specific procedure manuals, internal policies, guidelines and training initiatives designed to detect fraud in the claims process.

(3) Policies and procedures established by the insurer to report workers’ compensation insurance fraud to appropriate criminal law enforcement agencies, including procedures to cooperate with and monitor progress of the agencies in their fraud cases.

(b) To facilitate the Department’s understanding of insurers’ administration of their anti-fraud procedures, insurers are encouraged to cover the following areas in their plans:

(1) Organizational components involved in or affected by the policies and procedures, including key positions involved.

(2) Roles and interrelationships of components as they relate to the policies and the procedures described.

(3) Personnel resources involved and budget allocations to implement the anti-fraud policies and procedures.

(4) Extra-company relationships with central claims data bases and criminal law enforcement authorities as they relate to the policies and procedures implemented for anti-fraud plans.

History

• Source: The provisions of this Chapter 119 adopted August 27, 1993, effective August 31, 1993, 23 Pa.

31 Pa. Code § 119.23 Anti-fraud plan certification.

Each insurer writing workers’ compensation insurance as of August 31, 1993, shall certify in writing to the Department by December 31, 1993, that it has instituted and is maintaining an anti-fraud plan that satisfies the requirements of the act as explained by this chapter. An insurer newly licensed and writing coverage on and after August 31, 1993, shall certify within 4 months of commencement of writing coverage that it has instituted and maintains an anti-fraud plan. Letters of certification should be filed with Dennis C. Shoop, Director, Bureau of Enforcement, Insurance Department, 1321 Strawberry Square, Harrisburg, Pennsylvania, 17120.

History

• Source: The provisions of this Chapter 119 adopted August 27, 1993, effective August 31, 1993, 23 Pa.

31 Pa. Code § 119.24 Anti-fraud plan annual reports.

(a) Section 1204 of the act (77 P. S. § 1040.4) requires insurers to report annually to the Department a summary of actions taken under their anti-fraud plans to prevent and combat fraud. Annual reports under this section should cover anti-fraud activities for each calendar year. The first annual report should cover the period August 31, 1993, through December 31, 1994, and shall be filed with the Department by March 31, 1995. Thereafter, reports are to be filed by March 31 of each year and cover the previous calendar year’s anti-fraud activities. The annual report should provide detailed information on the following:

(1) Specific actions taken by the insurer during the year to prevent and combat insurance fraud. The actions should be thoroughly described in the annual report and should contain statistical information relating to the number of cases of detected fraud, including the status of disposition of those cases, the number of personnel and other resources committed to detecting and combating fraud, the total dollar cost of fraud and the savings attributed to detected fraud or otherwise recovered by the insurer.

(2) Measures implemented throughout the year to provide for the integrity and security of fraud related data and information collected and maintained. The measures apply to data collected and maintained in a manual or automated environment.

(3) Originating sources of the information on the fraudulent activity—for example, an agent, adjuster, employe, policyholder or citizen.

(b) The annual reports should be submitted to the Department in a standard report format, including a table of contents, summary, subdivisions of information in the report, including tables and graphs necessary to clearly illustrate the statistical information. Additionally, insurers should identify the person responsible for preparing and filing the annual report. The Department may require that the insurer clarify items addressed in the report or provide additional information relative to the annual report.

(c) Workers’ compensation insurers which also write motor vehicle insurance may file a single annual report for both motor vehicle and workers’ compensation insurance anti-fraud activities. The combined report shall segregate the information reported for both motor vehicle and workers’ compensation lines of business. The reports should be sent to the attention of the Insurance Department, Dennis C. Shoop, Director, Bureau of Enforcement, 1321 Strawberry Square, Harrisburg, Pennsylvania, 17120.

History

• Source: The provisions of this Chapter 119 adopted August 27, 1993, effective August 31, 1993, 23 Pa.

31 Pa. Code § 119.25 Reporting of fraud to criminal law enforcement authorities.

Consistent with section 1109 of the act (77 P. S. § 1039.9), section 1205 of the act (77 P. S. § 1040.5) authorizes insurers to refer an incidence of fraud to criminal law enforcement agencies. Workers’ compensation insurers should refer cases directly to criminal law enforcement authorities and cooperate with and assist those authorities when requested.

History

• Source: The provisions of this Chapter 119 adopted August 27, 1993, effective August 31, 1993, 23 Pa.

31 Pa. Code § 119.26 Monitoring of insurer compliance with anti-fraud requirements.

The Department will audit insurers to determine compliance with the anti-fraud provisions of the act as part of financial and market conduct examinations performed under sections 213, 214 and 216 of The Insurance Department Act of 1921 (40 P. S. § § 51, 53 and 54).

History

• Source: The provisions of this Chapter 119 adopted August 27, 1993, effective August 31, 1993, 23 Pa.

Chapter 120 Loss Costs Adjustment Filings—Statement of Policy

31 Pa. Code § 120.1 Workers’ compensation loss costs and loss costs adjustment filings.

(a) Under the conditions of the act, rating organizations will no longer develop or file final rates, but instead will develop and file for approval prospective loss costs and supporting actuarial and statistical data. Each insurer shall individually determine and file the rates it will use as a result of its own independent company decision making process. Rating organizations will continue to develop and file rules, relativities and supplementary rating information as identified in this chapter on behalf of their members, subscribers or service purchasers. Rating organization filings should be limited to loss costs and should not contain provisions for expenses.

(b) After the initial required filing specified in the act, a participating insurer of a rating organization is authorized to continue to use the rates and deviations filed and approved for its use until disapproved, or until the insurer makes its own filing to change its rates, either by making an independent filing or by filing a nonadoption letter of the rating organization filing. Nonresponse by a company to the Department to a rating organization filing will be considered adoption of that filing.

History

• Source: The provisions of this Chapter 120 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 120.2 Definitions.

The following terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Workers’ Compensation Act (

History

• Source: The provisions of this Chapter 120 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 120.3 Rates/loss costs.

(a) Rating organizations will no longer develop or file advisory final rates that contain provisions for expenses and profit, including investment income or consideration of the time value of money, or both. Instead, for workers compensation insurance, rating organizations will develop and file for approval with the Commissioner in accordance with Article VII of the act (

History

• Source: The provisions of this Chapter 120 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 120.4 Insurer action.

(a) Each insurer shall individually determine the final rates it will file for approval, for filings submitted before December 1, 1994, and the effective date of rate changes. Individual insurer loss costs adjustment filings are not subject to approval after December 1, 1994, unless they are found in violation of sections 704 and 711 of the act (

History

• Source: The provisions of this Chapter 120 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 120.5 Supplementary rate information: rating organization action.

(a) Rating organization filings. The rating organization files with the Department, for approval, filings containing a revision of rules and supplementary rating information. This includes policy-writing rules, rating plans, classification codes and descriptions and rules which include factors or relativities such as employers liability increased limits factors, classification relativities or similar factors but excludes minimum premiums. A rating organization filing should be limited to loss costs and not contain provisions for expenses.

(1) These filings are made by the rating organization on behalf of insurers that have authorized the rating organization to file rules, relativities and supplementary rating information on their behalf.

(2) Rating organizations may print and distribute manuals of rules and supplementary rating information excluding minimum premiums.

(b) Insurer action. If an insurer has authorized a rating organization to file on its behalf, and a new filing of rules, relativities and supplementary rating information is filed and approved, the following conditions apply:

(1) If the insurer decides to use the revisions and effective date as filed, the insurer does not file anything with the Department.

(2) If the insurer decides to use the revisions as filed but with a different effective date, the insurer shall notify the Department of its effective date before the approved rating organization’s effective date.

(3) If the insurer decides not to use the revision, the insurer shall notify the Department before the rating organization’s effective date.

(4) If the insurer decides to use the revision with modifications, the insurer shall file the modification with the Department, for approval, specifying the basis for the modification and the insurer’s proposed effective date filed by the rating organization.

History

• Source: The provisions of this Chapter 120 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

Part VIII Miscellaneous Provisions

Chapter 124 Surplus Lines Insurance

31 Pa. Code § 124.1 Definitions.

(a) The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—Article XVI of The Insurance Company Law of 1921 (40 P. S. § § 991.1601—991.1625). Alien insurer—An insurer incorporated or organized under the laws of a foreign nation or of a province or territory other than a state or a territory of the United States or the District of Columbia. Binding authority—The authority delegated to a surplus lines licensee by an eligible surplus lines insurer to obligate the eligible surplus lines insurer to accept a particular risk. Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Eligible surplus lines insurer list—The most recent list of eligible surplus lines insurers published by the Department under section 1605(b) of the act (40 P. S. § 991.1605(b)). Foreign insurer—

(i) An insurer, other than an alien insurer, not incorporated or organized under the laws of the Commonwealth.

(ii) For purposes of this chapter, the term also includes a United States branch of an alien insurer which branch is not entered through and licensed to transact insurance or reinsurance in this Commonwealth.

(b) Unless the context otherwise requires, other terms found in this chapter are used as defined in the act.

History

• Authority: The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.

31 Pa. Code § 124.2 Notice to insured.

The written notice required to be given to the insured under section 1608 of the act (40 P. S. § 991.1608) shall be:

(1) Substantially similar in content to that set forth in section 1608(1) and (2) of the act.

(2) Prominently printed on the first page of the quotation.

History

• Authority: The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.

31 Pa. Code § 124.3 Conditions of binding authority.

(a) A surplus lines licensee may not exercise binding authority in this Commonwealth on behalf of an eligible surplus lines insurer unless there is in force a written contract executed by all parties to the contract setting forth the terms, conditions and limitations governing the exercise of binding authority by the surplus lines licensee. The written contract must, at a minimum, contain the following:

(1) A description of the classes of insurance for which the surplus lines licensee holds binding authority.

(2) The geographical limits of the binding authority.

(3) The maximum dollar limitations on the binding authority for any one risk for each class of insurance.

(4) The maximum policy period for which the surplus lines licensee may bind a risk.

(5) A prohibition against delegation of binding authority by the surplus lines licensee or, if the binding authority is delegable by the surplus lines licensee, a prohibition against delegation of binding authority by the surplus lines licensee without the prior written approval of the eligible surplus lines insurer.

(6) A provision in the following or substantially similar language:

It is understood and agreed that all insurance placed pursuant to this agreement on risks resident, located, or to be performed in this Commonwealth, shall be effected and written in accordance with Article XVI of the act of May 17, 1921 (P. L. 682, No. 284) (40 P. S. § § 991.1601—991.1625).

(b) An executed copy of the written contract shall be maintained by the surplus lines licensee in its office. The copy shall be available at all reasonable times for examination by the Department without notice for at least 5 years following termination of the contract.

(c) If a surplus lines licensee, who is qualified under this chapter to exercise binding authority on behalf of the eligible surplus lines insurer, delegates binding authority to any other surplus lines licensee, the instrument delegating binding authority shall specifically identify the binding authority agreement between the delegating surplus lines licensee and the eligible surplus lines insurer. An executed copy of the instrument delegating binding authority shall be maintained by both the surplus lines licensee delegating binding authority and the surplus lines licensee to whom the authority is delegated in their offices. The copy shall be available at all reasonable times for examination by the Department without notice for at least 5 years following termination of the contract.

The provisions of this § 124.3 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and Articvle XVI of The Insurance Company Law of 1921 (40 P. S. § § 991.1601—991.1626).

The provisions of this § 124.3 amended October 25, 2013, effective November 25, 2013, 43 Pa.B. 6345. Immediately preceding text appears at serial pages (263780) to (263781).

History

• Authority: The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.

31 Pa. Code § 124.4 Evidence of insurance.

(a) Section 1612 of the act (40 P. S. § 991.1612) requires the surplus lines licensee, upon placing surplus lines insurance, to deliver the contract of insurance to the insured or to the writing producer. A cover note, binder or other evidence of insurance shall be delivered by the surplus lines licensee if the contract of insurance is not immediately available.

(b) Delivery of the contract or other evidence of insurance by the surplus lines licensee shall occur within 15 calendar days after:

(1) Coverage has been bound by the surplus lines licensee, if the surplus lines licensee holds binding authority on behalf of the eligible surplus lines insurer.

(2) The surplus lines licensee has received written notification from the eligible surplus lines insurer or other nonadmitted insurer that it has assumed the risk, if the surplus lines licensee does not hold binding authority on behalf of the eligible surplus lines insurer.

(c) Under section 1624 of the act (40 P. S. § 991.1624), a contract or other evidence of insurance delivered by the surplus lines licensee shall contain a service of process clause substantially similar to the following:

It is agreed that in the event of the failure of the Insurer(s) or Underwriter(s) herein to pay any amount claimed to be due hereunder, the Insurer(s) or Underwriter(s) herein, at the request of the Insured (or reinsured), will submit to the jurisdiction of any court of competent jurisdiction within the United States of America and will comply with all requirements necessary to give such court jurisdiction, and all matters arising hereunder shall be determined in accordance with the law and practice of such court. It is further agreed that in any such action instituted against any one of them upon this contract, Insurer(s) or Underwriter(s) will abide by the final decision of such court or of any appellate court in the event of an appeal.

Service of process shall be made pursuant to the procedures provided by 42 Pa.C.S. Ch. 53 Subch. B (relating to interstate and international procedure). When making service of process by mail, such process shall be mailed to

History

• Authority: The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.

31 Pa. Code § 124.5 Diligent search of admitted insurers.

Under section 1604(2)(i) of the act (40 P. S. § 991.1604(2)(i)), surplus lines insurance may be procured through a surplus lines licensee from nonadmitted insurers if a diligent search is made among the admitted insurers who are writing, in this Commonwealth, coverage comparable to the coverage being sought. The following minimum requirements and conditions apply to the conduct of a diligent search among admitted insurers under section 1604(2)(i) of the act.

(1) Under section 1609(a)(1)(i) of the act (40 P. S. § 991.1609(a)(1)(i)), the writing producer shall execute and forward to the surplus lines licensee a written statement, in a form prescribed by the Department, declaring that a diligent effort to procure the desired coverage from admitted insurers was made. A diligent effort will be deemed to have been made if the writing producer has documented a declination of coverage from at least three admitted insurers which are writing, in this Commonwealth, coverage comparable to the coverage being sought. A declination may be documented by any of the following:

(i) A written declination from the admitted insurer.

(ii) A written record of an oral declination made by the person who initially received the declination or by another person working for the business from information transmitted by the person who received the declination. The written record must include:

(A) The name, office location and phone number of the admitted insurer or firm acting in the capacity of underwriting manager for the admitted insurer.

(B) The name and position of the person contacted.

(C) The date of contact.

(D) An explanation of the declination.

(iii) A written record that the writing producer contacted an admitted insurer who failed to respond within 5 business days, which includes the manner in which the contact was made and the information required under subparagraph (ii)(A)—(C).

(iv) A written record that the risk does not meet the underwriting guidelines of the admitted insurer. The written record must include:

(A) The name of the admitted insurer.

(B) Reference to the underwriting guidelines upon which the declination is based.

(2) A declination shall be obtained from the admitted insurer or recorded by the writing producer at or near the time of receipt of the declination and maintained for at least 5 years following termination of the contract.

(3) A declination of coverage by an admitted insurer shall be made by a person who is a full-time employee of the admitted insurer and who has underwriting responsibility for that admitted insurer or by a full-time employee of a firm acting in the capacity of underwriting manager for the admitted insurer.

(4) For purposes of this paragraph, the term ‘‘affiliate’’ is used as defined in section 1401 of The Insurance Company Law of 1921 (40 P. S. § 991.1401).

(i) A declination may not be obtained from an admitted insurer which is an affiliate of an admitted insurer from which a declination has already been obtained.

(ii) Surplus lines insurance may not be placed with a nonadmitted insurer that is an affiliate of an admitted insurer from which a declination has been obtained.

(iii) The restrictions in subparagraphs (i) and (ii) do not apply if the affiliated insurers write independently of each other using separate and independently developed underwriting criteria and marketing plans, and for underwriting purposes, compete with each other for the same type of coverage or class of insurance.

(5) Under section 1609(a)(2) of the act, the surplus lines licensee shall file with the Department a written declaration of the licensee’s lack of knowledge of how the coverage could have been procured from admitted insurers and shall simultaneously file the written declaration of the writing producer required under section 1609(a)(1) of the act. Under section 1609(a)(3) of the act, if the surplus lines licensee acts as both the writing producer and surplus lines licensee in a particular transaction, the surplus lines licensee is required to execute the declarations required under section 1609(a)(1) and (2) of the act.

The provisions of this § 124.5 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and Article XVI of The Insurance Company Law of 1921 (40 P. S. § § 991.1601—991.1626).

The provisions of this § 124.5 amended October 25, 2013, effective November 25, 2013, 43 Pa.B. 6345. Immediately preceding text appears at serial pages (263782) to (263783).

History

• Authority: The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.

31 Pa. Code § 124.6 Export list coverages.

(a) Under section 1604(2)(ii) of the act (40 P. S. § 991.1604(2)(ii)), the Commissioner may create and maintain an export list of insurance coverages for which the full amount or kind of insurance cannot be obtained from admitted insurers.

(b) The diligent search requirement of section 1604(2)(i) of the act and the reporting requirements of section 1609(a) of the act (40 P. S. § 991.1609(a)) do not apply to the placement of an insurance coverage which appears on the export list.

(c) Within 45 calendar days after the placement of an insurance coverage which appears on the most recent export list published by the Commissioner, the surplus lines licensee shall file with the Department or its designee a written declaration reporting the transaction on a form prescribed by the Department.

The provisions of this § 124.6 amended under sections 206, 506 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and Article XVI of The Insurance Company Law of 1921 (40 P. S. § § 991.1601—991.1626).

The provisions of this § 124.6 amended October 25, 2013, effective November 25, 2013, 43 Pa.B. 6345. Immediately preceding text appears at serial page (263784).

History

• Authority: The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.

31 Pa. Code § 124.7 Unique forms of coverages.

Under section 1604(2)(iii) of the act (40 P. S. § 991.1604(2)(iii)), surplus lines insurance may be procured through a surplus lines licensee from nonadmitted insurers if the kind of insurance sought to be obtained from admitted insurers requires a unique form of coverage not available in the admitted market. Within 45 calendar days after a unique form of coverage has been placed, the surplus lines licensee shall file with the Department or its designee, a written declaration reporting the transaction on a form prescribed by the Department.

The provisions of this § 124.7 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and Article XVI of The Insurance Company Law of 1921 (40 P. S. § § 991.1601—991.1626).

The provisions of this § 124.7 amended October 25, 2013, effective November 25, 2013, 43 Pa.B. 6345. Immediately preceding text appears at serial page (263784).

History

• Authority: The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.

31 Pa. Code § 124.10 Eligible surplus lines insurer filing requirements.

(a) A request to consider a foreign insurer for placement on the Department’s eligible surplus lines insurer list under section 1605(b) of the act (40 P. S. § 991.1605(b)) shall be made in writing by or on behalf of an insurer and include the following:

(1) Certificate of authority. A copy of the certificate of authority of the insurer or similar document setting forth its authority to issue policies and insure risks in the jurisdiction in which the insurer is incorporated, formed or organized.

(2) Financial statement. A copy of the jurat page from the latest annual financial report or statement of the insurer signed by the officers of the insurer and filed with the insurance regulatory authority or other governmental authority in the jurisdiction in which the insurer is incorporated, formed or organized. If the Department is unable to determine from the jurat page of the latest annual financial report or statement whether the insurer meets the requirements of section 1605(a) of the act, the insurer shall, upon request, forward to the Department:

(i) A copy of the entire annual financial report or statement. The copy must include all supplemental reports, exhibits and schedules required as part of the annual statement filing.

(ii) A copy of each subsequent quarterly financial report or statement of the insurer signed by the officers of the insurer and filed with the insurance regulatory authority or other governmental authority in the jurisdiction in which the insurer is incorporated, formed or organized.

(3) Kind of insurance. A written statement by an officer of the insurer identifying the kinds of insurance coverages the insurer intends to write and the types of risks the insurer intends to insure in this Commonwealth.

(b) After placement on the eligible surplus lines insurer list, a foreign insurer shall submit to the Department the information required under subsection (a)(2) within 30 days after the date required for filing in its domiciliary jurisdiction. If the Department cannot determine from the information provided whether the insurer continues to meet the requirements of section 1605(a) of the act, the insurer shall submit the information required under subsection (a) upon request.

(c) A request to consider an alien insurer for placement on the Department’s eligible surplus lines insurer list under section 1605(b) of the act shall be made in writing by or on behalf of an insurer and include documentation evidencing that the insurer is listed on the Quarterly Listing of Alien Insurers maintained by the International Insurers Department of the National Association of Insurance Commissioners.

(d) After placement on the eligible surplus lines insurer list, a nonadmitted insurer shall notify the Department within 10 business days if the nonadmitted insurer no longer satisfies the requirements of section 1605 of the act.

The provisions of this § 124.10 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and Article XVI of The Insurance Company Law of 1921 (40 P. S. § § 991.1601—991.1626).

The provisions of this § 124.10 amended October 25, 2013, effective November 25, 2013, 43 Pa.B. 6345. Immediately preceding text appears at serial pages (263785) to (263788).

History

• Authority: The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.

31 Pa. Code § 124.11 Exempt commercial purchaser.

For the Department to determine whether a surplus lines licensee has placed business for an exempt commercial purchaser under section 1610(a.1) of the act (40 P. S. § 991.1610(a.1)), the surplus lines licensee shall file, with the Department or its designee, a written declaration reporting the transaction on a form prescribed by the Department.

The provisions of this § 124.11 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and Article XVI of The Insurance Company Law of 1921 (40 P. S. § § 991.1601—991.1626).

The provisions of this § 124.11 adopted October 25, 2013, effective November 25, 2013, 43 Pa.B. 6345.

History

• Authority: The provisions of this Chapter 124 issued under Article XVI of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 124 adopted March 17, 2000, effective March 18, 2000, 30 Pa.

Chapter 125 Title Insurance Rebates

31 Pa. Code § 125.1 Prohibited rebates and inducements.

A title insurance company or agent or approved attorney of a title insurance company may not pay to an approved attorney, real estate broker, real estate salesman, attorney at law or other person, partnership or corporation, who or which, from time to time, apply to a title insurance company or to an agent of a title insurance company for title insurance and who at the time of the application are not licensed agents for a title insurance company, compensation, consideration, benefit or remuneration directly or indirectly.

The provisions of this § 125.1 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); sections 701(4) and 731 of The Insurance Company Act of 1921 (40 P. S. § § 910-1(4) and 910-31); and sections 635 and 636 of The Insurance Department Act of 1921 (40 P. S. § § 275 and 276).

The provisions of this § 125.1 amended June 25, 1999, effective June 26, 1999, 29 Pa.B. 3209. Immediately preceding text appears at serial page (143745).

History

• Authority: The provisions of this Chapter 125 issued under sections 701(4), 730 and 731 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 125 adopted June 4, 1968; unless otherwise noted.

31 Pa. Code § 125.2 Charges required for title reports and others.

(a) The issuance without charge of a title report, commitment to insure, guaranteed general search, information certificate or title insurance policy is an illegal rebate and inducement.

(b) The charge for the title report, commitment to insure, guaranteed general search or information certificate shall have a reasonable relation to the cost of production, but in no event may it be less than the rate for a minimum title insurance policy as set forth in the rate schedule of the title insurance company filed with the Insurance Department.

(c) The provisions of subsection (a) does not preclude the crediting of the amount paid for the title report, commitment to insure or information certificate to the charge or premium for the final policy of title insurance issued on the basis of the title report, commitment to insure or information certificate.

History

• Authority: The provisions of this Chapter 125 issued under sections 701(4), 730 and 731 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 125 adopted June 4, 1968; unless otherwise noted.

31 Pa. Code § 125.3 Increasing the charge or fee.

Increasing the charge or fee for a title insurance policy by an amount and returning any or all of the added amount to any person is an illegal rebate and inducement.

The provisions of this § 125.3 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); sections 701(4) and 731 of The Insurance Company Act of 1921 (40 P. S. § § 910-1(4) and 910-31); and sections 635 and 636 of The Insurance Department Act of 1921 (40 P. S. § § 275 and 276).

The provisions of this § 125.3 amended June 25, 1999, effective June 26, 1999, 29 Pa.B. 3209. Immediately preceding text appears at serial page (143746).

History

• Authority: The provisions of this Chapter 125 issued under sections 701(4), 730 and 731 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 125 adopted June 4, 1968; unless otherwise noted.

31 Pa. Code § 125.4 Participation in fees.

Participation by a person in any of the fees charged by a title insurance company or agent thereof for title insurance, including, but not limited to, charges for special insurance, is an illegal rebate and inducement.

The provisions of this § 125.4 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); sections 701(4) and 731 of The Insurance Company Act of 1921 (40 P. S. § § 910-1(4) and 910-31); and sections 635 and 636 of The Insurance Department Act of 1921 (40 P. S. § § 275 and 276).

The provisions of this § 125.4 amended June 25, 1999, effective June 26, 1999, 29 Pa.B. 3209. Immediately preceding text appears at serial page (143746).

History

• Authority: The provisions of this Chapter 125 issued under sections 701(4), 730 and 731 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 125 adopted June 4, 1968; unless otherwise noted.

Chapter 126 Owner-Mortgagee Title Insurance

31 Pa. Code § 126.1 General.

Title insurance companies and agents of title insurance companies, issuing mortgagee’s title insurance upon a loan made simultaneously with the purchase of all or a part of the real estate securing the loans, where no owner’s title insurance policy has been ordered; shall, prior to the disbursement of the loan funds or the issuance of the mortgagee’s title policy, cause the mortgagor to be advised in writing of the fact that a mortgagee’s title insurance policy is to be issued, of the fact that the policy does not afford title insurance protection to the owner-mortagor, and of the owner-mortgagor’s right to obtain title insurance in his own favor; and if the mortgagor elects not to purchase owner’s title insurance, the title insurance company shall obtain from the mortgagor a statement in writing that the mortgagor has received the notice and that the mortgagor waives the right to purchase owner’s title insurance. The form of the written notice and waiver shall be as follows:

Pursuant to the requirement of the Pennsylvania Insurance Department, notice is hereby given that a mortgagee’s title insurance policy is to be issued to your mortgage lender and that such policy does not afford title insurance protection to you in the event of a defect in the title to the real estate which you are acquiring (including but not limited to unpaid bills for labor and material, forgeries, missing heirs, unpaid taxes, etc.). You are hereby advised of your right and opportunity to obtain an owner’s title insurance policy in your favor for the amount of your purchase price (or the amount of your purchase price, plus the cost of any improvements which you anticipate making).

The said requirement directs that you sign the statement below if you do not wish to purchase this protection.Name of company issuing policy by title

This is to certify that the foregoing notice of right to purchase owner’s title insurance policy for the protection of the undersigned purchaser has been received and the undersigned purchaser hereby waives such right. It is understood and agreed that (name of company) shall have no responsibility to the undersigned purchaser for the status of the title to the real estate being acquired or for any loss by reason of a complete or partial failure of title.Signature of mortgagor/purchaser

History

• Authority: The provisions of this Chapter 126 issued under section 221 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 126 adopted March 29, 1974, effective March 30, 1974, 4 Pa.

31 Pa. Code § 126.2 Filing requirements.

The original of the executed notice waiver shall be filed with the title insurance company insuring the title to the mortgagee and kept on file for a period of not less than 20 years after the policy of title insurance issued to the mortgagee lender has been issued. In lieu of retaining the original copy, the title insurance company may in the regular course of business, establish a system whereby the executed notice and waiver be copied or reproduced by any photographic, photostatic, microfilm, miniature photographic or other process which accurately reproduces or forms a durable medium for reproducing the original.

History

• Authority: The provisions of this Chapter 126 issued under section 221 of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 126 adopted March 29, 1974, effective March 30, 1974, 4 Pa.

Chapter 127 Management Contracts or Exclusive General Agency Agreements

31 Pa. Code § 127.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Company—A domestic insurance company. Contract—A management contract or an exclusive general agency agreement entered into between a licensee and a company. Department—The Insurance Department of the Commonwealth. Licensee—An individual, corporation or copartnership licensed or subject to licensing by the Insurance Commissioner as a manager or exclusive general agent of a domestic insurance company under section 651 of The Insurance Department Act of 1921 (40 P. S. § 291) and this chapter.

History

• Authority: The provisions of this Chapter 127 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 127 adopted January 15, 1971, effective January 16, 1971, 1 Pa.

31 Pa. Code § 127.2 Purpose.

This chapter is to facilitate the licensing of managers or exclusive general agents of domestic insurance companies by outlining certain conditions and provisions which should be contained in management contracts and exclusive general agency agreements, and setting forth the principles under which the contracts and agreements will be reviewed by the Department.

History

• Authority: The provisions of this Chapter 127 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 127 adopted January 15, 1971, effective January 16, 1971, 1 Pa.

31 Pa. Code § 127.3 Application and supporting documents.

Each application for a manager’s or exclusive general agent’s license, or for renewal of a license, shall be accompanied by an executed copy of the contract and a certified copy of a resolution of the board of directors of the company approving the contract, for review by the Insurance Commissioner prior to the issuance of a license or renewal thereof.

History

• Authority: The provisions of this Chapter 127 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 127 adopted January 15, 1971, effective January 16, 1971, 1 Pa.

31 Pa. Code § 127.4 General contract requirements.

(a) Contracts shall be fair and equitable and shall be the result of an arm’s length negotiation between the licensee and the company.

(b) The effect of a contract may not be to delegate virtually complete supervision and control over functions of the company to the licensee, thereby effectively substituting the licensee for the board of directors of the company.

(c) Contract provisions shall be consistent with the articles of incorporation and bylaws of the company.

(d) The rights, obligations and duties of the parties to the contract shall be specifically and clearly set forth.

(e) Contracts shall avoid conflict of interests between the company, the licensee and officers or directors of the company.

(f) Contracts shall also contain the following:

(1) Clear and precise termination provisions, specifying a termination date not later than 5 years after the date of execution, and may not provide for automatic renewal.

(2) A provision stating that duties not specifically delegated to the licensee are retained by the company.

History

• Authority: The provisions of this Chapter 127 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 127 adopted January 15, 1971, effective January 16, 1971, 1 Pa.

31 Pa. Code § 127.5 Compensation of licensees.

(a) The total compensation of a licensee under a contract, including deferred compensation, shall bear a reasonable relationship to the actual services which he renders to the company.

(b) A net override commission or fee may not exceed 10% of the gross premiums written by the company.

(c) Compensation provisions shall, through a reasonable service fee formula or by other appropriate means, avoid an arrangement which may encourage the under-reserving of claims, improper underwriting practices or other results detrimental to the best interests of the policyholders of the company, claimants or of the general public.

(d) Forms of compensation or income intended to be received by or accrued to the benefit of the licensee, directly or indirectly from the company, shall be set forth in the contract. The sources of income shall include, but are not necessarily limited to, the following:

(1) Salaries or fees paid to the licensee or to officers or directors of the licensee.

(2) Insurance agents’ commissions.

(3) Rental payments for real or personal property leased from the licensee by the company or profits realized on sales by the licensee to the company.

(4) Value of services or facilities furnished by the company to the licensee.

(e) Compensation of a nature paid to relatives of the licensee or to relatives of the officers or directors of the licensee; to a business entity controlled by licensee, relatives of the licensee or relatives of the officers or directors of the licensee; or to close business associates of licensee, shall be disclosed to the Insurance Commissioner.

History

• Authority: The provisions of this Chapter 127 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 127 adopted January 15, 1971, effective January 16, 1971, 1 Pa.

31 Pa. Code § 127.6 Amendments to contracts.

An amendment to an existing contract shall be filed promptly with the Insurance Commissioner.

History

• Authority: The provisions of this Chapter 127 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 127 adopted January 15, 1971, effective January 16, 1971, 1 Pa.

31 Pa. Code § 127.7 Penalties.

Failure to comply with this chapter shall subject a licensee, following notice and hearing in accordance with 2 Pa.C.S. § § 501—508 and 701—704 (relating to Administrative Agency Law) to revocation of license; in addition thereto, a failure to comply with this chapter shall constitute a violation of the laws of the Commonwealth and shall subject a company or licensee so failing to comply to the penalties provided by law.

History

• Authority: The provisions of this Chapter 127 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 127 adopted January 15, 1971, effective January 16, 1971, 1 Pa.

31 Pa. Code § 127.8 Severability.

If a provision or clause of this chapter or the application thereof to a person or situation is held invalid, the invalidity may not affect another provision or application of this chapter which may be given effect without the invalid provision or application, and to this end the provisions of this chapter are severable.

History

• Authority: The provisions of this Chapter 127 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 127 adopted January 15, 1971, effective January 16, 1971, 1 Pa.

Chapter 129 Supplemental and Incomplete Rate Filing

31 Pa. Code § 129.1 Information to be filed.

(a) The rate filings for all lines of personal insurance, such as homeowner, automobile, dwelling, fire and to the extent relative, Blue Cross and Blue Shield rate filings, shall, if the filing affects 5% or more of the market for that particular line of insurance in this Commonwealth, include the following information:

(1) Whether deductible coverage is to be offered, whether higher deductibles are feasible, and what steps will be taken to facilitate the selling of deductibles by agents and brokers.

(2) Steps being taken to modernize and update coverage. For example, whether medical payments protection in an auto policy will be offered in amounts exceeding $5,000, or only up to $5,000, the usual amount now available. Also, what consideration has been given to otherwise updating the scope of protection.

(3) Steps being taken to provide prompt and equitable claims settlements. For example, to what extent advance payments are utilized in automobile liability coverage, what limitations apply to the making of the payments, and what percentage of claims are settled in this manner. Also, company policy on time period to acknowledge or answer inquiries relating to claims.

(4) Whether nature of loss prevention programs are being utilized and planned, including information and statistics on successful as well as unsuccessful programs. For example, revisions necessary to make safe driver insurance plans equitable and useful. Also, what steps are being taken to educate the public regarding the causes of accidents and to promote public action to seek solutions.

(5) The extent to which the particular rating structure of the company appropriately exerts leverage to discourage unsafe conditions and products and unreasonably fragile products, such as damage-prone automobiles. Also, other ways in which the leverage of rates might be utilized to promote safety.

(6) All steps being taken by the insurer in addition to compliance with act of June 5, 1968 (P. L. 140, No. 78) (40 P. S. § § 1008.1—1008.11) regarding automobile insurance, to prevent arbitrary cancellations, nonrenewals and refusals to write in all personal lines of insurance.

(7) The intended and actual impact of prior rate increases in eliminating restrictive and discriminatory underwriting practices, and the likely impact of the requested increases on existing practices as evidenced by company manuals and other available evidence.

(8) The extent to which the company has initiated agency terminations, plans for the rehabilitation of agents and the expansion of its agency forces.

(9) Other appropriate steps being considered or proposed to lower costs and increase the quality of service.

(b) Subsequent to the initial filing for a particular line of insurance, which filing shall include the information required by subsection (a)(1) and (2), additional filings for the same line made within 1 year of the initial filing need not include the information unless changes in coverage have occurred.

History

• Authority: The provisions of this Chapter 129 issued under section 1501 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 129 adopted January 22, 1971, effective January 13, 1971, 1 Pa.

31 Pa. Code § 129.11 Additional information.

If, within the first 30 days following the receipt of a rate filing, the Department finds that without additional information it is unable to determine whether the filing meets the requirements of the applicable rate regulatory act, the insurer will be requested to submit the additional information within 30 days from the date of the request. Upon receipt of the information, the rate filing will be reviewed by the Department within the number of days which remain in the initial 30-day waiting period. In addition thereto, the Department may, by written notice, extend the initial 30-day waiting period for an additional period which will not exceed 30 days, in accordance with the provisions of the Fire, Marine and Inland Marine Rate Regulatory Act (40 P. S. § § 1221—1238) and the Casualty and Surety Rate Regulatory Act (40 P. S. § § 1181—1199).

A Department letter in which it is stated that the Department has questions, comments, or requests which must be addressed in order to continue its review cannot be considered a request for additional information so as to trigger a deemed withdrawal. The Department’s subsequent failure to timely disapprove a rate filing resulted in its deemed approval. Nationwide Mutual Insurance Co. v. Insurance Department, 583 A.2d 507 (Pa. Cmwlth. 1990).

History

• Authority: The provisions of this Chapter 129 issued under section 1501 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 129 adopted January 22, 1971, effective January 13, 1971, 1 Pa.

31 Pa. Code § 129.12 Failure to provide information.

If the company fails to provide the Department with the requested information within 30 days from the date of the request or fails to offer a satisfactory written explanation as to why the information was not made available, the captioned filing will be deemed to have been withdrawn and the company will be so notified.

Deemed Approval

A Department letter in which it is stated that the Department has questions, comments, or requests which must be addressed in order to continue its review cannot be considered a request for additional information so as to trigger a deemed withdrawal. The Department’s subsequent failure to timely disapprove a rate filing resulted in its deemed approval. Nationwide Mutual Insurance Co. v. Insurance Department, 583 A.2d 507 (Pa. Cmwlth. 1990).

History

• Authority: The provisions of this Chapter 129 issued under section 1501 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 129 adopted January 22, 1971, effective January 13, 1971, 1 Pa.

Chapter 130 Requirements for Filing for a Decrease in Currently Approved Rates

31 Pa. Code § 130.1 Purpose.

This chapter is to promote competition among insurers for the benefit of the insurance consuming public by permitting insurers subject to the Fire and Marine Rate Act or the Casualty and Surety Rate Act, or both, to effect expeditiously certain decreases in a rate filing currently approved by the Department when, in an insurer’s judgment economic or competitive reasons or conditions warrant such a decrease. A further purpose is to enable an insurer to return to the currently approved rate level without delay or regulatory review when, in its judgment, the conditions or reasons for the decrease no longer pertain.

History

• Authority: The provisions of this Chapter 130 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 130 adopted June 6, 1980, effective June 7, 1980, 10 Pa.

31 Pa. Code § 130.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings unless the context clearly indicates otherwise: Bureau—The Bureau of Regulation of Rates and Policies of the Department. Casualty and Surety Rate Act—The Casualty and Surety Rate Regulatory Act (40 P. S. § § 1181—1199). Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Director—The Director of the Bureau. Fire and Marine Rate Act—The Fire, Marine and Inland Marine Rate Regulatory Act (40 P. S. § § 1221—1238). Insurer—An insurance company, association or exchange authorized to transact insurance business in this Commonwealth which files its rates independently under the Fire and Marine Rate Act or the Casualty and Surety Rate Act, or both; a member or subscriber of a rating organization on whose behalf rate filings are made under the aforesaid acts by a rating organization; or a rating organization itself licensed under either or both of the aforesaid acts.

History

• Authority: The provisions of this Chapter 130 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 130 adopted June 6, 1980, effective June 7, 1980, 10 Pa.

31 Pa. Code § 130.3 Filing requirements.

An insurer subject to the Fire and Marine Rate Act or the Casualty and Surety Rate Act, or both, to effect a decrease in rates currently approved by the Department, shall comply with the following filing requirements:

(1) The insurer by a rate filing shall notify the Director; Bureau of Regulation of Rates and Policies; Insurance Department; Harrisburg, Pennsylvania 17120 at least 30 days prior to the date it wants to put into effect a decrease in rates currently approved for it by the Department. In the rate filing, the insurer shall state the basis for the decrease in rates and its agreement that the decrease in rate filing shall remain in effect for at least 3 months from the effective date. Within a 15-day period following the filing of a proposed decrease in rates, the Commissioner will notify the insurer of the unacceptability of the filing for a decrease in rates. The Commissioner will only find unacceptable a decrease in rate filing if, in his opinion, the decrease in rates may have a tendency or capacity to imperil the financial condition of the filing insurer.

(2) The decrease in rate filing may be up to 10% from the currently approved rates and shall apply to policyholders either by coverage or line of insurance.

(3) After a filing has been in effect for 3 months or more, an insurer may automatically withdraw its decrease or a portion thereof by so notifying the Director; Bureau of Regulation of Rates and Policies; Insurance Department; Harrisburg, Pennsylvania 17120 at least 30 days prior to the withdrawal date.

This section cited in 31 Pa. Code § 153.3 (relating to simplified review of company merger, assumption or name change form and rate filings—statement of policy).

History

• Authority: The provisions of this Chapter 130 issued under The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 130 adopted June 6, 1980, effective June 7, 1980, 10 Pa.

Chapter 145 Elimination of Unfair Sex or Marital Status Discrimination in All Insurance Contracts

31 Pa. Code § 145.1 Purpose.

This chapter prohibits insurers from denying benefits or coverage to individuals on the basis of unfair sex or marital status discrimination in the terms or conditions of insurance contracts and in the underwriting criteria of insurers. This chapter does not prohibit insurers from differentiating in premium rates between sexes where there is sound actuarial justification.

The language in 31 Pa. Code § 145.1 is not an authorization in establishing rates to use sex classification based on actuarial justification, but is phrased merely as not being a prohibition. The provision applies only to the regulation of trade practices and not to the promulgation of rates. Hartford Accident and Indemnity Co. v. Insurance Commissioner, 442 A.2d 382 (Pa. Cmwlth. 1982); affirmed 482 A.2d 542 (Pa. 1984).

In dissenting to the majority’s finding that gender-based automobile insurance rates are constitutionally violative, Justice McDermott noted that on numerous occasions, the Legislature had an opportunity to abolish gender-based rates but failed to do so, and that Insurance Commission regulations specifically did not prohibit gender-based rate classification where there is sound actuarial discretion. Hartford Accident and Indemnity Co. v. Insurance Commissioner, 482 A.2d 542 (Pa. 1984).

History

• Authority: The provisions of this Chapter 145 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 145 adopted August 26, 1977, effective October 26, 1977, 7 Pa.

31 Pa. Code § 145.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Contract—An insurance policy, subscriber agreement, certificate, plan or written agreement for or effecting insurance by whatever name called, including but not limited to clauses, riders or endorsements offered by a person or entity engaged in the business of insurance in this Commonwealth. Department—The Insurance Department of the Commonwealth. Insurer—An insurance company, association, reciprocal or interinsurance exchange, nonprofit hospital or professional health service plan, health maintenance organization, fraternal benefit society, beneficial association or other person, corporation, company, partnership, association or other entity acting as an insurer.

History

• Authority: The provisions of this Chapter 145 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 145 adopted August 26, 1977, effective October 26, 1977, 7 Pa.

31 Pa. Code § 145.3 Applicability and scope.

This chapter applies to contracts delivered or issued for delivery in this Commonwealth by an insurer on or after the effective date of this chapter and to existing group contracts which are either amended or renewed on or after the effective date of this chapter.

History

• Authority: The provisions of this Chapter 145 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 145 adopted August 26, 1977, effective October 26, 1977, 7 Pa.

31 Pa. Code § 145.4 Availability requirements.

(a) Availability of an insurance contract may not be denied to an insured or prospective insured on the basis of the sex or marital status of the insured or prospective insured. The amount of benefits payable or a term, condition or type of coverage may not be restricted, modified, excluded or reduced solely on the basis of sex or marital status of the insured or prospective insured. The preceding sentence may not be construed to preclude a person from requesting restrictions, modifications, exclusions or reductions of the benefits payable or of a term, condition or type of coverage of his individual policy. The requirements that the amount of benefits may not be restricted, modified, excluded or reduced solely on the basis of sex or marital status does not apply in the following instances:

(1) The calculation of the amount of the insurance that can be purchased for a given amount of premium.

(2) The calculation of settlement options or nonforfeiture benefits under a life insurance policy.

(b) Examples of the practices prohibited by this chapter include but are not limited to the following:

(1) Denying coverage to members of one sex gainfully employed at home, employed part-time or employed by relatives, when coverage is offered to members of the other sex similarly employed.

(2) Denying policy riders to members of one sex when the riders are available to members of the other sex.

(3) Denying, under group contracts, dependent coverage to husbands of female employes when dependent coverage is available to wives of male employes.

(4) Denying disability income contracts to employed members of one sex when coverage is offered to members of the other sex similarly employed.

(5) Treating complications of pregnancy different from another illness or sickness under the contract.

(6) Restricting, reducing, modifying or excluding benefits relating to coverage involving the genital organs of only one sex when the restrictions, reductions, modifications or exclusions of benefits are not required for both sexes.

(7) Offering lower maximum monthly benefits to members of one sex than to members of the other sex who are in the same classification under a disability income contract.

(8) Offering more restrictive benefit periods and more restrictive definitions of disability to members of one sex than to members of the other sex in the same classification under a disability income contract.

(9) Establishing different conditions by sex under which the policyholder may exercise benefit options contained in the contract.

(10) Denying maternity benefits to insureds or prospective insureds purchasing an individual contract when comparable family coverage contracts offer maternity benefits.

(11) Limiting the amount of coverage an insured or prospective insured may purchase based upon the marital status of the insured or prospective insured, unless the limitation is for the purpose of designating persons eligible for dependent benefits.

(c) In individual policies containing a conversion privilege, no person may lose coverage due to a change in marital status. The person shall be issued a policy with the insurer which most nearly approximates the coverage of the policy which was in effect prior to the change in marital status. The insured may elect, in writing, to have a reduction in benefits in individual policies, if the benefits are available. The new policy shall be issued without evidence of insurability and shall become effective on the date that coverage terminated under the prior policy.

History

• Authority: The provisions of this Chapter 145 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 145 adopted August 26, 1977, effective October 26, 1977, 7 Pa.

31 Pa. Code § 145.5 Effective date.

This chapter is effective 60 days following publication.

History

• Authority: The provisions of this Chapter 145 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 145 adopted August 26, 1977, effective October 26, 1977, 7 Pa.

Chapter 147 Annual Financial Reporting Requirements

31 Pa. Code § 147.1 Purpose.

The purpose of this chapter is to improve the Department’s surveillance of the financial condition of insurers by requiring an annual audit by independent certi-fied public accountants of the financial statements reporting the financial condition and the results of operations of insurers, a written communication detailing internal control related matters noted in the audit, and a written report by management of internal control over financial reporting.

The provisions of this § 147.1 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205—1600.206); section 731 of the Medical Care Availability and Reduction of Error Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225.)

The provisions of this § 147.1 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; corrected January 11, 1980, effective December 22, 1979, 10 Pa.B. 129; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730. Immediately preceding text appears at serial pages (305319) to (305320).

Applicability

Section 809 of The Insurance Company Law of 1921 (40 P.S. § 919), giving the Department authority over loan agreements, does not apply to loans to professional health service corporation and is limited to surveillance of the financial condition of the insurers as set forth in this section. Pennsylvania Dental Association v. Insurance Department, 560 A.2d 870 (Pa. Cmwlth. 1989).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Affiliate—As defined in section 1401 of The Insurance Company Law of 1921 (40 P.S. § 991.1401). Assumed premiums—Total premiums assumed by an insurer from nonaffiliated insurers. Audit committee—

(i) A committee or equivalent body established by the board of directors or equivalent body of an entity for the purpose of overseeing the following functions of an insurer or insurer group:

(A) Accounting and financial reporting processes.

(B) Internal audit function.

(C) External audits of financial statements.

(D) Internal control structure.

(ii) The term includes a committee established under section 1405(c)(4) or (5) of The Insurance Company Law of 1921 (40 P.S. § 991.1405(c)(4) and (5)). Audited financial report—The term includes those items specified in § 147.7 (relating to contents of annual audited financial report). Commissioner—The Insurance Commissioner of the Commonwealth. Control, controlling, controlled by and under common control with—As defined in section 1401 of The Insurance Company Law of 1921. Department—The Insurance Department of the Commonwealth. Direct written premiums—Total premiums directly written by an insurer. Domestic insurer—An insurer incorporated or organized under the laws of the Commonwealth. Foreign insurer—An insurer not incorporated or organized under the laws of the Commonwealth. Independent certified public accountant—

(i) A certified public accountant licensed, or an accounting firm registered, to practice in this Commonwealth under The CPA Law (63 P.S. § § 9.1—9.16b) or in another state with similar licensing requirements, in good standing with the American Institute of Certified Public Accountants, Inc., and in good standing in the states in which the certified public accountant is licensed or the accounting firm is registered to practice; who conforms to the standards of the profession as contained in the ‘‘Code of Professional Ethics of the American Institute of Certified Public Accountants, Inc.’’ and The CPA Law or similar laws.

(ii) For insurers organized in Canada or the United Kingdom of Great Britain and Northern Ireland, a chartered accountant. Insurer—

(i) The term includes any of the following licensed to transact business in this Commonwealth:

(A) An insurance company, association or exchange.

(B) A reciprocal or interinsurance exchange.

(C) The Inspection Bureau, the Industry Placement Facility and the Fair Plan coming under the Pennsylvania Fair Plan Act (40 P.S. § § 1600.101—1600.502).

(D) A nonprofit health plan corporation, whether operating a hospital plan or a professional health services plan, or both.

(E) An employers’ mutual liability insurance association.

(F) A health maintenance organization.

(G) A fraternal benefit society or beneficial association.

(H) A preferred provider organization.

(I) A joint underwriting association under section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731).

(ii) Except as otherwise noted, the term also includes a continuing care provider licensed to transact business in this Commonwealth under the Continuing Care Provider Registration and Disclosure Act (40 P.S. § § 3201—3255)). Insurer group—Two or more affiliated insurers identified by a controlling entity for the purpose of evaluating the effectiveness of internal control over financial reporting. Internal audit function—The role of a person or persons in providing independent, objective and reasonable assurances that add value to and improve upon the organization’s operations and assist the organization in accomplishing its objectives by employing a systematic, disciplined approach to evaluate and improve the effectiveness of the risk management, control and governance processes. Internal control over financial reporting—The process effected by the board of directors, management and other personnel of an insurer or insurer group, which provides reasonable assurances regarding the reliability of the financial statements in accordance with § 147.9a (relating to establishment and communication of internal control over financial reporting). NAIC—The National Association of Insurance Commissioners or successor organization. NAIC Implementation Guide—The ‘‘Implementation Guide for the Annual Financial Reporting Model Regulation’’ published in the NAIC Accounting Practices and Procedures Manual, or successor publication, prescribed for financial reporting under section 320(a)(2) of The Insurance Company law of 1921 (40 P.S. § 443(a)(2)). Person—As defined in section 1401 of The Insurance Company Law of 1921. Sarbanes-Oxley Act—The Sarbanes-Oxley Act of 2002, also known as the Public Company Accounting Reform and Investor Protection Act of 2002 (15 U.S.C.A. § § 7201—7266). Sarbanes-Oxley Act compliant entity—An entity that is either required to be or is voluntarily compliant with the following:

(i) The preapproval requirements of section 201 of the Sarbanes-Oxley Act (15 U.S.C.A. § 78j-1).

(ii) The audit committee independence requirements of section 301 of the Sarbanes-Oxley Act (15 U.S.C.A. § 78f).

(iii) The internal control over financial reporting requirements of section 404 of the Sarbanes-Oxley Act (15 U.S.C.A. § 7262) and 17 CFR 229.308. Section 404 Report—The annual report on internal control over financial reporting and the related attestation report of the independent certified public accountant filed under section 404 of the Sarbanes-Oxley Act (15 U.S.C.A. § 7262) and 17 CFR 229.308 (relating to Item 308 internal control over financial reporting). Securities Exchange Act—The Securities Exchange Act of 1934 (15 U.S.C.A. § § 78a—78mm). Ultimate controlling person—A person which is not controlled by another person. The term may include one or more of the following: individual, corporation, limited liability company, partnership, association, joint stock company, trust, unincorporated organization, or any similar entity or combination of the foregoing who controls another person.

The provisions of this § 147.2 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.2 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; corrected January 11, 1980, effective December 22, 1979, 10 Pa.B. 129; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730; amended December 16, 2016, effective January 17, 2017, 46 Pa.B. 7819. Immediately preceding text appears at serial pages (380046) and (345517) to (345519).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.3 Filing and extensions for filing required reports and communications.

(a) Every insurer, unless exempted by the Commissioner under § 147.13 (relating to effective date and exemption), shall have an annual audit performed by an independent certified public accountant and shall file as instructed by the Commissioner an audited financial report for that year on or before June 1 for the year ending December 31 immediately preceding unless an extension is granted under subsection (b). The Commissioner may require an insurer to file an audited financial report earlier than June 1 by providing 90 days’ advance notice to the insurer. The Commissioner may require audited financial reports and related information required under this chapter to be filed with the Department and the National Association of Insurance Commissioners in a form of electronic transmission acceptable to the Commissioner. Supplement information related to reporting required under this chapter is published in the NAIC Implementation Guide.

(b) Extensions of the filing date may be granted by the Commissioner for 15-day periods upon showing, by the insurer and its independent certified public accountant, the reasons for requesting an extension by the Commissioner. The request for extension shall be submitted in writing at least 10 days prior to the due date in sufficient detail to permit the Commissioner to make an informed decision with respect to the requested extension. A 15-day extension of the filing date granted by the Commissioner for an audited financial report must provide for 15-day extensions of the filing dates for communication of internal control related matters noted in an audit under § 147.9a (relating to establishment and communication of internal control over financial reporting) and for management’s report of internal control over financial reporting under § 147.9b (relating to management’s report of internal control over financial reporting).

(c) Subsections (a) and (b) do not apply to continuing care providers. In accordance with the law and regulations relating to continuing care providers, each continuing care provider shall have an annual audit performed by an independent certified public accountant and shall file with the Commissioner an audited financial report for that year within 4 months following the end of the provider’s fiscal year.

(d) Audited financial reports filed as instructed by the Commissioner will be open to the public for examination and inspection.

The provisions of this § 147.3 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.3 amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730. Immediately preceding text appears at serial pages (305321) to (305322).

This section cited in 31 Pa. Code § 147.6 (relating to recognition, qualification and responsibilities of an independent certified public accountant); and 31 Pa. Code § 147.13 (relating to effective date and exemption).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.3a Requirements for audit committees.

(a) Every insurer required to file an annual audited financial report under this chapter shall establish an audit committee.

(b) An ultimate controlling person may designate an audit committee of a controlling person to be the audit committee for one or more controlled insurers. The designation must:

(1) Be in writing.

(2) Identify the ultimate controlling person.

(3) Explain the basis for the designation in sufficient detail for the Department to determine compliance with this chapter.

(4) Be provided by the ultimate controlling person or the insurer to the Department and the chief insurance regulatory official of each other state in which the controlled insurers are domiciled no later than April 1 of the year in which the insurer’s audited financial report is required to be filed under this chapter.

(5) Be effective upon receipt by the Department and remain in effect unless modified or rescinded by subsequent notice provided by the ultimate controlling person or the insurer as required under paragraph (4).

(c) Each member of the audit committee shall be a natural person who is either a member of the board of directors of the insurer or a member of the board of directors of a controlling person whose audit committee has been designated as the insurer’s audit committee under subsection (b).

(d) If an audit committee other than the entire board of directors of the insurer has not been established by the insurer or designated by an ultimate controlling person under subsection (b), the insurer’s entire board of directors shall constitute the audit committee.

(e) A proportion of an audit committee’s members shall be independent in accordance with the following requirements:

(1) The proportion of an audit committee’s members who shall be independent shall be calculated as follows:

(i) When an insurer’s direct written and assumed premiums are less than or equal to $300,000,000 at the end of the most recent calendar year, 0% of the members are required to be independent.

(ii) When an insurer’s direct written and assumed premiums exceed $300,000,000 but are not more than $500,000,000 at the end of the most recent calendar year, at least 50% of members are required to be independent.

(iii) When an insurer’s direct written and assumed premiums exceed $500,000,000 at the end of the most recent calendar year, at least 75% of members of the audit committee are required to be independent.

(2) If an audit committee of a controlling person has been designated to be the audit committee for one or more controlled insurers, the proportion of audit committee members who shall be independent shall be based on the insurer in the group with the greatest direct written and assumed premium.

(3) If an insurer’s direct written and assumed premiums meet or exceed the direct written and assumed premiums threshold in paragraph (1)(ii) or (iii) as of the end of a calendar year, the insurer shall comply with the required minimum proportion of independent audit committee members by January 1 following the next full calendar year, as described in the NAIC Implementation Guide.

(4) To be considered independent for purposes of this subsection, an audit committee member may not:

(i) Be an affiliate of the insurer.

(ii) Accept any consulting, advisory or other compensatory fee from the insurer or an affiliate of the insurer other than in the member’s capacity as a member of the audit committee, board of directors or any other board committee.

(5) If an audit committee member ceases to be independent under this chapter, the person may remain an audit committee member until the earlier of the next annual meeting of the insurer or controlling person or 1 year from the occurrence of the event that caused the member to be no longer independent, if the insurer or ultimate controlling person provides the Department with written notice within 15 days of the occurrence of the event.

(f) The audit committee shall retain an independent certified public accountant to conduct the annual audit and issue an audited financial report under this chapter in accordance with the following requirements:

(1) The audit committee shall be directly responsible for the appointment, compensation and oversight of the work of the independent certified public accountant and resolve disagreements between management and the independent certified public accountant relating to financial reporting for the purpose of preparing or issuing the audited financial report or related work under this chapter.

(2) The independent certified public accountant retained to conduct the annual audit under this chapter shall report directly to the audit committee. The audit committee shall require the independent certified public accountant to report to the audit committee in sufficient time to enable the committee to take appropriate action as required by Statement on Auditing Standards 114 (SAS 114), The Auditor’s Communication with Those Charged With Governance, or successor publication and all of the following requirements:

(i) All significant accounting policies and material permitted practices.

(ii) All material alternative treatments of financial information within statutory accounting principles that have been discussed with the management of the insurer, ramifications of the use of alternative disclosures and treatments, and the treatment preferred by the independent certified public accountant.

(iii) Other material written communications between the independent certified public accountant and the management of the insurer, such as any management letter or schedule of unadjusted differences.

(3) The report required under paragraph (2) may be provided to the audit committee on an aggregate basis for insurers in an insurer group, if the report identifies any substantial differences in reported items among the insurers in the group.

(g) The audit committee is responsible for overseeing the insurer’s internal audit function and granting the person or persons performing the function suitable authority and resources to fulfill their responsibilities as required under § 147.8a (relating to internal audit function requirements).

(h) Exemptions are as follows.

(1) The requirements of subsections (b), (c), (e) and (f) do not apply to an insurer with direct written and assumed premiums less than $500,000,000, excluding premiums reinsured with the Federal Crop Insurance Corporation and the Federal Flood Program, which has been granted an exemption by the Department on the basis of financial or organizational hardship under § 147.13(g) (relating to effective date and exemption).

(2) This section does not apply to continuing care providers.

(3) The requirements of subsections (b)—(e) do not apply to insurers subject to section 1405(c)(4) and (5) of The Insurance Company Law of 1921 (40 P.S. § 991.1405(c)(4) and (5)), Sarbanes Oxley compliant entities or direct or indirect wholly owned subsidiaries of Sarbanes Oxley compliant entities.

(i) This section may not be interpreted to limit the Department’s authority to require an insurer to take specific corrective action relating to the independence of audit committee members under sections 501—563, 501-A—515-A and 501-B—515-B of The Insurance Department Act of 1921 (40 P.S. § § 221.1—221.63, 221.1-A—221.15-A and 221.1-B—221.15-B), regarding suspension of business and risk-based capital requirements, Chapter 160 (relating to standards to define insurers deemed to be in hazardous financial condition) or other provisions of law.

The provisions of this § 147.3a issued and amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205—1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.3a adopted October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730; amended December 16, 2016, effective January 17, 2017, 46 Pa.B. 7819. Immediately preceding text appears at serial pages (345520) to (345523).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.4 Contents of annual audited financial report.

(a) The annual audited financial report shall reflect the financial condition of the insurer as of the end of the most recent calendar year and the results of its operations, cash flows and changes in capital and surplus for the year then ended in conformity with statutory accounting practices prescribed, or otherwise permitted, by the Department. Statutory accounting practices are those practices and procedures prescribed by the Accounting Practices and Procedures Manuals published by the National Association of Insurance Commissioners, or as otherwise prescribed or provided by specific statutes, regulations, orders or rulings of the Commonwealth or the Department.

(b) The annual audited financial report must, at a minimum, include the following:

(1) Financial statements that present in a comparable manner, as of the end of the current and the preceding calendar year, the financial condition of the insurer, including the following:

(i) Statement of admitted assets, liabilities, capital and surplus.

(ii) Statement of operations.

(iii) Statement of cash flows.

(iv) Statement of changes in capital and surplus.

(2) Notes to financial statements. These notes shall be those required by the appropriate National Association of Insurance Commissioners Annual Statement Instructions and Accounting Practices and Procedures Manual. The notes must include a reconciliation of differences, if any, between the audited statutory financial statements and the annual statements filed with the Department, with a written description of the nature of these differences, particularly with respect to surplus or stockholder equity and the results of operations. The Commissioner may require the insurer to file an amendment to its annual statement with the Department, the NAIC and other states in which the insurer is licensed, to reflect differences between the audited statutory financial statement and the annual statement filed with the Department within 60 days of the filing date of the audited financial report. The Commissioner may require amendments to financial statements to be filed with the Department and the NAIC in a form of electronic transmission acceptable to the Commissioner.

(3) The report of an independent certified public accountant prepared in compliance with this chapter, including notification of adverse financial condition, communication of internal control related matters noted in the audit in accordance with AU section 325 of the Professional Standards of the American Institute of Certified Public Accountants (SAS 112) Communicating Internal Control Related Matters Identified in an Audit, or its replacement, and letter of qualifications of the independent certified public accountant.

(c) The financial statements included in the audited financial report shall be prepared in a form and using language and groupings substantially the same as the relevant sections of the annual statement of the insurer filed with the Department, and the financial statements shall be comparative, presenting the amounts as of December 31 of the current year and the amounts as of the immediately preceding December 31. In the first year in which an insurer is required to file an audited financial report, the comparative data may be omitted if sufficient detail is made available to the Department upon request. An account which represents less than 5% of the insurer’s admitted assets may be aggregated for reporting purposes, except that all invested asset accounts shall be separately reported.

(d) If an error is discovered after a report is filed, the independent certified public accountant shall withdraw the report and issue a corrected report to the insurer and to the Department within 30 days of the date the independent certified public accountant becomes aware of the discovery of the error. To the extent that the error requires an amendment to the insurer’s annual financial statement filed with the Department, the insurer shall file, within 60 days of the date the corrected report is issued, an amendment to its annual statement with the Department, the National Association of Insurance Commissioners and other states in which the insurer is licensed, to reflect differences between the corrected audited statutory financial statement and the annual statement filed with the Department and including reconciling notes as required by the appropriate National Association of Insurance Commissioners Annual Statement Instructions and Accounting Practices and Procedures Manual. The Commissioner may require amendments to financial statements to be filed with the Department and the National Association of Insurance Commissioners in a form of electronic transmission acceptable to the Commissioner.

(e) Subsections (a)—(d) do not apply to continuing care providers. The annual audited financial report for a continuing care provider shall comply with the following:

(1) The annual audited financial report for a nonprofit continuing care provider shall reflect its financial condition as of the end of its most recent fiscal year and the results of its activities, cash flows and changes in net assets for the fiscal year then ended in conformity with generally accepted accounting principles. The annual audited financial report shall, at a minimum, include the following:

(i) Financial statements that present in a comparable manner, as of the end of the current and the preceding fiscal year, or the period of time that the continuing care provider has been in existence, whichever is shorter, the financial condition of the continuing care provider, including balance sheet, statements of activities, cash flows, changes in net assets and notes to financial statements.

(ii) Report of an independent certified public accountant prepared in compliance with this chapter, including notification of adverse financial condition, report on significant deficiencies in internal controls and letter of qualifications of the independent certified public accountant.

(2) The annual audited financial report for a for-profit continuing care provider shall reflect its financial condition as of the end of its most recent fiscal year and the results of its operations, cash flows and changes in shareholder’s equity for the year then ended in conformity with generally accepted accounting principles. The annual audited financial report shall, at a minimum, include the following:

(i) Financial statements that present in a comparable manner, as of the end of the current and the preceding fiscal year, or the period of time that the continuing care provider has been in existence, whichever is shorter, the financial condition of the continuing care provider, including balance sheet, statements of net income, cash flows, shareholder’s equity and comprehensive income, and notes to financial statements.

(ii) Report of an independent certified public accountant prepared in compliance with this chapter, including notification of adverse financial condition, report on significant deficiencies in internal controls and letter of qualifications of the independent certified public accountant.

(3) If an error is discovered after an annual audited financial report is filed, the independent certified public accountant shall withdraw the report and issue a corrected report within 30 days of the date the independent certified public accountant becomes aware of the discovery of the error.

The provisions of this § 147.4 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007, 1605(a)(3)(ii) and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967, 1605(a)(3)(ii) and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); section 630 of the act of May 17, 1921 (P.L. 682, No. 284) (40 P.S. § 764a); sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225); section 602 of the Fraternal Benefit Societies Code (40 P.S. § 1142.602) (Repealed); and section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731).

The provisions of this § 147.4 amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended April 13, 2001, effective April 14, 2001, 31 Pa.B. 2002; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730. Immediately preceding text appears at serial pages (305322) to (305325).

This section cited in 31 Pa. Code § 147.2 (relating to definitions); 31 Pa. Code § 147.7 (relating to consolidated or combined audits); 31 Pa. Code § 147.9a (relating to establishment and communication of internal control over financial reporting); and 31 Pa. Code § 147.9b (relating to management’s report of internal control over financial reporting).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.5 Designation of independent certified public accountant.

(a) Each insurer required by this chapter to file an annual audited financial report shall, within 60 days after becoming subject to the requirement, register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit set forth in this chapter.

(b) The insurer shall obtain a letter from its independent certified public accountant and file a copy with the Commissioner, in accordance with the Department’s instructions, stating that the independent certified public accountant is aware of the provisions of the insurance statutes and regulations that relate to accounting and financial matters of the State in accordance with whose regulation the audited financial report is made and affirming that the independent certified public accountant will express an opinion on the financial statements in terms of their conformity to the statutory accounting practices prescribed or otherwise permitted by the Department, specifying the exceptions the independent certified public accountant may believe appropriate.

(c) If an independent certified public accountant who was the independent certified public accountant for the immediately preceding filed audited financial report is dismissed, resigns or is otherwise replaced, the insurer shall within 5 business days notify the Department of the dismissal, resignation or replacement.

(1) Within 10 business days of submitting a notification of dismissal, resignation or replacement, the insurer shall also furnish the Commissioner with a separate letter stating whether, in the 24 months preceding the dismissal, resignation or replacement, there were disagreements with the former independent certified public accountant on a matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of the former independent certified public accountant, would have caused the independent certified public accountant to make reference to the subject matter of the disagreement in connection with the independent certified public accountant’s opinion.

(2) The disagreements required to be reported include both those resolved to the former independent certified public accountant’s satisfaction and those not resolved to the former independent certified public accountant’s satisfaction. For purposes of this subsection, disagreements are those that occur at the decision making level-that is, between personnel of the insurer responsible for presentation of its financial statements and personnel of the accounting firm responsible for rendering the report. The insurer shall also in writing request the former independent certified public accountant to furnish it a letter addressed to the insurer stating whether the independent certified public accountant agrees with the statements contained in the letter of the insurer and, if not, stating the reasons for which the independent certified public accountant does not agree. The insurer shall furnish the responsive letter from the former independent certified public accountant to the Commissioner together with its own.

(3) Within 60 business days of submitting a notification of dismissal, resignation or replacement, the insurer shall register with the Commissioner in writing the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit required under this chapter and shall obtain and file an awareness letter from the independent certified public accountants as required under subsection (b).

(d) Subsection (b) does not apply to continuing care providers. A continuing care provider shall obtain a letter from its independent certified public accountant and file a copy with the Commissioner, stating that the independent certified public accountant is aware of the provisions of the Commonwealth’s statutes and regulations that relate to accounting and financial matters applicable to continuing care providers and affirming that the independent certified public accountant will express an opinion on the financial statements in terms of their conformity with generally acceptable accounting principles.

The provisions of this § 147.5 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.5 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; amended March 21, 1980, effective March 22, 1980, 10 Pa.B. 1303; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730. Immediately preceding text appears at serial pages (305325) to (305326) and (331427).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.6 Recognition, qualification and responsibilities of an independent certified public accountant.

(a) An annual audited financial report must be prepared by a qualified independent certified public accountant recognized by the Commissioner.

(b) Except for insurers organized in Canada or the United Kingdom of Great Britain and Northern Ireland, the Commissioner will not recognize a person or firm as a qualified independent certified public accountant nor accept an annual audited financial report prepared in whole or in part by the person or firm under any of the following conditions:

(1) The person is not licensed, or the firm is not registered, to practice and is not in good standing under the laws of the Commonwealth or of a state with licensing requirements similar to the Commonwealth.

(2) The person or firm is not in good standing with the American Institute of Certified Public Accountants, Inc. and, if applicable, the Public Company Accounting Oversight Board.

(3) The person or firm is not in good standing in all states in which the person is licensed, or the firm is registered, to practice.

(4) The person or firm has entered into an agreement of indemnity, or other release from liability, that would shift, transfer, or limit in any manner the potential liability of the person or firm for failure, whether by omission or commission, to adhere to applicable auditing or professional standards, whether or not the failure would result in whole or in part from misrepresentations made by the insurer or its representatives.

(5) The person or firm employed a partner or senior manager who was involved in an audit of the insurer during the 1 year period preceding the date that the most current annual audited financial report is due and who currently serves as a member of the board of directors, president, chief executive officer, controller, chief financial officer, chief accounting officer, or in any equivalent position for the insurer.

(6) The person or firm provides to the insurer contemporaneously with the audit any of the following non-audit services:

(i) Bookkeeping or other services relating to the insurer’s accounting records or financial statements.

(ii) Financial information systems design and implementation.

(iii) Appraisal or valuation services, fairness opinions or contribution-in-kind reports.

(iv) Actuarial advisory services.

(v) Internal audit outsourcing services.

(vi) Management functions or human resource services.

(vii) Broker or dealer, investment adviser or investment banking services.

(viii) Legal or expert services unrelated to the audit.

(c) For an insurer organized in Canada or the United Kingdom of Great Britain and Northern Ireland, the Commissioner will not recognize a person or firm as a qualified independent public accountant nor accept an annual audited financial report prepared in whole or in part by the person or firm under any of the following conditions:

(1) The person or firm is not a chartered accountant.

(2) The person or firm has entered into an agreement of indemnity, or other release from liability, that would shift, transfer, or limit in any manner the potential liability of the person or firm for failure, whether by omission or commission, to adhere to applicable auditing or professional standards, whether or not the failure would result in whole or in part from misrepresentations made by the insurer or its representatives.

(3) The person or firm meets the criteria of subsection (b)(5) or provides to the insurer contemporaneously with the audit any of the nonaudit services prohibited under subsection (b)(6) and the insurer has not been granted an exemption under subsection (h).

(d) The qualified independent certified public accountant’s lead partner or other person primarily responsible for an insurer’s audit may not act in that capacity for more than 5 consecutive years. Following a 5-year period of service, the person will be disqualified from acting in that or a similar capacity for the same insurer or its insurance subsidiaries or affiliates for 5 consecutive years.

(e) A qualified independent certified public accountant who performs an audit for an insurer may only engage in nonaudit services, including tax services, for the insurer if all of the following requirements are met:

(1) The services are not prohibited under subsection (b)(6).

(2) The independent certified public accountant does not function in the role of management, audit his own work or serve in an advocacy role for the insurer.

(3) The services have been approved in advance by the insurer’s audit committee under subsection (f).

(f) Auditing and nonaudit services provided to an insurer by the insurer’s qualified independent certified public accountant shall be preapproved in writing by the insurer’s audit committee, except that preapproval of nonaudit services is not required if any of the following criteria are met:

(1) The insurer is a Sarbanes-Oxley compliant entity.

(2) The insurer is a direct or indirect wholly-owned subsidiary of a Sarbanes-Oxley compliant entity.

(3) During the fiscal year in which nonaudited services are provided, the aggregate amount of the nonaudit services constitute 5% or less of the total amount of fees paid or owed by the insurer to the qualified independent certified public accountant.

(g) An insurer’s audit committee may delegate the authority to grant the preapprovals required under subsection (f) to one or more designated members of the audit committee. A decision of any member to whom this authority is delegated shall be presented to the full audit committee at the next scheduled meeting.

(h) The following provisions apply to applications for relief and exemptions.

(1) An insurer may apply to the Commissioner for relief from subsection (b)(5) or subsection (d), or both, on the basis of unusual circumstances. In determining whether relief should be granted, the Commissioner may consider the following factors:

(i) The number of partners, the expertise of the partners or the number of insurance or continuing care provider clients in the currently registered firm.

(ii) The premium volume of the insurer or revenue volume of the continuing care provider.

(iii) The number of jurisdictions in which the insurer transacts business.

(2) If relief is granted, the insurer shall include a copy of the granted relief with its audited financial report filed under § 147.3(a) (relating to filing and extensions for filing required reports and communications).

(3) An insurer with direct written and assumed premium less than $100,000,000 in a calendar year may apply for exemption from subsection (b)(6) on the basis of financial or organizational hardship under § 147.13(g) (relating to effective date and exemption).

(4) The requirements of subsection (b)(5) and (6) and subsections (e), (f) and (g) do not apply to continuing care providers.

(i) The Commissioner will not recognize as a qualified independent certified public accountant, nor accept an annual audited financial report prepared in whole or in part by a natural person who meets one of the following conditions:

(1) The person has been convicted of fraud, bribery, a violation of 18 U.S.C.A. Chapter 96 (relating to the Racketeer Influenced and Corrupt Organizations) or any dishonest conduct or practice under Federal or state law.

(2) The person has been found to have violated the insurance laws of the Commonwealth with respect to previous reports submitted under this chapter.

(3) The person has demonstrated a pattern or practice of failing to detect or disclose material information in previous reports filed under this chapter.

(j) The Commissioner may hold a hearing in accordance with 2 Pa.C.S. § § 501—508 and 701—704 (relating to Administrative Agency Law) and Chapters 56 and 57 (relating to special rules of administrative practice and procedure; and publication of citations and notice of hearings) to determine whether a certified public accountant is qualified and, considering the evidence presented, may rule that the accountant is not independent or qualified, or both, for purposes of expressing an opinion on the financial statements in the audited financial report made under this chapter and may require the insurer to replace the certified public accountant.

(k) A qualified independent certified public accountant may enter into an agreement with an insurer to have disputes relating to an audit resolved by mediation or arbitration. However, in the event of a receivership proceeding commenced against the insurer under Article V of The Insurance Department Act (40 P.S. § § 221.1—221.63), the mediation or arbitration agreement may be disavowed by the statutory receiver.

(l) If the Commissioner has reason to believe that an audit performed contains a material departure from generally accepted auditing standards, the Commissioner may refer the matter to the State Board of Accountancy and the American Institute of Certified Public Accountants, Inc., for review and determination. Upon the finding by the State Board of Accountancy or the American Institute of Certified Public Accountants, Inc., that a certified public accountant violated applicable standards relating to competence, the performance of audits, accounting principles or other professional conduct, the Commissioner will not accept the audited financial report for that audit and will no longer accept audited financial statements certified by that certified public accountant.

(m) Within 60 days of receipt of notice from the Commissioner of a finding under subsection (l) that an audit contains a material departure from generally accepted auditing standards, the insurer for which the audit was performed shall register with the Commissioner the name and address of a qualified independent certified public accountant retained by the insurer to perform an audit in compliance with this chapter for the year for which the finding was made. The audited financial report for the year for which the finding was made shall be filed within a time period to be determined by the Commissioner.

The provisions of this § 147.6 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.6 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730. Immediately preceding text appears at serial pages (331427) to (331428) and (305329).

This section cited in 31 Pa. Code § 147.6a (relating to letter of qualifications of independent certified public accountant); 31 Pa. Code § 147.13 (relating to effective date and exemption); and 31 Pa. Code § 147.15 (relating to letter of qualifications of independent certified public accountant).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.6a Letter of qualifications of independent certified public accountant.

The independent certified public accountant shall furnish the insurer for inclusion in the filing of the annual audited financial report a letter of qualifications that includes the following:

(1) A statement that the certified public accountant is independent from the insurer and conforms to the standards of the profession as contained in the Code of Professional Ethics and pronouncements of the American Institute of Certified Public Accountants, Inc. and The C.P.A. Law (63 P.S. § § 9.1—9.16(b)) or similar laws.

(2) A general description of the independent certified public accountant’s background and experience.

(3) A specific description of the insurer auditing experience of partners, senior managers, in-charge auditors or other key staff persons assigned to the engagement and a statement as to whether each staff person is an independent certified public accountant. This provision does not prohibit the independent certified public accountant from utilizing staff as the independent certified public accountant deems appropriate when consistent with the standards prescribed by generally accepted auditing standards.

(4) A statement that the independent certified public accountant understands that the annual audited financial report that the independent certified public accountant’s opinion thereon will be filed in compliance with this chapter and that the Commissioner will be relying on this information in the monitoring and regulation of the financial position of insurers.

(5) A statement that the independent certified public accountant consents to the requirements of § 147.11 (relating to definitions, availability and maintenance of independent certified public accountant workpapers) and that the independent certified public accountant consents and agrees to make available for review by the Commissioner, the Commissioner’s designee or Department examiners, the workpapers, as defined in § 147.11.

(6) Representation that the independent certified public accountant is properly licensed by an appropriate state licensing authority and is a member in good standing in the American Institute of Certified Public Accountants, Inc.

(7) Representation that the independent certified public accountant is in compliance with § 147.6 (relating to recognition, qualification and responsibilities of an independent certified public accountant).

The provisions of this § 147.6a adopted October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730.

The section cited in 31 Pa. Code § 147.6 (relating to recognition, qualification and responsibilities of an independent certified public accountant).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.6b Conduct of insurer relating to audits.

(a) When communicating with any accountant relating to an audit, review or communication required under this chapter, an officer or director of an insurer may not directly or indirectly:

(1) Make or cause to be made a materially false or misleading statement.

(2) Omit or cause another person to omit any material fact necessary to make statements made, in light of the circumstances under which the statements are made, not misleading.

(b) An officer or director of an insurer or any other person acting under the direction thereof, may not, directly or indirectly take any action to coerce, manipulate, mislead or fraudulently influence an accountant performing an audit under this chapter if he knows or should have known that the action, if successful, could render the insurer’s financial statements materially misleading.

(c) For purposes of subsection (b), actions that could render an insurer’s financial statements materially misleading include, but are not limited to, actions which would result in the accountant:

(1) Issuing or reissuing a report on an insurer’s financial statements that materially violates statutory accounting principles prescribed by the Commissioner, generally accepted auditing standards, or other professional or regulatory standards.

(2) Failing to perform an audit, review or other procedures required by generally accepted auditing standards or other professional standards.

(3) Failing to comply with § 147.9(d) (relating to notification of adverse financial condition).

(4) Failing to communicate matters to an insurer’s audit committee.

(5) Violating any provision of this chapter.

The provisions of this § 147.6b issued under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205—1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.6b adopted October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730.

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.7 Consolidated or combined audits.

(a) An insurer may make written application to the Commissioner for approval to file audited consolidated or combined financial reports in lieu of separate annual audited financial reports if the insurer is part of a group of insurance companies which utilizes a pooling or 100% reinsurance agreement that affects the solvency and integrity of the insurer’s reserves and the insurer cedes all of its direct and assumed business to the pool. A columnar consolidating or combining worksheet, setting forth the amounts shown on the consolidated or combined audited financial report with a reconciliation of differences between the amounts shown in the individual insurer columns of the worksheet and comparable amounts shown on the annual statements of the insurer, shall be filed with the report. The reconciliation shall include explanations of consolidating and eliminating entries. Noninsurance operations may be shown on the worksheet on a combined or individual basis. Consolidated or combined audited financial reports shall be prepared in conformity with statutory accounting practices as set forth in § 147.4(a) (relating to contents of annual audited financial report).

(b) The Commissioner may require an insurer to file separate annual audited financial reports.

(c) Subsection (a) does not apply to continuing care providers. A continuing care provider may make written application to the Commissioner for approval to file consolidated or combined financial reports in lieu of separate annual audited financial reports if the continuing care provider is part of a group of affiliated entities. A columnar consolidating or combining worksheet, setting forth the amounts shown for each individual entity on the consolidated or combined audited financial report and including explanations of consolidating and eliminating entries, shall be filed with the report. Consolidated or combined audited financial reports shall be prepared as set forth in § 147.4(e).

The provisions of this § 147.7 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.7 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591. Immediately preceding text appeas at serial page (203416).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.8 Scope of audit and report of independent certified public accountant.

(a) The annual financial statements filed by an insurer with the Department shall be audited by an independent certified public accountant. The audit of the financial statements of the insurer shall be conducted in accordance with generally accepted auditing standards.

(b) The scope of the audit and data testing procedures shall be conducted as required by the appropriate Annual Statement Instructions adopted by the NAIC. Consideration shall also be given to other procedures in the Financial Condition Examiner’s Handbook adopted by the NAIC. The independent certified public accountant shall obtain an understanding of internal control sufficient to plan the audit in accordance with AU Section 319 of the Porfessional Standards of the American Institute of Certified Public Accountants, Consideration of Internal Control in a Financial Statement Audit (AU 319). To the extent required by AU 319 and as part of the independent certified public accountant’s professional requirements defined in Statement on Auditing Standards (SAS) No. 102, Defining Professional Requirements in Statements on Auditing Standards or its replacement, the independent certified public accountant shall consider the most recently available Management’s Report of Internal Control over Financial Reporting, as required under § 147.9b, in planning and performing the audit of an insurer’s statutory financial statements.

(c) Subsection (b) does not apply to continuing care providers.

(d) The Commissioner may prescribe that additional auditing procedures be observed by the independent certified public accountant in the audit of the financial statements of insurers under this chapter.

The provisions of this § 147.8 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.8 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730. Immediately preceding text appears at serial pages (305330) to (305331).

This section cited in 31 Pa. Code § 147.12 (relating to examinations).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.8a Internal audit function requirements.

(a) Exemption. An insurer is exempt from the requirements of this section if:

(1) The insurer meets the following requirements:

(i) Has annual direct written and unaffiliated assumed premium, including international direct and assumed premium excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $500 million.

(ii) If the insurer is a member of a group of insurers, the group has annual direct written and unaffiliated assumed premium including international direct and assumed premium, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, less than $1 billion.

(2) It is a continuing care provider licensed to transact business in this Commonwealth under the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3201—3225).

(b) Function. The insurer or group of insurers shall establish an internal audit function that provides independent, objective and reasonable assurance to the audit committee and the insurer’s management regarding the insurer’s governance, risk management and internal controls. This function includes the performance of general and specific audits, reviews and tests and employ other techniques deemed necessary to protect assets, evaluate control effectiveness and efficiency, and evaluate compliance with policies and regulations.

(c) Independence. To ensure that internal auditors remain objective, the internal audit function must be organizationally independent. Specifically, the internal audit function may not defer ultimate judgment on audit matters to others, and shall appoint an individual to head the internal audit function who will have direct and unrestricted access to the board of directors. Organizational independence does not preclude dual-reporting relationships.

(d) Reporting. The head of the internal audit function shall report to the audit committee regularly, but no less than annually, on the periodic audit plan, factors that may adversely impact the internal audit function’s independence or effectiveness, material findings from completed audits and the appropriateness of corrective actions implemented by management as a result of audit findings.

(e) Additional requirements. If an insurer is a member of an insurance holding company system or included in a group of insurers, the insurer may satisfy the internal audit function requirements in this section at the ultimate controlling parent level, an intermediate holding company level or the individual legal entity level.

The provisions of this § 147.8a issued under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.8a adopted December 16, 2016, effective January 17, 2017, 46 Pa.B. 7819.

This section cited in 31 Pa. Code § 147.3a (relating to requirements for audit committees); and 31 Pa. Code § 147.13 (relating to effective date and exemption).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.9 Notification of adverse financial condition.

(a) An insurer required by this chapter to file an annual audited financial report shall require the independent certified public accountant to report, in writing, within 5 business days to the board of directors or audit committee of the insurer, any of the following:

(1) A determination by the independent certified public accountant that the insurer has materially misstated its financial condition as reported to the Commissioner as of the balance sheet date currently being audited.

(2) A determination by the independent certified public accountant that the insurer does not meet its capital and surplus requirement, or that the continuing care provider does not meet its liquid reserve requirement, under laws and regulations relating to the insurer or continuing care provider as of the balance sheet date currently being audited.

(b) An insurer required by this chapter to file an annual audited financial report who receives any report from the independent certified public accountant, as required by this section, shall forward a copy of the report to the Commissioner within 5 business days of receipt of the report and shall provide the independent certified public accountant making the report with evidence of the report being furnished to the Commissioner. If within the required 5 business day period, the independent certified public accountant does not receive evidence from the insurer of the report being furnished to the Commissioner, the independent certified public accountant shall directly furnish to the Commissioner a copy of the report within the next 5 business days.

(c) The engagement letter executed by the insurer and the independent certified public accountant shall expressly provide that the independent certified public accountant is not liable in any manner to the insurer for a statement made under subsection (b) if the statement is made in good faith in compliance with subsection (b).

(d) If the independent certified public accountant, subsequent to the date of the annual audited financial report filed under this chapter, becomes aware of facts which might have affected the independent certified public accountant’s report, the independent certified public accountant is required to take action as prescribed in Volume 1, Section AU 561 of the Professional Standards of the American Institute of Certified Public Accountants, Inc. If, pursuant to the auditing standards for subsequent discovery of facts, the independent certified public accountant advises the insurer to make appropriate disclosure of newly discovered facts, the insurer shall provide the Department with written notice of the independent certified public accountant’s advice within 5 business days of receipt of that advice.

The provisions of this § 147.9 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.9 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730. Immediately preceding text appears at serial pages (305331) to (305332).

This section cited in 31 Pa. Code § 147.6b (relating to conduct of insurer relating to audits); 31 Pa. Code § 147.12 (relating to examinations); and 31 Pa. Code § 147.13 (relating to effective date and exemption).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.9a Establishment and communication of internal control over financial reporting.

(a) An insurer or insurer group shall establish internal control over financial reporting policies and procedures designed to provide reasonable assurance that:

(1) The financial statements of the insurer or insurer group as required under § 147.4(b) and (c) (relating to contents of annual audited financial report) are reliable.

(2) Records are created and maintained to accurately and fairly reflect dispositions of assets and other transactions.

(3) Transactions are recorded as needed to prepare financial statements.

(4) Receipts and expenditures are made only as authorized by the management or board of directors of the insurer or insurer group.

(5) Unauthorized acquisition, use or disposition of assets that could have a material effect on the financial statements of the insurer or insurer group are prevented or detected in a timely manner.

(b) An insurer required under this chapter to file an annual audited financial report shall provide the Department with a written communication prepared by the independent certified public accountant describing internal control related matters identified in the audit. The written communication shall be filed with the Department within 60 days after the filing of the annual audited financial report.

(c) The communication must include a description of any unremediated material weakness in the insurer’s internal control over financial reporting as of the immediately preceding December 31 or a statement that no unremediated material weaknesses were identified in the audit. For purposes of this subsection, the term ‘‘material weakness’’ is as defined by AU Section 325 of the Professional Standards of the American Institute of Certified Public Accountants, (SAS 112) Communicating Internal Control Related Matters Identified in an Audit, or its replacement.

(d) If a communication of internal control related matters filed under subsection (b) includes a description of unremediated material weaknesses, either the independent certified public accountant or the insurer shall provide the Department, within 60 days after the filing of the annual audited financial report, a written description of actions taken or proposed to eliminate the unremediated material weaknesses.

The provisions of this § 147.9a adopted October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730.

This section cited in 31 Pa. Code § 147.2 (relating to definitions); 31 Pa. Code § 147.3 (relating to filing and extensions for filing required reports and communications); and 31 Pa. Code § 147.9b (relating to management’s report of internal control over financial reporting).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.9b Management’s report of internal control over financial reporting.

(a) An insurer that is required to file an audited financial report and that has annual direct written and assumed premiums equal to or greater than $500,000,000, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, shall file with the Department a management’s report of internal control over financial reporting of the insurer or insurer group. A management’s report of internal control over financial reporting shall be filed for an insurer group if the annual direct written and assumed premiums of any one insurer in the group is equal to or greater than $500,000,000, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program. However, the Commissioner may require an insurer that has less than $500,000,000 in annual direct written and assumed premiums, excluding premiums reinsured with the Federal Crop Insurance Corporation and Federal Flood Program, to file a management’s report of internal control over financial reporting under sections 501—563, 501-A—515-A, and 501-B—515-B of The Insurance Department Act of 1921 (40 P.S. § § 221.1—221.63, 221.1-A—221.15-A and 221.1-B—221.15-B) regarding suspension of business and risk-based capital requirements, Chapter 160 (relating to standards to define insurers deemed to be in hazardous financial condition) or other provisions of law. If an insurer previously not required to file a management’s report of internal control over financial reporting because it did not meet the $500,000,000 threshold is subsequently required to file the report because its premiums equal or exceed the threshold, the insurer or the insurer group shall have 2 years following the year the threshold is exceeded to file the report.

(b) The management’s report of internal control over financial reporting shall be prepared by management as of the immediately preceding December 31, filed with the report of internal control related matters required under § 147.9a (relating to establishment and communication of internal control over financial reporting) and include:

(1) Statement that management is responsible for establishing and maintaining adequate internal control over financial reporting.

(2) Statement that management has established internal control over financial reporting.

(3) Brief description of the approach or processes by which management evaluated the effectiveness of its internal control over financial reporting.

(4) Disclosure of any unremediated material weaknesses in the internal control over financial reporting identified by management as of the immediately preceding December 31.

(5) Assertion to the best of management’s knowledge and belief, after diligent inquiry, as to whether its internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles.

(A) Management may base its assertion, in part, upon its review, monitoring and testing of internal controls undertaken in the normal course of its activities.

(B) Management may not assert that internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of financial statements in accordance with statutory accounting principles if one or more unremediated material weaknesses in internal control over financial reporting are disclosed as required by paragraph (4).

(C) Management shall create and maintain documentation relating to the basis upon which its assertion in management’s report of internal control over financial reporting is made. Management shall have discretion as to the nature and extent of documentation to make its assertion in a cost-effective manner, including assembly of or reference to existing documentation. The documentation shall be made available to Department examiners and given confidential treatment under the authority of sections 901—908 of The Insurance Department Act of 1921 (40 P.S. § § 323.1—323.8).

(6) Statement regarding the inherent limitations of internal control systems.

(7) Signatures of chief executive officer and chief financial officer or individuals holding equivalent positions. A management’s report of internal control over financial reporting filed for an insurer group must include a statement identifying the officers or individuals in equivalent positions who have been authorized by management to sign the report on behalf of the affiliated insurers in the group.

(c) An insurer may satisfy the requirements of subsection (a) by filing a Section 404 report of the insurer or insurer group if:

(1) The insurer or insurer group is at least one of the following:

(i) Directly subject to Section 404.

(ii) A Sarbanes-Oxley compliant entity not directly subject to Section 404.

(iii) A member of a holding company system whose parent is directly subject to Section 404.

(iv) A member of a holding company system whose parent is not directly subject to Section 404 and is a Sarbanes-Oxley compliant entity.

(2) The scope of the Section 404 report includes internal controls of the insurer or insurer group that have a material impact on the preparation of the audited statutory financial statements of the insurer or insurer group as required under § 147.4(b) and (c) (relating to contents of annual audited financial report).

(3) The Section 404 report includes an addendum consisting of a positive statement by management that no material processes relating to the preparation of the audited statutory financial statements of the insurer or insurer group, as required under § 147.4 (b) and (c) are excluded from the Section 404 report.

(d) An insurer or insurer group that satisfies the requirements of subsection (c)(1) and (3) but the scope of its Section 404 report does not satisfy the requirements of subsection (c)(2) may satisfy the requirements of subsection (a) by filing one of the following:

(1) A management’s report of internal control over financial reporting as required under subsection (b).

(2) A Section 404 report and a management’s report of internal control over financial reporting for those internal controls that have a material impact on the preparation of the audited statutory financial statements of the insurer or insurer group and that are not included within the scope of the Section 404 report.

(e) This section does not apply to continuing care providers.

The provisions of this § 147.9b adopted October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730.

This section cited in 31 Pa. Code § 147.3 (relating to filing extensions for filing required reports and communications).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.11 Definitions, availability and maintenance of independent certified public accountant workpapers.

(a) Workpapers are the records kept by an independent certified public accountant of the procedures followed, the tests performed, the information obtained and the conclusions reached pertinent to audit of the financial statements of an insurer. For purposes of this chapter, workpapers include audit planning documentation, audit programs, permanent files, internal control and electronic data processing questionnaires, analyses, memoranda, letters of confirmation and representation, abstracts of company documents and schedules or commentaries which are prepared or obtained by the independent certified public accountant in the course of the independent certified public accountant’s audit of the financial statements of an insurer and which support the opinion thereon.

(b) Every insurer required to file an annual audited financial report under this chapter shall require the independent certified public accountant to make available, through the insurer, for review by Department examiners workpapers prepared in the conduct of the audit, as well as communications related to the audit between the independent certified public accountant and the insurer, including the engagement letter, at the offices of the insurer, at the offices of the independent certified public accountant, at the offices of the Department or at another reasonable place designated by the Commissioner. The insurer shall require that the independent certified public accountant retain the audit workpapers and communications for at least 7 years after the period reported on and agree to make a partner or manager available to the Department upon reasonable request.

(c) In the conduct of the periodic review by Department examiners described in subsection (b), electronic copies or photocopies of pertinent audit workpapers may be made and retained by the Department.

(d) Copies of audit workpapers so obtained in the course of review will be considered part of the record of examination of the Commissioner and will be held as confidential records.

The provisions of this § 147.11 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701); sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.11 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591. Immediately preceding text appears at serial pages (305333) to (305334).

This section cited in 31 Pa. Code § 147.6a (relating to letter of qualifications of independent certified public accountant); 31 Pa. Code § 147.12 (relating to examinations); 31 Pa. Code § 147.14 (relating to penalties); and 31 Pa. Code § 147.15 (relating to letter of qualifications of independent certified public accountant).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.13 Effective date and exemption.

(a) This chapter applies to all insurers doing business in this Commonwealth.

(b) Insurers shall comply with this chapter for annual audited financial reports beginning January 1, 2010.

(c) Foreign insurers having direct premiums written in this Commonwealth less than $1 million in a calendar year and having fewer than 1,000 policyholders or certificateholders of directly written policies in this Commonwealth at the end of that calendar year shall be exempt from this chapter for that year unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities. Foreign insurers having assumed premiums pursuant to contracts or treaties of reinsurance, or both, of $1 million or more are not exempt.

(d) Domestic insurers having total admitted assets less than $10 million, direct premium written Nationwide less than $1 million in a calendar year and having fewer than 1,000 policyholders or certificateholders of directly written policies Nationwide at the end of that calendar year are exempt from this chapter for that year unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities. Domestic insurers having total admitted assets greater than $10 million or assumed premiums pursuant to contracts or treaties, or both, of reinsurance of $1 million or more are not exempt.

(e) Domestic insurers not insuring or reinsuring risks located outside of this Commonwealth having total admitted assets less than $10 million and either direct premium written of less than $1 million in a calendar year or fewer than 1,000 policyholders or certificateholders of directly written policies at the end of that calendar year are exempt from this chapter for that year, unless the Commissioner makes a specific finding that compliance is necessary for the Commissioner to carry out statutory responsibilities. Insurers having total admitted assets greater than $10 million or assumed premiums pursuant to contracts or treaties of reinsurance, or both, of $1 million or more are not exempt.

(f) Foreign insurers filing annual audited financial reports in another state, pursuant to that state’s requirements for annual audited financial reports whose requirements are substantially similar to the requirements of this chapter, are exempt from this chapter.

(g) Upon written application of an insurer, the Commissioner may grant an exemption from compliance with all or part of this chapter if the Commissioner finds, upon review of the application, that compliance with this chapter would constitute a financial or organizational hardship upon the insurer. An exemption may be granted at any time and from time to time for specified periods. If an exemption is granted, the insurer shall file a copy of the exemption with the NAIC and as required by the chief insurance regulatory official in all states where the insurer is licensed or is doing business. Within 10 days from a denial of the written application of an insurer for an exemption from this chapter, the insurer may request in writing a hearing on its application for an exemption. Hearings will be held in accordance with 2 Pa.C.S. § § 501—508 and 701—704 (relating to Administrative Agency Law) and Chapters 56 and 57 (relating to special rules of administrative practice and procedure; publication of citations and notice of hearings).

(h) Subsections (c)—(g) do not apply to continuing care providers.

(i) In the case of insurers organized in Canada or the United Kingdom of Great Britain and Northern Ireland, the annual audited financial report is defined as the annual statement of total business on the form filed by the insurers with their domiciliary supervision authority, audited by an independent chartered accountant. For these insurers, the letter required in § 147.6a (relating to letter of qualifications of independent certified public accountant) must state that the independent certified public accountant is aware of the requirements relating to the annual audited financial report filed with the Commissioner under § 147.3 (relating to filing and extensions for filing required reports and communications) and affirm that the opinion expressed is in conformity with those requirements.

(j) If an insurer or group of insurers exempt from the requirements of § 147.8a (relating to internal audit function requirements) no longer qualifies for that exemption, it shall have until December 31 of the year in which the annual statement was filed showing the threshold is exceeded to comply with the requirements of § 147.8a.

The provisions of this § 147.13 amended under the authority of sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 320, 630, 1007 and 2452 of The Insurance Company Law of 1921 (40 P.S. § § 443, 764a, 967 and 991.2452); sections 205 and 206 of The Pennsylvania Fair Plan Act (40 P.S. § § 1600.205 and 1600.206); section 731 of the Medical Care Availability and Reduction of Error (MCARE) Act (40 P.S. § 1303.731); 40 Pa.C.S. § § 6125, 6331 and 6701; sections 11 and 14 of the Health Maintenance Organization Act (40 P.S. § § 1561 and 1564); and sections 7 and 25 of the Continuing-Care Provider Registration and Disclosure Act (40 P.S. § § 3207 and 3225).

The provisions of this § 147.13 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4591; amended October 2, 2009, effective October 3, 2009, 39 Pa.B. 5730; amended December 16, 2016, effective January 17, 2017, 46 Pa.B. 7819. Immediately preceding text appears at serial pages (345540) to (345542).

This section cited in 31 Pa. Code § 147.3 (relating to filing and extensions for filing of annual audited financial reports); 31 Pa. Code § 147.3a (relating to requirements for audit committees); and 31 Pa. Code § 147.6 (relating to recognition, qualification and responsibilities of an independent certified public accountant).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

31 Pa. Code § 147.14 Penalties.

Failure to file the annual audited financial report and additional statements, letters or reports required by this chapter or failure to comply with § 147.11 (relating to definition, availability and maintenance of independent certified public accountant workpapers) will subject the insurer to the penalties provided by law.

The provisions of this § 147.14 adopted December 21, 1979, effective December 22, 1979, 9 Pa.B. 4164; amended November 10, 1995, effective November 11, 1995, 25 Pa.B. 4785. Immediately preceding text appears at serial pages (143800) to (143801).

History

• Authority: The provisions of this Chapter 147 issued and amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 147 adopted December 21, 1979, effective December 22, 1979, 9 Pa.

Chapter 150 Uniform Health Insurance Claim Form—Statement of Policy

31 Pa. Code § 150.1 HCFA 1500 and UB 82 Health Insurance Claim Forms.

Article XII of The Insurance Company Law of 1921 (40 P. S. § § 991.1201—991.1205) directs the Insurance Department to develop a uniform health insurance claim form. Effective November 1, 1993, the Department of Public Welfare’s health care coverage program and all insurers, as defined in section 1201 of The Insurance Company Law of 1921 (40 P. S. § 992.1201), shall accept from Pennsylvania health care providers the HCFA 1500 and UB 82 forms, or their successors, as required for use in the Federal Medicare Program, for services performed in this Commonwealth for which providers are required to submit a claim form for reimbursement.

History

• Source: The provisions of this Chapter 150 adopted July 2, 1993, effective July 3, 1993, 23 Pa.

31 Pa. Code § 150.2 Additional information requests.

As required by Article XII of The Insurance Company Law of 1921 (40 P. S. § § 991.1201—991.1205), the uniform health insurance claim form shall contain blank spaces for additional information requests. An insurer or the Department of Public Welfare may request Insurance Departmental approval of additional information to be printed in the blank spaces on the uniform health insurance claim form, and on subsequent pages, if necessary. The requests will be published in the Pennsylvania Bulletin for public comment. The Insurance Department will review the requests in accordance with the procedures under 2 Pa.C.S. (relating to administrative law and procedure). The requests will be deemed approved by the Insurance Department if not disapproved within 60 days after receipt of the request.

History

• Source: The provisions of this Chapter 150 adopted July 2, 1993, effective July 3, 1993, 23 Pa.

31 Pa. Code § 150.3 Exceptions.

(a) The requirements of Article XII of The Insurance Company Law of 1921 (40 P. S. § § 991.1201—991.1205) do not extend to items such as logos, letterhead, color of paper or ink type.

(b) The requirements of Article XII of The Insurance Company Law of 1921 also do not extend to claims related to pharmaceutical services.

(c) In the case of vision, dental and supplemental major medical claims, utilization of the uniform health insurance claim form shall be at the discretion of the individual insurer.

History

• Source: The provisions of this Chapter 150 adopted July 2, 1993, effective July 3, 1993, 23 Pa.

31 Pa. Code § 150.4 Electronic billing.

When a health care provider and an insurer agree to submit and accept claims on an electronic basis, the agreement shall be deemed to constitute compliance with Article XII of The Insurance Company Law of 1921 (40 P. S. § § 991.1201—991.1205).

History

• Source: The provisions of this Chapter 150 adopted July 2, 1993, effective July 3, 1993, 23 Pa.

31 Pa. Code § 150.5 Request for extension of time.

The Insurance Department may consider a request from the Department of Public Welfare for an extension in meeting the implementation deadline under section 1202(b) of The Insurance Company Law of 1921 (40 P. S. § 991.1202(b)). A request by the Department of Public Welfare and the Insurance Department’s subsequent ruling will be published in the Pennsylvania Bulletin.

History

• Source: The provisions of this Chapter 150 adopted July 2, 1993, effective July 3, 1993, 23 Pa.

Chapter 151 Continuing Care Providers

31 Pa. Code § 151.1 Purpose.

The purpose of this chapter is to implement the Continuing Care Provider Registration and Disclosure Act (40 P. S. § § 3201—3225).

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.2 Definitions.

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise: Act—The Continuing Care Provider Registration and Disclosure Act (40 P. S. § § 3201—3225). Affiliate—A person who directly, or through one or more intermediaries, controls or is controlled by, or is under common control with, a provider or facility. Applicant—A provider who is seeking the issuance of a certificate of authority, a temporary certificate of authority, or an extension of a temporary certificate of authority to engage in the business of continuing care in this Commonwealth. Article V—The act of December 14, 1977 (P. L. 280, No. 92) (40 P. S. § § 221.1—221.63). Biographical affidavit—A notarized background profile of an affiant, on a prescribed form, which may be obtained from the Department. Certificate of authority—The license issued by the Department authorizing a provider to engage in the business of continuing care in this Commonwealth, including temporary certificates of authority. Certified public accountant—An individual licensed to practice as an accountant, and who is in good standing, under the statutes of the Commonwealth or another state with licensing requirements similar to Pennsylvania. The term includes a chartered accountant. An accountant will be recognized as independent if he conforms to the standards contained in the Code of Professional Ethics of the American Institute of Certified Public Accountants and The C.P.A. Law (63 P. S. § § 9.1—9.16b) or similar statutes. Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Facility—Each separate establishment, complex or campus at which location a provider engages in the business of providing continuing care. Two or more establishments located on the same premises shall be treated as separate facilities if their operations are administratively independent of each other. Financial institution—A bank, bank and trust company or savings and loan association, as defined in sections 102(f) and (g) of the Banking Code of 1965 and section 102(3) of the Savings Association Code of 1967 (7 P. S. § § 102(f), (g) and 6020-2(3)), which is Federally insured or is Pennsylvania chartered. Letter of credit—A document evidencing a commitment to honor a demand for payment as defined in 13 Pa.C.S. § 5103(a) (relating to definitions and index of definitions). Acceptable letters of credit include only those issued or confirmed by a financial institution authorized to issue them. Negotiable securities—An instrument evidencing an obligation of the issuer as defined in 13 Pa.C.S. § 8103 (relating to lien of issuer). The term includes only United States government obligations and corporate debt obligations rated AA or AAA in a recognized corporate bond rating publication, such as the Moody’s Investor’s Service, Inc. publication. Not-for-profit—A business entity not organized for a purpose involving pecuniary gain, incidental or otherwise, to its members, shareholders or principals, under 15 Pa.C.S. § § 7101—7107 (relating to the corporation not-for-profit code). Period fee—A charge payable under a resident’s agreement which is assessed on a recurring basis, such as a monthly fee. Qualified actuary—An individual who is a member of the American Academy of Actuaries. The term also includes an individual who has demonstrated to the satisfaction of the Department that he possesses the educational background necessary for the practice of actuarial science and who has not less than 7 years of actuarial experience. Resident’s agreement—The contract between a provider and each individual entitled to receive continuing care in a facility. Settlement date—The proposed date for the completion of the transfer of a controlling interest in a facility. Transfer of ownership—The disposition of a controlling interest in a provider or a facility, whether by sale or otherwise.

The provisions of this § 151.2 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

In determining whether a retirement facility makes the type of ‘‘other periodic charges’’ to its residents, so as to bring the facility within the authority of the Continuing Care Provider Registration and Disclosure Act, courts are not constrained to limit the language ‘‘other periodic charges’’ to monthly fees. Moravian Manors, Inc. v. Insurance Department, 521 A.2d 524 (Pa. Cmwlth. 1987).

The language ‘‘other periodic charges’’ is not to be interpreted to mean solely a monthly fee and the Continuing-Care Provider Registration and Disclosure Act clearly contemplates additional charges for services not covered by the entrance fee. Moravian Manors, Inc. v. Insurance Department, 521 A.2d 524 (Pa. Cmwlth. 1987).

This section cited in 31 Pa. Code § 151.10 (relating to investments).

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.3 Certificates of authority.

(a) A provider shall apply for, and obtain, a certificate of authority for each separate facility operated by the provider in this Commonwealth.

(b) A certificate of authority authorizes and empowers only the provider named therein to conduct the business of continuing care, and may not be transferable.

(c) Each applicant shall file an application for a certificate of authority on a prescribed form, which may be obtained from the Department.

(d) Each application for a certificate of authority shall be accompanied by the documents referenced in the following:

(1) Section 151.4 (relating to statement in support of application).

(2) Section 151.7 (relating to disclosure statements).

(3) Section 151.8 (relating to resident’s agreement).

(4) Section 151.14 (relating to fees).

The provisions of this § 151.3 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

This section cited in 31 Pa. Code § 151.6 (relating to transfers of ownership).

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.4 Statement in support of application.

(a) Each applicant shall file a statement in support of an application for a certificate of authority, which shall contain the following information and appendices:

(1) Occupancy status. A description of whether the facility is ready for occupancy. If the facility is already occupied and in operation, indicate the date the facility commenced business. If the facility is under construction, indicate the estimated construction completion date.

(2) Financing of facility. A statement detailing existing or proposed mortgages, liens, security interests or loan commitments on the real property of the facility. Provide the name and address of mortgagees or other lenders and a copy of mortgages, liens, security interests or loan commitment documents. If other long term financing arrangements have been arranged or are contemplated, such as tax-free debentures, a complete description of the arrangement shall be provided and all pertinent contracts and documents shall be attached. If the facility is subject to a lease agreement, provide the name and address of interested parties and a copy of a lease.

(3) Fiscal year. A specification of the applicant’s fiscal year.

(4) Tax exempt status. If the applicant claims tax exempt status under the Internal Revenue Code of 1954 (26 U.S.C.A. § § 1—9602) provide a ruling or other document evidencing qualification for tax exempt status. If the applicant claims it is not subject to the capital stock tax or corporate net income tax imposed by the Tax Reform Code of 1971 (72 P. S. § § 7101—10004) provide the appropriate documentation demonstrating qualification for the exemption.

(5) Feasibility study. If operation of a facility has not yet commenced, provide a feasibility study prepared to secure financing for the proposed facility. If a feasibility study was not required to obtain financing, a study is not required to be produced under this subsection. The study should include:

(i) A description of the proposed facility including location, size, anticipated completion date and proposed construction program.

(ii) An identification and evaluation of the potential market, including a demographic and economic profile of the population in the facility’s market area.

(iii) An identification of other existing or proposed facilities in the potential market area, including, if available, the occupancy rate for existing facilities for the last 3 years.

(iv) An estimate of net receipts from entrance fees, other than those included in the statement of source and application of funds, less estimated entrance fee refunds and a description of the actuarial bases and methods of calculation for the projection of entrance fee receipts.

(v) The name and address of the person who prepared the feasibility study and the experience of the person in preparing similar studies or otherwise consulting in the field of continuing care or related health care fields.

(6) Financial analysis. A financial analysis prepared for the purpose of determining that the facility has—or if the facility is proposed, will have—sufficient revenue and funds, including reserves. The analysis shall include a cash flow projection, a review of the adequacy of current pricing structures, and an examination of the long-term relationship between the facility’s assets and liabilities. The analysis shall be prepared by either a qualified actuary or a certified public accountant.

(7) Affiliates. An organizational chart describing the relationship between the applicant and its affiliates, indicating the state of domicile of the entity and the primary business of each.

(8) Previous licenses. A statement indicating whether the applicant has ever applied for a certificate of authority for a facility in this Commonwealth or sought licensure in another jurisdiction. Indicate the status of the application—issued, refused, or pending. If a previous license was issued, provide the name and address of the facility licensed, the name of the issuing authority, the date of issuance, and the date of and reason for termination.

(9) Organizational filings. The documents described in this paragraph pertaining to the applicant shall be attached to the statement:

(i) If the applicant is a corporation, a copy of the charter shall be attached.

(ii) If the applicant is a partnership or other unincorporated association, a copy of the partnership agreement, articles of association or other membership agreement shall be attached.

(iii) If the applicant is a trust, a copy of the trust agreement or instrument shall be attached.

(iv) If the applicant uses a trade name which is required to be registered under 54 Pa.C.S. § § 301—332 (relating to Fictitious Names Act), a copy of the fictitious name registration shall be attached.

(10) Entrance fees. The relevant documents described in this paragraph shall be attached to the statement.

(i) If the applicant proposes to use an entrance fee escrow account, provide the name and address of the escrow agent and a copy of the escrow agreement.

(ii) If the applicant proposes to provide a letter of credit in lieu of using an entrance fee escrow account, identify the name and address of the financial institution providing the letter of credit, and provide a copy of the letter of credit executed in favor of the Commissioner.

(A) The letter of credit shall stipulate that the beneficiary need only draw a sight draft and present it to obtain the funds, and that no other document need be presented.

(B) The letter of credit shall indicate that it is not subject to conditions or qualifications outside the letter of credit.

(C) The letter of credit shall contain a clause which prevents the expiration of the letter of credit without notice—minimum 30 days—from the issuer to the Commissioner.

(iii) If the applicant proposes to deposit negotiable securities in lieu of using an entrance fee escrow account, acceptable negotiable securities executed in favor of the Commissioner shall be deposited at the time an application for a certificate of authority is made.

(iv) If the applicant proposes to post a bond issued by a surety company authorized to do business in this Commonwealth in lieu of using an entrance fee escrow account, provide the name and address of the surety company and a copy of the surety bond.

(11) Biographical affidavits. Biographical affidavits shall be filed by the following persons:

(i) For applicants, the managers or proposed managers shall file. If the manager is a corporation, provide biographical affidavits for the board of directors and all officers. If the manager is a partnership, provide biographical affidavits for the managing or general partners.

(ii) For corporate applicants, the corporation’s board of directors and officers shall file.

(iii) For partnership applicants, managing or general partners shall file.

(iv) For unincorporated association applicants, officers and directors shall file.

(v) For trust applicants, administrators or trustees shall file.

(b) In addition to the information described in subsection (a), applicants may be requested to provide the Department with other pertinent material that is deemed necessary to complete the Department’s review of the application.

The provisions of this § 151.4 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

This section cited in 31 Pa. Code § 151.3 (relating to certificates of authority).

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.5 Issuance of certificates of authority.

(a) If the Commissioner determines that all of the statutory and regulatory requirements for the issuance of a certificate of authority have been met, a certificate of authority shall be issued within the time prescribed by section 4(c) of the act (40 P. S. § 3204(c)), or an extension thereof under section 4(d) of the act (40 P. S. § 3204(d)).

(b) The certificate of authority shall certify that the provider named therein has complied with the act, and authorize and empower the provider to transact the business of continuing care in compliance with the statutes of the Commonwealth and this title.

(c) If the Commissioner determines that the statutory or regulatory requirements have not been met, an order rejecting the application for a certificate of authority will be issued under section 4(d) of the act (40 P. S. § 3204(d)). Orders denying an application for a certificate of authority shall not become final and appealable until after an administrative hearing conforming to 2 Pa.C.S. § § 501—508 (relating to practice and procedure of Commonwealth agencies) has been held. Final orders entered after a hearing upon an applicant’s petition for reconsideration of the denial shall be adjudications within the meaning of 2 Pa.C.S. § 101 (relating to definitions).

(d) If the Commissioner determines that the issuance of a temporary certificate of authority is authorized under section 4(e) of the act (40 P. S. § 3204(e)), a temporary certificate of authority will be issued authorizing and empowering the provider to transact the business of continuing care in compliance with the statutes of the Commonwealth and this title for a stated period of time, which shall not exceed 2 years from the date of issuance of the temporary certificate of authority.

(e) Upon petition of a provider, if the Commission determines that an extension of a temporary certificate of authority is authorized under section 4(f) of the act (40 P. S. § 3204(f)), an extended temporary certificate of authority shall be issued authorizing and empowering the provider to transact the business of continuing care in compliance with the statutes of the Commonwealth and this title for a stated period of time, which shall not exceed 3 years from the date of issuance of the extended temporary certificate of authority.

The provisions of this § 151.5 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.6 Transfers of ownership.

(a) Transfer of ownership of a facility.

(1) A provider intending to undertake a transfer of ownership of a facility shall notify the Department at least 30 days in advance of the proposed settlement date.

(2) A notice of intention to transfer ownership of a facility may be in the form of a letter, addressed to the Department, and shall contain the following information:

(i) Name and address of the licensed provider from whom ownership will be transferred.

(ii) Name and address of the person intending to acquire the ownership interest.

(iii) Name and address of a facility whose ownership is being transferred.

(iv) Proposed settlement date.

(3) No transfer of ownership of a facility shall be consummated until the person to whom ownership is being transferred obtains a certificate of authority.

(4) When a person to whom ownership is being transferred files an application for a certificate of authority, in addition to the information specified in § 151.3(d) (relating to certificates of authority), the person shall file a statement containing the following information:

(i) The terms and conditions of the transfer of ownership.

(ii) The source of funds to be used to finance the transfer of ownership and, if the funds are to be borrowed, the name of a lender and a summary of the terms and conditions of the loan transactions.

(iii) The plans, arrangements, understandings and intentions of the transferee for the future business and management of the facility, including plans as to the sale of assets or material change in business, corporate structure or management.

(5) A certificate of authority will not be issued under this subsection unless the transferee has agreed in writing to assume the contractual obligations imposed on the current provider by its existing resident agreements.

(b) Change in control of a provider.

(1) For purposes of this subsection, control shall be defined as the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a provider or facility, whether through the equitable or beneficial ownership of voting securities or otherwise. Control of a provider or facility shall be presumed to exist if a person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing 10% or more of the voting securities of the provider or facility. This presumption may be rebutted by a showing that control does not exist in fact.

(2) Upon a change in control of a provider, the provider shall notify the Department within 30 days of the change.

(3) Notice of change in control of a provider may be in the form of a letter, addressed to the Department, and shall contain the following information:

(i) Name and address of the licensed provider affected by the change in ownership or control.

(ii) Name and address of each person acquiring a controlling interest in the provider, and an explanation of the nature of the acquirer’s interest.

(iii) Plans, arrangements, understandings and intentions of the acquirer for the future business and management of a facility affiliated with the provider, including plans as to the sale of assets or material change in business, corporate structure or management.

The provisions of this § 151.6 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.7 Disclosure statements.

(a) Disclosure statements shall contain the information required by section 7 of the act (40 P. S. § 3207) and the information required by this section.

(b) The first page of the disclosure statement shall be a cover page, which shall contain the information required by section 7(a)(12) of the act (40 P. S. § 3207(a)(12)).

(c) The disclosure statement shall include a page containing a summary of the information presented in the statement, as outlined in paragraphs (1)—(8):

(1) The name and address of the facility.

(2) The name and address of the licensed provider.

(3) The name, location and telephone number of the person to be contacted to discuss admissions.

(4) A description of the physical property of the facility, including the following facts:

(i) A designation of the facility as urban, suburban or rural.

(ii) The number of acres occupied by the facility.

(iii) A specification of the type of residential units available—such as high-rise apartments, single level buildings, two-story townhouses, and the like.

(5) A specification of the minimum age for admission, including exceptions for spouses/companions.

(6) A disclosure of the provider’s or facility’s affiliation with religious, fraternal, charitable or other nonprofit organizations with an identification of the affiliated organizations.

(7) A statement of the current resident population.

(8) A sample of the fees charged to residents based upon occupancy of a one bedroom unit by one and two persons, including entrance and periodic fees. The information summary shall be provided in numbered paragraph form, as specified in this subsection, so that consumers can easily compare the disclosure statements of several facilities. Additionally, the summary data will be used by the Department in compiling information for its publication of a consumer’s guide to continuing care facilities and its annual directory of continuing care facilities.

(d) The certified financial statements required to be contained in disclosure statements, under section 7(a)(9) of the act (40 P. S. § 3207(a)(9)), shall be prepared in accordance with Chapter 147 (relating to annual audited insurers’ financial report required).

(e) Amendments to disclosure statements may be filed with the Department at any time. A filing should be accompanied by a cover letter briefly outlining the sections of the disclosure statement amended. Changes in the operation of a provider or facility which require an amendment to a disclosure statement include, but are not limited to, the following:

(1) Changes in the board of directors, officers, managing or general partners, administrators or trustees and managers which affect the management of a facility. Biographical affidavits by these individuals shall be filed with the Department at the time an amended disclosure statement is filed.

(2) New or additional mortgages, liens, security interests, loan commitments, long-term financing arrangements or leases, which transaction materially affects the real property of the facility. A copy of all pertinent documents evidencing the transactions shall be filed with the Department at the time an amended disclosure statement is filed.

(3) Other material changes in the financial or factual information contained in the disclosure statement or statement in support of the provider’s original application for a certificate of authority. Explanatory material and copies of pertinent documents concerning the material changes shall be filed with the Department at the time an amended disclosure statement is filed.

(f) Every provider shall maintain copies of all disclosure statements filed with the Department, including amended disclosure statements, for at least 4 years, or until the conclusion of the next succeeding examination by the Department, whichever is later.

The provisions of this § 151.7 amended under the Continuing Care Provider Registration and Disclosure Act (40 P. S. § § 3201—3225).

The provisions of this § 151.7 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051; amended August 20, 2004, effective August 21, 2004, 34 Pa.B. 4598. Immediately preceeding text appears at serial pages (212768) to (212770).

This section cited in 31 Pa. Code § 151.3 (relating to certificates of authority).

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.8 Resident’s agreement.

(a) Each resident’s agreement shall contain the information required by section 14 of the act (40 P. S. § 3214) and the information required by this section.

(b) A valid and binding resident’s agreement shall be signed by the provider and each resident who will be admitted to the facility. An authorized representative may sign the resident’s agreement on behalf of either party.

(c) If the resident has agreed to purchase, at an additional price, optional products or services beyond those included in the entrance and periodic fees, a separate page shall be attached specifying the product or service purchased, and the cost of each including installation charge. The page shall be executed by the parties identified in subsection (b).

(d) Each resident’s agreement shall contain a provision whereby the provider agrees that the resident shall not be liable to a health care provider for services rendered under a resident’s agreement. In the event a health care provider seeks payment from the resident, the continuing care provider shall assume liability for payment of the health care services rendered, if the health care services rendered are services which a provider agreed to furnish to a resident in consideration of the resident’s payment of entrance and periodic fees. Health care providers shall include persons rendering services to a resident as employes of the provider or facility, on a fee-for-service basis, or otherwise.

(e) Amendments to the resident’s agreement may be filed with the Department at any time. The filing should be accompanied by a cover letter briefly outlining the sections of the resident’s agreement amended.

(f) The resident’s agreement shall be distributed as follows:

(1) A copy of the current resident’s agreement shall be attached as an appendix to each disclosure statement or amended disclosure statement filed with the Department.

(2) A copy of the current resident’s agreement shall be attached to each disclosure statement given to a prospective resident, unless the individual previously received a disclosure statement with a resident’s agreement attached thereto, and the resident’s agreement has not been amended subsequent to that time.

(3) A copy of the current resident’s agreement need not be given to current residents.

(4) If a resident’s agreement is not attached to the disclosure statement, as authorized under paragraphs (2) and (3), a separate page shall be attached stating that a copy of the resident’s agreement was omitted.

(g) Every provider shall maintain copies of each resident’s agreement until the conclusion of the next succeeding examination by the Department following the date the agreement ceases to be in force.

The provisions of this § 151.8 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

This section cited in 31 Pa. Codes § 151.3 (relating to certificates of authority).

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.9 Standards for disclosure statement and resident’s agreement.

(a) Drafting. Disclosure statements and resident’s agreements shall be drafted in consideration of the amount and nature of the information to be relayed to prospective residents.

(b) Readability. Documents given to residents and prospective residents, including disclosure statements and resident’s agreements, shall be drafted in accordance with the following standards:

(1) The language used shall be readable by a person of average intelligence and education.

(2) Information presented should be conveyed in a logical sequence and in a clear and direct fashion.

(3) Complex and compound sentences should be avoided.

(4) Words should convey their commonly understood meanings.

(5) Definitions shall be included for words or terms which cannot properly be explained or qualified in the text.

(6) Frequent section headings should be used to permit ease in locating provisions.

(7) Documents shall be printed in easily legible typeface. A sample of typefaces which meet minimum standards of legibility may be found in § 64.9 (relating to legibility).

(8) Documents shall be printed in type-size easily legible to the audience to whom the literature is directed. Upright type at least as large as 10-point type should be used.

(c) Index. Multipaged documents shall contain an index giving a comprehensive listing of all section headings used in the document. If the index does not appear at the beginning of the document, the location of the index shall be noted on the first page.

(d) Pre-existing conditions. If pre-existing conditions are excluded, or limited as to coverage, from the medical care and services available from the provider, whether or not available at an additional charge, the term pre-existing conditioning shall not limit coverage beyond that stated in the following definition: ‘‘A pre-existing condition is a disease, illness, sickness or physical condition for which medical care, advice or treatment was recommended by or received from a physician within the 5 year period preceding the date of admission to a facility.’’

(e) Rescission. A prospective resident shall have the right to rescind the resident’s agreement, without penalty or forfeiture, within 7 days after each of the following times:

(1) The initial date funds are deposited with or remitted to a provider or facility.

(2) The date of execution of a resident’s agreement.

(f) Form. The disclosure statement and resident’s agreement shall have attached a separate page notifying prospective residents of their right to rescind the resident’s agreement as follows:

You may rescind and terminate your resident’s agreement, without penalty or forfeiture, within 7 days of the above date. You are not required to move into the continuing care facility before the expiration of this 7 day period. No other agreement or statement you sign shall constitute a waiver of your right to rescind your agreement within the seven (7) day period.

To rescind your resident’s agreement, mail or deliver a signed and dated copy of this notice, or any other dated written notice, letter or telegram, stating your desire to rescind to (name of provider/facility) at (business address) not later than midnight of (last day for rescission).

Pursuant to this notice, I hereby cancel my resident’s agreement.

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.10 Investments.

(a) Funds of a provider which are permitted or required to be invested under the act shall be invested in good faith and with the degree of care that an ordinarily prudent individual in a like position would exercise under similar circumstances.

(1) Funds which are required to be invested shall include the entrance fees maintained in an escrow account, under section 12 of the act (40 P. S. § 3212).

(2) Funds which are permitted to be invested shall include liquid reserves established under section 9 of the act (40 P. S. § 3209), and reserve fund escrow accounts established under section 10 of the act (40 P. S. § 3210).

(b) The exercise of due care and prudence requires consideration of the following factors:

(1) The protection of the principal invested.

(2) The liquidity of the invested funds.

(3) The relationship between the maturity date of invested funds and the current liabilities.

(4) The anticipated investment yield.

(c) Liquid investments may include:

(1) Cash held in an interest-bearing account of a financial institution.

(2) The following if the instrument is easily converted to cash within a reasonable period of time:

(i) Certificates of deposit issued by a financial institution.

(ii) Money-market funds issued by a regulated investment company, as defined by section 405(b.1) of the Insurance Company Law of 1921 (40 P. S. § 505(b.1)) (Repealed).

(iii) Acceptable negotiable securities as defined in § 151.2 (relating to definitions).

(iv) Commercial paper in the form of promissory obligations of an issuer with an original maturity date not exceeding 9 months from the date of issuance, having the highest rating in a recognized rating publication.

(3) Securities which the provider can demonstrate are saleable with reasonable promptness at a price corresponding reasonably to fair value.

(d) For the purpose of determining whether the amounts held in investments satisfy the minimum amounts required by the act, liquid investments shall be valued at market value.

The provisions of this § 151.10 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.11 Annual statements.

(a) At the time the annual disclosure statement is filed, each provider shall submit to the Department an annual statement detailing its financial status as of the close of business on the last day of the provider’s fiscal year.

(b) Providers holding one or more certificates of authority to operate facilities organized as separate and distinct legal entities from the provider shall file an annual statement for each separate facility.

(c) Annual statements shall be filed on a prescribed form, which is available from the Department.

(d) Providers may be requested to submit additional information to the Department to supplement their annual statement.

The provisions of this § 151.11 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.12 Reports of examination.

(a) Upon completion of a financial examination of a provider as authorized by section 19 of the act (40 P. S. § 3219), a report of the examination will be prepared.

(b) The report of examination shall be submitted to the provider examined, who shall have the privilege of objecting to the report within 30 days from the receipt thereof.

(c) Objections to a report of examination shall be made in compliance with the requirements of § 58.2 (reserved).

(d) In the event the examined provider raises an objection, the Commissioner will grant a hearing and issue a final adjudication before making the report available for public inspection. Prior to the final adjudication, a report of examination shall not be a public document available under the act of June 21, 1957 (P. L. 390, No. 212) (65 P. S. § § 66.1—66.4)

(e) The procedures set forth in § 58.3 (relating to hearing procedure) will be followed for all hearings granted to consider objections to a report of examination.

(f) Upon acceptance of a report of examination by the provider examined, or upon issuance of an adjudication after a hearing has been held to consider objections, the Commissioner, if he deems it in the interest of the public to do so, may publish all or any portion of the report in a manner he deems appropriate.

The provisions of this § 151.12 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.13 Rehabilitation and liquidation.

(a) Whenever the Commissioner has been appointed the rehabilitator of, or has been authorized to appoint a trustee to rehabilitate, a provider or facility under section 16 of the act (40 P. S. § 3216), the rehabilitation shall be conducted in compliance with the act and pertinent standards and procedures contained in Article V.

(b) Whenever the Commissioner has been appointed the liquidator of, or has been authorized to appoint a trustee to liquidate, a provider or facility under section 16 of the act (40 P. S. § 3216), the liquidation shall be conducted in compliance with the act and pertinent standards and procedures contained in Article V.

(c) In applying Article V standards and procedures to a rehabilitation or liquidation under the act, the following phrases in Article V shall have the following meanings:

(1) A reference to insurer in Article V shall be deemed a reference to the provider or facility for whom a rehabilitator or liquidator has been appointed.

(2) A reference to policyholder, certificate holder or insured in Article V shall be deemed a reference to a resident, or prospective resident who has transferred money or other property to a provider.

(3) A reference to a policy or coverage in Article V shall be deemed a reference to a resident’s agreement.

(4) A reference to a premium in Article V shall be deemed a reference to the entrance fee, periodic fees or other charges payable by a resident or prospective resident to a provider.

(5) If the provisions of Article V are determined to be in conflict with the act, the requirements of the act shall control.

(d) Upon liquidation, the distribution of unsecured claims from the provider’s or facility’s estate shall be made in the order of priority set forth in this subsection. Every claim in each class shall be paid in full or adequate funds retained for payment before the members of the next class receive payment. No subclasses shall be established within a class.

(1) Debts due to employes for services performed to the extent they do not exceed $1,000 and represent payment for services performed within 1 year before the filing of the petition for liquidation. Officers and directors shall not be entitled to the benefit of this priority.

(2) Costs and expenses of administration of the liquidation, including but not limited to, the following:

(i) Actual and necessary costs of preserving or recovering the assets of the provider or facility.

(ii) Compensation for services rendered in the liquidation.

(iii) Necessary filing fees.

(iv) Fees and mileage payable to witnesses.

(v) Reasonable attorney’s fees for the defense and appeal of a proceeding under this section, subject to the approval of the administrative or judicial body having jurisdiction over the proceeding. The reasonableness of attorney’s fees shall include an evaluation of the time expended and rates charged in light of the provider’s or facility’s assets at the time a petition for liquidation was filed.

(3) Claims under a resident’s agreement, including claims for refunds by residents of the liquidated provider or facility or prospective residents who have transferred money or other property to a provider. Claims for which indemnification is provided by other benefits or advantages recovered by the claimant shall not be included in the class, other than benefits or advantages recovered or recoverable in discharge of familial obligations of support.

(4) Claims of general creditors.

(5) Claims of the Federal, State or local government. Claims, including those of a governmental body, for a penalty or forfeiture shall be allowed in this class only to the extent of the pecuniary loss sustained from the act, transaction, or proceeding out of which the penalty or forfeiture arose, with reasonable and actual costs occasioned thereby. The remainder of these claims shall be postponed to the class of claims under paragraph (7).

(6) Claims filed late and claims or portions of claims the payment of which is provided by other benefits or advantages recovered by the claimant.

(7) Claims for surplus or contribution notes or similar obligations and claims for penalties or forfeitures postponed from paragraph (5).

(8) Claims of shareholders or other owners.

The provisions of this § 151.13 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051.

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

31 Pa. Code § 151.14 Fees.

(a) Upon each application for a certificate of authority, the applicant shall pay a fee of $750 to the Commonwealth.

(b) Upon each petition for an extension of a temporary certificate of authority, the applicant shall pay a fee of $100 to the Commonwealth.

(c) Upon each filing of an annual disclosure statement as required by section 7(b) of the act (40 P. S. § 3207(b)), the provider shall pay a fee of $750 to the Commonwealth. This fee is not applicable to disclosure statements accompanying an application for a certificate of authority.

(d) A fee may not be charged for an amendment to an application for a certificate of authority, or for an amendment to or update of a disclosure statement or resident’s agreement.

(e) Providers shall be subject to the fees set forth in The Administrative Code of 1929 (71 P. S. § § 51—732), including but not limited to, the fees contained in section 612-A of The Administrative Code of 1929 (71 P. S. § 240.12A).

(f) Whenever an investigation, examination or rehabilitation is undertaken as authorized by the act, or as otherwise authorized by statute, the provider shall be assessed the expenses incurred by the Department, including compensation of Department employes or consultants, agents or trustees acting on behalf of the Department, and the expenses of these persons for travel, lodging and food, which amounts shall be assessed under 4 Pa. Code Chapter 40 (relating to travel and subsistence).

(g) Fees specified in this section shall be assessed and billed to providers in accordance with established Department procedures and this title.

The provisions of this § 151.14 amended under 45 Pa.C.S. § § 502, 503, 729—731; and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412).

The provisions of this § 151.14 adopted March 15, 1985, effective March 16, 1985, 15 Pa.B. 1051; amended April 12, 1996, effective April 13, 1996, 26 Pa.B. 1705. Immediately preceding text appears at serial pages (121764) to (121765).

This section cited in 31 Pa. Code § 151.3 (relating to certificates of authority).

History

• Authority: The provisions of this § 151.
• Source: The provisions of this Chapter 151 adopted March 15, 1985, effective March 16, 1985, 15 Pa.

Chapter 152 Preferred Provider Organizations

31 Pa. Code § 152.1 Purpose.

This chapter implements section 630 of the act (40 P. S. § 764a).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The act of June 11, 1986 (P. L. 226, No. 64), which amends The Insurance Company Law of 1921 (40 P. S. § § 341—991). Admitted assets—Assets set forth in the definition of insolvency in section 503 of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § 221.3), as admitted assets. Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Enrollee—An individual entitled to receive the benefits of a preferred provider organization with respect to health care services. Enrollee literature—aterials and communications which a preferred provider organization distributes or makes available for advertising or other purposes, which discuss the provisions, limitations or conditions of benefits available to an enrollee of a preferred provider organization. Health care insurer—A company which is a risk-assuming preferred provider organization, or licensed to do the business of accident and health insurance in this Commonwealth, or both. Health care purchaser—A person, partnership, association, governmental unit or corporation which provides health care coverage to its employes or members and their dependents by reimbursing the covered persons directly for covered health services or by contracting with a health care insurer, nonprofit professional health service corporation, nonprofit hospital plan corporation or health maintenance organization to provide, arrange for the provision of, reimburse or pay for covered health services. The term does not include a health care insurer. Licensed insurer—A company licensed to do the business of accident and health insurance in this Commonwealth. Physician—An individual licensed under the statutes of this Commonwealth to practice medicine and surgery within the scope of the Osteopathic Medical Practices Act (63 P. S. § § 271.1—271.18) or the Medical Practice Act of 1985 (63 P. S. § § 422.1—422.45). Preferred provider arrangement—

(i) An arrangement established, operated, maintained or underwritten in whole or in part, by or on behalf of or in association with a health care insurer or purchaser in which the insurer or purchaser directly or indirectly does one or more of the following:

(A) Enters into agreements with providers or physicians relating to health care services which may be rendered to enrollees, including agreements relating to the amounts to be charged by the provider or physician for services rendered.

(B) Issues or administers policies or subscriber contracts in this Commonwealth which include incentives for the enrollee to use the services of a provider that has entered into an agreement with the insurer or purchaser.

(C) Issues or administers policies or subscriber contracts in this Commonwealth that provide for reimbursement of services only if the services have been rendered by a provider or physician that has entered into an agreement with the insurer or purchaser.

(ii) A preferred provider arrangement may be established, operated, maintained or underwritten by one or more preferred provider organizations. Preferred provider organization—

(i) General. A person, partnership, association or corporation which establishes, operates, maintains or underwrites in whole or in part a preferred provider arrangement. The term does not include a provider or physician whose only involvement in the preferred provider arrangement is the performance of health care services, a nonprofit professional health service plan corporation, a nonprofit hospital plan corporation or a health maintenance organization.

(ii) Risk assuming preferred provider organization. A preferred provider organization which meets the definition in subparagraph (i) and has one or more of the following characteristics:

(A) Assumption by the preferred provider organization of financial risk arising out of contractual liability to pay for or reimburse enrollees for covered health care services.

(B) Participation in financial gains or losses of a health benefits plan based on aggregate measures of expenditures or utilization.

(C) Participation in the overall financial risk of a health benefits plan by placing upper limits on future premium increases.

(D) Other characteristics which create a financial risk to the preferred provider organization and arise out of the preferred provider arrangement.

(iii) Exclusion. The term ‘‘risk assuming preferred provider organization’’ does not include a third-party administrator, or a licensed insurer, when functioning solely as a third party administrator. Provider—A provider of a health care service licensed and authorized to perform a health care service which is a covered benefit under a health care plan offered by a purchaser or issued or administered by a health care insurer. Secretary—The Secretary of Health of the Commonwealth. Section 630—Section 630 of the act (40 P. S. § 764a).

The provisions of this § 152.2 adopted March 6, 1987, effective March 7, 1987, 17 Pa.B. 974; corrected September 18, 1987, effective March 7, 1987, 17 Pa.B. 3741. Immediately preceding text appears at serial pages (118100) to (118102).

This section cited in 31 Pa. Code § 154.2 (relating to definitions).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.3 Content of an application for approval.

(a) The application for approval of a risk-assuming preferred provider organization, which is not a licensed insurer, includes:

(1) A copy of the basic organizational document of the applicant preferred provider organization, such as the articles of incorporation, and amendments thereto.

(2) A copy of the bylaws, rules or similar documents regulating the conduct of the internal affairs of the applicant preferred provider organization.

(3) A list of the names, addresses and official positions of members of the board of directors of the applicant preferred provider organization and of persons who are responsible for the conduct of the affairs of the applicant, including, but not limited to, the chief executive officer, chief operating officer, director of marketing, medical director and director of finance.

(4) A copy of the preferred provider organization’s most recent financial statement.

(5) An organization chart describing the relationship between the preferred provider organization and its affiliates, including the state of domicile and the primary business of each entity.

(6) A description of the proposed service area of the provider organization, including geographic boundaries.

(7) A financial analysis prepared for the purpose of determining that the proposed preferred provider organization will have adequate working capital and reserves. The analysis shall include a feasibility study, a business plan with projected financial statements for the next 3 years, a review of proposed provider and physician contracts and charges, a review of proposed rates and a market opportunity analysis. The financial analysis shall be made under the direction of a qualified actuary or certified public accountant.

(8) A copy of every standard form contract with physicians and providers establishing preferred provider arrangements.

(9) A detailed description of the types of financial incentives for preferred physicians and providers within the preferred provider arrangements.

(10) A list of the preferred providers.

(11) A copy of procedures, if any, for referral of covered persons to nonpreferred providers by the preferred provider organization or a preferred provider.

(12) A detailed description of the preferred provider organization’s provisions to prevent undertreatment or poor quality care of persons covered by the preferred provider arrangements. Standards regarding the adequacy of a quality assurance system are provided in § 152.4 (relating to scope of Department of Health review of a preferred provider organization).

(13) A copy of every standard form contract with health care insurers and purchasers through which preferred provider arrangements are made available to covered persons.

(14) A copy of every standard form contract with enrollees or groups of enrollees setting forth the preferred provider organization’s contractual obligations to provide, arrange for the provision of or pay for covered health care services.

(15) A description of the incentives for enrollees to use the services of a preferred provider contained within the preferred provider organization’s enrollee contracts.

(16) A copy of the preferred provider organization’s enrollee literature.

(17) A description of provisions within the preferred provider arrangements holding covered person financially harmless for payment denials by the preferred provider organizations for improper utilization of covered health services caused by preferred providers.

(18) A copy of charges made to health care insurers, purchasers or covered persons by the preferred provider organization in consideration for establishment of the preferred provider arrangements.

(19) Other information that the applicant preferred provider organization may wish to submit which reasonably relates to its ability to establish, operate, maintain or underwrite a preferred provider organization.

(b) The application for approval of a risk-assuming preferred provider organization which is a licensed insurer includes the items listed in subsection (a)(6) and (8)—(19).

(c) The application for approval of a preferred provider organization which does not assume financial risk includes the items listed in subsection (a)(6), (8)—(11), (13)—(16) and (19).

(d) The application for approval of a preferred provider organization which is governed and regulated under the Employee Retirement Income Security Act of 1974 (29 U.S.C.A. § § 301—309 and 1001—1461) will consist of the certificate required by § 152.12 (relating to provider organizations governed and regulated under ERISA).

(e) Changes or additions, or both, to the information in subsection (a)(1)—(3) and (5) shall be filed within 30 days of their occurrence after commencement of operations.

(f) Changes or additions, or both, to the information in subsection (a)(6), (8), (9), (11)—(15), (17) and (18) shall be filed at least 60 days prior to use or effective date after commencement of operations.

(g) Changes or additions, or both, to the list of preferred providers shall be filed semiannually on or before March 31 and September 30 of each year.

(h) In addition to the information required by subsections (a)—(d), preferred provider organizations may be requested to provide the Commissioner and the Secretary with other material that is deemed necessary to complete the review of the application.

(i) An applicant which is simultaneously filing an application for a certificate of authority to operate as a health maintenance organization may incorporate by reference portions of that application in its application to operate as a preferred provider organization.

(j) An application for approval of a preferred provider organization shall be made by submitting two copies each to the Commissioner and the Secretary.

This section cited in 31 Pa. Code § 152.102 (relating to definitions).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.4 Scope of Department of Health review of a preferred provider organization.

(a) The Department of Health will review the applications of preferred provider organizations which assume financial risk and which utilize arrangements or provisions which may lead to undertreatment or poor quality care.

(1) Arrangements or provisions which may lead to undertreatment or poor quality care include, but are not limited to, the following:

(i) Contractual arrangements with physicians or providers in which the physicians or providers agree to arrange, pay for or provide health care services for a fixed payment set and received in advance of health care services, sometimes referred to as capitation reimbursement arrangements.

(ii) Contractual arrangements with physicians or providers in which a type of financial incentive structure is employed which conditions the provider’s payment for service, or a portion thereof, upon gains or losses experienced by an insurer or purchaser resulting from preferred provider arrangements or which allows a provider to share in the gains or losses, sometimes referred to as fee withholding risk pool arrangements.

(iii) Health benefit plans under which the reimbursement received by an enrollee for a health care service rendered by a nonpreferred provider is less than 80% of the payment which a preferred provider would receive from the preferred provider organization for the same health care service.

(iv) Health benefit plans under which an enrollee who receives a health care service from a nonpreferred provider is liable for payment of more than 20% of the payment which a preferred provider would receive from the preferred provider organization for the same health care service. For the purpose of calculating this percentage, cost-sharing amounts shall be excluded if cost-sharing is applied by the preferred provider arrangement regardless of whether a health care service is rendered by a preferred or a nonpreferred provider.

(v) Health benefit plans under which coverage for health care services is provided only when the services are rendered by a preferred physician or provider participating in the preferred provider arrangement.

(2) In order to assure that the preferred provider organization is not utilizing arrangements or provisions which may lead to undertreatment or poor quality care, the Department of Health will determine the following:

(i) The preferred provider organization makes available to enrollees a sufficient number and range of providers by class, specialty and geographic service area to adequately serve enrollees and to provide them with adequate access to and availability of health care services covered under the preferred provider organization’s benefit plan.

(ii) Adequate disclosure is made to enrollees regarding rights and responsibilities under the preferred provider organization’s utilization review programs.

(iii) An adequate grievance system exists which permits enrollees to appeal utilization review decisions which result in denial of payment or denial of access to health care services or which concern alleged poor quality care or undertreatment by a preferred provider.

(iv) If the preferred provider organization chooses to establish selection criteria for provider participation in preferred provider arrangements, the criteria are appropriate and the preferred provider organization has systems to adequately verify that providers accepted for participation meet the selection criteria.

(v) An adequate peer review process exists to monitor factors affecting quality of care.

(vi) For capitated programs, the following quality assurance system standards shall be met:

(A) The system is under the active direction of a provider knowledgeable and experienced in assessing quality of care.

(B) The staffing of the quality assurance function is appropriate to the size and scope of operations of the preferred provider organization and the extent to which its economic incentives may lead to poor quality care.

(C) The quality assurance system actually assesses quality of care through usual and customary quality assurance techniques, such as performance of medical care evaluations and audits and medical record review.

(vii) The preferred provider organization has adequate capacity to remove from preferred provider status a provider found to be providing poor quality care.

(viii) The preferred provider organization has adequately identified and addressed the economic incentives of arrangements or provisions which may lead to undertreatment or poor quality care.

(b) Maintenance of a quality assurance system in accord with Department of Health standards does not require assumption of responsibility for or involvement in the medical treatment of an enrollee beyond that set forth in the contract between the preferred provider organization and the enrollee.

This section cited in 31 Pa. Code § 152.3 (relating to content of an application for approval); and 31 Pa. Code § 152.5 (relating to review of application by the Secretary).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.5 Review of application by the Secretary.

(a) Upon receipt of a complete application for approval for operation as a risk-assuming preferred provider organization, the Secretary will review the submitted materials in accordance with § 152.4 (relating to scope of Department of Health review of a preferred provider organization).

(b) If the Secretary determines that the applicant meets the standards in § 152.4, the Secretary will notify the applicant and the Commissioner of the findings.

(c) If the Secretary determines that an applicant does not meet the standards in § 152.4, the Secretary will notify the applicant and the Commissioner of the disapproval and the reasons, in writing.

(d) Within 30 days from the date of mailing of a notice of disapproval to the preferred provider organization, the preferred provider organization may take written application to the Secretary for a hearing. The hearing shall be held within 30 days after receipt of the application. The procedure before the Secretary will be under the adjudication procedure in 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law). The preferred provider organization is entitled to judicial review as provided by statute.

This section cited in 31 Pa. Code § 152.23 (relating to commencing operations).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.6 Provider contracts.

(a) Changes in standard form contracts with physicians or providers enabling a risk-assuming preferred provider organization to offer preferred provider arrangements shall be submitted to the Secretary within 10 days of implementation. The Secretary may review the provider contract changes to ascertain whether the changes may lead to undertreatment or poor quality health services.

(b) If the Secretary determines that the changes to the provider contract may lead to undertreatment or poor quality health services, the Secretary will notify the risk-assuming preferred provider organization and the Commissioner of the disapproval and the reasons in writing.

(c) Within 30 days from the date of mailing of a notice of disapproval to the preferred provider organization, the preferred provider organization may make written application to the Secretary for a hearing. The hearing will be held within 30 days after receipt of the application. The procedure before the Secretary will be under adjudication procedure in 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law). The preferred provider organization is entitled to judicial review as provided by statute.

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.7 Restricted benefit—limited purpose preferred provider organizations.

A risk-assuming preferred provider organization which limits its arrangements to only one class of preferred providers for the purpose of providing a limited scope or range of covered services to covered persons (for example, a dental benefits preferred provider organization or vision service benefits preferred provider organization) shall reflect the fact in the structure and function of its quality assurance system.

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.8 Compliance with Health Maintenance Organization Act (40 P. S. § § 1551—1567).

If, in the review of the application of a risk-assuming preferred provider organization, the Secretary determines that the preferred provider organization is in fact engaging or proposing to engage in the business of a health maintenance organization as defined in the Health Maintenance Organization Act, the Secretary will so inform the applicant and the Commissioner and require the preferred provider organization to seek licensure as a health maintenance organization. In determining whether or not a risk-assuming preferred provider organization is doing the business of a health maintenance organization, the Department of Health will evaluate and consider the following:

(1) The type and amount of economic risk being assumed by preferred providers.

(2) The degree to which the delivery of health care is organized and managed by the preferred provider organization.

(3) The degree of freedom of provider choice offered to enrollees.

(4) The degree of contractual responsibility assumed by participating primary care physicians for the management of health care of enrollees.

(5) The degree to which preferred providers may share in the financial gains or losses arising from preferred provider arrangements.

(6) The extent to which the preferred provider organization provides basic health services as defined in the Health Maintenance Organization Act and 28 Pa. Code Chapter 9 (relating to health maintenance organizations).

(7) The extent to which the preferred provider organization combines the delivery and financing of health care.

(8) The extent to which the preferred provider organization agrees to provide, arrange for the provision of or pay for health services for a fixed pre-paid fee.

This section cited in 31 Pa. Code § 152.103 (relating to HMO and PPO differentiation).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.9 Minimum capital and reserves.

(a) General. Unless the Commissioner determines that additional capital or reserves are required for the protection of policyholders, enrollees, creditors or the public, a risk-assuming preferred provider organization which is not a licensed insurer shall be deemed to have adequate working capital and reserves if its admitted assets exceed its liabilities by $50,000 in excess of the minimum capital and surplus required of a stock casualty insurer with accident and health powers at the time it commences operations, and if it thereafter maintains its admitted assets in excess of liabilities by at least the minimum capital and surplus required of a stock casualty insurer with accident and health powers.

(b) Exemption. If the risk-assuming preferred provider organization which is not a licensed insurer only provides or covers limited health care services (for example, dental or vision care services), or is only liable for incentive payments to providers or physicians, the Commissioner may exempt it from the requirements of subsection (a) and establish a lower capital and reserve requirement.

This section cited in 31 Pa. Code § 152.11 (relating to review of application by the Commissioner).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.10 Qualification of officers and directors.

This section applies to risk-assuming preferred provider organizations which are not licensed insurers.

(1) The responsibility, character and general fitness for the preferred provider organization’s operations of a person who is chosen, elected or appointed as an officer or director shall be such as to command the confidence of the public and warrant the belief that the preferred provider organization’s operations will be honestly and efficiently conducted in accordance with the intent of section 630.

(2) If the Commissioner determines, after a proper investigation, that an officer or director of a preferred provider organization does not meet the qualifications stated in paragraph (1), the person shall cease serving as an officer or director, or both.

(3) The procedure before the Commissioner for the determination stated in paragraph (2) shall be under the adjudication procedure set forth in 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law). The officer or director is entitled to judicial review as provided by statute.

This section cited in 31 Pa. Code § 152.11 (relating to review of application by the Commissioner).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.11 Review of application by the Commissioner.

(a) Upon receipt of a complete application for approval for operation as a risk-assuming preferred provider organization, the Commissioner will review the submitted materials to determine that the following exist:

(1) The applicant is a licensed insurer or has adequate working capital and reserves as defined in § 152.9 (relating to minimum capital and reserves).

(2) The applicant’s enrollee literature adequately discloses provisions, limitations and conditions of benefits available.

(3) The applicant’s policy forms provide for emergency services as described in § 152.15 (relating to emergency services).

(4) If the applicant is not a licensed insurer, that:

(i) Its preferred provider arrangements contain provisions to assure insolvency protection as described in § 152.14 (relating to insolvency protection).

(ii) Its policy forms provide for a preexisting condition limitation as described in § 152.16 (relating to preexisting condition limitation).

(iii) Its officers and directors meet the qualifications in § 152.10(a) (relating to qualification of officers and directors).

(b) Upon receipt of a complete application for approval by a preferred provider organization which does not assume financial risk, the Commissioner will review the submitted materials to determine that the applicant’s enrollee literature adequately discloses provisions, limitations and conditions of benefits available.

(c) If the Commissioner finds that the applicant meets the applicable standards in subsection (a) or (b), the Commissioner will notify the applicant and the Secretary of the determination.

(d) If the Commissioner determines that an applicant does not meet the applicable standards in subsection (a) or (b), the Commissioner will notify the applicant of the disapproval, in writing, specifying the reason for the disapproval. Within 30 days from the date of mailing of the notice to the preferred provider organization, the preferred provider organization may make written application to the Commissioner for a hearing. The hearing will be held within 30 days after receipt of the application. The procedure before the Commissioner will be under the adjudication procedure in 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law). The preferred provider organization is entitled to judicial review as provided by statute.

This section cited in 31 Pa. Code § 152.22 (relating to fees); and 31 Pa. Code § 152.23 (relating to commencing operations).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.12 Provider organizations governed and regulated under ERISA.

A preferred provider organization which is governed and regulated under the Employee Retirement Income Security Act of 1974 (29 U.S.C.A. § § 301—309 and 1001—1461) (ERISA) shall file a certificate to that effect with the Commissioner and, to the extent that it is regulated under ERISA, is not subject to other provisions of this chapter.

This section cited in 31 Pa. Code § 152.3 (relating to content of an application for approval); and 31 Pa. Code § 153.3 (relating to simplified review of company merger, assumption or name change form and rate filings—statement of policy).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.13 Investments.

Investments by risk-assuming preferred provider organizations which are not licensed insurers shall be made under the statutes governing the investments of domestic life insurance companies. See The Insurance Company Law of 1921 (40 P. S. § § 341—991).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.14 Insolvency protection.

Preferred provider arrangements with providers or physicians, or both, shall contain provisions to assure, in the event of an insolvency, that the enrollees of a risk-assuming preferred provider organization which is not a licensed insurer are not held liable for expenses which were to have been assumed by the preferred provider organization.

This section cited in 31 Pa. Code § 152.11 (relating to review of application by the Commissioner).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.15 Emergency services.

If an enrollee requires emergency health care services, and cannot reasonably be attended to by a preferred provider or physician, the preferred provider arrangement shall pay for the emergency health care services so that the enrollee is not liable for a greater out-of-pocket expense than if the enrollee were attended to by a preferred provider or physician.

This section cited in 31 Pa. Code § 152.11 (relating to review of application by the Commissioner).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.16 Preexisting condition limitation.

A risk-assuming preferred provider organization which is not a licensed insurer may not use a policy or contract which contains a preexisting condition limitation which is more restrictive than the following: a preexisting condition is a disease or physical condition for which medical advice or treatment has been received within 90 days immediately prior to becoming covered under the preferred provider arrangement. The condition is covered after the individual has been covered for more than 12 months under the group contract.

This section cited in 31 Pa. Code § 152.11 (relating to review of application by the Commissioner).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.17 Approval of enrollee literature after commencement of operations.

(a) Except for enrollee literature which has been reviewed and approved as part of its application for approval, no enrollee literature may be used by a preferred provider organization until the forms of the literature have been submitted to and formally approved by the Commissioner.

(b) Forms of enrollee literature will be deemed approved at the expiration of 60 days after filing, unless earlier approved or disapproved by the Commissioner. The approval becomes void upon subsequent notice of disapproval from the Commissioner.

(c) If the Commissioner determines that the literature does not adequately disclose the provisions, limitations and conditions of benefits available to enrollees, the Commissioner will notify the preferred provider organization, in writing, of the objections.

(d) Upon disapproval, the Commissioner will notify the preferred provider organization and the Secretary, in writing, specifying the reason for the disapproval. Within 30 days from the date of mailing of the notice to the preferred provider organization, the preferred provider organization may make written application to the Commissioner for a hearing. The hearing shall be held within 30 days after receipt of the application. The procedure before the Commissioner will be under the adjudication procedure in 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law). The preferred provider organization is entitled to judicial review as provided by statute.

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.18 Policy review after commencement of operations.

(a) Except for policies which have been reviewed and approved as part of its application for approval, no policies, contracts or agreements between a risk-assuming preferred provider organization which is not a licensed insurer and its insureds may be used until the policies, contracts or agreements have been submitted to and formally approved by the Commissioner.

(b) Forms of policies will be deemed approved at the expiration of 60 days after filing, unless approved or disapproved earlier by the Commissioner. The approval becomes void until subsequent notice of disapproval from the Commissioner.

(c) Upon disapproval, the Commissioner will notify the preferred provider organization, in writing, specifying the reason for the disapproval. Within 30 days from the date of mailing of the notice to the preferred provider organization, the preferred provider organization may make written application to the Commissioner for a hearing. The hearing will be held within 30 days after receipt of the application. The procedure before the Commissioner will be under the adjudication procedure in 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law). The preferred provider organization is entitled to judicial review as provided by statute.

This section cited in 31 Pa. Code § 153.3 (relating to simplified review of company merger, assumption or name change form and rate filings—statement of policy).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.19 Annual reporting requirements.

An approved risk-assuming preferred provider organization shall file with the Secretary and the Commissioner on or before March 31 of each year an annual report of its activities during the prior calendar year. Annual reports include:

(1) A copy of the annual financial statement required by § 152.21 (relating to financial statements and examinations).

(2) A description of results in its quality assurance activities undertaken during the year.

(3) A summary of the number of covered persons in the preferred provider organization.

(4) A summary of total number of grievances handled, a compilation of causes underlying the grievances and the resolution of grievances.

(5) A summary of utilization experience of the preferred provider organization.

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.20 Investigations.

(a) The Commissioner and the Secretary may investigate a preferred provider organization in order to determine whether it is complying with this chapter.

(b) The Commissioner, the Secretary and their deputies, agents and examiners will have free access to the books, records, papers and documents of a preferred provider organization.

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.21 Financial statements and examinations.

A risk-assuming preferred provider organization which is not a licensed insurer shall be governed by the statutes and regulations applicable to the filing and preparation of financial statements and the frequency and conduct of examinations by the Commissioner and deputies which apply to licensed domestic insurers, including adherence to statutory accounting practices and establishing reserves on a sound actuarial basis.

This section cited in 31 Pa. Code § 152.19 (relating to annual reporting requirements); and 31 Pa. Code § 152.22 (relating to fees).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.22 Fees.

This section applies to a risk-assuming preferred provider organization which is not a licensed insurer.

(1) If an investigation or examination is undertaken under § § 152.11 (relating to review of application by the Commissioner) or 152.21 (relating to financial statements and examinations), the preferred provider organization will be assessed the expenses incurred by the Department, including compensation of Department employes or consultants acting on behalf of the Department, and expenses of the persons for travel, lodging and food. The amounts shall be assessed under 4 Pa. Code Chapter 40 (relating to travel and subsistence).

(2) Fees assessed under this section are assessed and billed to preferred provider organizations under established Department procedures and this title.

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.23 Commencing operations.

A preferred provider organization may not commence operations until one of the following occurs:

(1) The Commissioner approves its application under § 152.11 (relating to review of application by the Commissioner) and, if a risk-assuming preferred provider organization, the Secretary approves its application under § 152.5 (relating to review of application by the Secretary).

(2) The Commissioner determines that it is governed by and regulated under the Employee Retirement Income Security Act of 1974 (29 U.S.C.A. § § 301—309 and 1001—1461) and it has filed a certificate to that effect with the Commissioner.

(3) The preferred provider organization has complied with the filing requirements of this chapter and 60 days have elapsed without the issuance of a disapproval or notice of deficiencies from the Commissioner or the Secretary.

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.24 Cease and desist orders and orders to cease operations.

(a) A cease and desist order or an order to cease all or a part of the operations of a preferred provider organization, or both, may be issued if the preferred provider organization violates this chapter.

(b) Before the Commissioner or the Secretary, whichever is appropriate, will take an action under subsection (a), written notice will be given to the preferred provider organization stating specifically the nature of the alleged violation and fixing a time and place, at least 10 days thereafter, when a hearing on the matter will be held. Hearing procedure and appeals from decisions of the Commissioner or Secretary will be provided under 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.25 Application of insurance laws to preferred provider organizations and their agents.

(a) A preferred provider organization which is a licensed insurer, and its agents, remain subject to statutes, rules and regulations which apply to licensed insurers and their agents in this Commonwealth.

(b) A risk-assuming preferred provider organization which is not a licensed insurer is subject to the following statutes and regulations promulgated thereunder:

(1) Article V of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § § 221.1—221.63).

(2) The Unfair Insurance Practices Act (40 P. S. § § 1171.1—1171.15).

(3) The act of August 1, 1975 (P. L. 157, No. 81) (40 P. S. § § 771—774).

(4) Article VI-A of the act (40 P. S. § § 908-1—908-8).

(5) Section 621.2(a)(6) and (d) of the act of May 17, 1921 (P. L. 682, No. 284) (40 P. S. § 756.2(a)(6) and (d)).

(6) The act of December 23, 1981 (P. L. 583, No. 168) (40 P. S. § § 3001—3003).

(7) The act of December 27, 1965 (P. L. 1247, No. 506) (40 P. S. § § 1501—1503).

(8) The act of April 18, 1978 (P. L. 33, No. 16) (40 P. S. § § 767—769).

(c) Agents for risk-assuming preferred provider organizations which are not licensed insurers will be licensed as accident and health insurance agents and subject to statutes, rules and regulations applicable to insurance agents.

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.101 Scope.

A PPO product filing by an approved PPO complying with this chapter is acceptable. A preferred provider agreement filing by a nonprofit hospital corporation or a nonprofit professional health service plan corporation, or both, otherwise complying with 40 Pa.C.S. Chapter 61 or 63, or both (relating to rules of evidence; juvenile matters) and complying with this chapter is acceptable.

The provisions of this § 152.101 adopted September 27, 1991, effective September 28, 1991, 21 Pa.B. 4424.

This section cited in 31 Pa. Code § 152.102 (relating to definitions).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.102 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: ERISA-exempt PPO—A PPO which, in accordance with § 152.3(d) (relating to content of an application for approval), has submitted and received joint Department and Department of Health approval of an ERISA-exemption certificate. Gatekeeper product—A product offered by a PPO which requires an enrollee to preselect a particular primary care physician from among a list of participating primary care physicians, and to receive from the physician, as a condition for receipt of a higher level of benefits or reimbursement level, or both, referrals for nonemergency specialty, hospital and other services. HMO—Health maintenance organization. PPO—Preferred provider organization. Passive gatekeeper product—A product offered by a PPO which does not require an enrollee to preselect a particular primary care physician, but requires, as a condition for receipt of a higher level of benefits or reimbursement level, or both, that an enrollee receive care from or a referral from a participating preferred primary care physician. The products are permissible if their restrictions are adequately disclosed to enrollees and receive appropriate approval of the Department. However, since they do not lock enrollees into use of a particular primary care physician, they are not subject to § § 152.101, 152.103—152.105 and this section (relating to primary care gatekeeper PPO products—statement of policy).

The provisions of this § 152.102 adopted September 27, 1991, effective September 28, 1991, 21 Pa.B. 4424.

This section cited in 28 Pa. Code § 9.502 (relating to definitions).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.103 HMO and PPO differentiation.

(a) General. Under the time provisions of § 152.8 (relating to compliance with Health Maintenance Organization Act (40 P. S. § § 1551—1567)), the Secretary of Health will determine when a PPO is engaging in the business of an HMO and required to seek licensure as such. The use of a primary care gatekeeper is a feature associated with HMOs, and is a required feature, under Department of Health HMO regulations at 28 Pa. Code Chapter 9 (relating to health maintenance organizations) of licensed HMOs. A PPO using a primary care gatekeeper feature, otherwise meeting the standards of this chapter, will not be considered an HMO by the Secretary or be required to obtain an HMO certificate of authority prior to commencement of operations if it meets the following standards:

(1) Preferred primary care physicians are reimbursed solely on a fee-for-service basis.

(2) Preferred primary care physicians are not at financial risk for the provision for health service utilization to enrollees through use of risk incentive withhold pools or other means of financial reward for utilization control.

(3) The PPO is not an exclusive provider organization.

(b) Exception. A PPO will be permitted to utilize primary care gatekeepers which are capitated or at financial risk, or both, if the primary care gatekeeper services are being offered under a subcontract between the PPO and an affiliated licensed HMO, if:

(1) The provisions of the subcontract are acceptable to the Departments and the Department of Health.

(2) The HMO’s quality assurance systems, and similar consumer protection measures are extended to the PPO enrollees in a manner found acceptable by the Department of Health.

The provisions of this § 152.103 adopted September 27, 1991, effective September 28, 1991, 21 Pa.B. 4424.

This section cited in 31 Pa. Code § 152.102 (relating to definitions).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.104 Filing requirements.

(a) A PPO desiring to offer a gatekeeper product shall submit a formal product filing to the Division of HMOs/PPOs of the Department and the Bureau of Health Financing and Program Development of the Department of Health. Two copies shall be filed with each Department and shall include:

(1) The group master policy, certificate and enrollee literature. Adequate primary care benefits shall be provided when an enrollee seeks care from the enrollee’s primary care physician. Copayments may not be so high as to act as a barrier to an enrollee’s use of the primary care physician.

(2) Initial rates and rating methodology.

(3) Copies of preferred provider contracts, which should contain features required by the Department of Health in HMO contracts, including:

(i) NAIC/National Association of HMO Regulators enrollee hold harmless language.

(ii) A provision for a preferred provider to participate in activities of and abide by the decisions of the PPO’s quality assurance and utilization review committee.

(iii) A provision for a preferred provider to cooperate with and abide by the decisions of the PPO’s enrollee grievance system.

(iv) A provision for the preferred provider to abide by PPO rules and regulations for preferred providers, including those regarding hospital privileges, credentialing, in-office reviews and similar rules.

(v) A provision for the provider to provide the PPO and the Department of Health with access to enrollee medical records for the purposes of quality oversight and grievance resolution.

(vi) A provision for immediate termination of participation and preferred status if the provider is found to be harming patients.

(4) Provisions of the proposed quality assurance and utilization review systems, including staffing and professional qualifications of the medical director, quality assurance, utilization review and provider relations staff.

(5) A description of the proposed grievance system.

(6) A description of the PPO’s ability to collect data and meet the annual and quarterly reporting requirements of the Department of Health.

(7) A copy of a notice form to be used when an enrollee seeks care without first obtaining a referral from the enrollee’s primary care physician, adequately disclosing the benefit or reimbursement advantages, or both, of seeking care by or through the enrollee’s primary care physician.

(b) As is the usual and customary practice of the Department and the Department of Health, the filing will be approved by joint approval letter, and no final approval action will be taken by either Department until both Departments complete their review and find the application to be acceptable.

The provisions of this § 152.104 adopted September 27, 1991, effective September 28, 1991, 21 Pa.B. 4424.

This section cited in 31 Pa. Code § 152.104 (relating to definitions).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

31 Pa. Code § 152.105 Delivery system and quality of care oversight.

(a) The use of a gatekeeper product by a PPO restricts enrollee freedom of provider choice and is an arrangement which may lead to undertreatment or poor quality care, since enrollee access to specialty and other needed care is restricted. Gatekeeper PPOs, in order to adequately address the issue of potential undertreatment or poor quality care and to protect their enrollees, and in return for the privilege of being permitted use of gatekeepers, shall:

(1) Establish and maintain compliance with the same Department of Health standards regarding quality of care oversight as required of HMOs in 28 Pa. Code § § 9.74, 9.75 and 9.93 (Reserved).

(2) Establish and maintain compliance with the same Department of Health standards regarding enrollee grievance systems as required of HMOs in 28 Pa. Code § 9.73 (Reserved).

(3) Establish and maintain data systems capable of making quarterly and annual reports to the Departments substantially equivalent to those required of HMOs as found in 28 Pa. Code § § 9.91 and 9.92 (Reserved).

(4) Submit and receive prior approval from the Department and the Department of Health of advertising, marketing and enrollee literature which adequately explains the role of the primary care gatekeeper and the limitations of coverage.

(5) Submit evidence of compliance with the Department of Health’s accessibility and availability standards equal to these established for HMOs, and evidence of sufficient trained and experienced staff to monitor and control the delivery system on an appropriate local or regional basis.

(b) In applying the HMO standards to gatekeeper PPOs, the Department of Health may take into consideration the fact that HMOs are independent entities while PPOs may be product lines of insurers.

The provisions of this § 152.105 adopted September 27, 1991, effective September 28, 1991, 21 Pa.B. 4424.

This section cited in 31 Pa. Code § 152.102 (relating to definitions).

History

• Authority: The provisions of this Chapter 152 issued under section 630 of The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 152 adopted March 6, 1987, effective March 7, 1987, 17 Pa.

Chapter 153 Statements of Policy

31 Pa. Code § 153.2 Permission to file accident and health, life and annuity insert pages—statement of policy.

(a) The Insurance Department (Department) notifies the insurance industry that they may continue to file insert pages to modify or revise previously approved group policies and certificates. Additionally, they may immediately begin to file insert pages to modify or revise previously approved individual policies.

(b) The inclusion of an insert page in a previously approved group policy, certificate or individual policy may not result in a change in the form number appearing in the lower left corner of the first page of the policy or certificate.

(c) An insert page filing shall include the following:

(1) Two copies of the insert pages.

(2) A letter of submission including the following:

(i) A statement identifying by form number and approval date the policy or certificate being modified or revised by the insert pages.

(ii) An explanation of the modifications or revisions being made by the insert pages in the previously approved policy or certificate. In lieu of providing an explanation the insurer may submit a third copy of the insert pages with the modifications or revisions highlighted.

(3) A duplicate copy of the letter of submission.

(4) One of the following:

(i) A certification signed by a company officer that after approval of the insert pages, the policy or certificate in which the insert pages will be included will be issued only with the insert pages and that the replaced pages will no longer be issued with the policy or certificate.

(ii) An explanation providing justification as to why both the insert pages and the pages modified by the insert pages are necessary and under what conditions the pages would be issued.

(5) A revised actuarial memorandum if the insert pages affect the previously filed actuarial memorandum.

(d) The Department reserves the right at any time to require an insurer to file a complete revised policy or certificate. Reasons why the Department would require an insurer to file a complete revised policy or certificate include the following:

(1) Inclusion of the insert pages in the policy would render the policy brief description inaccurate or misleading.

(2) The policy or certificate in which the insert pages would be included no longer meets the Department’s approval standards.

(e) The Department reserves the right to terminate this filing procedure at any time.

The provisions of this § 153.2 adopted October 19, 1990, effective October 20, 1990, 20 Pa.B. 5295.

History

• Source: The provisions of this Chapter 153 adopted August 26, 1988, effective August 27, 1988, 18 Pa.

31 Pa. Code § 153.3 Simplified review of company merger, assumption or name change form and rate filings—statement of policy.

(a) Solicitation in this Commonwealth.

(1) The Insurance Department (Department) notifies the insurance industry and the general public that it has required and will continue to require that prior to solicitation in this Commonwealth:

(i) When two or more insurers merge or an insurer assumes the business of another insurer, the surviving or assuming insurer shall obtain Department approval of forms or rates of the merged or assumed insurer that it will solicit in this Commonwealth.

(ii) When an insurer changes its name, the insurer shall reprint its previously approved forms to reflect the new company name and obtain Department approval of the reprinted forms.

(2) Department approval of the forms or rates will be in accordance with the requirements of the following:

(i) Sections 354, 654, 737 and 739 of The Insurance Company Law of 1921 (40 P. S. § § 477(b), 814, 910-37 and 910-39).

(ii) Section 401 of the Fraternal Benefit Society Code (40 P. S. § 1141-401).

(iii) Section 7 of the Model Act for the Regulation of Credit Life Insurance and Credit Accident and Health Insurance (40 P. S. § 1007.7).

(iv) Title 40 of the Pennsylvania Consolidated Statutes § § 6124 and 6329 (relating to rates and contracts; and rates and contracts).

(v) Section 10 of the Health Maintenance Organization Act (40 P. S. § 1560).

(vi) Sections 3 and 4 of The Fire, Marine and Inland Marine Regulatory Act (40 P. S. § § 1223 and 1224).

(vii) Sections 3 and 4 of The Casualty and Surety Rate Regulatory Act (40 P. S. § § 1183 and 1184).

(viii) Sections 130.3, 152.12 and 152.18 (relating to filing requirements; provider organizations governed and regulated under ERISA; and policy review after commencement of operations).

(b) Form and rate filings. The Department notifies the insurance industry and general public that form and rate filings made to the Department as a result of a merger, assumption or name change will be reviewed by the Department in accordance with a simplified review procedure. Instead of an independent review of a form or rate filing to determine whether it can be approved, the simplified review procedure involves a reliance by the Department on the previous approval of the form or rate for the merged, assumed or originally named company.

(c) Simplified review procedure. A simplified review procedure filing will be conducted upon provision of the following:

(1) Two copies of the forms or rates being submitted for approval.

(2) A letter of submission including a list of the forms or rates being submitted for approval. For each form or rate filed, the list shall include the following:

(i) For a form filing, a designation of the form number, or for a rate filing, the identifying filing designation.

(ii) The type of coverage provided.

(iii) For a form filing, the designation of the form number, or for a rate filing, the identifying filing designation of the form originally approved for the merged, assumed or originally named company.

(iv) The date the form or rate was originally approved for the merged, assumed or originally named company.

(3) A copy of any certification previously submitted by the original insurer to the Department to obtain the form or rate approval.

(4) For flexible and fixed premium universal life insurance policy filings, a copy of any policy page submitted by the original insurer in order to comply with Article IX, Section 2 of the Pennsylvania Insurance Department Guidelines for the Review of Universal Life Insurance. The Guidelines were supplied to the presidents of insurers licensed in this Commonwealth with correspondence dated January 17, 1986. A person wishing copies of the Guidelines may obtain them from Paul Makurath, (717) 783-4253.

(5) A duplicate copy of the letter of submission.

(6) A certification signed by a company officer that no changes have been made in the forms or rates other than those necessary to reflect the applicable company name, address and officers.

(d) Departmental review. The Department reserves the right at any time to review a form or rate filing for approval without reliance on the previous approval of the form or rate. One reason why the Department would not rely on the previous approval of a form or rate includes the fact that the originally approved form or rate no longer meets the Department’s approval standards.

(e) Termination of simplified review procedure. The Department reserves the right to terminate this simplified review procedure upon publication of a notice in the Pennsylvania Bulletin.

The provisions of this § 153.3 adopted June 28, 1991, effective June 29, 1991, 21 Pa.B. 2921.

History

• Source: The provisions of this Chapter 153 adopted August 26, 1988, effective August 27, 1988, 18 Pa.

Chapter 154 Quality Health Care Accountability and Protection

31 Pa. Code § 154.1 Applicability and purpose.

(a) This chapter governs quality health care accountability and protection and applies to managed care plans and licensed insurers subject to the act. The Department and the Department of Health both have regulatory authority under the act. This chapter does not apply to health care services and claims processed under automobile and worker’s compensation policies.

(b) The terms and conditions of group and individual contract renewals and new business written by managed care plans on or after January 1, 1999, shall conform to the act.

(c) An entity, including an IDS, subcontracting with a managed care plan to provide services to enrollees shall meet the requirements of the act and this chapter for services provided to those enrollees.

(d) Policies which partially insure an entity’s risk, shall meet the requirements of the act if they are issued by a managed care plan.

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—Article XXI of The Insurance Company Law of 1921 (40 P. S. § § 991.2101—991.2193). Ancillary service plan—As defined in section 2102 of the act (40 P. S. § 991.2102). Clean claim—As defined in section 2102 of the act. Commissioner—The Insurance Commissioner of the Commonwealth. Complaint—As defined in section 2102 of the act. Department—The Insurance Department of the Commonwealth. Emergency service—As defined in section 2102 of the act. Enrollee—A policyholder, subscriber, covered person or other individual who is entitled to receive health care services under a managed care plan. For purposes of the complaint and grievance processes, the term includes parents of minor enrollees as well as designees or legal representatives who are entitled or authorized to act on behalf of an enrollee. Gatekeeper—A primary care provider selected by an enrollee or appointed by a managed care plan, or the plan or an agent of the plan serving as the primary care provider, from whom an enrollee shall obtain covered health care services, a referral, or approval for covered, nonemergency health services as a precondition to receiving the highest level of coverage available under the managed care plan. Grievance—As defined in section 2102 of the act. Health care provider—As defined in section 2102 of the act. Health care service—As defined in section 2102 of the act. IDS—Integrated Delivery System—

(i) A partnership, association, corporation or other legal entity which does the following:

(A) Enters into a contractual arrangement with a managed care plan.

(B) Employs or has contracts with providers (participating providers).

(C) Agrees under its arrangements with a managed care plan to do the following:

(I) Provide or arrange for the provision of a defined set of health care services to managed care plan members covered under a managed care plan benefits contract principally through its participating providers.

(II) Assume under the arrangements some responsibility for conduct, in conjunction with the managed care plan and under compliance monitoring of the managed care plan’s quality assurance, utilization review, credentialing, provider relations or related functions.

(ii) The IDS may also perform claims processing and other functions. Licensed insurer—An individual, corporation, association, partnership, reciprocal exchange, interinsurer, Lloyds insurer and other legal entity engaged in the business of insurance, and fraternal benefit societies as defined in the Fraternal Benefits Societies Code (40 P. S. § § 1142-101—1142-701), and preferred provider organizations as defined in section 630 of The Insurance Company Law of 1921 (40 P. S. § 764a) and § 152.2 (relating to definitions). Managed care plan—

(i) A health care plan that: uses a gatekeeper to manage the utilization of health care services; integrates the financing and delivery of health care services to enrollees by arrangements with health care providers selected to participate on the basis of specific standards; and provides financial incentives for enrollees to use the participating health care providers in accordance with procedures established by the plan. A managed care plan includes health care arranged through an entity operating under any of the following:

(A) Section 630 of The Insurance Company Law of 1921.

(B) The Health Maintenance Organization Act (40 P. S. § § 1551—1568).

(C) The Fraternal Benefit Societies Code.

(D) 40 Pa.C.S. Chapter 61 (relating to hospital plan corporations).

(E) 40 Pa.C.S. Chapter 63 (relating to professional health services plan corporations).

(ii) The term includes an entity, including a municipality, whether licensed or unlicensed, that contracts with or functions as a managed care plan to provide health care services to enrollees.

(iii) The term includes managed care plans that require the enrollee to obtain a referral from any primary care provider in its network as a condition to receiving the highest level of benefits for specialty care.

(iv) The term does not include ancillary service plans as defined by the act or an indemnity arrangement which is primarily fee for service. Ongoing course of treatment—A continuous health care treatment provided to an enrollee by a health care provider which was initiated prior to and that will continue after the plan’s termination of a contract with a participating provider for reasons other than cause or the enrollee’s coverage by a managed care plan as a new enrollee. Plan—As defined in section 2102 of the act. Primary care provider—As defined in section 2102 of the act. Prospective enrollee—For group contracts or policies, those persons eligible, but not yet enrolled, for coverage as either a subscriber or dependent of a subscriber. For individual contracts or policies, a person who meets the eligibility requirements of the managed care plan. Provider network—As defined in section 2102 of the act. Referral—As defined in section 2102 of the act. Utilization review—As defined in section 2102 of the act. Utilization review entity—As defined in section 2102 of the act.

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.3 Changes, modifications and disclosures in subscriber and other contracts and in other materials.

Managed care plans shall implement changes, modifications and disclosures to subscriber and other contracts, marketing materials, member handbooks and other appropriate materials to meet the requirements of the act. Modifications can be implemented in several different ways including contract endorsements, contract amendments and modification to the contract then in effect.

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.11 Managed care plan requirements.

(a) Managed care plans shall adopt and maintain procedures by which an enrollee with a life-threatening, degenerative or disabling disease or condition shall, upon request, receive an evaluation, and, if the plan’s established standards are met, be permitted to receive approval for either:

(1) A standing referral to a specialist with clinical expertise in treating the disease or condition.

(2) The designation of a specialist to provide and coordinate the enrollee’s primary and specialty care.

(b) A managed care plan’s established standards, as referenced in subsection (a) may include:

(1) Time restrictions on approved treatment plans, as set forth in section 2111(6) of the act (40 P. S. § 991.2111(6)), which include standing referrals or specialist designations.

(2) Requirements that treatment plans be periodically reviewed and reapproved by the plan.

(3) Requirements that the specialist notify the enrollee’s primary care provider of all care provided within 30 days.

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.12 Direct enrollee access to obstetrical and gynecological services.

(a) Managed care plans shall permit enrollees direct access to obstetrical and gynecological services for maternity and gynecological care, including medically necessary and appropriate follow-up care and referrals, for diagnostic testing related to maternity and gynecological care from participating health care providers without prior approval from a primary care provider. No time restrictions shall apply to the direct accessing of these services by enrollees.

(b) A managed care plan may require a provider of obstetrical or gynecological services to obtain prior authorization for selected services such as diagnostic testing or subspecialty care—for example, reproductive endocrinology, oncologic gynecology and maternal and fetal medicine.

(c) A directly accessed participating health care provider providing services to an enrollee who has direct access to the provider in accordance with section 2111(7) of the act (40 P. S. § 991.2111(7)) and this section, shall inform the enrollee’s primary care provider, of all health care services provided to the enrollee. The health care provider shall communicate the information within 30 days of the services being provided under procedures established by the managed care plan. For routine obstetrical services, an initial notification and final notification, subsequent to the postpartum visit, shall meet the notification requirements.

(d) Managed care plans may not have different reimbursement levels for covered services because an enrollee obtains these services through direct access rather than with the prior approval of a primary care provider.

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.13 Managed care plan reporting of complaints and grievances.

(a) Section 2111(13) of the act (40 P. S. § 991.2111(13)) requires managed care plans to report specific information to the Department of Health and the Department with respect to the number, type and disposition of all complaints and grievances filed with the managed care plan.

(b) Managed care plans shall report the information in subsection (a) to the Departments based on the format as required by the Departments.

(c) Notice of changes or amendments to the format for reporting complaint and grievance information will be published by the Department in the Pennsylvania Bulletin. The notice will provide for a 30-day public comment period. Changes in format will become effective 30 days after publication of the revised format in a subsequent edition of the Pennsylvania Bulletin.

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.14 Emergency services.

(a) Managed care plans are prohibited from requiring that enrollees or health care providers obtain prior authorization for emergency services as defined by section 2102 of the act (40 P. S. § 991.2102).

(b) Plans are required to pay all reasonably necessary costs for enrollees meeting the prudent layperson definition of emergency services provided during the period of the emergency, including evaluation, testing, and if necessary, the stabilization of the condition of the enrollee.

(c) Sudden and unexpected medical events involving a chronic condition which meet the prudent layperson requirements of the act shall be considered emergency services subject to the act and this chapter.

(d) Plans are required to consider the presenting symptoms as documented by the claim file, and the services provided, when processing claims for emergency services.

(e) The emergency health care provider shall notify the enrollee’s managed care plan of the provision of emergency services and the condition of the enrollee.

(1) If the enrollee is admitted to a hospital or other health care facility, the emergency health care provider shall notify the enrollee’s managed care plan of the emergency services delivered within 48 hours or on the next business day, whichever is later. An exception to this requirement will be made where the medical condition of the patient precludes the provider from accurately determining the identity of the enrollee’s managed care plans within 48 hours of admission.

(2) If the enrollee is not admitted to a hospital or other health care facility, the claim for reimbursement for emergency services provided shall serve as notice to the enrollee’s managed care plan of the emergency services provided by the emergency health care provider.

(f) Managed care plans shall supply each enrollee, and upon written request, each prospective enrollee or health care provider, with the information concerning emergency services in § 154.16(h) (relating to information for enrollees).

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.15 Continuity of care.

(a) Managed care plans are required to provide the option of continuity of care for enrollees when one of the following applies:

(1) A managed care plan terminates a contract with a participating provider for reasons other than for cause as set forth in section 2117(b) of the act (40 P. S. § 991.2117(b)) and the enrollee is then in an ongoing course of treatment with that provider.

(2) A new enrollee enters a managed care plan and is then in an ongoing course of treatment with a nonparticipating provider which is not otherwise covered by the terminated coverage.

(b) A current enrollee shall be allowed to continue an ongoing course of treatment with a provider whose contract has been terminated by the plan for reasons other than for cause (as set forth in section 2117(b) of the act) for a transitional period of up to 60 days from the date the enrollee was notified by the plan of the termination or pending termination. The managed care plan, in consultation with the enrollee and the health care provider, may extend the transitional period if determined to be clinically appropriate. For an enrollee in the second or third trimester of pregnancy at the time of notice of the termination or pending termination, the transitional period shall be extended through postpartum care related to the delivery.

(c) A new enrollee shall be allowed to continue an ongoing course of treatment with a nonparticipating provider when joining a managed care plan for a transitional period of up to 60 days from the effective date of enrollment in the managed care plan. The managed care plan, in consultation with the enrollee and the health care provider, may extend the transitional period if determined to be clinically appropriate. For an enrollee in the second or third trimester of pregnancy on the effective date of enrollment, the transitional period shall be extended through postpartum care related to the delivery.

(d) Continuity of care is at the option of the enrollee.

(e) Nonparticipating and terminated providers may be required by the plan to agree to the same terms and conditions which are applicable to the managed care plan’s participating providers. If multiple providers are involved in an ongoing course of treatment, one of the following conditions shall be met:

(1) All of the providers involved may be required by the plan to agree to the plan’s terms and conditions.

(2) Those providers who accept the plan’s terms and conditions may be required by the plan to agree to utilize participating providers for the provision of all other health care services to enrollees.

(f) Health care services provided under the continuity of care requirements shall be covered by the managed care plan under the same terms and conditions as applicable for participating health care providers. To be eligible for payment by plans, providers shall agree to the terms and conditions of the managed care plan prior to providing service under the continuity of care provisions.

(g) Managed care plans may require nonparticipating or terminating providers to agree to terms that include:

(1) Accepting the plan’s payment as payment in full for covered services, without balance billing, except for permitted deductibles, copayments or coinsurance.

(2) Agreeing to hold the enrollee harmless for any moneys which may be owed by the managed care plan to the provider.

(3) Complying with the plan’s utilization review and quality assurance requirements.

(4) Agreeing that the provider will provide copies of the enrollee’s medical records to the plan or the enrollee’s participating primary care provider, or both, prior to the conclusion of the ongoing course of previously authorized treatment.

(5) Agreeing to follow the plan’s procedures for precertification or prior approval of specified nonemergency services or procedures.

(h) Managed care plans may not require nonparticipating providers to undergo the full plan’s credentialing process as part of the continuity of care provision.

(i) Written disclosure of the continuity of care benefit requirements imposed under the act and this chapter shall be incorporated into the subscriber and master group contracts and the enrollee handbook (if provided to the enrollee). This information and other information necessary to provide continuity of care services shall also be provided in written form to terminated or terminating and nonparticipating providers within 10 days of notice to the plan that an enrollee is requesting continuity of care benefits.

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.16 Information for enrollees.

(a) Managed care plans shall provide the written information in section 2136(a) of the act (40 P. S. § 991.2136(a)), which relates required disclosures, to enrollees and, on written request, to prospective enrollees and health care providers.

(1) Managed care plans may determine the format for disclosure of the required information. If the information is disclosed through materials such as subscriber contracts, schedules of benefits and enrollee handbooks, the information shall be easily identifiable within the materials provided.

(2) The written information to be provided by managed care plans to enrollees, prospective enrollees and health care providers shall be subject to the filing requirements under the Accident and Health Filing Reform Act (40 P. S. § § 3801—3813) and all other applicable statutes and regulations.

(b) The information disclosed to enrollees, prospective enrollees and health care providers shall be easily understandable to the layperson.

(c) The written disclosure of information shall include:

(1) The information required by subsection (a).

(2) A list by specialty of the name, address and telephone number of all participating health care providers which an enrollee may have access to either directly or through a referral. The list may be a separate document and may be a regional or county directory and shall be updated at least annually. If a regional or county directory is provided, enrollees shall be made aware that other regional or a full directory is available upon request. If a list of participating providers for only a specific type of provider or service is provided, it shall include all participating providers authorized to provide those services.

(3) The information covered under section 2113(d)(2)(ii) of the act (40 P. S. § 991.2113(d)(2)(ii)), which relates to a medical ‘‘gag clause’’ prohibition.

(4) If applicable, managed care plans shall disclose in their subscriber contracts, schedule of benefits and other appropriate material, circumstances under which the managed care plan does not provide for, reimburse for or cover counseling, referral or other health care services due to a managed care plan’s objections to the provision of the services on moral or religious grounds.

(d) For the purposes of the specified disclosure statement required by section 2136(a)(1) of the act, subscriber and group master contracts and riders, amendments and endorsements, do not constitute ‘‘marketing materials’’ subject to the specified disclosure statement. For the purposes of written information distributed to enrollees or potential enrollees, the term ‘‘marketing materials’’ shall have the meaning given to written information in the term ‘‘advertisement’’ in § 51.1 (relating to definitions).

(e) For group contracts and policies, the managed care plan shall assure that the required disclosure information is provided to prospective enrollees upon written request. The managed care plan can either provide the information directly to prospective enrollees or allow the group policy holder or another entity to provide the information to prospective enrollees on behalf of the managed care plan.

(f) For individual contracts and policies, the managed care plan shall provide the required disclosure information directly to prospective enrollees upon written request.

(g) The disclosure of information to enrollees, prospective enrollees and health care providers as required by section 2136 of the act shall be provided as follows:

(1) During open enrollment periods managed care plans may disclose summary information to enrollees and prospective enrollees. If the disclosure of information does not include all the information required by the act and this chapter, the managed care plan shall simultaneously provide enrollees and prospective enrollees with a list of other information which has not been included with the open enrollment information. The listed information shall be made available to enrollees and prospective enrollees upon request.

(2) Following initial enrollment, or upon renewal, if benefits have changed or networks have substantially changed since the initial enrollment or last renewal, disclosure information shall be provided to enrollees within 30 days of the effective date of the contract or policy, renewal date of coverage, if appropriate, or the date of receipt of the request for the information.

(3) Disclosure information requested by prospective enrollees shall be provided to prospective enrollees within 30 days of the date of the receipt of the written request for the information.

(4) Disclosure information requested by health care providers shall be provided to health care providers within 45 days of the date of the receipt of the written request for the information.

(h) Managed care plans shall supply each enrollee, and upon written request, each prospective enrollee or health care provider, with the following information which shall be contained and incorporated into subscriber and master group contracts:

(1) A description of the procedures for providing emergency services 24 hours a day.

(2) A definition of ‘‘emergency services,’’ as set forth in the act.

(3) Notice that emergency services are not subject to prior approval.

(4) The enrollee’s financial and other responsibilities regarding emergency services, including the receipt of these services outside the managed care plan’s service area.

(i) Managed care plans, upon written request by enrollees or prospective enrollees, shall provide written information as specified in section 2136(b) of the act. This information shall be easily understandable to the layperson.

This section cited in 28 Pa. Code § 9.653 (relating to HMO provision of limited subnetworks to select enrollees); 28 Pa. Code § 9.681 (relating to health care providers); and 31 Pa. Code § 154.14 (relating to emergency services).

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.17 Complaints.

(a) Under the complaint process established by sections 2141—2143 of the act (40 P. S. § § 991.2141—991.2143), the Department will consider complaints including those regarding issues of contract exclusions, noncovered benefit disputes and potential violation of insurance statutes, including the Unfair Insurance Practices Act (40 P. S. § § 1171.1—1171.15). The enrollee may be represented by an attorney or other individual before the Department. The Department of Health will focus on complaint issues including those involving enrollee quality of care and quality of service. The grievance process, which is administered by the Department of Health, includes review of the medical necessity and appropriateness of services otherwise covered by the managed care plan. Examples of the types of complaints which may be filed with the Department include:

(1) Denial of payment by the plan based upon contractual limitation rather than on medical necessity—for example, denial of payment for a visit by an enrollee on the basis that the enrollee failed to meet the contractual requirement of obtaining a referral from a primary care provider. However, a primary care provider’s refusal to make an enrollee referral to a specialist, on the basis that the referral is not medically necessary, would be considered a grievance.

(2) Disputes involving a noncovered benefit or contract exclusion—for example, a request for additional physical therapy services, even if medically necessary, beyond the number specified in the enrollee contract.

(3) Problems relating to one or more of the following:

(i) Coordination of benefits.

(ii) Subrogation.

(iii) Conversion coverage.

(iv) Alleged nonpayment of premium.

(v) Dependent coverage.

(vi) Involuntary disenrollment.

(b) Managed care plans shall establish an internal complaint process with two levels of review to allow enrollees to file oral and written complaints regarding a participating health care provider or the coverage, operations or management policies of the plan.

(c) Inquiries, complaints and questions regarding premium rate increases may be filed with the Department without the necessity of following the plan’s internal complaint process.

(d) If plans establish time frames for the filing of complaints and grievances with the plan, they shall allow the enrollees at least 45 days to file a complaint or grievance from the date of the occurrence of the issue being complained about or the date of the enrollees’ receipt of notice of the plan’s decision.

(e) Managed care plans shall complete the initial level of review of an enrollee complaint within 30 days of receipt of the complaint. The plan shall notify the enrollee in writing of the plan’s decision following the initial review within 5 business days of the decision. The notification shall include the basis for the decision and the procedure to file a request for a second level review of the decision of the initial review committee.

(f) Managed care plans shall complete the second level of review of an enrollee complaint within 45 days of receipt of the enrollee’s request for review. The enrollee has the right to appear before the second level review committee. The plan shall notify the enrollee in writing within 5 business days of the rendering of a decision by the second level complaint review committee, including the basis for the decision and the procedure for appealing the decision to the Department.

(g) To expedite the complaint review process, enrollees should follow and complete the plan’s internal complaint process before filing an appeal of the complaint decision with the Department or the Department of Health. Under section 2143 of the act (40 P. S. § 991.2143), the Department may communicate with the appropriate parties to assist in the resolution of the complaint.

(h) Appeals of complaints shall be submitted to the Department within 15 days of receipt of notice of the second level review committee’s decision.

(i) Appeals of complaints to the Department shall include the following information:

(1) The enrollee’s name, address and daytime phone number.

(2) The enrollee’s policy number, identification number and group number (if applicable).

(3) A copy of the complaint submitted to the managed care plan.

(4) The reasons for appealing the managed care plan’s decision.

(5) Correspondence and decisions from the managed care plan regarding the complaint.

(6) Whether the enrollee will be represented by an attorney or other individual before the Department.

(j) The Department will notify the plan if a complaint appeal has been filed. The plan shall provide copies of all records from the initial and second level review to the Department. This information shall be provided to the Department within 30 days of the Department’s notice to the plan of the complaint appeal.

(k) When an appeal is transferred from the Department to the Department of Health, the original submission date of the appeal will be utilized to determine compliance with the filing time frame in accordance with section 2142(a) of the act (40 P. S. § 991.2142(a)), which relates to the appeal of a complaint. The Department will notify the enrollee and the managed care plan in writing and promptly transmit the appeal to the Department of Health for consideration.

(l) The Department will provide the managed care plan and the enrollee with a copy of the final determination of an appealed complaint.

(m) Complaint appeals under subsection (i) may be filed with the Department at the following address:

Pennsylvania Insurance Department Bureau of Consumer Services 1321 Strawberry Square Harrisburg, Pennsylvania 17120

This section cited in 28 Pa. Code § 9.703 (relating to internal complaint process).

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

31 Pa. Code § 154.18 Prompt payment.

(a) Licensed insurers and managed care plans shall pay clean claims and the uncontested portions of a contested claim under subsection (d) submitted by a health care provider for services provided on or after January 1, 1999, within 45 days of the licensed insurer’s or managed care plan’s receipt of the claim from the health care provider. The prompt payment provision applies only to claims submitted under health insurance policies, excluding areas such as automobile and worker’s compensation policies.

(b) For purposes of prompt payment, a claim shall be deemed to have been ‘‘paid’’ upon one of the following:

(1) A check is mailed by the licensed insurer or managed care plan to the health care provider.

(2) An electronic transfer of funds is made from the licensed insurer or managed care plan to the health care provider.

(c) Interest due to a health care provider on a clean claim shall be calculated and paid by the licensed insurer or managed care plan to the health care provider and shall be added to the amount owed on the clean claim. The interest shall be paid within 30 days of the payment of the claim. Interest owed of less than $2 on a single claim does not have to be paid by the licensed insurer or managed care plan. Interest can be paid on the same check as the claim payment or on a separate check. If the licensed insurer or managed care plan combines interest payments for more than one late clean claim, the check shall include information listing each claim covered by the check and the specific amount of interest being paid for each claim.

(d) Claims paid by a licensed insurer or managed care plan are considered clean claims and are subject to the interest provisions of the act. If a paid claim is re-adjudicated by the licensed insurer or managed care plan, a new 45-day period for the prompt payment provision begins again at the time additional information prompting the readjudication is provided to the plan. Additional moneys which are owed or paid to the health care provider are subject to the prompt payment provisions of the act and this chapter. The prompt payment requirement of the act also applies to the uncontested portion of a contested claim. A contested claim is a claim for which required substantiating documentation for the entire claim has been supplied to the licensed insurer or managed care plan, but the licensed insurer or managed care plan has determined that it is not obligated to make payment.

(e) Licensed insurers and managed care plans shall provide written disclosure to health care providers of all the data elements necessary to insure that a claim is without defect or impropriety and meets the definition of clean claim under the act.

(1) Licensed insurers and managed care plans shall provide this information to currently participating health care providers by April 10, 2000. For health care providers entering into a participation agreement with the licensed insurer or managed care plan after March 11, 2000, the licensed insurer or managed care plan shall provide this information within 30 days of the parties entering into a participation agreement. If changes are made to the required data elements, this information shall be provided to participating health care providers at least 30 days before the effective date of the changes.

(2) For nonparticipating health care providers, a licensed insurer or managed care plan shall provide this information within 45 days of an oral or written request from the health care provider.

(f) Prior to filing a complaint with the Department, health care providers who believe that a licensed insurer or managed care plan has not paid a clean claim in accordance with the act and this chapter shall first contact the licensed insurer or managed care plan to determine the status of the claim, to ensure that sufficient documentation supporting the claim has been provided, and to determine whether the claim is considered by the licensed insurer or the managed care plan to be a clean claim. Licensed insurers and managed care plans shall respond to the health care provider’s inquiries regarding the status of unpaid claims within 45 days of submission of the claim or within 30 days of the inquiry, if the inquiry is made after the 45-day period.

(g) Health care providers may file a complaint, either individually or in batches, with the Department prior to receipt of a determination from a licensed insurer or managed care plan as to whether a claim is considered a clean claim if one of the following applies:

(1) The licensed insurer or managed care plan has not responded to a health care provider’s inquiries regarding the status of an unpaid claim within 45 days of submission of the claim or within 30 days of the inquiry, if the inquiry is made after the 45-day period.

(2) The health care provider believes that the licensed insurer or managed care plan is otherwise not complying with the prompt payment provisions of the act.

(h) Complaints to the Department regarding the prompt payment of claims by a licensed insurer or managed care plan under the act and this chapter shall contain the following information:

(1) The provider’s name, identification number, address and daytime telephone number and the claim number.

(2) The name and address of the licensed insurer or managed care plan.

(3) The name of the patient and employer (if known).

(4) The dates of service and the dates the claims were submitted to the licensed insurer or managed care plan.

(5) Relevant correspondence between the provider and the licensed insurer or managed care plan, including requests for additional information from the licensed insurer or managed care plan.

(6) Additional information which the provider believes would be of assistance in the Department’s review.

(7) Any additional information pertinent to the complaint as requested by the Commissioner.

(i) This chapter does not prevent the Department from investigating a complaint when the health care provider has failed to contact the licensed insurer or managed care plan as provided for in subsection (f).

Private Action

Because there is no indication in the regulations that a private right of action exists, and because those same regulations provided a system of enforcement by the Insurance Department, the court held that there is not private cause of action for violation of the prompt payment provisions of the Health Care Act (40 P. S. § 991.2101 et seq.) Solomon v. United States Healthcare Systems of Pennsylvania, 797 A.2d 346 (Pa. Super. 2002); appeal denied 808 A.2d 573 (Pa. 2002).

This section cited in 28 Pa. Code § 9.722 (relating to plan and health care provider contracts).

History

• Authority: The provisions of this Chapter 154 issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 154 adopted March 10, 2000, effective March 11, 2000, 30 Pa.

Chapter 160 Standards to Define Insurers Deemed to be in Hazardous Financial Condition

31 Pa. Code § 160.1 Purpose.

This chapter sets forth the standards which the Commissioner may use for identifying insurers found to be in a condition that renders the continuance of their business financially hazardous to the general public, holders of their policies or certificates of insurance, or creditors.

The provisions of this § 160.1 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 5.1 and 10 of the Health Maintenance Organization Act (40 P.S. § § 1555.1 and 1560); and sections 2456 and 2457 of The Insurance Company Law of 1921 (40 P.S. § § 991.2456 and 991.2457).

The provisions of this § 160.1 amended November 19, 2010, effective November 20, 2010, 40 Pa.B. 6661. Immediately preceding text appears at serial page (249807).

History

• Authority: The provisions of this Chapter 160 issued under Article V of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 160 adopted January 8, 1993, effective January 9, 1993, 23 Pa.

31 Pa. Code § 160.2 Definitions.

In addition to the terms defined in section 503 of the act (40 P.S. § 221.3), the following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Insurance Department Act of 1921 (40 P.S. § § 1—326.7). Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. NAIC—The National Association of Insurance Commissioners or successor organization. Statutory accounting practices—Practices and procedures prescribed by the Accounting Practices and Procedures Manuals published by the NAIC, or as otherwise prescribed or provided by specific statutes, regulations, orders or rulings of the Commonwealth or the Department. Surplus—The amount in excess of admitted assets over total liabilities.

The provisions of this § 160.2 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); sections 5.1 and 10 of the Health Maintenance Organization Act (40 P.S. § § 1555.1 and 1560); and sections 2456 and 2457 of The Insurance Company Law of 1921 (40 P.S. § § 991.2456 and 991.2457).

The provisions of this § 160.2 amended November 19, 2010, effective November 20, 2010, 40 Pa.B. 6661. Immediately preceding text appears at serial page (249807).

History

• Authority: The provisions of this Chapter 160 issued under Article V of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 160 adopted January 8, 1993, effective January 9, 1993, 23 Pa.

31 Pa. Code § 160.3 Standards.

The following standards, either singly or a combination of two or more, may be considered by the Commissioner to determine whether the continued operation of an insurer transacting an insurance business in this Commonwealth might be deemed to be financially hazardous to the general public, holders of policies or certificates of insurance, or creditors. The Commissioner may consider one or more of the following:

(1) A failure by the insurer to maintain working capital, as required by law or regulation, based on the nature, type and volume of insurance being transacted by the insurer.

(2) Material adverse findings relating to an insurer’s financial condition reported in financial condition or market conduct examination reports; audit reports and other communications required under Chapter 147 (relating to annual financial reporting requirements); or actuarial opinions, reports, work papers or summaries.

(3) Financial analysis ratios, analyst team reports and other financial analytical results produced by the NAIC.

(4) Whether the insurer’s net loss from operations in the last 12-month period or shorter period of time, excluding net realized capital gains, is greater than 20% of the insurer’s surplus in excess of the statutorily required minimum capital and surplus.

(5) Whether the insurer’s asset portfolio when viewed in light of current economic conditions with respect to value, liquidity or diversity is sufficient to assure the company’s ability to meet its outstanding obligations as they mature.

(6) The ability of an assuming reinsurer to perform and whether the insurer’s reinsurance program provides sufficient protection for the insurer’s surplus after taking into account the insurer’s cash flow and the classes of business written as well as the financial condition of the assuming reinsurer.

(7) Whether the insurer’s net loss in the last 12-month period or a shorter period of time, including change in nonadmitted assets, net realized and unrealized capital gain or loss, cash dividends paid to shareholders, and other direct charges against surplus is greater than 50% of the insurer’s surplus in excess of the statutorily required minimum capital and surplus.

(8) Whether a reinsurer, obligor or any entity within the insurer’s insurance holding company system is insolvent, threatened with insolvency or delinquent in payment of monetary or other obligations.

(9) Contingent liabilities, pledges or guaranties in relationship to the insurer’s surplus.

(10) Whether a controlling person, under the laws relating to insurance holding companies, of an insurer is delinquent in the transmitting to, or payment of, net premiums to the insurer.

(11) The age and collectibility of receivables.

(12) Whether the management of an insurer, including officers, directors or another person who directly or indirectly controls the operation of the insurer, fails to possess and demonstrate the competence, fitness and reputation deemed necessary to serve the insurer in that position.

(13) Whether management of an insurer has failed to respond to inquiries by the Commissioner or members of the Commissioner’s staff relative to the condition of the insurer or has furnished false or misleading information concerning the inquiries.

(14) Whether management of an insurer has done one of the following:

(i) Filed a false or misleading sworn financial statement, or released a false or misleading financial statement to lending institutions or to the general public.

(ii) Made a false or misleading entry, or omitted an entry of material amount in the books of the insurer.

(iii) Established reserves that do not comply with minimum standards as required by law, regulation, statutory accounting practices and accepted actuarial standards and principles.

(iv) Engaged in material under-reserving that resulted in continued adverse development reported in financial statements filed with the Department.

(15) Whether the insurer reports significant increases in premium writing either before or after reinsurance ceded to an extent that it lacks adequate financial and administrative capacity to meet its obligations as they fall due.

(16) Whether the insurer has experienced or will experience in the foreseeable future cash flow or liquidity problems, or both.

(17) Whether transactions among affiliates, subsidiaries or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity or diversity to assure the insurer’s ability to meet its outstanding obligations as they mature.

(18) Whether the insurer has made adequate provision, in accordance with accepted actuarial standards and principles, for the anticipated cash flows required to meet its contractual obligations and related expenses, considering the value, liquidity, diversity and investment earnings of assets held as reserves to meet those obligations and expenses, and other actuarial items, including considerations anticipated to be received and retained under policies and contracts.

(19) The insurer has failed to file financial statements as required by law or regulation or to make filings required under Article XIV of The Insurance Company Law (40 P. S. § § 991.1401—991.1413) within the time allowed by law and, after written demand by the Commissioner, has failed to provide a satisfactory explanation for that failure.

The provisions of this § 160.3 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); sections 5.1 and 10 of the Health Maintenance Organization Act (40 P. S. § § 1555.1 and 1560); and sections 2456 and 2457 of The Insurance Company Law of 1921 (40 P. S. § § 991.2456 and 991.2457).

The provisions of this § 160.3 amended November 19, 2010, effective November 20, 2010, 40 Pa.B. 6661. Immediately preceding text appears at serial pages (249807) to (249809).

History

• Authority: The provisions of this Chapter 160 issued under Article V of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 160 adopted January 8, 1993, effective January 9, 1993, 23 Pa.

31 Pa. Code § 160.4 Commissioner’s authority.

For the purpose of making a determination of an insurer’s financial condition under this chapter, the Commissioner may restate the value of assets and liabilities to conform to statutory accounting practices, including the following:

(1) Disregarding a credit or amount receivable resulting from transactions with a reinsurer which is insolvent, impaired or otherwise subject to a delinquency proceeding.

(2) Making appropriate adjustments to asset values attributable to investments in or transactions with controlling persons, subsidiaries or affiliates.

(3) Refusing to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor.

(4) Increasing the insurer’s liability in an amount equal to a contingent liability, pledge or guarantee not otherwise included if there is a substantial risk that the insurer will be called upon to meet the obligation undertaken within the next 12-month period.

(5) Making appropriate adjustments to liability values attributable to losses and loss adjustment expenses due to considerations, such as those elaborated in the ‘‘Statement of Principles Regarding Property and Casualty Loss and Loss Adjustment Expense Reserves’’ which is promulgated by the Casualty Actuarial Society.

(6) Making appropriate adjustments to liability values due to considerations elaborated in the accident and health reserve standards in sections 301.1 and 311.1 of the act (40 P. S. § § 71.1 and 93).

(7) Making appropriate adjustments to liability values in accordance with the life insurance reserve standards in section 301 of the act.

The provisions of this § 160.4 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); sections 5.1 and 10 of the Health Maintenance Organization Act (40 P. S. § § 1555.1 and 1560); and sections 2456 and 2457 of The Insurance Company Law of 1921 (40 P. S. § § 991.2456 and 991.2457).

The provisions of this § 160.4 amended November 19, 2010, effective November 20, 2010, 40 Pa.B. 6661. Immediately preceding text appears at serial page (249809).

History

• Authority: The provisions of this Chapter 160 issued under Article V of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 160 adopted January 8, 1993, effective January 9, 1993, 23 Pa.

31 Pa. Code § 160.5 Commissioner’s summary orders.

(a) If the Commissioner has reasonable cause to believe that the continued operation of an insurer transacting insurance business in this Commonwealth is financially hazardous to the general public, holders of policies or certificates of insuance, or creditors, the Commissioner may, upon the Commissioner’s determination, issue an order under Article V of the act (40 P. S. § § 211 and 221.1—221.63) or notice of deficiency under sections 2456 and 2457 of The Insurance Company Law of 1921 (40 P. S. § § 991.2456 and 991.2457). The order or notice may list the requirements for the insurer to abate the determination, including the following:

(1) Reducing the total amount of present and potential liability for policy benefits by reinsurance.

(2) Reducing, suspending or limiting the volume of business being accepted or renewed.

(3) Reducing general insurance and commission expenses by specified methods.

(4) Increasing the insurer’s capital or surplus, or both.

(5) Suspending or limiting the declaration and payment of dividends by an insurer to its stockholders or to its policyholders.

(6) Filing reports in a form acceptable to the Commissioner concerning the market value of an insurer’s assets and the value of its loss reserves or policy reserves, or both.

(7) Limiting or withdrawing from certain investments or discontinuing certain investment practices to the extent the Commissioner deems necessary.

(8) Documenting the adequacy of premium rates in relation to the risks insured.

(9) Documenting the adequacy of the return on invested assets in relation to the current interest credits in interest sensitive policies.

(10) Filing, in addition to regular annual statements, interim financial reports on a form approved by the Commissioner.

(11) Filing comprehensive business plans utilizing a format approved by the Commissioner and completed in accordance with instructions. Business plans filed under this paragraph will be given confidential treatment, will not be subject to subpoena and will not be made public by the Commissioner or another person without the prior written consent of the insurer to which it pertains.

(12) Correcting deficiencies in corporate governance practices and adopting and utilizing governance practice acceptable to the Commissioner.

(13) Adjusting premium rates for non-life insurance products written by the insurer as the Commissioner deems necessary to improve the insurer’s financial condition, notwithstanding other provisions of law that limit the frequency or amount of premium rate adjustments.

(b) For insurers not incorporated or organized under the laws of the Commonwealth, the Commissioner’s order or notice provided for under subsection (a) may be limited to the extent provided by law.

(c) An insurer subject to an order or notice under subsection (a) is entitled to a hearing to review that order in accordance with section 510 of the act (40 P. S. § 221.10) or section 2456(c) of The Insurance Company Law of 1921 (40 P. S. § 991.2456(c)), 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law) and 1 Pa. Code Part II (relating to the general rules of administrative practice and procedure).

The provisions of this § 160.5 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); sections 5.1 and 10 of the Health Maintenance Organization Act (40 P. S. § § 1555.1 and 1560); and sections 2456 and 2457 of The Insurance Company Law of 1921 (40 P. S. § § 991.2456 and 991.2457).

The provisions of this § 160.5 adopted January 8, 1993, effective January 9, 1993, 23 Pa.B. 171; amended March 5, 1993, effective March 6, 1993, 23 Pa.B. 1040; amended November 19, 2010, effective November 20, 2010, 40 Pa.B. 6661. Immediately preceding text appears at serial pages (249809) to (249810).

History

• Authority: The provisions of this Chapter 160 issued under Article V of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 160 adopted January 8, 1993, effective January 9, 1993, 23 Pa.

31 Pa. Code § 160.6 Judicial review.

An order or decision of the Commissioner will be subject to judicial review in accordance with 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law).

History

• Authority: The provisions of this Chapter 160 issued under Article V of The Insurance Department Act of 1921 (40 P.
• Source: The provisions of this Chapter 160 adopted January 8, 1993, effective January 9, 1993, 23 Pa.

Chapter 161 Requirements for Qualified and Certified Reinsurers

31 Pa. Code § 161.1 Purpose.

(a) This chapter sets forth requirements to be met for a licensed ceding insurer to receive credit for reinsurance in its financial statements. This chapter specifies the conditions which shall be met by an unlicensed reinsurer to be considered by the Commissioner for inclusion on a list of qualified or certified reinsurers published and periodically reviewed by the Commissioner, as well as, the requirements for receiving reinsurance credit for joint underwriting or joint reinsurance pooling arrangements.

(b) This chapter does not apply to reinsurance agreements between or among affiliates which meet the conditions for exemption in section 319.2 of the act (40 P. S. § 442.2) or to the ability of licensed ceding insurers to receive credit for reinsurance by compliance with the conditions specified in 319.1(b) of the act (40 P. S. § 442.1(b)).

The provisions of this § 161.1 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P.S. § 442.1).

The provisions of this § 161.1 amended May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816. Immediately preceding text appears at serial page (265051).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Accredited state—A state which is accredited by NAIC for compliance with the NAIC Financial Regulation Standards or successor standards. Act—The Insurance Company Law of 1921 (40 P. S. § § 341—991). Alien insurer—An insurer incorporated or organized under the laws of a foreign nation or of a province or territory other than a state of the United States, the Commonwealth of Puerto Rico or the District of Columbia. Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Foreign insurer—An insurer, other than an alien insurer, not incorporated or organized under the laws of the Commonwealth. For purposes of this chapter, the term also includes a United States branch of an alien assuming insurer which branch is not entered through and licensed to transact insurance or reinsurance in this Commonwealth. NAIC—National Association of Insurance Commissioners. Qualified United States financial institution—

(i) An institution which meets the following qualifications. The institution:

(A) Is organized or, in the case of a United States office of a foreign banking organization, licensed, under the laws of the United States or a state thereof.

(B) Is regulated, supervised and examined by Federal or state authorities having regulatory authority over banks and trust companies.

(C) Has been determined by either the Commissioner or the Securities Valuation Office of the NAIC or a successor thereto to meet the standards of financial condition and standing considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commissioner.

(ii) For purposes of specifying institutions that are eligible to act as a fiduciary of a trust, an institution that meets the following qualifications. The institution:

(A) Is organized, or in the case of a United States branch or agency office of a foreign banking organization, licensed, under the laws of the United States or a state thereof and has been granted authority to operate with fiduciary powers.

(B) Is regulated, supervised and examined by Federal or state authorities having regulatory authority over banks and trust companies.

The provisions of this § 161.2 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 442.1).

The provisions of this § 161.2 amended May 24, 2103, effective June 24, 2013, 43 Pa.B. 2816. Immediately preceding text appears at serial pages (265051) to (265052).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.3 Credit for reinsurance.

A licensed domestic ceding insurer will be allowed credit for reinsurance as either an asset or a deduction from liability on account of reinsurance ceded only when the reinsurer meets the requirements of this section or as otherwise provided in § 161.7 (relating to credit for joint underwriting or pooling arrangements).

(1) Credit will be allowed when the reinsurance is ceded to an assuming insurer which is licensed to transact insurance or reinsurance in this Commonwealth.

(2) Credit will be allowed when the reinsurance is ceded to an assuming foreign insurer which has met the conditions specified in this paragraph and has been deemed to be a qualified reinsurer by the Commissioner. To be considered for qualification, an assuming foreign insurer shall meet the following conditions. The insurer shall:

(i) File evidence of its submission to the Commonwealth’s jurisdiction with the Commissioner.

(ii) Submit to the Commonwealth’s authority to examine its books and records.

(iii) Be licensed to transact insurance or reinsurance in at least one state, or in the case of a United States branch of an alien assuming insurer be entered through and licensed to transact insurance or reinsurance in at least one state. After 1994, one of the states in which the insurer is licensed shall be an accredited state.

(iv) File with the application for qualification and annually thereafter a copy of its annual statement filed with the insurance department of its state of domicile and a copy of its most recent audited financial statement.

(v) Demonstrate to the satisfaction of the Commissioner that it has adequate financial capacity to meet its reinsurance obligations and is otherwise qualified to assume reinsurance from domestic insurers. An assuming insurer is deemed to meet this requirement as of the time of its application if it maintains a surplus as regards policyholders in an amount not less than $20 million and its qualification has not been denied by the Commissioner within 90 days after submission of its application.

(3) Credit will be allowed when the reinsurance is ceded to an assuming alien insurer which has met the conditions specified in this paragraph and has been deemed to be a qualified reinsurer by the Commissioner. To be considered for qualification, an assuming alien insurer shall meet the following conditions. The insurer shall:

(i) File with the Commissioner evidence of its submission to the Commonwealth’s jurisdiction.

(ii) Submit to the Commonwealth’s authority to examine its books and records.

(iii) File with the application for qualification and annually thereafter substantially the same information as that required to be reported on the NAIC annual statement blank by licensed insurers.

(iv) File with the application for qualification and annually thereafter details on the soundness of its ceded reinsurance program, including the identity, domicile and premium volume for each retrocessionaire when the amount of reinsurance premium ceded is greater than or equal to $50,000. If the insurer demonstrates to the Commissioner’s satisfaction its inability to provide the requested detail with respect to individual retrocessionaires because of its method of operation, the Commissioner will consider the acceptability of alternative information pertaining to the soundness of the insurer’s ceded reinsurance program.

(v) Agree to the requirements of this subparagraph in the reinsurance agreements. This subparagraph is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if an obligation is created in the agreement.

(A) In the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, the assuming insurer shall at the request of the ceding insurer:

(I) Submit to the jurisdiction of a court of competent jurisdiction in a state of the United States.

(II) Comply with the requirements necessary to give the court jurisdiction.

(III) Abide by the final decision of the court or of an appellate court in the event of an appeal.

(B) The assuming insurer shall designate a person as its true and lawful agent upon whom may be served a lawful process in an action, suit or proceeding instituted by or on behalf of the ceding company.

(vi) Maintain a trust fund in a qualified United States financial institution, for the payment of valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest.

(A) In the case of a single assuming insurer, the trust shall consist of a trusteed account in an amount not less than the assuming insurer’s liabilities attributable to business directly written or assumed in the United States. In addition, the assuming insurer shall maintain a trusteed surplus of at least $20 million except as provided in this clause. At any time after the assuming insurer has permanently discontinued underwriting new business secured by the trust for at least 3 calendar years, the commissioner with principal regulatory oversight of the trust may authorize a reduction in the required trusteed surplus but only after a finding, based on an assessment of the risk, that the new required surplus level is adequate for the protection of United States ceding insurers, policyholders and claimants in light of reasonably foreseeable adverse loss development. The risk assessment may involve an actuarial review, including an independent analysis of reserves and cash flows, and will consider material risk factors, including when applicable the lines of business involved, the stability of the incurred loss estimates and the effect of the surplus requirements on the assuming insurer’s liquidity or solvency. The minimum required trusteed surplus may not be reduced to an amount less than 30% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust.

(B) In the case of a group of insurers which includes incorporated and unincorporated individual insurers, the trust shall consist of a trusteed account not less than the respective insurers’ several liabilities attributable to business directly written or assumed in the United States. In addition, the group shall maintain a trusteed surplus of which $100 million shall be held jointly for the benefit of United States ceding insurers of any insurer of the group. The group shall make available to the Commissioner an annual certification of the solvency of each insurer by the group’s domiciliary regulator and its independent public accountants.

(4) Credit will be allowed when the reinsurance is ceded to a group of incorporated alien insurers under common administration if the group has met the conditions specified in this subsection and has been deemed to be a qualified reinsurer by the Commissioner. To be considered for qualification, the group shall meet the following conditions. The group shall:

(i) Have continuously transacted an insurance business outside the United States for at least 3 years immediately prior to applying for qualification.

(ii) File with the Commissioner evidence of its submission to the Commonwealth’s jurisdiction.

(iii) File with the application for qualification and annually thereafter substantially the same information as that required to be reported on the NAIC annual statement blank by licensed insurers.

(iv) Submit to the Commonwealth’s authority to examine its books and records and bear the expense of the examination.

(v) File with the application for qualification and annually thereafter details on the soundness of its ceded reinsurance program, including the identity, domicile and premium volume for each retrocessionaire when the amount of reinsurance premium ceded is greater than or equal to $50,000. If the insurer demonstrates to the Commissioner’s satisfaction its inability to provide the requested detail with respect to individual retrocessionaires because of its method of operation, the Commissioner will consider the acceptability of alternative information pertaining to the soundness of the insurer’s ceded reinsurance program.

(vi) Maintain an aggregate policyholder’s surplus of at least $10 billion, calculated and reported in substantially the same manner as prescribed by the annual statement instructions and Accounting Practices and Procedures Manual of the NAIC.

(vii) Maintain a trust fund in a qualified United States financial institution for the payment of valid claims of its United States policyholders and ceding insurers, their assigns and successors in interest. The trust shall be in an amount not less than the group’s several liabilities attributable to business ceded by United States ceding insurers to any member of the group pursuant to reinsurance contracts issued in the name of the group. The group shall maintain a joint trusteed surplus of which $100 million shall be held jointly for the benefit of United States ceding insurers of any member of the group as additional security for the liabilities. Each member of the group shall make available to the Commissioner an annual certification of the member’s solvency by the member’s domiciliary regulator and its independent public accountant.

(viii) Agree to the requirements of this subparagraph in the reinsurance agreements. This subparagraph is not intended to conflict with or override the obligation of the parties to a reinsurance agreement to arbitrate their disputes, if an obligation is created in the agreement.

(A) In the event of the failure of the assuming insurer to perform its obligations under the terms of the reinsurance agreement, at the request of the ceding insurer the assuming insurer shall:

(I) Submit to the jurisdiction of a court of competent jurisdiction in a state of the United States.

(II) Comply with requirements necessary to give the court jurisdiction.

(III) Abide by the final decision of the court or of an appellate court in the event of an appeal.

(B) The assuming insurer shall designate a person as its true and lawful agent upon whom may be served a lawful process in an action, suit or proceeding instituted by or on behalf of the ceding company.

(5) Credit will be allowed when the reinsurance is ceded to an assuming insurer that has been certified by the Commissioner as a reinsurer in this Commonwealth in accordance with § 161.3a (relating to requirements for certified reinsurers) and secures its obligations in accordance with § 161.3b (relating to calculation of credit for reinsurance regarding obligations secured with certified reinsurers).

(6) Credit will be allowed when the reinsurance is ceded to an assuming insurer that is not a qualified reinsurer in an amount not exceeding the liabilities carried by the ceding insurer in accordance with section 319.1(b) of the act (40 P. S. § 442.1(b)).

The provisions of this § 161.3 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 442.1).

The provisions of this § 161.3 amended May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816; amended May 13, 2016, effective June 13, 2016, 46 Pa.B. 2415. Immediately preceding text appears at serial pages (366639) to (366643).

This section cited in 31 Pa. Code § 161.3b (relating to calculation of credit for reinsurance regarding obligations secured with certified reinsurers); 31 Pa. Code § 161.4 (relating to trust fund requirements); and 31 Pa. Code § 161.9 (relating to application).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.3a Requirements for certified reinsurers.

(a) Certification as a certified reinsurer. To be eligible for certification as a certified reinsurer, the assuming insurer shall meet the following requirements:

(1) The assuming insurer shall be domiciled and licensed to transact insurance or reinsurance in a qualified jurisdiction.

(i) In accordance with reporting and notification requirements that may be established by the NAIC, the Commissioner will create a list of qualified jurisdictions, which will be published annually in the Pennsylvania Bulletin.

(ii) United States jurisdictions that meet the requirement for accreditation under the NAIC financial standards and accreditation program will be recognized as qualified jurisdictions.

(iii) To determine whether the domiciliary jurisdiction of an alien assuming insurer is eligible to be recognized as a qualified jurisdiction, the Commissioner will evaluate:

(A) The appropriateness and effectiveness of the reinsurance supervisory system of the jurisdiction, initially and on an ongoing basis.

(B) The rights, benefits and the extent of reciprocal recognition afforded by the non-United States jurisdiction to reinsurers licensed and domiciled in the United States.

(C) Whether the jurisdiction is a qualified jurisdiction as determined by the NAIC through the committee process. If the Commissioner approves a jurisdiction as qualified that does not appear on the NAIC’s list of qualified jurisdictions, the Commissioner will provide thoroughly documented justification of reasons.

(D) The framework under which the assuming insurer is regulated.

(E) The structure and authority of the domiciliary regulator with regard to solvency regulation requirements and financial surveillance.

(F) The substance of financial and operating standards for assuming insurers in the domiciliary jurisdiction.

(G) The form and substance of financial reports required to be filed or made publicly available by reinsurers in the domiciliary jurisdiction and the accounting principles used.

(H) The domiciliary regulator’s willingness to cooperate with United States regulators in general and the Commissioner in particular.

(I) The history of performance by assuming insurers in the domiciliary jurisdiction.

(J) Any relevant international standards or guidance with respect to mutual recognition of reinsurance supervision adopted by the International Association of Insurance Supervisors or successor organization.

(iv) A domiciliary jurisdiction of an alien assuming insurer is not eligible to be recognized as a qualified jurisdiction unless:

(A) The jurisdiction has agreed to share information and cooperate with the Commissioner with respect to certified reinsurers domiciled within that jurisdiction.

(B) The jurisdiction adequately and promptly enforces final United States judgments and arbitration awards.

(v) If a certified reinsurer’s domiciliary jurisdiction ceases to be a qualified jurisdiction, the Commissioner may withdraw recognition of that jurisdiction.

(2) The assuming insurer shall maintain minimum capital and surplus, or its equivalent, in an amount to be determined acceptable by the Commissioner in accordance with the following standards:

(i) The assuming insurer must maintain capital and surplus, or its equivalent, of at least $250 million calculated in accordance with subparagraph (ii). This requirement may also be satisfied by an association including incorporated and individual unincorporated underwriters having minimum capital and surplus equivalents (net of liabilities) of at least $250 million and a central fund containing a balance of at least $250 million.

(ii) Certified reinsurers not domiciled in the United States shall file with the Commissioner audited financial statements (audited United States Generally Accepted Accounting Principles (GAAP) basis if available, audited International Financial Reporting Standards (IFRS) basis statements are allowed but must include an audited footnote reconciling equity and net income to a United States GAAP basis or, with the permission of the state insurance commissioner, audited IFRS statements with reconciliation to United States GAAP certified by an officer of the company), regulatory filings and actuarial opinion (as filed with the non-United States jurisdiction supervisor). Upon the initial application for certification, the Commissioner will consider audited financial statements for the last 3 years filed with its non-United States jurisdiction supervisor.

(3) The assuming insurer shall maintain financial strength ratings from two or more rating agencies deemed acceptable by the Commissioner in accordance with subparagraph (i) and be rated by the Commissioner in accordance with subparagraph (ii).

(i) Financial strength ratings. The financial strength ratings must be based on interactive communication between the rating agency and the assuming insurer and may not be based solely on publicly available information. These ratings will be one factor used by the Commissioner in determining the rating assigned under subparagraph (ii). Acceptable rating agencies include Standard & Poor’s, Moody’s Investors Service, Fitch Ratings, A.M. Best Company or another Nationally recognized statistical rating organization.

(ii) Assignment and publication of rating. The Commissioner will assign a rating to each certified reinsurer and publish a list of certified reinsurers and their ratings annually in the Pennsylvania Bulletin in accordance with the following:

(A) Each certified reinsurer will be rated on a legal entity basis, with due consideration being given to the group rating when appropriate, except that an association including incorporated and individual unincorporated insurers that have been approved to do business as a single certified reinsurer may be evaluated on the basis of its group rating.

(B) Factors that may be considered as part of the evaluation process include the following:

(I) The certified reinsurer’s financial strength rating from an acceptable rating agency. The maximum rating that a certified reinsurer may be assigned will correspond to its financial strength rating as outlined in the following table. The Commissioner will use the lowest financial strength rating received from an approved rating agency in establishing the maximum rating of a certified reinsurer. A failure to obtain or maintain at least two financial strength ratings from acceptable rating agencies will result in loss of eligibility for certification.

(II) The business practices of the certified reinsurer in dealing with its ceding insurers, including its record of compliance with reinsurance contractual terms and obligations.

(III) For certified reinsurers domiciled in the United States, a review of the most recent applicable NAIC Annual Statement Blank, either Schedule F (for property/casualty reinsurers) or Schedule S (for life and health reinsurers).

(IV) For certified reinsurers not domiciled in the United States, a review annually of Form CR-F (for property/casualty reinsurers) or Form CR-S (for life and health reinsurers) as developed by the NAIC.

(V) The reputation of the certified reinsurer for prompt payment of claims under reinsurance agreements, based on an analysis of ceding insurers’ Schedule F reporting of overdue reinsurance recoverables, including the proportion of obligations that are more than 90 days past due or are in dispute, with specific attention given to obligations payable to companies that are in administrative supervision or receivership.

(VI) Regulatory actions against the certified reinsurer.

(VII) The report of the independent auditor on the financial statements of the insurance enterprise, on the basis described in subclause (VIII).

(VIII) For certified reinsurers not domiciled in the United States, audited financial statements (audited United States GAAP basis if available, audited IFRS basis statements are allowed but must include an audited footnote reconciling equity and net income to a United States GAAP basis or, with the permission of the state insurance commissioner, audited IFRS statements with reconciliation to United States GAAP certified by an officer of the company), regulatory filings and actuarial opinion (as filed with the non-United States jurisdiction supervisor). Upon the initial application for certification, the Commissioner will consider audited financial statements for the last 3 years filed with its non-United States jurisdiction supervisor.

(IX) The liquidation priority of obligations to a ceding insurer in the certified reinsurer’s domiciliary jurisdiction in the context of an insolvency proceeding.

(X) A certified reinsurer’s participation in a solvent scheme of arrangement, or similar procedure, which involves United States ceding insurers. The Commissioner shall receive prior notice from a certified reinsurer that proposes participation by the certified reinsurer in a solvent scheme of arrangement.

(iii) Change in rating or revocation of certification.

(A) In the case of a downgrade by a rating agency or other disqualifying circumstance, the Commissioner will upon written notice assign a new rating to the certified reinsurer in accordance with subparagraph (ii)(B).

(B) The Commissioner has the authority to suspend, revoke or otherwise modify a certified reinsurer’s certification in accordance with the procedures in § 161.6 (relating to revocation of reinsurer qualification or certification) at any time if the certified reinsurer fails to meet its obligations or security requirements under this section, or if other financial or operating results of the certified reinsurer, or documented significant delays in payment by the certified reinsurer, lead the Commissioner to reconsider the certified reinsurer’s ability or willingness to meet its contractual obligations.

(C) If the rating of a certified reinsurer is upgraded by the Commissioner, the certified reinsurer may meet the security requirements applicable to its new rating on a prospective basis, but the Commissioner will require the certified reinsurer to post security under the previously applicable security requirements as to the contracts in force on or before the effective date of the upgraded rating. If the rating of a certified reinsurer is downgraded by the Commissioner, the Commissioner will require the certified reinsurer to meet the security requirements applicable to its new rating for all business it has assumed as a certified reinsurer.

(4) The assuming insurer shall agree to submit to the jurisdiction of the Commonwealth, appoint the Commissioner as its agent for service of process in this Commonwealth and agree to provide security for 100% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment. The assuming insurer shall submit a properly executed Form CR-1 as evidence of its submission to the jurisdiction of the Commonwealth, appointment of the Commissioner as an agent for service of process in this Commonwealth and agreement to provide security for 100% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers if it resists enforcement of a final United States judgment. The Commissioner will not certify an assuming insurer that is domiciled in a jurisdiction that the Commissioner has determined does not adequately and promptly enforce final United States judgments or arbitration awards.

(5) The assuming insurer shall agree to meet applicable information filing requirements both with respect to an initial application for certification and on an ongoing basis. Information submitted by certified reinsurers that is not otherwise public information subject to disclosure is confidential and privileged and is not subject to subpoena, discovery, the Right-to-Know Law (65 P. S. § § 67.101—67.3104) or admissible in evidence in any private civil action. The applicable information filing requirements are as follows:

(i) Notification within 10 days of regulatory actions taken against the certified reinsurer, a change in the provisions of its domiciliary license or a change in rating by an approved rating agency, including a statement describing the changes and the reasons.

(ii) Annual submission of Form CR-F or CR-S, as applicable per NAIC instructions.

(iii) Annual submission of the report of the independent auditor on the financial statements of the insurance enterprise on the basis described in subparagraph (iv).

(iv) Annual submission of audited financial statements (audited United States GAAP basis if available, audited IFRS basis statements are allowed but must include an audited footnote reconciling equity and net income to a United States GAAP basis or, with the permission of the state insurance commissioner, audited IFRS statements with reconciliation to United States GAAP certified by an officer of the company), regulatory filings and actuarial opinion (as filed with the certified reinsurer’s supervisor). Upon the initial certification, audited financial statements for the last 3 years filed with the certified reinsurer’s supervisor.

(v) At least annually, filing of an updated list of disputed and overdue reinsurance claims regarding reinsurance assumed from United States domestic ceding insurers.

(vi) A certification from the certified reinsurer’s domestic regulator that the certified reinsurer is in good standing and maintains capital in excess of the jurisdiction’s highest regulatory action level.

(b) Certification of an association as a certified reinsurer. In addition to meeting the requirements of subsection (a), an association, including incorporated and individual unincorporated insurers, may be a certified reinsurer if it satisfies the following additional requirements:

(1) The association shall satisfy its minimum capital and surplus requirements through the capital and surplus equivalents (net of liabilities) of the association and its members, which includes a joint central fund that may be applied to any unsatisfied obligation of the association or any of its members, in an amount determined by the Commissioner to provide adequate protection.

(2) The incorporated members of the association may not be engaged in business other than underwriting as a member of the association and shall be subject to the same level of regulation and solvency control by the association’s domiciliary regulator as are the unincorporated members.

(3) Within 90 days after its financial statements are due to be filed with the association’s domiciliary regulator, the association shall provide to the Commissioner an annual certification by the association’s domiciliary regulator of the solvency of each insurer member or, if a certification is unavailable, financial statements, prepared by independent public accountants, of each insurer member of the association.

(c) Deferment of certification. If an applicant for certification has been certified as a reinsurer in an NAIC accredited jurisdiction, the Commissioner has the discretion to defer to that jurisdiction’s certification and to defer to the rating assigned by that jurisdiction. The assuming insurer will be considered to be a certified reinsurer in this Commonwealth in accordance with the following:

(1) The assuming insurer shall submit a properly executed Form CR-1 to the Commissioner.

(2) A change in the certified reinsurer’s status or rating in the other jurisdiction applies automatically in this Commonwealth as of the date it takes effect in the other jurisdiction. The certified reinsurer shall notify the Commissioner of a change in its status or rating within 10 days after receiving notice of the change.

(3) The Commissioner may withdraw recognition of the other jurisdiction’s rating at any time and assign a new rating in accordance with subsection (a)(3)(ii).

(4) The Commissioner may withdraw recognition of the other jurisdiction’s certification at any time with written notice to the certified reinsurer. Unless the Commissioner revokes the certified reinsurer’s certification in accordance with § 161.6, the certified reinsurer’s certification will remain in good standing in this Commonwealth for 3 months, which will be extended if additional time is necessary to consider the assuming insurer’s application for certification in this Commonwealth.

(d) Inactive status certification. A certified reinsurer that ceases to assume new business in this Commonwealth may request to maintain its certification in inactive status to continue to qualify for a reduction in security for its in-force business. An inactive certified reinsurer shall continue to comply with the applicable requirements of this section and the Commissioner will assign a rating that takes into account, if relevant, the reasons why the reinsurer is not assuming new business.

(e) Certification procedure.

(1) The Department will post notice of an application for certification in the Pennsylvania Bulletin promptly upon receipt and will include instructions on how members of the public may respond to the application. The Commissioner will not take final action on the application until at least 30 days after posting the notice in the Pennsylvania Bulletin.

(2) If the Department is satisfied that an assuming insurer has met the conditions for certification and determines to designate the assuming insurer as a certified reinsurer, the Department will issue written notice of the designation to the assuming insurer. The rating assigned the certified reinsurer in accordance with subsection (a)(3)(ii) will be included in the notice.

The provisions of this § 161.3a issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 442.1).

The provisions of this § 161.3a adopted May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816.

This section cited in 31 Pa. Code § 161.3 (relating to credit for reinsurance); and 31 Pa. Code § 161.3b (relating to calculation of credit for reinsurance regarding obligations secured with certified reinsurers).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.3b Calculation of credit for reinsurance regarding obligations secured with certified reinsurers.

(a) For a domestic ceding insurer to qualify for full financial statement credit for reinsurance ceded to a certified reinsurer, the certified reinsurer shall maintain security in a form acceptable to the Commissioner and consistent with section 319.1(b) of the act (40 P. S. § 442.1(b)) or in a multibeneficiary trust in accordance with § 161.3(3)(vii)(B) (relating to credit for reinsurance) except that:

(1) If a certified reinsurer maintains a trust to fully secure its obligations subject to § 161.3(3)(vii) and chooses to secure its obligations incurred as a certified reinsurer in the form of a multibeneficiary trust, the certified reinsurer shall maintain separate trust accounts for its obligations incurred under reinsurance agreements issued or renewed as a certified reinsurer with reduced security as permitted by this paragraph or comparable laws of other United States jurisdictions and for its obligations subject to § 161.3(3)(vii)(B). It shall be a condition to the grant of certification under this subsection that the certified reinsurer shall have bound itself, by the language of the trust and agreement with the chief regulatory official with principal regulatory oversight of each trust account, to fund, upon termination of a trust account, out of the remaining surplus of the trust any deficiency of another trust account.

(2) The minimum trusteed surplus requirements provided in § 161.3(3)(vii)are not applicable with respect to a multibeneficiary trust maintained by a certified reinsurer for the purpose of securing obligations incurred under this paragraph, except that the trust must maintain a minimum trusteed surplus of $10 million.

(b) The allowable credit allowed a ceding insurer must be based upon the security held by or on behalf of the ceding insurer and shall be calculated in accordance with the following requirements:

(1) For full credit to be allowed, the amount of security must correspond with the rating assigned by the Commissioner to the certified reinsurer under § 161.3a(a)(3) (relating to requirements for certified reinsurers) as follows:

(2) Affiliated reinsurance transactions will receive the same opportunity for reduced security requirements as other reinsurance transactions.

(3) The Commissioner will require the certified reinsurer to post 100% for the benefit of the ceding insurer or its estate, security upon the entry of an order of rehabilitation, liquidation or conservation against the ceding insurer.

(4) To facilitate the prompt payment of claims, a certified reinsurer will not be required to post security for catastrophe recoverables for 1 year from the date of the first instance of a liability reserve entry by the ceding company as a result of a loss from a catastrophic occurrence as recognized by the Commissioner. When determining what constitutes a catastrophic occurrence, the Commissioner will consult with the NAIC and consider both natural and human events. The 1-year deferral period is contingent upon the certified reinsurer continuing to pay claims in a timely manner in compliance with its contractual obligations in the reinsurance agreement under which the claims are ceded. Reinsurance recoverables for only the following lines of business as reported on the NAIC annual financial statement related specifically to the catastrophic occurrence will be included in the deferral:

(c) With respect to obligations incurred by a certified reinsurer, if the security is insufficient, the Commissioner will reduce the allowable credit by an amount proportionate to the deficiency and has the discretion to impose further reductions in allowable credit upon finding that there is a material risk that the certified reinsurer’s obligations will not be paid in full when due.

(d) For purposes of calculating the allowable credit under this section, a certified reinsurer whose certification has been terminated for any reason shall be treated as a certified reinsurer required to secure 100% of its obligations.

(1) As used in this subsection, ‘‘terminated’’ refers to revocation, suspension, voluntary surrender and inactive status.

(2) If the Commissioner continues to assign a higher rating as permitted by this section, this requirement does not apply to a certified reinsurer in inactive status or to a reinsurer whose certification has been suspended.

(e) Based on the analysis conducted under § 161.3a(a)(3)(ii)(B)(V) of a certified reinsurer’s reputation for prompt payment of claims, the Commissioner may make appropriate adjustments in the security the certified reinsurer is required to post to protect its liabilities to United States ceding insurers, provided that the Commissioner will, at a minimum, increase the security the certified reinsurer is required to post by one rating level under § 161.3a(a)(3)(ii)(B)(I) if the Commissioner finds either of the following:

(1) More than 15% of the certified reinsurer’s ceding insurance clients have overdue reinsurance recoverables on paid losses of 90 days or more which are not in dispute and which exceed $100,000 for each cedent.

(2) The aggregate amount of reinsurance recoverables on paid losses not in dispute that are overdue by 90 days or more exceeds $50 million.

(f) This section does not prohibit the parties to a reinsurance agreement from agreeing to provisions establishing security requirements that exceed the minimum security requirements under this section or under § 161.8a (relating to reinsurance contracts).

The provisions of this § 161.3b issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 442.1).

The provisions of this § 161.3b adopted May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816.

This section cited in 31 Pa. Code § 161.3 (relating to credit for reinsurance).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.3c Concentration risk.

(a) A ceding insurer shall take steps to manage its reinsurance recoverables proportionate to its own book of business. A domestic ceding insurer shall notify the Commissioner within 30 days after reinsurance recoverables from a single assuming insurer, or group of affiliated assuming insurers, exceed 50% of the domestic ceding insurer’s last reported surplus to policyholders, or after it is determined that reinsurance recoverables from a single assuming insurer or group of affiliated assuming insurers is likely to exceed this limit. The notification must demonstrate that the exposure is safely managed by the domestic ceding insurer.

(b) A ceding insurer shall take steps to diversify its reinsurance program. A domestic ceding insurer shall notify the Commissioner within 30 days after ceding to a single assuming insurer, or group of affiliated assuming insurers, more than 20% of the ceding insurer’s gross written premium in the prior calendar year, or after it has determined that the reinsurance ceded to a single assuming insurer, or group of affiliated assuming insurers is likely to exceed this limit. The notification must demonstrate that the exposure is safely managed by the domestic ceding insurer.

The provisions of this § 161.3c issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 442.1).

The provisions of this § 161.3c adopted May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816.

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.4 Trust fund requirements.

(a) A trust required under § 161.3(3) or (4) (relating to credit for reinsurance) shall be established and maintained in a form approved by the Commissioner. The trust instrument shall provide that contested claims shall be valid and enforceable out of funds in trust to the extent remaining unsatisfied 30 days after entry of the final order of a court of competent jurisdiction in the United States. The trust shall vest legal title to its assets in the trustees of the trust for the benefit of the grantor’s United States policyholders and ceding insurers, their assigns and successors in interest. The trust and the assuming insurer shall be subject to examination as determined by the Commissioner. The trust described in this section shall remain in effect for as long as the assuming insurer or a member or former member of a group of insurers shall have outstanding obligations due under reinsurance agreements subject to the trust.

(b) By February 28 of each year, the trustees of a trust established to comply with § 161.3(3) or (4) shall report to the Commissioner in writing setting forth the balance of the trust and listing the trust’s investments at the preceding year’s end and shall certify the date of termination of the trust, if so planned, or certify that the trust will not expire prior to the next following December 31. The assuming insurer shall annually submit a financial exhibit which quantifies the liabilities attributable to business directly written or assumed in the United States.

(c) An amendment to the trust will not be effective unless reviewed and approved in advance by the Commissioner.

This section cited in 31 Pa. Code § 161.6 (relating to revocation of reinsurer qualification or certification).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.5 Determination of reinsurer qualification.

(a) Applications for designation as a qualified reinsurer shall be submitted by the assuming insurer and shall be accompanied by a properly executed Form QR-1 as provided in Appendix A (relating to Form QR-1 Certificate of Assuming Insurer).

(b) If the Department is satisfied that an assuming insurer has met the conditions for qualification and determines to designate the assuming insurer as a qualified reinsurer, the Department will issue written notice of the designation to the assuming insurer and include the insurer on a list of qualified reinsurers published and periodically reviewed by the Commissioner.

(c) If the Department determines that qualification will be denied, the Department will issue written notice of denial to the assuming insurer. The assuming insurer may request a hearing to review the Department’s denial. The hearing will be held in accordance with 2 Pa.C.S. § § 501—508 and 701—704 (relating to the Administrative Agency Law) and 1 Pa. Code Part II (relating to the general rules of administrative practice and procedure).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.6 Revocation of reinsurer qualification or certification.

(a) If the Department determines that a reinsurer has failed to continue to meet one or more of the conditions for qualification or certification, the Commissioner may upon written notice and hearing revoke its qualification or certification and remove it from the published list of qualified or certified reinsurers.

(b) If an assuming insurer’s qualification has been revoked by the Commissioner after notice, a ceding insurer shall be allowed to continue to take credit for reinsurance ceded to the assuming insurer until the end of the contract year or 1 year from the date of the revocation, whichever time is less, but in no event less than 6 months. If an assuming insurer’s certification has been revoked by the Commissioner, the assuming insurer shall post security in accordance with section 319.1(b) of the act (40 P. S. § 442.1(b)) for the ceding insurer to continue to take credit for reinsurance ceded to the assuming insurer. If funds continue to be held in trust in accordance with § 161.4 (relating to trust fund requirements) the Commissioner may allow additional credit equal to the ceding insurer’s pro rata share of the funds, discounted to reflect the risk of uncollectability and anticipated expenses of trust administration. Notwithstanding the change of a certified reinsurer’s rating or revocation of its certification, a domestic insurer that has ceded reinsurance to that certified reinsurer may not be denied credit for reinsurance for 3 months for reinsurance ceded to that certified reinsurer, unless the reinsurance is found by the Commissioner to be at high risk of uncollectability.

(c) If a modification, amendment or revision to an existing reinsurance agreement, which increases the risk reinsured, takes place after an assuming insurer’s qualification or certification has been revoked, credit will not be allowed a ceding insurer for additional risks ceded after the date and directly resulting from the modification, amendment or revision.

(d) Notwithstanding the provisions of subsections (b) and (c), a ceding insurer may continue to take credit for reinsurance ceded before the date of the revocation of the assuming insurer’s qualification with respect to a risk covered by the reinsurance agreement during the time the assuming insurer’s qualification was in effect.

The provisions of this § 161.6 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411, 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 42.1).

The provisions of this § 161.6 amended May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816. Immediately preceding text appears at serial page (265057).

This section cited in 31 Pa. Code § 161.3a (relating to requirements for certified reinsurers).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.7 Credit for joint underwriting or pooling arrangements.

(a) Domestic ceding insurers which are participating in a joint underwriting or joint reinsurance pooling arrangement, in which the insurers participating in the arrangement are not qualified or certified reinsurers, may request specific approval by the Commissioner to take reserve credit for reinsurance ceded under those arrangements.

(b) The Commissioner may specify what information is required to be filed with respect to the participants in the arrangement to determine whether credit shall be allowed.

(c) In determining whether credit will be allowed under this section, the Commissioner will consider:

(1) The amount of risk ceded under the arrangement to reinsurers which are either qualified reinsurers under this chapter or which are licensed to transact insurance or reinsurance in this State.

(2) The financial condition and state of domicile of the participants.

(3) The length of time the agreement has been in force and the effect of the agreement on the participants.

(4) The type of risk being reinsured by the pool and the maximum per risk exposure of the pool.

(5) The management and control of the operations of the pool.

(6) Other information the Commissioner may prescribe.

The provisions of this § 161.7 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 42.1).

The provisions of this § 161.7 amended May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816. Immediately preceding text appears at serial pages (265057) to (265058).

This section cited in 31 Pa. Code § 161.3 (relating to credit for reinsurance).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.8a Reinsurance contracts.

A ceding insurer will not be granted a credit or allowed an asset or reduction from liability for reinsurance effected with assuming insurers meeting the requirements of this chapter unless the reinsurance agreement includes the following provisions:

(1) A proper insolvency clause as provided for in section 319.1(d) of the act (40 P. S. § 442.1(d)), which stipulates that reinsurance is payable directly to the liquidator or successor without diminution regardless of the status of the ceding company.

(2) A reinsurance intermediary clause, if applicable, which stipulates that the credit risk for the intermediary is carried by the assuming insurer.

(3) A mandatory funding clause requiring the certified reinsurer to provide and maintain security in an amount sufficient to avoid the imposition of a financial statement penalty on the ceding insurer for reinsurance ceded to the certified reinsurer.

The provisions of this § 161.8a issued under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 442.1).

The provisions of this § 161.8a adopted May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816.

This section cited in 31 Pa. Code § 161.3b (relating to calculation of credit for reinsurance regarding obligations secured with certified reinsurers).

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

31 Pa. Code § 161.9 Application.

(a) Credit will be allowed when the reinsurance is ceded to an assuming insurer not meeting the requirements of this section or § 161.3 (relating to credit for reinsurance) with respect to the insurance of risks located in jurisdictions if the reinsurance is required by applicable law or regulation of that jurisdiction. As used in this section, ‘‘jurisdiction’’ means a state, district or territory of the United States and a lawful national government.

(b) An insurer which has been designated as a qualified reinsurer prior to August 28, 1993, will have until August 28, 1995, to achieve compliance with this chapter or have its qualification revoked.

The provisions of this § 161.9 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and section 319.1 of The Insurance Company Law of 1921 (40 P. S. § 42.1).

The provisions of this § 161.9 amended May 24, 2013, effective June 24, 2013, 43 Pa.B. 2816. Immediately preceding text appears at serial page (265061).

FORM QR-1CERTIFICATE OF ASSUMING INSURER

I,

History

• Authority: The provisions of this § 161.
• Source: The provisions of this Chapter 161 adopted August 27, 1993, effective August 28, 1993, 23 Pa.

Chapter 162 Life and Health Reinsurance Agreements

31 Pa. Code § 162.1 Purpose.

(a) This chapter sets forth the conditions whereby a ceding insurer will not be permitted to receive credit for reinsurance in financial statements filed with the Department if the reinsurance agreement does not transfer all of the significant risks inherent in the business being reinsured or, in substance or effect, the expected potential liability to the ceding insurer remains basically unchanged by the reinsurance transaction, notwithstanding certain risk elements in the reinsurance agreement, such as catastrophic mortality or extraordinary survival.

(b) In addition to specifying the conditions which would result in denial of credit, this chapter requires reinsurance agreements which fall within the scope of § § 162.3 and 162.5 (relating to scope; and agreements to be filed with Commissioner), including data detailing the financial impact of the agreements, to be filed by the ceding insurer with the Department and specifies the accounting methodology to be followed by the ceding insurer in reporting any increase in surplus resulting from those agreements in financial statements filed with the Department.

(c) This chapter also provides safeguards to insure that agreements for which credit has been taken are actually executed and effective within a time period that reasonably corresponds to the date of the insurer’s financial statements.

History

• Authority: The provisions of this Chapter 162 issued under sections 319, 319.
• Source: The provisions of this Chapter 162 adopted September 10, 1993, effective September 11, 1993, 23 Pa.

31 Pa. Code § 162.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Domestic—Incorporated or organized under the laws of the Commonwealth. Foreign—Incorporated or organized under the laws of a jurisdiction other than the Commonwealth.

History

• Authority: The provisions of this Chapter 162 issued under sections 319, 319.
• Source: The provisions of this Chapter 162 adopted September 10, 1993, effective September 11, 1993, 23 Pa.

31 Pa. Code § 162.3 Scope.

(a) This chapter applies to licensed domestic life and accident and health insurers as well as to licensed foreign life and accident and health insurers which are not subject to a substantially similar regulation in their domiciliary state.

(b) In addition, this chapter similarly applies to licensed domestic and foreign property and casualty insurers with respect to their accident and health business.

(c) This chapter does not apply to assumption reinsurance, yearly renewable term reinsurance or certain nonproportional reinsurance such as stop loss or catastrophe reinsurance.

This section cited in 31 Pa. Code § 162.1 (relating to purpose).

History

• Authority: The provisions of this Chapter 162 issued under sections 319, 319.
• Source: The provisions of this Chapter 162 adopted September 10, 1993, effective September 11, 1993, 23 Pa.

31 Pa. Code § 162.4 Accounting requirements.

(a) An insurer subject to this chapter may not, for reinsurance ceded, reduce liability or establish an asset in financial statements filed with the Department if, by the terms of the reinsurance agreement, in substance or effect, one or more of the following conditions exist:

(1) The reserve credit taken by the ceding insurer is greater than the underlying reserve of the ceding insurer supporting the policy obligations transferred under the reinsurance agreement.

(2) Renewal expense allowances provided or to be provided to the ceding insurer by the reinsurer in any accounting period, are not sufficient to cover anticipated allocable renewal expenses of the ceding insurer on the portion of the business reinsured, unless a liability is established for the present value of the shortfall using assumptions equal to the applicable statutory reserve basis on the business reinsured. Renewal expenses include commissions, premium taxes and direct expenses including billing, valuation, claims and maintenance expected by the ceding insurer at the time the business is reinsured.

(3) The ceding insurer can be deprived of surplus or assets at the reinsurer’s option or automatically upon the occurrence of some event, such as the insolvency of the ceding insurer. However, termination of the reinsurance agreement by the reinsurer for nonpayment of reinsurance premiums or other amounts due, such as modified coinsurance reserve adjustments, interest and adjustments on funds withheld, and tax reimbursements, will not be considered to be a deprivation of surplus or assets for purposes of this subsection.

(4) The ceding insurer is required to reimburse the reinsurer for negative experience under the reinsurance agreement. Neither offsetting experience refunds against current and prior years’ losses under the agreement nor payment by the ceding insurer of an amount equal to the current and prior years’ losses under the agreement upon voluntary termination of in force reinsurance by the ceding insurer will be considered a reimbursement to the reinsurer for negative experience for purposes of this subsection. In addition, voluntary termination does not include termination as a result of unreasonable provisions which allow the reinsurer to reduce its risk under the agreement. An example of an unreasonable provision is the right of the reinsurer to increase reinsurance premiums or risk and expense charges to excessive levels thereby forcing the ceding insurer to prematurely terminate the reinsurance treaty.

(5) The ceding insurer shall, at specific points in time scheduled in the agreement, terminate or automatically recapture all or part of the reinsurance ceded.

(6) The reinsurance agreement involves the possible payment by the ceding insurer to the reinsurer of amounts other than from income realized from the reinsured policies. For example, it is improper for a ceding insurer to pay reinsurance premiums, or other fees or charges, to the reinsurer which are greater than the direct premiums collected by the ceding insurer.

(7) The treaty does not transfer all of the significant risk inherent in the business being reinsured. The following table identifies for a representative sampling of products or type of business, the risks which are considered to be significant. For products not specifically included, the risks determined to be significant shall be consistent with the following table:

(A) Morbidity.

(B) Mortality.

(C) Lapse—The risk that a policy will voluntarily terminate prior to the recoupment of a statutory surplus strain experienced at issue of the policy.

(D) Credit Quality—The risk that invested assets supporting the reinsured business will decrease in value. The main hazards are that assets will default or that there will be a decrease in earning power. This risk category excludes market value declines due to changes in interest rate.

(E) Reinvestment—The risk that interest rates will fall and funds reinvested (coupon payments or monies received upon asset maturity or call) will therefore earn less than expected. If asset durations are less than liability durations, the mismatch will increase.

(F) Disintermediation—The risk that interest rates rise and policy loans and surrenders increase or maturing contracts do not renew at anticipated rates of renewal. If asset durations are greater than the liability durations, the mismatch will increase. Policyholders will move their funds into new products offering higher rates. The insurer may have to sell assets at a loss to provide for these withdrawals.

(8) The credit quality, reinvestment or disintermediation risk is significant for the business reinsured and the ceding insurer does not, other than for the classes of business excepted in subparagraph (i), either transfer the underlying assets to the reinsurer or legally segregate the assets in a trust or escrow account or otherwise establish a mechanism satisfactory to the Commissioner which legally segregates, by contract or contract provision, the underlying assets.

(i) Notwithstanding the provisions of this paragraph, the assets supporting the reserves for the following classes of business and any classes of business which do not have a significant credit quality, reinvestment or disintermediation risk may be held by the ceding insurer without segregation of the assets: Health Insurance—Long Term Care/Long Term Disability Insurance Traditional Non-Par Permanent Traditional Par Permanent Adjustable Premium Permanent Indeterminate Premium Permanent Universal Life Fixed Premium (no dump-in premiums allowed)

(ii) If the ceding insurer elects to hold the assets supporting the reserves for the classes of business stated in subparagraph (i) or for classes of business which do not represent a significant risk as noted in subparagraph (i), the determination of the modified coinsurance reserve interest rate adjustment shall conform to a formula which reflects the ceding insurer’s investment earnings and incorporates all realized and unrealized gains and losses reflected in the statutory statement. The following is an acceptable formula: Rate = 2 (I +CG)

History

• Authority: The provisions of this Chapter 162 issued under sections 319, 319.
• Source: The provisions of this Chapter 162 adopted September 10, 1993, effective September 11, 1993, 23 Pa.

31 Pa. Code § 162.5 Agreements to be filed with Commissioner.

Agreements entered into after September 12, 1993, which involve the reinsurance of business issued prior to the effective date of the agreements, along with subsequent amendments thereto, shall be filed by the ceding insurer with the Commissioner within 30 days from the date of execution. Each filing shall include data detailing the financial impact of the transaction.

This section cited in 31 Pa. Code § 162.1 (relating to purpose); and 31 Pa. Code § 162.6 (relating to statutory financial reporting requirements).

History

• Authority: The provisions of this Chapter 162 issued under sections 319, 319.
• Source: The provisions of this Chapter 162 adopted September 10, 1993, effective September 11, 1993, 23 Pa.

31 Pa. Code § 162.6 Statutory financial reporting requirements.

An increase in surplus net of Federal income tax resulting from arrangements described in § 162.5 (relating to agreements to be filed with Commissioner) shall be identified separately on the insurer’s statutory financial statement as a surplus item (aggregate write-ins for gains and losses in surplus in the capital and surplus account) and recognition of the surplus increase as income shall be reflected on a net of tax basis in the ‘‘reinsurance ceded’’ line of the Annual Statement as earnings emerge from the business reinsured.

For example: On the last day of calendar year N, company XYZ pays a $20 million initial commission and expense allowance to company ABC for reinsuring an existing block of business. Assuming a 34% tax rate, the net increase in surplus at inception is $13.2 million ($20 million - $6.8 million) which is reported on the ‘‘Aggregate write-ins for gains and losses in surplus’’ line in the Capital and Surplus account. $6.8 million (34% of $20 million) is reported as income on the ‘‘Commissions and expense allowances on reinsurance ceded’’ line of the Summary of Operations. At the end of year N+1 the business has earned $4 million. ABC has paid $.5 million in profit and risk charges in arrears for the year and has received a $1 million experience refund. Company ABC’s annual statement would report $1.65 million (66% of (4 million - $1 million - $.5 million) up to a maximum of $13.2 million) on the ‘‘Commissions and expense allowance on reinsurance ceded’’ line of the Summary of Operations, and -$1.65 million on the ‘‘Aggregate write-ins for gains and losses in surplus’’ line of the Capital and Surplus account. The experience refund would be reported separately as a miscellaneous income item in the Summary of Operations.

History

• Authority: The provisions of this Chapter 162 issued under sections 319, 319.
• Source: The provisions of this Chapter 162 adopted September 10, 1993, effective September 11, 1993, 23 Pa.

31 Pa. Code § 162.7 Responsibility of valuation actuary.

The ceding insurer’s actuary who signs the financial statement actuarial opinion with respect to valuation of reserves shall consider this chapter and applicable actuarial standards of practice when determining the proper credit in financial statements filed with the Department. The actuary should maintain adequate documentation and be prepared upon request to describe the actuarial work performed for inclusion in the financial statements and to demonstrate that the work conforms to this chapter.

History

• Authority: The provisions of this Chapter 162 issued under sections 319, 319.
• Source: The provisions of this Chapter 162 adopted September 10, 1993, effective September 11, 1993, 23 Pa.

31 Pa. Code § 162.8 Written agreements.

(a) A reinsurance agreement or amendment to an agreement may not be used to reduce liability or to establish an asset in a financial statement filed with the Department, unless the agreement, amendment or a binding letter of intent has been executed by both parties no later than the ‘‘as of date’’ of the financial statement.

(b) In the case of a letter of intent, a reinsurance agreement or an amendment to a reinsurance agreement shall be executed within a reasonable period of time, not exceeding 90 days from the execution date of the letter of intent, for credit to be granted for the reinsurance ceded.

(c) The reinsurance agreement shall contain provisions which provide the following:

(1) The agreement shall constitute the entire agreement between the parties with respect to the business being reinsured thereunder and that there are no understandings between the parties other than as expressed in the agreement.

(2) A change or modification to the agreement shall be void unless made by amendment to the agreement and signed by both parties.

History

• Authority: The provisions of this Chapter 162 issued under sections 319, 319.
• Source: The provisions of this Chapter 162 adopted September 10, 1993, effective September 11, 1993, 23 Pa.

31 Pa. Code § 162.9 Existing agreements.

Insurers subject to this chapter shall reduce to zero by December 31, 1995, reserve credits or assets established with respect to reinsurance agreements entered into prior to September 12, 1993, which, under this chapter would not be entitled to recognition of the reserve credits or assets but the reinsurance agreements shall have been in compliance with laws or regulations in existence immediately preceding September 12, 1993.

History

• Authority: The provisions of this Chapter 162 issued under sections 319, 319.
• Source: The provisions of this Chapter 162 adopted September 10, 1993, effective September 11, 1993, 23 Pa.

Chapter 163 Requirements for Funds Held as Security for the Payment of Obligations of Unlicensed, Unqualified Reinsurers

31 Pa. Code § 163.1 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Insurance Company Law of 1921 (40 P. S. § § 341—991.1718). Association—Individuals, partnerships or associations of individuals, authorized to engage in the business of insurance in this Commonwealth as insurers on the Lloyds plan. Beneficiary—The domestic ceding insurer, or domestic ceding insurers who are members of the same holding company system and are participating in a joint reinsurance pooling arrangement or other arrangement establishing the respective rights of each ceding insurer within the same holding company system, for whose benefit a trust or letter of credit has been established and any successor of the beneficiary by operation of law. If a successor in interest to the named beneficiary is effectuated by the issuance of an order by a court of law, the successor beneficiary shall include and be limited to the court appointed domiciliary receiver, including a liquidator, rehabilitator or conservator. Ceding insurer—An insurer that has transferred all or part of the insurance or reinsurance risk it has written to another insurer or reinsurer. Commissioner—The Insurance Commissioner of the Commonwealth. Credit for reinsurance—An increase in assets or reduction in liabilities for reinsurance in financial statements filed with the Department by domestic insurers in accordance with statutory insurance accounting principles. Department—The Insurance Department of the Commonwealth. Domestic—Incorporated or organized under the laws of the Commonwealth. Exchange—Individuals, partnerships and corporations, authorized by the laws of the Commonwealth to exchange with each other inter-insurance or reciprocal insurance contracts. Grantor—An unlicensed, unqualified reinsurer that has established a trust for the benefit of the beneficiary. Insurer—A stock or mutual insurance company, including a title insurance company, association or exchange. Qualified United States financial institution—

(i) An institution that meets the following qualifications:

(A) Is organized or, in the case of a United States office of a foreign banking organization, licensed under the laws of the United States or a state thereof.

(B) Is regulated, supervised and examined by United States Federal or state authorities having regulatory authority over banks and trust companies.

(C) Has been determined by either the Commissioner or the Securities Valuation Office of the National Association of Insurance Commissioners or a successor thereto to meet standards of financial condition and standing that are considered necessary and appropriate to regulate the quality of financial institutions whose letters of credit will be acceptable to the Commissioner.

(ii) For purposes of specifying those institutions that are eligible to act as a fiduciary of a trust, the term also means an institution that meets the following qualifications:

(A) Is organized or, in the case of a United States branch or agency office of a foreign banking organization, licensed under the laws of the United States or any state thereof and has been granted authority to operate with fiduciary powers.

(B) Is regulated, supervised and examined by Federal or State authorities having regulatory authority over banks and trust companies. Trustee—A qualified United States financial institution as defined in section 319.1(g) of the act (40 P. S. § 442.1(g)). Unlicensed, unqualified reinsurer—An assuming insurer which is neither:

(i) Licensed by the Department to transact insurance business in this Commonwealth.

(ii) Included on a list of qualified or certified reinsurers published and periodically reviewed by the Commissioner under section 319.1(a) of the act (40 P. S. § 442.1(a)).

The provisions of this § 163.1 amended under sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and sections 319—319.2 of The Insurance Company Law of 1921 (40 P. S. § 442—442.2).

The provisions of this § 163.1 amended May 24, 2013, effective June 24, 2013, 43 Pa.B. 2819. Immediately preceding text appears at serial pages (224501) to (224503).

This section cited in 31 Pa. Code § 163.19 (relating to actions or rights of the Commissioner).

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.2 Purpose.

Section 319.1(b) of the act (40 P. S. § 442.1(b)) establishes conditions whereby a domestic ceding insurer may be allowed to take credit for reinsurance when the assuming reinsurer is an unlicensed, unqualified reinsurer. This chapter establishes minimum requirements for trust agreements, letters of credit and other forms of acceptable security for which credit will be allowed for reinsurance ceded to unlicensed, unqualified reinsurers.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.3 Scope.

This chapter applies to licensed domestic insurers subject to section 319.1(b) of the act (40 P. S. § 442.1(b)) relating to credit for collateralized reinsurance with unlicensed, unqualified reinsurers.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.4 Funds held in trust.

Trust agreements established for funds held on behalf of a domestic ceding insurer as security for the payment of the obligations of an unlicensed, unqualified reinsurer shall comply with section 319.1(b)—(e) of the act (40 P. S. § 442.1(b)—(e)) and this chapter.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.5 General requirements for trust agreements.

(a) A trust agreement shall be entered into between the beneficiary, the grantor and a trustee.

(b) A trust agreement shall be established for the sole benefit of the beneficiary.

(c) A trust agreement shall be made subject to and governed by the laws of the state in which the trust is established.

(d) A trust agreement may not be subject to any conditions or qualifications outside of the trust agreement.

(e) A trust agreement may not be conditioned upon any other agreements or documents, except for the reinsurance agreement for which the trust agreement is established.

(f) A trust agreement may not transfer liability from the trustee for the trustee’s own negligence, willful misconduct or lack of good faith.

(g) A trust agreement shall create a trust account into which the assets shall be deposited.

(h) A trust agreement shall prohibit invasion of the trust corpus for the purpose of paying compensation to or reimbursing the expenses of the trustee.

(i) A trust agreement shall prohibit the grantor from terminating the trust agreement on the basis of the insolvency of the beneficiary.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.6 Requirements for assets held in trust accounts.

(a) Assets in the trust account shall be in the form of security permitted by section 319.1(b) of the act (40 P. S. § 442.1(b)) and shall be valued at current fair market value.

(b) A trust agreement shall permit substitution or withdrawal of assets from the trust account only as provided by the following:

(1) Within 6 months of the date the trust account is funded, no substitution or withdrawal of assets may occur except on written instructions from the beneficiary for each individual substitution or withdrawal at the time the substitution or withdrawal is executed.

(2) After 6 months from the date the trust account is funded, no substitution or withdrawal of assets may occur except in accordance with prior written instructions from the beneficiary listing specific types of permitted substitutions or withdrawals of assets that the trustee determines are at least equal in market value to the assets withdrawn and that are in the form permitted by section 319.1(b) of the act and subsection (a); except that, if a substitution or withdrawal of assets, together with other substitutions or withdrawals made within the preceding 12 months, exceeds 50% of the total fair market value of the assets as of the first day of the first month within the preceding 12-month period, the substitution or withdrawal shall be made only on written instructions from the beneficiary for each individual substitution or withdrawal at the time the substitution or withdrawal is executed.

(c) The restrictions on substitutions of assets set forth in subsection (b) do not apply to the substitution of assets that have been designated as Class One or Class Two by the Securities Valuation Office (SVO) of the National Association of Insurance Commissioners if the substitution results in the deposit of SVO designated Class One or Class Two securities that are at least equal in fair market value to the assets withdrawn.

(d) Upon call or maturity of a trust asset, the trustee may withdraw the asset without the consent of the beneficiary, if the trustee provides notice to the ben-eficiary, liquidates or redeems the assets, and the proceeds are paid into the trust account no later than 5 days after the liquidation or redemption of the assets.

(e) A trust agreement shall permit the beneficiary to have the right to withdraw assets from the trust account at any time, without notice to the grantor, subject only to written notice of the withdrawal from the beneficiary to the trustee.

(f) No statement or document other than the written notice by the beneficiary to the trustee under subsection (e) shall be required to be presented by the beneficiary to withdraw assets, except that the beneficiary may be required to acknowledge receipt of withdrawn assets.

This section cited in 31 Pa. Code § 163.7 (relating to duties and responsibilities of trustees).

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.7 Duties and responsibilities of trustees.

A trust agreement shall require the trustee to:

(1) Receive and hold the assets in a safe place at an office of the trustee in the United States.

(2) Determine that the assets are in a form so that the beneficiary, or the trustee upon direction by the beneficiary, may negotiate the assets without consent or signature from the grantor or another person.

(3) Furnish to the grantor and the beneficiary a statement of the assets in the trust account upon the inception of the account and at the end of each calendar quarter.

(4) Notify the grantor and the beneficiary within 10 days of any deposits to or withdrawals from the trust account; except as provided in § 163.6(b) (relating to requirements for assets held in trust accounts).

(5) Upon written demand of the beneficiary, immediately take the steps necessary to transfer absolutely and unequivocally all right, title and interest in the assets held in the trust account to the beneficiary and deliver physical custody of the assets to the beneficiary.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.8 Resignation or removal of trustee.

This section applies if the resignation or removal of a trustee does not result in the termination of the trust agreement under § 163.9 (relating to termination of trust agreements):

(1) The trustee may resign upon delivery of a written notice of resignation, effective no later than 90 days after notice to the beneficiary and grantor.

(2) The trustee may be removed by the grantor by delivery to the trustee and the beneficiary of a written notice of removal, effective no later than 90 days after notice to the trustee and the beneficiary.

(3) The resignation or removal of the trustee may not be effective until the following requirements have been met:

(i) A successor trustee has been appointed and approved by the beneficiary and the grantor.

(ii) A trust agreement has been executed by the successor trustee which complies with section 319.1(b)—(e) of the act (40 P. S. § 442.1(b)—(e)) and this chapter.

(iii) The possession of, and title to, all assets in the trust have been transferred to the new trustee.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.9 Termination of trust agreements.

(a) The trustee shall deliver written notification of termination to the beneficiary at least 30 days, but not more than 45 days, prior to termination of the trust account.

(b) Upon termination of the trust account, assets not previously withdrawn by the beneficiary may not be delivered to the grantor except with the written approval of the beneficiary.

This section cited in 31 Pa. Code § 163.8 (relating to resignation or removal of trustee).

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.10 Permitted provision in trust agreements.

The grantor may have the full and unqualified right to vote any shares of stock in the trust account and to receive from time to time payments of any dividends or interest upon any shares of stock or obligations included in the trust account.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.11 Requirements for provisions in reinsurance agreements entered into in conjunction with trust agreements.

When a reinsurance agreement is entered into in conjunction with a trust agreement and the establishment of a trust account, either the reinsurance agreement or the trust agreement shall contain provisions that:

(1) Require the reinsurer to enter into a trust agreement and to establish a trust account for the benefit of the reinsured.

(2) Specify what recoverables and reserves, or both, the agreement is to cover.

(3) Require the reinsurer, prior to depositing assets with the trustee, to execute assignments or endorsements in blank, or transfer legal title to the trustee of all shares, obligations or other assets requiring assignments so that the ceding insurer, or the trustee upon the direction of the ceding insurer, may negotiate these assets without consent or signature from the reinsurer or any other entity.

(4) Require that all settlements of account between the ceding insurer and the reinsurer be made in cash or its equivalent.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.12 Accounting in statutory financial statements for credit for reinsurance secured by trust agreements.

(a) A trust agreement established in compliance with this chapter may be used by a domestic ceding insurer to take credit for reinsurance ceded to an unlicensed, unqualified reinsurer in a financial statement required to be filed with the Department if the trust agreement is executed and the trust account is established and funded on or before the date on which the domestic ceding insurer files the financial statement.

(b) Credit for reinsurance shall be allowed for reinsurance ceded to an unlicensed, unqualified reinsurer only if the trust account is established in compliance with this chapter. The credit may not exceed the lesser of the current fair market value of assets available to be withdrawn from the trust account or the specific obligations under the reinsurance agreement that the trust account was established to secure.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.13 Existing trust agreements and underlying reinsurance agreements.

Domestic ceding insurers may continue to take credit for reinsurance ceded to unlicensed, unqualified reinsurers under reinsurance agreements with underlying trust agreements when both the reinsurance agreements and the underlying trust agreements were executed prior to January 18, 1997, if the reinsurance agreements and trust agreements were executed in compliance with applicable State laws and regulations in existence immediately preceding January 18, 1997, until January 19, 1998, after which no credit will be allowed until the reinsurance agreements and underlying trust agreements are brought into compliance with this chapter.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.14 Letters of credit.

Letters of credit held by or on behalf of a domestic ceding insurer as security for the payment of the obligations of an unlicensed, unqualified reinsurer under a reinsurance agreement shall meet the requirements of section 319.1(b)—(e) of the act (40 P. S. § 442.1(b)—(e)) and this chapter.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.15 Requirements for letters of credit.

(a) A letter of credit shall:

(1) Be clean, irrevocable, unconditional and evergreen as provided under section 319.1(b)(3)(i) of the act (40 P. S. § 442.1(b)(3)(i)).

(2) Contain an issue date and date of expiration with a term of at least 1 year.

(3) Contain an evergreen clause which prevents the expiration of the letter of credit without due notice from the issuer and provides for at least 30 days notice prior to expiration date or nonrenewal.

(4) Stipulate that the beneficiary need only draw a sight draft under the letter of credit and present it to obtain funds and that no other document need be presented.

(5) Indicate that it is not subject to any condition or qualifications outside of the letter of credit.

(6) Be conditioned upon no other agreement, document or entity, except for the reinsurance agreement for which the letter of credit is issued.

(7) Include a clearly marked section which indicates that it contains information for internal identification purposes only and which contains the name of the applicant and other appropriate notations to provide a reference for the letter of credit.

(8) Contain a statement to the effect that the obligation of the qualified United States financial institution, as defined in section 319.1(g) of the act, under the letter of credit is in no way contingent upon reimbursement of the issuer by the applicant with respect thereto.

(9) Contain a statement that the letter of credit is subject to and governed by the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 500 or subsequent updates) and the laws of the Commonwealth, and drafts drawn thereunder shall be presentable at an office of a qualified United States financial institution.

(10) Contain a provision for an extension of time to draw against the letter of credit in the event that one or more of the occurrences specified in Article 17 of Publication 500 (or subsequent updates) occur.

(b) A letter of credit shall be issued or confirmed by a qualified United States financial institution authorized to issue letters of credit under section 319.1(g)(1) of the act.

(c) A letter of credit may be issued by a qualified United States financial institution authorized to issue letters of credit under section 319.1(g)(2) of the act if the following conditions are met:

(1) The letter of credit is confirmed by a qualified United States financial institution authorized to issue letters of credit under section 319.1(g)(1) of the act.

(2) The issuing qualified United States financial institution formally designates the confirming qualified United States financial institution as its agent for the receipt and payment of the drafts.

(3) The letter of credit meets other requirements of this chapter relating to letters of credit.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.16 Provisions in reinsurance agreements entered into in conjunction with letters of credit.

When a reinsurance agreement is entered into in conjunction with a letter of credit, either the reinsurance agreement or an ancillary agreement thereto shall contain provisions that:

(1) Require the reinsurer to provide letters of credit to the ceding insurer.

(2) Specify what recoverables and reserves are covered by the letter of credit.

(3) Specify that notice of nonrenewal of the letter of credit is a reason that the ceding insurer may draw down the full amount of the letter of credit.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.17 Accounting in statutory financial statements for credit for reinsurance secured by letters of credit.

(a) A letter of credit may not be used by a domestic ceding insurer to take credit for reinsurance ceded to an unlicensed, unqualified reinsurer unless the letter of credit has been issued with the domestic ceding insurer listed as a beneficiary and is in compliance with section 319.1 of the act (40 P. S. § 442.1) and this chapter.

(b) Credit for reinsurance secured by a letter of credit shall be allowed in an amount not exceeding the lesser of the amount of the letter of credit or the specific obligations under the reinsurance agreement which the letter of credit was issued to secure.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.18 Existing letters of credit.

Domestic ceding insurers may continue to take credit for reinsurance secured by letters of credit where both the reinsurance agreements and underlying letters of credit were executed prior to January 18, 1997, if the reinsurance agreements and letters of credit were in compliance with applicable State laws and regulations in existence immediately preceding January 18, 1997, until January 19, 1998, or the renewal date of the letter of credit, whichever time is less, after which no credit will be allowed until the reinsurance agreements and letters of credit are brought into compliance with this chapter.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.19 Actions or rights of the Commissioner.

The failure of a trust agreement or letter of credit to specifically identify the beneficiary as defined in § 163.1 (relating to definitions) to include a court appointed domiciliary receiver may not be construed to prevent the Commissioner from becoming the successor of the beneficiary as a court appointed domiciliary receiver or to otherwise affect any rights which the Commissioner may possess under the laws and regulations of the Commonwealth.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

31 Pa. Code § 163.20 Other security acceptable to the Commissioner.

(a) A domestic ceding insurer may take credit for reinsurance for funds or letters of credit provided by a noninsurer parent corporation of the ceding insurer if the requirements of section 319.1(b)(4) of the act (40 P. S. § 442.1(b)(4)) are met, as follows:

(1) The funds or letters of credit are held subject to withdrawal by, and under the control of, the ceding insurer.

(2) The type, amount and form of the funds or letters of credit receive the prior approval of the Commissioner.

(b) A domestic ceding insurer may take credit for unencumbered funds deposited with or withheld by the ceding insurer in the United States if the funds are subject to withdrawal, transfer or substitution solely by the domestic ceding insurer, are under the exclusive control of the domestic ceding insurer, and are in the form of cash or securities as identified in section 319.1(b)(1) and (2) of the act.

History

• Authority: The provisions of this Chapter 163 issued under sections 319—319.
• Source: The provisions of this Chapter 163 adopted January 17, 1997, effective January 18, 1997, 27 Pa.

Chapter 165 Workers’ Compensation Security Fund

31 Pa. Code § 165.1 Purpose.

The purpose of this chapter is to:

(1) Establish how contributions are made to the Fund.

(2) Ensure that a person, entitled to workers’ compensation payments from insolvent carriers, will still have a source of funds on which to draw those payments.

History

• Authority: The provisions of this Chapter 165 issued under sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 165 adopted January 3, 2003, effective January 4, 2003, 33 Pa.

31 Pa. Code § 165.2 Scope.

This chapter establishes the minimum Fund amount and when contributions are necessary.

History

• Authority: The provisions of this Chapter 165 issued under sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 165 adopted January 3, 2003, effective January 4, 2003, 33 Pa.

31 Pa. Code § 165.3 Applicability.

This chapter applies to carriers doing the business of workers’ compensation insurance in this Commonwealth.

History

• Authority: The provisions of this Chapter 165 issued under sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 165 adopted January 3, 2003, effective January 4, 2003, 33 Pa.

31 Pa. Code § 165.4 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context indicates otherwise: Act—The Workers Compensation Security Fund Act (77 P. S. § § 1051—1066). Carrier—As defined in section 2 of the act (77 P. S. § 1052). Certificate of authority—As required by section 208 of The Insurance Department Act of 1921 (40 P. S. § 46). Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Fund—As defined in section 2 of the act.

History

• Authority: The provisions of this Chapter 165 issued under sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 165 adopted January 3, 2003, effective January 4, 2003, 33 Pa.

31 Pa. Code § 165.5 Administration.

The Fund may secure, using Commonwealth procurement standards:

(1) A third party administrator to perform claim assessment and handling, and administrative duties and responsibilities.

(2) Actuarial services to provide an annual liability report and to do the analysis described in § 165.6 (relating to amount of fund) to determine the assessment.

This section cited in 31 Pa. Code § 165.7 (relating to assessment).

History

• Authority: The provisions of this Chapter 165 issued under sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 165 adopted January 3, 2003, effective January 4, 2003, 33 Pa.

31 Pa. Code § 165.6 Amount of Fund.

(a) A minimum balance of $500 million shall be maintained in the Fund.

(b) If, due to the payment of liabilities or claims, the balance of the Fund is reduced below $500 million, the Department, in order to return the Fund to the $500 million level, will require contributions sufficient to fund:

(1) The current shortage below $500 million.

(2) Plus the expected payment of liabilities for the next calendar year.

(3) Plus expenses to administer the Fund for the next calendar year.

(4) Less expected investment earnings on the Fund balance during the next calendar year.

This section cited in 31 Pa. Code § 165.5 (relating to administration).

History

• Authority: The provisions of this Chapter 165 issued under sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 165 adopted January 3, 2003, effective January 4, 2003, 33 Pa.

31 Pa. Code § 165.7 Assessment.

(a) The amount of an assessment will be determined by using the actuarial services described in § 165.5 (relating to administration).

(b) Every carrier, doing the business of workers’ compensation insurance in this Commonwealth, will be assessed, based on a prorata share of the total amount of net-written premiums of workers’ compensation insurance reported as written in the previous calendar year’s annual statement.

(c) The assessment, when necessary, will be billed by December 31 of the year that the actuarial study is completed. (Example: Data from the 2002 calendar year is used, the actuarial study is completed in 2003, then the assessment will be made by December 31, 2003.)

(d) Payment of the assessment, when applicable, is due by March 31 of the year following the assessment.

History

• Authority: The provisions of this Chapter 165 issued under sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 165 adopted January 3, 2003, effective January 4, 2003, 33 Pa.

31 Pa. Code § 165.8 Failure to comply.

(a) If a carrier fails to file a return, or make any payment required by the act, or in case the Commissioner has cause to believe that a return or other statement filed is false or inaccurate in any particular, or that a payment made is incorrect, the Commissioner has full authority to examine all the books and records of the carrier for the purpose of ascertaining the facts and determine the correct amount to be paid. The Commissioner may proceed in any court of competent jurisdiction to recover for the benefit of the Fund any sums shown to be due upon the examination and determination.

(b) A carrier that fails to make a statement as required by the act, or to pay any contribution when due, thereby forfeits to the Fund a penalty of 5% of the amount of unpaid contribution determined to be due, as provided by the act, plus 1% of the amount for each month of delay or fraction thereof after the expiration of the first month of the delay.

(c) The Commissioner will revoke the certificate of authority to do business in this Commonwealth of a carrier which fails to comply with the act or to pay a penalty imposed in accordance with the act.

History

• Authority: The provisions of this Chapter 165 issued under sections 205, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.
• Source: The provisions of this Chapter 165 adopted January 3, 2003, effective January 4, 2003, 33 Pa.

Chapter 167 Workers’ Compensation Act—Provider Fees

31 Pa. Code § 167.1 Purpose.

The purpose of this chapter is to set the allowance for anesthesia services provided to patients under the Workers’ Compensation Act (77 P. S. § § 1—2626) when the allowance utilizes the anesthesia conversion factor.

History

• Authority: The provisions of this § 167.
• Source: The provisions of this Chapter 167 adopted December 3, 2004, effective December 4, 2004, 34 Pa.

31 Pa. Code § 167.2 Payment for anesthesia services.

The Workers’ Compensation Part B Fee Schedule shall be amended by multiplying the anesthesia conversion factor applicable to Codes 100-1999 by a multiplier of 1.632. The Fee Schedule, as amended, shall apply to anesthesia services provided in all regions after December 4, 2004.

History

• Authority: The provisions of this § 167.
• Source: The provisions of this Chapter 167 adopted December 3, 2004, effective December 4, 2004, 34 Pa.

Part IX Medical Catastrophe Loss Fund

Chapter 242 Medical Professional Liability Catastrophe Loss Fund

31 Pa. Code § 242.1 Purpose.

The purpose of this chapter is to provide uniform procedures and forms to enable insurance companies and self-insurers to comply with the liability insurance provisions of the act, to promulgate guidelines and requirements governing the purchase of insurance by health care providers as mandated by the act, and to issue regulations necessary to properly effectuate the administrative and financial operations of the Fund.

The provisions of this § 242.1 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; amended October 7, 1977, effective October 8, 1977, 7 Pa.B. 2893; renumbered February 9, 1979, 9 Pa.B. 489. Immediately preceding text appears at serial page (30245).

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006). Basic insurance coverage—Insurance or self-insurance with limits of liability which comply with the occurrence-based requirements of the act in section 701 of the act (40 P. S. § 1301.701). In the case of a claims made policy permitted under sections 103 and 807 of the act (40 P. S. § § 1301.103 and 1301.807), the insurance requirements of the act require purchase of the reporting endorsement (that is, tail coverage) or prior acts coverage or its substantial equivalent by the health care provider, upon cancellation or termination of the claims made policy. Cost to each health care provider—The gross premium, including experience and schedule rating for basic coverage professional liability insurance. Department—The Insurance Department of the Commonwealth. Director—The Office of the Director of the Medical Professional Liability Catastrophe Loss Fund. Emergency surcharge—A surcharge levied by the Insurance Commissioner under section 701(e) of the act (40 P. S. § 1301.701(e)). Fund—The Medical Professional Liability Catastrophe Loss Fund established by section 701 of the act (40 P. S. § 1301.701). Gross premium—The entire premium charged the insured, including, but not limited to, binder charges and policy fees, as is generated to secure an occurrence-based policy. In the case of a claims made policy, the gross premium shall be computed as the sum of all the premiums charged for the claims made policy including the reporting endorsement (that is, tail coverage) or prior acts coverage or its substantial equivalent. Payment of the surcharge shall be made at the time that the respective premium is collected subject to the limitation of § 242.6(a)(3) (relating to reporting forms and procedures). Health care provider—Health care provider as defined by the act. Insurer—The insurance company providing basic coverage insurance.

The provisions of this § 242.2 issued under sections 206 and 506 of The Administrative Code of 1929 (71 P. S. § § 66 and 186); and sections 701(e)(4) and 702(a) of the Health Care Services Malpractice Act (40 P. S. § § 1301.701(e)(4) and 1301.702(a)).

The provisions of this § 242.2 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; amended October 7, 1977, effective October 8, 1977, 7 Pa.B. 2893; renumbered February 9, 1979, 9 Pa.B. 498; amended August 29, 1980, effective August 30, 1980, 10 Pa.B. 3514; amended September 30, 1983, effective October 1, 1983, 13 Pa.B. 2969; amended through April 27, 1984, effective April 28, 1984, 14 Pa.B. 1453. Immediately preceding text appears at serial pages (85378) to (85379).

Adequate Remedy

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

Validity of Regulations

Director of Medical Professional Liability Catastrophe Loss Fund (CAT Fund) had statutory authority to adopt regulations requiring health care provider with claims policy to also purchase primary insurance to maintain CAT coverage for claims that involve alleged malpractice occurring during period covered by claims policy but filed after expiration of claims policy. Paternaster v. Lee, 863 A.2d 487, 493 (Pa. 2004)

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.3 Notice of and amount of surcharge.

(a) The Director, with the prior approval of the Insurance Commissioner, will publish, prior to December 1, in the Pennsylvania Bulletin, notice of a change in the amount of surcharge applicable to health care providers and collectible during the following calendar year.

(b) The effective date of a change in the amount of surcharge shall be January 1 and shall be applicable to policies of basic coverage insurance or plans of self-insurance having new or renewal dates occurring on or after January 1.

The provisions of this § 242.3 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; amended January 20, 1978, effective January 21, 1978, 8 Pa.B. 755; renumbered February 9, 1979, 9 Pa.B. 498. Immediately preceding text appears at serial page (32045).

Relief in Court

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.4 Computation of surcharge when professional liability insurance premium part of a composite rate.

(a) Where the professional liability insurance premium of an insured is included in a composite rate or with other insurance coverage, it shall be the responsibility of the insurer to accurately compute the portion attributable to the professional liability insurance, in order to properly determine the surcharge.

(b) Premiums subject to rating adjustments or audits, or both, shall be recomputed at the time of the adjustment or audit to determine the gross premium to which the surcharge is applicable.

The provisions of this § 242.4 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498.

Adequate Remedy

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.5 Adjustment of surcharge.

(a) Calculation of the surcharge shall be made based on the first policy written or renewed after January 1 of the calendar year. The surcharge amount shall be submitted to the Fund within 60 days of the effective date required by § 242.6 (relating to reporting forms and procedures). A subsequent adjustment to the premium for the basic insurance coverage shall be reported to the Fund by the basic insurance carrier and the surcharge shall be adjusted accordingly.

(b) In the event of an increase or decrease in the surcharge owed to the fund, the carrier shall submit proper evidence of the modification of the premium for the basic insurance coverage policy and shall indicate on the Form 216 a credit or debit to be applied to the account of the carrier. A refund check may not be issued to a carrier or health care provider unless unusual circumstances arise which indicate that a refund may be made.

The provisions of this § 242.5 issued under sections 206 and 506 of The Administrative Code of 1929 (71 P. S. § § 66 and 186); and section 701(e) of the Health Care Services Malpractice Act (40 P. S. § 1301.701(e)).

The provisions of this § 242.5 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; amended March 17, 1978, effective March 18, 1978, 8 Pa.B. 2607; renumbered February 9, 1979, 9 Pa.B. 498; amended October 24, 1980, effective October 25, 1980, 10 Pa.B. 4214. Immediately preceding text appears at serial pages (50182) to (50183).

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

This section cited in 31 Pa. Code § 242.7 (relating to discontinuation of basic coverage insurance and notices of noncompliance); and 31 Pa. Code § 242.9 (relating to overpayments, credits, and duplicate payments).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.6 Reporting forms and procedures.

(a) The following forms have been promulgated or approved for use under this chapter:

(1) Form 5116—Acknowledgment of Insurance and Surcharge Paid. This form is intended as the acknowledgment from approved self-insured health care providers that they are self-insured in compliance with the act and have paid the Fund surcharge. Basic coverage insurance carriers may also use this form in lieu of the Declarations Page to acknowledge that the health care provider has purchased basic coverage professional liability insurance and paid the Fund surcharge, if prior approval for its continued use has been obtained from the Fund’s legal counsel in accordance with paragraph (2)(iii).

(i) The original of the form or the Declarations Page—whichever is applicable—is to be mailed to the health care provider; and a copy is to be submitted to the Fund, accompanied by the surcharge payment and Form 216, within 60 days of the effective date of the policy or self-insurance period.

(ii) Licensed physicians and podiatrists covered under policies issued to hospitals, nursing homes and primary health centers shall also be provided with a completed acknowledgment form. Individual copies of the form or the Declarations Page—whichever is applicable—accompanied by the surcharge payments for each of these health care providers and Form 216 are to be submitted to the Fund attached to the acknowledgment form applicable to the hospital, nursing home or primary health center.

(2) Declarations Page—Acknowledgment of Insurance and Surcharge Paid. A copy of this form, which forms a part of the medical malpractice policy issued by a commercial carrier, shall be submitted to the Fund in lieu of and in the same manner as Form 5116 as explained in paragraph (1).

(i) The Declarations Page shall display all of the following:

(A) Information requested on the Form 5116, explained in paragraph (1).

(B) The amount of surcharge paid.

(ii) The copy to be submitted to the Fund shall be marked, ‘‘Catastrophe Loss Fund,’’ at the bottom of the form.

(iii) The Declarations Page shall be submitted to the legal counsel of the Director for approval prior to use. After July 1, 1980, no form will be accepted from a commercial carrier unless circumstances preclude the use of the Declarations Page, and prior approval for the continued use of the Form 5116 has been obtained from the legal counsel of the Director. Requests for approval shall be submitted to: Legal Counsel; Post Office Box 12030; 221 North Second Street; Harrisburg, Pennsylvania 17108.

(3) Form 216—Remittance Advice. This form is to be used by basic professional liability insurance carriers and approved self-insurers for summarizing surcharges collected, payable and refundable. The form, accompanied by a check, should be received in the Director’s Office within 60 days from the effective date of the policy. On installment policies, the surcharge applicable to the full annual policy period shall be collected and remitted to the Director at the inception of the policy.

(4) Form C416—Insurance Company Report. This completed form shall be submitted by the insurer or self-insurer to the Director, as notice to the Fund of claims reasonably believed to exceed the coverage of the insurer or the retained limits of the self-insured.

(b) Forms may be reproduced as necessary to facilitate compliance with this chapter.

(c) Upon written request, the Director may approve, in writing, modifications of the forms and procedures listed in subsection (a) if more expedient alternatives are available.

(d) Reporting forms submitted to the Fund erroneously completed will be returned to the commercial carrier or self-insured health care provider for correction and resubmission at the discretion of the Director. Surcharge payments that originally accompanied forms to be resubmitted will be returned only when circumstances render retention impracticable.

(e) Notwithstanding subsection (a), in the event that a health care provider is notified by the Fund of its noncompliance with the act’s insurance requirements and insurance is purchased under the notice, the health care provider shall disclose this fact to the insurer; and the insurer shall submit the reporting form and remit the surcharge within 30 days of the effective date of the policy.

(f) The emergency surcharge shall be reported to the Fund by the insurer or self insurer utilizing the same forms used when reporting the annual surcharge to the Fund. The forms used when reporting the emergency surcharge shall clearly indicate that it is the emergency surcharge being reported.

The provisions of this § 242.6 issued under sections 206 and 506 of The Administrative Code of 1929 (71 P. S. § § 66 and 186); and sections 701(e)(4) and 702(a) of the Health Care Services Malpractice Act (40 P. S. § § 1301.701(e)(4) and 1301.702(a)).

The provisions of this § 242.6 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; amended October 7, 1977, effective October 8, 1977, 7 Pa.B. 2894; renumbered February 9, 1979, 9 Pa.B. 498; amended April 25, 1980, effective April 26, 1980, 10 Pa.B. 1665; amended July 16, 1982, effective July 17, 1982, 12 Pa.B. 2282; amended October 8, 1982, effective October 9, 1982, 12 Pa.B. 3640; amended September 30, 1983, effective October 1, 1983, 13 Pa.B. 2969; amended through April 27, 1984, effective April 28, 1984, 14 Pa.B. 1453. Immediately preceding text appears at serial pages (85380) to (85383).

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

This section cited in 31 Pa. Code § 242.2 (relating to definitions); 31 Pa. Code § 242.5 (relating to adjustment of surcharge); 31 Pa. Code § 242.7 (relating to discontinuation of basic coverage insurance and notices of noncompliance); 31 Pa. Code § 242.10 (relating to self-insurers); 31 Pa. Code § 245.6 (relating to remittance of emergency surcharge amounts); and 31 Pa. Code § 245.7 (relating to reporting forms).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.7 Discontinuation of basic coverage insurance and notices of noncompliance.

(a) Cancellation or nonrenewal.

(1) Cancellation or nonrenewal of coverage resulting from the request of the insured or the cancellation or nonrenewal by the insurer or self insurer automatically releases the Fund from liability for claims for injuries or death from services which were rendered or which should have been rendered by the health care provider which occur after the effective date of cancellation or nonrenewal.

(2) Cancellation or nonrenewal of claims made coverage resulting from the request of the insured or the cancellation or nonrenewal by the insurer without the purchase of the reporting endorsement, prior acts coverage or its substantial equivalent automatically releases the Fund from liability for claims for injuries or death from services which were rendered or which should have been rendered by the health care provider which occur or which are reported to the basic coverage insurance carrier after the effective date of cancellation or nonrenewal.

(b) Copies of cancellation evidence, that is, notices, confirmation and so forth, and evidence in support of refunds under § 242.5 (relating to adjustment of surcharge) shall be submitted to the Director along with Form 216.

(c) Notice of cancellation of a claims made policy shall clearly indicate that it is a claims made policy which has been cancelled. The notice shall also clearly indicate whether the health care provider has purchased a reporting endorsement for tail coverage.

(d) In the event that a health care provider elects to purchase prior acts coverage or its substantial equivalent rather than the reporting endorsement, it is the duty of the insurer providing this coverage to immediately notify the fund of the election, in writing, specifying the full name of the health care provider, license number, specialty code, effective and retroactive dates of coverage and previous carrier. Submission of the declarations page and remittance of the surcharge shall be made as provided for in § 242.6 (relating to reporting forms and procedures).

(e) The insurer shall notify the Fund of those health care providers who either fail to procure increased basic coverage insurance limits under section 701(a) of the act (40 P. S. § 1301.701(a)) and pay the surcharge thereon or who fail to pay the emergency surcharge when levied.

(f) Notices required under this section with the exception of subsection (d) shall be given as soon as possible upon the expiration of the remittance period established by the insurer’s billing.

The provisions of this § 242.7 issued under sections 206 and 506 of The Administrative Code of 1929 (71 P. S. § § 66 and 186); and sections 701(e)(4) and 702(a) of the Health Care Services Malpractice Act (40 P. S. § § 1301.701(e)(4) and 1301.702(a)).

The provisions of this § 242.7 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; amended March 17, 1978, effective March 18, 1978, 8 Pa.B. 755; renumbered February 9, 1979, 9 Pa.B. 498; amended September 30, 1983, effective October 1, 1983, 13 Pa.B. 2969; amended April 27, 1984, effective April 28, 1984, 14 Pa.B. 1453. Immediately preceding text appears at serial pages (85383) to (85384).

Relief in Court

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

Tail Coverage

Patient brought action against Medical Care Availability and Reduction of Error Fund (Fund) and pediatrician, asserting Fund was required to defend and indemnify pediatrician in patient’s medical malpractice action; pediatrician did not purchase tail coverage or its substantial equivalent when he terminated his claims made policy, therefore, Fund was not required to indemnify and defend claims arising after policy termination. Gingerlowski v. Commonwealth Ins. Dept., 961 A.2d 237, 243 (Pa. Cmwlth. 2008).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.7a Allowable time periods for application to fund for surcharge credits as a result of policy cancellations—statement of policy.

(a) For all policies issued or renewed in 2001, the Fund should be notified of any cancellation of a health care provider’s basic coverage insurance policy, or self-insured arrangement, and should receive any corresponding application for credit, no later than 1 year from the date of the cancellation. For example, if a policy or coverage period on a particular health care provider runs from January 1, 2001, to December 31, 2001, and there is a cancellation of the policy effective September 1, 2001, notification of the cancellation and any corresponding appli-cation for credit shall be reported to the Fund by September 1, 2002, if not sooner. A basic coverage insurance carrier or self-insured health care provider will have at least 60 days to notify the Fund of a cancellation and provide the Fund with the corresponding application for credit.

(b) For policies issued or renewed in 2002, and every year thereafter, the Fund should be notified of any cancellation of a provider’s basic coverage insurance policy, or self-insured arrangement, and should receive any corresponding application for credit, within 60 days from the date of the cancellation.

(c) On a going forward basis, the Fund will not accept applications for surcharge credits for policies issued or renewed before January 1, 2001.

The provisions of this § 242.7a adopted December 14, 2001, effective December 15, 2001, 31 Pa.B. 6825.

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.8 New acknowledgment.

A new Form 5116 shall be issued upon payment of the surcharge on a new or reinstated basic coverage insurance policy.

The provisions of this § 242.8 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498.

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.9 Overpayments, credits and duplicate payments.

When overpayments are made by insureds, agents or insurers, they may be recovered by offsets against amounts due from companies to the Fund. The offsets shall be recorded on Form 216 with minus signs or brackets to distinguish them from debits and shall be accompanied by evidence in support of refunds resulting from premium reductions under § 242.5(a)(1) (relating to adjustment of surcharge). Surcharge credits of amounts less than $10 may be waived in accordance with the insurer’s policy relative to small return premiums.

The provisions of this § 242.9 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; amended March 17, 1978, effective March 18, 1978, 8 Pa.B. 755; renumbered February 9, 1979, 9 Pa.B. 498. Immediately preceding text appears at serial page (32052).

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.10 Self-insurers.

(a) This chapter applies to approved and accepted self-insurance plans and self-insurers.

(b) Self-insurers shall pay the surcharge to the Fund accompanied by the reporting forms required under § 242.6 (relating to reporting forms and procedures) within 60 days of the effective date of the self-insurance plan and on an annual basis thereafter within 60 days of the inception of the annual self-insurance period.

The provisions of this § 242.10 issued under sections 206 and 506 of The Administrative Code of 1929 (71 P. S. § § 66 and 186); section 701(e)(4) of the Health Care Services Malpractice Act (40 P. S. § 1301.701(e)(4)); and 2 Pa.C.S. § 102(a).

The provisions of this § 242.10 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498; amended July 16, 1982, effective July 17, 1982, 12 Pa.B. 2282. Immediately preceding text appears at serial page (36684).

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.11 Notice of claims exceeding basic coverage insurance.

The insurer or self-insurer shall, within 30 days of determining that a claim is likely to exceed the basic coverage of the insurer, or the retained limits of the self-insured, submit Form C416 to the Director.

The provisions of this § 242.11 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498.

Adequate Remedy

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.12 Determination of health care provider.

(a) The insurer or self insurer shall be responsible for making the initial determination of who is a health care provider for purposes of having access to the liability coverage provided by the Fund.

(b) The initial determination of health care provider status by the insurer or self insurer shall not preclude a review of this determination by the Fund.

The provisions of this § 242.12 issued under section 506 of The Administrative Code of 1929 (71 P. S. § 186); and sections 701(e)(4) and 702(a) of the Health Care Services Malpractice Act (40 P. S. § § 1301.701(e)(4) and 1301.702(a)).

The provisions of this § 242.12 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498; amended April 27, 1984, effective April 28, 1984, 14 Pa.B. 1453. Immediately preceding text appears at serial page (85385).

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.13 Audits.

The Director has the authority to conduct or arrange audits of the records of insurers, health care providers, and the Joint Underwriting Association, in order to protect the rights and responsibilities of the Fund.

The provisions of this § 242.13 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498.

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.14 Bulletins and notices.

Bulletins and notices will be issued periodically by the Director to clarify or modify procedures. Insurers, agents, brokers, health care providers and others requiring the information will, upon request to the Director, be placed on a mailing list for such bulletins.

The provisions of this § 242.14 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498.

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.15 Notification to the Director.

(a) Persons accountable. Insurers and self-insurers shall notify the Director in writing of the responsible person accountable for procedures and timely remittances applicable to Article VII of the act (40 P. S. § § 1301.701—1301.702).

(b) Pennsylvania license numbers. Insurers and self-insurers shall record and report the Pennsylvania medical license numbers of the health care providers to the Director on forms prescribed in this chapter, on new and renewal business written subsequent to October 31, 1976.

The provisions of this § 242.15 issued under section 506 of The Administrative Code of 1929 (71 P. S. § 186); and sections 701(e)(4) and 702(a) of the Health Care Services Malpractice Act (40 P. S. § § 1301.701(e)(4) and 1301.702(a)).

The provisions of this § 242.15 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498; amended April 27, 1984, effective April 28, 1984, 14 Pa.B. 1453. Immediately preceding text appears at serial page (72789).

Right to Appeal

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.16 Retention of records.

Insurers and self-insurers shall be responsible for the retention of forms and records described in this chapter, in accordance with the applicable Commonwealth statute of limitations.

The provisions of this § 242.16 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498.

Adequate Remedy

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.17 Compliance.

(a) The failure of the health care provider to comply with section 701 of the act (40 P. S. § 1301.701) or this chapter will result in notification by the Director to the applicable Licensure Board. Section 701(f) of the act (40 P. S. § 1301.701(f)) provides that failure of a health care provider to comply with section 701 of the act or rules and regulations issued by the Director shall result in the suspension or revocation of the health care provider’s license by the Licensure Board.

(b) A health care provider failing to pay the surcharge or emergency surcharge within the time limits prescribed will not be covered by the Fund in the event of loss.

(c) A health care provider failing to procure increased basic coverage insurance limits under section 701(a) of the act (40 P. S. § 1301.701(a)) and pay the surcharge thereon will not be covered by the Fund in the event of loss.

(d) The Fund will be relieved of its responsibility in the following case:

(1) The Fund will be relieved of its responsibility to a health care provider to defend and indemnify a claim reported to the Fund under section 605 of the act (40 P. S. § 1301.605) if, at the time of the occurrence, the health care provider fails to maintain basic coverage insurance in compliance with the act and this chapter.

(2) Notwithstanding paragraph (1), if at the time of the occurrence the health care provider is insured on a claims made basis and thereafter fails to purchase the reporting endorsement, prior acts coverage or its substantial equivalent upon cancellation or nonrenewal of the claims made policy, and subsequently a claim is reported to the Fund under section 605 of the act (40 P. S. § 1301.605), the Fund will be relieved of its responsibility to the health care provider to defend and indemnify the claim under section 605 of the act.

The provisions of this § 242.17 issued under section 506 of The Administrative Code of 1929; and sections 701(e)(4) and 702(a) of the Health Care Services Malpractice Act (40 P. S. § § 1301.701(e)(4) and 1301.702(a)).

The provisions of this § 242.17 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498; amended April 27, 1984, effective April 28, 1984, 14 Pa.B. 1453. Immediately preceding text appears at serial page (72789).

Malpractice Action

Implicit in grant of authority to the Pennsylvania Medical Professional Liability Catastrophe Loss (CAT) Fund to levy and collect surcharges from health care providers entitled to participate in the fund was the authority to assess penalty for failure of providers to timely pay charges on time; therefore, regulation providing that health care provider who failed to pay fund surcharges would not be covered by fund in event of loss was valid. Lloyd v. CAT Fund, 821 A.2d 1230, 1235 (Pa. 2003).

It was error for the court to hold appellant, Medical Professional Liability Catastrophe Loss Fund, liable for excess liability coverage where the doctor failed to pay the required surcharges, despite appellant’s failure to report the doctor to the applicable licensure board. Dellenbaugh v. Medical Professional Liability Catastrophe Loss Fund and Pennsylvania Medical Society Liability Insurance Co., 756 A.2d 1172 (Pa. 2000).

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

Tail Coverage

Patient brought action against Medical Care Availability and Reduction of Error Fund (Fund) and pediatrician, asserting Fund was required to defend and indemnify pediatrician in patient’s medical malpractice action; pediatrician did not purchase tail coverage or its substantial equivalent when he terminated his claims made policy, therefore, Fund was not required to indemnify and defend claims arising after policy termination. Gingerlowski v. Commonwealth Ins. Dept., 961 A.2d 237, 243 (Pa. Cmwlth. 2008).

Validity of Regulation

Regulation providing that health care provider who failed to timely pay fund surcharges would not be covered by fund in event of loss was valid exercise of the Pennsylvania Medical Professional Liability Catastrophe Loss (CAT) Fund’s rulemaking authority. Lloyd v. CAT Fund, 821 A.2d 1230 (Pa. 2003).

Regulations requiring health care provider with claims policy to maintain primary insurance after claims policy expires by purchasing prior acts coverage to maintain Medical Professional Liability Catastrophe Loss Fund coverage for claims involving alleged malpractice occurring during period covered by claims policy, but filed after expiration of claims policy were consistent with the Health Care Services Malpractice Act. Paternaster v. Lee, 863 A.2d 487, 494 (Pa. 2004)

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.18 Effective date.

The effective date of this chapter as well as the commencement date for using the prescribed forms shall be November 1, 1976.

The provisions of this § 242.18 adopted October 15, 1976, effective October 16, 1976, 6 Pa.B. 2565; renumbered February 9, 1979, 9 Pa.B. 498.

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.19 Investment transactions.

For the purposes of investing funds generated by the operations of the Fund, and only for investment purposes, the Director will cause all investments now owned in the name of the Fund and hereafter purchased by the Fund under section 1 of the act of April 25, 1929 (P. L. 723, No. 315) (72 P. S. § 3603) to be held in the shortened name of ‘‘Medcat & Co.’’ Such name will constitute the sole name under which the Director may invest funds. The Director will give notice to all parties with whom he deals in pursuit of his investment responsibilities, by citation of this section, of the existence of the Fund as the real party in interest in Medcat & Co. transactions.

The provisions of this § 242.19 adopted October 7, 1977, effective October 8, 1977, 7 Pa.B. 2893.

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195, 1197 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

31 Pa. Code § 242.20 Formal and informal complaints; procedure.

Under 1 Pa. Code § 31.1 (relating to scope of part), 1 Pa. Code Part II (relating to general rules of administrative practice and procedure) is applicable to the activities of and proceedings before the fund. These provisions will govern the procedure to be followed in handling formal and informal complaints addressed to the Fund.

The provisions of this § 242.20 issued under sections 206 and 506 of The Administrative Code of 1929 (71 P. S. § § 66 and 186); section 701(e)(4) of the Health Care Services Malpractice Act (40 P. S. § 1301.701(e)(4)); and 2 Pa.C.S. § 102(a).

The provisions of this § 242.20 adopted August 7, 1981, effective August 8, 1981, 11 Pa.B. 2760.

Doctrine of exhaustion of administrative remedies was inapplicable where question was whether Medical Professional Liability Catastrophe Loss Fund was liable over to malpractice defendant’s excess insurer since the key question of whether there was one or two occurrences of medical malpractice was not within the Fund’s specialized knowledge since the Fund regulations, 31 Pa. Code § § 242.1—242.20 do not address the claims and since the Health Care Services Malpractice Act makes no specific provision regarding claims between insurance companies and the Fund but does contemplate the Fund’s involvement in litigation concerning the claims (40 P. S. § 1301.702(f)). Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 500 A.2d 191 (Pa. Cmwlth. 1985).

These provisions provide for resolution of complaints of adverse agency action, and as such, do not provide adequate remedy or preclude litigant from seeking relief in court, where issue is Cat Fund’s failure to pay share of malpractice claim settlement, which places Fund in position of defendant, as opposed to its designed position of participant and/or arbiter. Ohio Cas. Group of Ins. Companies v. Argonaut Ins. Co., 525 A.2d 1195 (Pa. 1987).

History

• Authority: The provisions of this § 242.
• Source: The provisions of this Chapter 242 adopted October 15, 1976, effective October 16, 1976, 6 Pa.

Chapter 243 Medical Malpractice and Health-Related Self-Insurance Plans

31 Pa. Code § 243.1 Purpose.

The purposes of this chapter are to provide a procedure for the approval of self-insurance plans, provide for the orderly transition between commercial insurance and self-insurance that provides continuous and adequate protection, encourage effective risk management in order to enhance patient care, and provide for adequate funding by a health care provider, thereby enhancing prompt payment of claims of those persons that may avail themselves of the services provided by the health care provider.

The provisions of this § 243.1 amended under The Insurance Department Act of 1921 (40 P.S. § § 1—321); The Insurance Company Law of 1921 (40 P.S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P.S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P.S. § § 1301.101—1301.1006).

The provisions of this § 243.1 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1816; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial page (109902).

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 243.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Health Care Services Malpractice Act (40 P.S. § § 1301.101—1301.1006). Asserted claim—An incident about which the potential claimant has made a communication and which, after review of the circumstances, leads to the reasonable conclusion that the provider may have possible claim liability. Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Effective date—The date on which the Commissioner initially approved a self-insurance plan, whether under this chapter or prior regulations. Government—The government of the United States, a state, a political subdivision of a state, an instrumentality of one or more states or an agency, subdivision or department of these forms of government. The term includes a corporation or other association organized by a government for the execution of a government program and subject to control by a government or corporation or agency established under an interstate compact or international treaty. Health care provider—A primary health center or person, corporation, facility, institution or other entity licensed or approved by the Commonwealth to provide health care or professional medical services as a physician, an osteopathic physician, a surgeon, a certified nurse midwife, a podiatrist, hospital, nursing home, birth center and, except as to section 701(a) of the act (40 P.S. § 1301.701(a)), an officer, employe or agent of any of the providers acting in the course and scope of employment. Plan of risk management—A plan established and maintained for the purpose of reducing, through loss prevention, loss reduction and other generally accepted risk management techniques, the frequency and severity of personal injuries arising out of the rendition of or failure to render professional services by a health care provider. Primary health center—A community-based nonprofit corporation, meeting standards prescribed by the Department of Health, which provides preventative, diagnostic, therapeutic and basic emergency health care by licensed practitioners who are employes of the corporation or under contract to the corporation. Professional liability insurance—Insurance against liability on the part of the health care provider arising out of a tort or breach of contract causing injury or death, resulting from the furnishing of medical services which were or should have been provided. Self-insurance—The assumption by a health care provider of a professional liability risk arising out of a tort or breach of contract causing injury or death resulting from the furnishing of medical services which were or should have been provided.

The provisions of this § 243.2 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 243.2 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1816; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial pages (109902), (63282) and (39843).

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 243.3 Standards for self-insurance plans.

For a plan of self-insurance to meet the standard of section 701(a)(4) of the act (40 P. S. § 1307.701(a)(4)) that it ‘‘constitutes protection equivalent to the insurance requirements of a health care provider’’, the plan shall do the following:

(1) Provide a fund, in a form approved by the Commissioner, to be held by a trustee in a segregated and independent account which shall be available only for the payment of claims covered by the basic insurance provided by the act. A separate segregated and independent account within the trust shall be used by the health care provider to pay for expenses such as trustee fees or commissions, legal expenses or other claims for liability other than the basic insurance provided in the act. The funding and reporting requirements only apply to the trust account for the payment of claims covered by the basic insurance provided by the act.

(2) Capitalize the fund for the payment of claims covered by the basic insurance provided by the act using only the following permissible assets:

(i) Direct obligations of the United States Government—United States Treasury bonds, bills or notes.

(ii) Obligations of Federal government agencies—bonds, debentures or notes such as the following:

(A) Federal Home Loan Bank.

(B) Small Business Administration.

(C) Federal Land Bank.

(D) Federal National Mortgage Association.

(E) Government National Mortgage Association.

(iii) Direct obligations of the Commonwealth—Commonwealth general obligation bonds, debentures or notes.

(iv) Obligations of Commonwealth agencies—bonds, debentures or notes for the following:

(A) General State Authority.

(B) Highway and Bridge Authority.

(C) Public School Building Authority.

(D) Higher Education Authority.

(E) State universities.

(v) An interest-bearing deposit or a certificate of deposit in a bank, bank and trust company or savings bank chartered in this Commonwealth which is protected by the Federal Deposit Insurance Corporation.

(vi) A savings account or certificate of deposit of a savings association chartered in this Commonwealth which is protected by the Federal Savings and Loan Insurance Corporation.

(vii) United States corporations’ bonds or debentures rated in one of the three highest categories by a nationally recognized securities rating organization.

(viii) Corporate preferred or common stock or shares of a corporation incorporated under the laws of the United States rated in one of the three highest categories by a nationally recognized securities rating organization.

(ix) Short term investment funds managed by major commercial banks chartered in this Commonwealth. A detailed description or listing of the components of the short term investment fund shall be furnished upon application by the health care provider and on a yearly basis thereafter. Submission of details concerning the investment fund may coincide with the financial reporting requirements set forth under § 243.4 (relating to reporting requirements for self-insurance plans).

(x) Surety bonds issued by an insurance company authorized to write surety bonds in this Commonwealth, for which the policy holders’ rating and financial rating for the company is not less than A and IX, respectively, by Best’s Insurance Reports. The total face amount of surety bonds issued by the insurance company may not exceed 10% of the capital and surplus of the insurance company.

(xi) Clear, irrevocable and unconditional letters of credit which may only be utilized to fund asserted claims as defined in paragraph (6).

(3) Ensure that the total market value of assets comprising the account are sufficient to meet the financial requirements applicable to self-insurance.

(4) Secure the prior approval of the Commissioner before adding an asset to the fund that is not set forth in this section.

(5) Provide that the fund contains the following amounts:

(i) In the case of a hospital plan:

(A) Upon the effective date of the self-insurance plan approved by the Commissioner, the fund shall be capitalized at a minimum of $200,000 or an amount equal to the current annual premium charged by an insurer for an occurrence-based policy covering the employes of the hospital except licensed physicians, whichever amount is greater.

(B) On the second anniversary of the effective date of the plan, the capitalization of the fund shall be $325,000 or an amount equal to the current annual premium charged by an insurer for an occurrence-based policy covering the employes of the hospital except licensed physicians, whichever amount is greater.

(C) On the third anniversary of the effective date of the plan, the capitalization of the fund shall be $500,000 or an amount equal to the current annual premium charged by an insurer for an occurrence-based policy covering the employes of the hospital except licensed physicians, whichever amount is greater.

(D) On the sixth anniversary of the effective date of the plan, the capitalization of the fund shall be $1 million.

(ii) In the case of a hospital plan which includes physicians, the Fund’s capitalization requirements of subparagraph (i)(A)—(D) shall be augmented by an amount equal to the total of the annual basic coverage premiums for the physicians that would be charged by a licensed, admitted insurance carrier. If no quote or certified quote equivalent is obtainable from a licensed admitted insurance carrier, the premiums set by the Pennsylvania Joint Underwriting Association may be used.

(iii) In the case of a plan for health care providers other than hospitals, $300,000 upon the effective date of the plan; however, the amount shall be $600,000 for health care providers who conduct 50% or less of their health care business or practice, as defined in section 701(a)(2) of the act (40 P. S. § 1301.701(a)(2)), within this Commonwealth.

(6) Provide that there shall be added to the capitalization of the fund amounts equal to the potential liability, within the limits of basic insurance coverage required by the act, as estimated by procedures established by the self-insurance plan for each asserted claim against the health care provider.

(7) Provide evidence of implementation of a plan of risk management acceptable to the Commissioner, or evidence that the health care provider has implemented a previously approved plan of risk management, which may be offered on a consulting basis by an insurer or risk management consulting firm.

(8) Provide for appropriate coverage if a health care provider terminates a self-insurance plan. After notification of termination to the Department by the health care provider, the fund shall be maintained for 4 years under paragraphs (5) and (6). At the end of the 4-year period, the trustee of the fund may return to the health care provider the amounts deposited under paragraph (5). Amounts deposited under paragraph (6) shall be maintained until final disposition of those claims.

(9) Provide for an agreement that books and records pertaining to a fund, as defined in this section, shall be open for inspection by the Commissioner at reasonable times.

(10) Confer upon the Commissioner the right to require, by order of the Department, compliance by the health care provider and trustee with the trust agreement, the act and current regulations.

(11) Establish a trustee reporting system as follows:

(i) Prior to the initiation of a program year, the health care provider, based on the funding strategy which it develops for that program year, shall provide the trustee with a letter describing the amount of funding to be achieved during that calendar year and the payment plan by which it will be achieved. This subparagraph does not require the trustee to have responsibility for establishing the correctness of the funding level to be used for a program year.

(ii) If the health care provider deviates from the plan funding strategies, it is the duty of the trustee to notify the health care provider, whereupon the health care provider will present the trustee with a reason for having deviated and a plan for adherence to the established schedule. If a deficiency is not eliminated within 60 days of the deviation from adherence to the schedule, the trustee shall promptly notify the Commissioner.

(iii) On a monthly basis, the health care provider shall provide the trustee with a report from an authorized representative of the health care provider stating the total of asserted claims reserves that should be established. It is the trustee’s duty to compare the reserve levels with the corresponding amounts available in the fund for asserted claims reserves. If a deficiency exists in the amounts available, the trustee shall notify the health care provider promptly. Within 30 days, the health care provider shall in turn notify the trustee of the manner in which it intends to rectify the deficiency. If a deficiency is not eliminated within 60 days of the first notice, the trustee has the duty to notify the Commissioner.

(12) Establish a trustee investment policy to the effect that a trustee, in making or retaining investments, recognizes that the primary objective of the fund is to insure adequate liquidity of the fund for payment of professional liability claims.

(13) Provide in the trust agreement that the agreement may be amended only with the prior approval of the Department.

(14) Provide in the trust agreement that the trustee may resign only with the prior approval of the Department. The current trustee shall continue to assume the trustee duties under the trust agreement until the Department approves a successor trustee who shall assume the duties of the trust agreement.

The provisions of this § 243.3 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 243.3 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1816; renumbered February 9, 1979, 9 Pa.B. 498; amended April 13, 1979, effective April 14, 1979, 9 Pa.B. 1289; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial pages (39843) to (39845).

This section cited in 31 Pa. Code § 243.9 (relating to government plan for self-insurance); and 31 Pa. Code § 243.11 (relating to compliance by existing self-insured hospitals).

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 243.4 Reporting requirements for self-insurance plans.

A health care provider with an approved self-insurance plan shall report to the Commissioner not later than 6 months following the end of the hospital’s fiscal year the experience of the prior fiscal year. The reports shall include the following:

(1) A certificate of acceptable audit of the self-insurance trust fund by a certified public accountant (CPA) and a copy of the CPA report.

(2) A balance sheet, an income and expense exhibit and other financial exhibits which the Commissioner may require.

(3) A comprehensive report of the risk management program of the self-insurance plan. A provider may substitute the proof of current 3-year accreditation by the Joint Commission on Accreditation of Hospitals and the current Department of Health audit showing a satisfactory status in place of the comprehensive report.

(4) Other information as the Commissioner may reasonably request.

The provisions of this § 243.4 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 243.4 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1816; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial page (39845).

This section cited in 31 Pa. Code § 243.3 (relating to standards for self-insurance plans).

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 243.5 Approval of risk management plan by Commissioner.

An insurance company, entity, association or other unit desiring to gain approval of a plan of risk management to which health care providers may subscribe in fulfillment of the requirements under this chapter shall submit the plan to the Commissioner for approval. Before the Commissioner will grant approval, a plan shall have the following:

(1) A complete risk management manual containing a detailed description of the operation of the plan.

(2) An established broad-based risk management committee. The committee shall at least include the risk manager, the chief executive officer or a designee from administration, the president of the medical staff or a designee who is a member of the medical staff, the director of nursing or a designee who is a registered nurse and a member of the medical records department.

(3) A subscription to a hospital utilization project or its equivalent.

(4) A risk management monitoring system to include self audits done on a scheduled basis.

(5) An operational set of medical staff bylaws approved by the Joint Commission on Accreditation of Hospitals or the Department of Health.

The provisions of this § 243.5 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 243.5 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1816; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial page (39845).

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 243.6 Standards for institutional plan of risk management for hospitals and nursing homes.

(a) A hospital plan of risk management shall provide for certification by the management to be made to the Commissioner of satisfactory compliance with the following:

(1) The Medical Practice Act of 1985 (63 P. S. § § 422.1—422.45), the Osteopathic Medical Practice Act (63 P. S. § § 271.1—271.18) or the Podiatry Practice Act (63 P. S. § § 42.1—42.21c).

(2) The provisions for professional standards review in section 1160 of the Social Security Act (42 U.S.C.A. § 1320c-9).

(3) A 3-year accreditation by the Joint Commission on Accreditation of Hospitals.

(4) The continuing education requirements of the Pennsylvania Medical Society, the Pennsylvania Osteopathic Medical Association, the Pennsylvania Podiatry Association or their equivalent.

(b) A plan of risk management for nursing homes shall provide for certification by the management to be made to the Commissioner of satisfactory compliance with the following:

(1) Licensure provisions for long-term care facilities at 28 Pa. Code Part IV, Subpart C (relating to long term care facilities).

(2) American National Standards Institute specifications for buildings and facilities accessible to and used by the physicially handicapped and the Pennsylvania standards and specifications applicable to facilities constructed with Commonwealth funds set by sections 1—3.1 of the act of September 1, 1965 (P. L. 459, No. 235) (71 P. S. § § 1455.1—1455.3a) and 34 Pa. Code § § 47.111—47.131 (relating to facilities for handicapped).

The provisions of this § 243.6 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 243.6 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1816; renumbered February 9, 1979, 9 Pa.B. 498; amended April 13, 1979, effective April 14, 1979, 9 Pa.B. 1289; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial pages (39845) to (39846).

This section cited in 22 Pa. Code § 243.7 (relating to standards for noninstitutional plan of risk management).

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 243.7 Standards for noninstitutional plan to risk management.

For noninstitutional plans of risk management, § 243.6 (relating to standards for institutional plan of risk management for hospitals and nursing homes) applies, except for subsection (a)(3).

The provisions of this § 243.7 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 243.7 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1816; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial page (39846).

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 243.9 Government plan for self-insurance.

A government plan of self-insurance shall meet the financial standards of this chapter for a health care provider. However, the Commissioner may waive the provisions of § 243.3 (relating to standards for self-insurance plans) upon satisfactory evidence that the elements of a sound self-insurance plan are operational, including but not limited to the elements of financial viability, claims handling capability and plan of risk management.

The provisions of this § 243.9 issued under The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 243.9 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1816; renumbered February 9, 1979, 9 Pa.B. 498.

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 243.10 Fees and examination.

(a) A health care provider submitting an application for approval of a self-insurance plan shall reimburse the Department for actual costs incurred in the examination or approval, or both, of the plan.

(b) The health care provider is responsible for reimbursing the Department for actual costs incurred in subsequent reexamination of the self-insurance plan. The examination may be required as deemed appropriate by the Commissioner.

The provisions of this § 243.10 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 243.10 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1816; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial page (39847).

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 243.11 Compliance by existing self-insured hospitals.

A health care provider currently operating under an approved self-insurance plan shall comply with the capitalization requirements of § 243.3 (relating to standards for self-insurance plans) by November 18, 1987. Compliance shall be attained by meeting the capitalization levels set for the corresponding years the current self-insurance plans have been in existence. For example, a self-insurance plan approved by the Commissioner in 1986 shall have at least $200,000 in its trust fund by November 18, 1987, or a plan approved in 1985 shall have at least $325,000 by November 18, 1987.

The provisions of this § 243.11 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 243.11 adopted September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742.

History

• Authority: The provisions of this Chapter 243 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this Chapter 243 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

Chapter 244 Professional Liability Insurers

31 Pa. Code § 244.1 Required provision for professional liability policies.

A professional liability insurance policy issued or renewed on or after January 1, 1978, to a health care provider, as defined in the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006), in fulfillment of the statutory insurance requirements under the act, shall include a provision requiring insureds thereunder to subscribe to and actively participate in a risk management plan sponsored by or acceptable to the insurance company and the Insurance Commissioner.

The provisions of this § 244.1 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 244.1 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1817; amended July 22, 1977, effective July 23, 1977, 7 Pa.B. 2060; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial page (39848).

This section cited in 31 Pa. Code § 244.2 (relating to submission to Insurance Commissioner).

History

• Authority: The provisions of this Chapter 244 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this chapter 244 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 244.2 Submission to Insurance Commissioner.

The plan of risk management shall be submitted to the Insurance Commissioner with the submission of the revised policy or amendatory rider implementing the requirements of § 244.1 (relating to required provision for professional liability policies).

The provisions of this § 244.2 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 244.2 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1817; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial page (39848).

History

• Authority: The provisions of this Chapter 244 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this chapter 244 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 244.3 Standards for institutional plan of risk management for hospitals and nursing homes.

(a) A hospital plan of risk management shall provide for certification by the individual or entities so empowered in the plan of risk management to be made to the Insurance Commissioner of satisfactory compliance with the following:

(1) The Medical Practice Act of 1985 (63 P. S. § § 422.1—422.45); the Osteopathic Medical Practice Act (63 P. S. § § 271.1—271.18) or the Podiatry Practice Act (63 P. S. § § 42.1—42.21c).

(2) The provisions for professional standards review in section 1160 of the Social Security Act (42 U.S.C.A. § 1320c-9).

(3) A 3-year accreditation by the Joint Commission on Accreditation of Hospitals.

(4) The continuing education requirements of the Pennsylvania Medical Society, the Pennsylvania Osteopathic Medical Association, the Pennsylvania Podiatry Association or their equivalent.

(b) An institutional plan of risk management for nursing homes shall include certification by the management to the Insurance Commissioner of satisfactory compliance with one of the following:

(1) Licensure provisions for long-term care facilities at 28 Pa. Code Part IV, Subpart C (relating to long term care facilities).

(2) American National Standards Institute specifications for building and facilities accessible to and used by physically handicapped, and the Pennsylvania standards and specifications for access by the physically handicapped applicable to facilities constructed with Commonwealth funds set by sections 1—3.1 of the act of September 1, 1965 (P. L. 459, No. 235) (71 P. S. § § 1455.1—1455.3a) and 34 Pa. Code § § 47.111—47.131 (relating to facilities for handicapped).

The provisions of this § 244.3 amended under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 244.3 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1817; amended November 11, 1977, effective November 12, 1977, 7 Pa.B. 3305; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial pages (39848) and (104147).

This section cited in 31 Pa. Code § 244.4 (relating to standards for noninstitutional plan of risk management).

History

• Authority: The provisions of this Chapter 244 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this chapter 244 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

31 Pa. Code § 244.4 Standards for noninstitutional plan of risk management.

For noninstitutional plans of risk management, § 244.3 (relating to standards for institutional plan of risk management for hospitals and nursing homes) applies, except for subsection (a)(3).

The provisions of this § 244.4 issued under The Insurance Department Act of 1921 (40 P. S. § § 1—321); The Insurance Company Law of 1921 (40 P. S. § § 341—991); and sections 206, 506, 1501 and 1502 of The Administrative Code of 1929 (71 P. S. § § 66, 186, 411 and 412); and the Health Care Services Malpractice Act (40 P. S. § § 1301.101—1301.1006).

The provisions of this § 244.4 adopted July 1, 1977, effective July 2, 1977, 7 Pa.B. 1817; renumbered February 9, 1979, 9 Pa.B. 498; amended September 18, 1987, effective November 18, 1987, 17 Pa.B. 3742. Immediately preceding text appears at serial page (104147).

History

• Authority: The provisions of this Chapter 244 issued under The Insurance Company Law of 1921 (40 P.
• Source: The provisions of this chapter 244 adopted July 1, 1977, effective July 2, 1977, 7 Pa.

Chapter 245 Emergency Surcharge

31 Pa. Code § 245.1 Purpose.

The purpose of this chapter is to establish uniform procedures to be followed by basic coverage insurance carriers and health care providers in the billing, collection and remittance of emergency surcharge monies if an emergency surcharge is levied by the Commissioner under the authority granted in section 701(e) of the act (40 P.S. § 1301.701(e)).

History

• Authority: The provisions of this Chapter 245 issued under section 701 of the Health Care Services Malpractice Act (40 P.
• Source: The provisions of this Chapter 245 adopted December 20, 1985, effective December 21, 1985, 15 Pa.

31 Pa. Code § 245.2 Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise: Act—The Health Care Services Malpractice Act (40 P.S. § § 1301.101—1301.1006). Carrier’s annual premium—For each inforce policy as of August 31 of the emergency surcharge year, the 12 month premium calculated by using the rating factors for the risk as of August 31 of the emergency surcharge year and applying the rates in effect as of the policyholder’s most recent previous annual anniversary date. If the policy has a 6 month policy period, the rate is twice such rate; if the policy has a 3 month policy period, the rate is four times such rate. For policies of other terms, the rate shall be calculated on a similar basis. Commissioner—The Insurance Commissioner of the Commonwealth. Department—The Insurance Department of the Commonwealth. Emergency surcharge year—The calendar year during which the Commissioner has determined an emergency surcharge to be necessary. Fund—The Medical Professional Liability Catastrophe Loss Fund. Inforce policy—A policy which provides basic coverage insurance to a policyholder for an incident on August 31 of the emergency surcharge year. If the policy provides occurrence type coverages, the policy is considered inforce if the policy includes coverage for incidents occurring on August 31 of the emergency surcharge year. If the policy provides claims made type coverage, the policy is considered inforce if the policy includes coverage for incidents reported on August 31 of the emergency surcharge year. For the purpose of determining inforce policies or exposures:

(i) Expired claims made policies which have been endorsed with a reporting endorsement—tail coverage—may not constitute an inforce policy as of August 31 of the emergency surcharge year.

(ii) In the case of inforce occurence policies which have been endorsed to provide prior acts coverage, the prior acts portion may not constitute a part of an inforce policy as of August 31 of the emergency surcharge year. Inforce self-insurance plan—An approved self-insurance plan in accordance with section 701 of the act (40 P.S. § 1301.701) providing protection for an incident occurring on August 31 of the emergency surcharge year.

History

• Authority: The provisions of this Chapter 245 issued under section 701 of the Health Care Services Malpractice Act (40 P.
• Source: The provisions of this Chapter 245 adopted December 20, 1985, effective December 21, 1985, 15 Pa.

31 Pa. Code § 245.3 Applicability.

(a) Within 15 days of the date of the Commissioner’s written request, the following information shall be reported to the Commissioner in writing:

(1) Insurance carriers writing medical malpractice coverage on a Pennsylvania health care provider, as defined by the act, shall record the policy underwriting information in sufficient detail to identify the individual policyholder, the inforce policy as of August 31 of each year and the corresponding carrier’s annual premium for each policyholder.

(2) Each self-insured health care provider shall make available to the Fund sufficient details for the Fund to identify the Pennsylvania health care providers covered by an inforce self-insurance plan as of August 31 of each year.

(b) The emergency surcharge will be billed to and paid by health care providers who have an inforce policy or inforce self-insurance plan covered by the Fund as of August 31 of the emergency surcharge year. The emergency surcharge rate will be levied on the carrier’s annual premium for each inforce policy as of August 31 of the emergency surcharge year. The emergency surcharge rate will also be levied on the premium annually calculated by the Fund for each inforce self-insurance plan as of August 31 of the emergency surcharge year.

(c) Changes in policy information shall be handled as follows:

(1) Changes in inforce policy information recorded by the carrier on or after September 1 of the emergency surcharge year may not be the basis to recalculate the individual policyholder’s emergency surcharge. If, however, the health care provider can demonstrate that the carrier misrepresented a material fact, intentionally omitted or entered false information, or failed to act in good faith, the carrier shall recalculate the emergency surcharge and refund the overpayment, if any. If the carrier can demonstrate that the health care provider misrepresented a material fact, intentionally omitted or entered false information, or failed to act in good faith, the carrier shall recalculate the emergency surcharge and bill the additional emergency surcharge.

(2) A change in the inforce self-insurance plan information recorded by the self-insured health care provider on or after September 1 of the emergency surcharge year may not be the basis to recalculate the emergency surcharge levied on the self-insured health care provider.

History

• Authority: The provisions of this Chapter 245 issued under section 701 of the Health Care Services Malpractice Act (40 P.
• Source: The provisions of this Chapter 245 adopted December 20, 1985, effective December 21, 1985, 15 Pa.

31 Pa. Code § 245.4 Notice and amounts of surcharge.

If the Commissioner determines a surcharge is necessary, he will publish notice of the rate of the emergency surcharge in the Pennsylvania Bulletin as soon as a decision to levy a surcharge is made. If notice is not published on or before September 30 of the emergency surcharge year, insurers and the Fund will be notified directly in writing by the Department. Failure of the Department to publish a notice in the Pennsylvania Bulletin on or before September 30 of any year may not relieve the insurer of the duty to collect and remit the surcharge under this chapter.

This section cited in 31 Pa. Code § 245.5 (relating to billing of emergency surcharge).

History

• Authority: The provisions of this Chapter 245 issued under section 701 of the Health Care Services Malpractice Act (40 P.
• Source: The provisions of this Chapter 245 adopted December 20, 1985, effective December 21, 1985, 15 Pa.

31 Pa. Code § 245.5 Billing of emergency surcharge.

(a) Each basic coverage insurance carrier shall bill its insured health care providers the appropriate emergency surcharge amounts within 15 days after notification as provided in § 245.4 (relating to notice and amounts of surcharge).

(b) The Fund will bill self-insured health care providers the appropriate emergency surcharge amounts within 15 days after notification as provided in § 245.4.

History

• Authority: The provisions of this Chapter 245 issued under section 701 of the Health Care Services Malpractice Act (40 P.
• Source: The provisions of this Chapter 245 adopted December 20, 1985, effective December 21, 1985, 15 Pa.

31 Pa. Code § 245.6 Remittance of emergency surcharge amounts.

(a) Health care providers shall remit emergency surcharge payments to their insurance carrier or, in the case of self-insureds, directly to the Fund within 30 days of being notified of the amount due and payable.

(b) By December 1, the carrier shall remit to the Fund emergency surcharge amounts received to date. By December 15, the carrier shall remit to the Fund emergency surcharge amounts received from December 1 to December 15. Thereafter, the carrier shall remit to the Fund emergency surcharge amounts received on or after December 15 in accordance with the monthly reporting relationship established with the Fund under § 242.6 (relating to reporting forms and procedures).

This section cited in 31 Pa. Code § 245.7 (relating to reporting forms); and 31 Pa. Code § 245.8 (relating to compliance).

History

• Authority: The provisions of this Chapter 245 issued under section 701 of the Health Care Services Malpractice Act (40 P.
• Source: The provisions of this Chapter 245 adopted December 20, 1985, effective December 21, 1985, 15 Pa.

31 Pa. Code § 245.7 Reporting forms.

The appropriate reporting form as required by § 242.6 (relating to reporting forms and procedures) shall be identified as emergency surcharge and submitted to the Fund with thge emergency surcharge amounts. If preparation of the appropriate reporting form would delay remittance of the emergency surcharge amounts beyond the remittance schedule as set forth in § 245.6(b) (relating to remittance of emergency surcharge amounts), the emergency surcharge amounts shall be remitted immediately and the appropriate form shall be submitted as soon thereafter as possible.

History

• Authority: The provisions of this Chapter 245 issued under section 701 of the Health Care Services Malpractice Act (40 P.
• Source: The provisions of this Chapter 245 adopted December 20, 1985, effective December 21, 1985, 15 Pa.

31 Pa. Code § 245.8 Compliance.

(a) The basic coverage insurance carrier shall promptly notify the Fund in accordance with § 245.6 (relating to remittance of emergency surcharge amounts) of the identity of those health care providers who have failed to pay the emergency surcharge.

(b) If a health care provider fails to comply with section 701(e) of the act (40 P.S. § 1301.701(e)) or this chapter, the Director of the Fund will notify the applicable licensure board for possible disciplinary action against the health care provider’s license under section 701(f) of the act (40 P.S. § 1301.701(f)).

(c) A health care provider failing to pay the emergency surcharge within the time limits set forth in § 245.6 (relating to remittance of emergency surcharge amounts) may not be covered by the Fund in the event of loss.

(d) Failure of any party to act within the time required by this chapter may not relieve another party from the obligation to act under this chapter.

History

• Authority: The provisions of this Chapter 245 issued under section 701 of the Health Care Services Malpractice Act (40 P.
• Source: The provisions of this Chapter 245 adopted December 20, 1985, effective December 21, 1985, 15 Pa.

Chapter 247 Coverage and Claims Issues—Statement of Policy

31 Pa. Code § 247.1 Excess coverage—implementation of new limits.

(a) The act of November 26, 1996 (P. L. 776, No. 135) (Act 135) amended the Health Care Services Malpractice Act (act) (40 P. S. § § 1301.101—1301.1004). Act 135 redistributes coverage responsibilities between the primary carriers and the Medical Professional Liability Catastrophe Loss Fund (Fund). This redistribution continues the maximum statutory limit of $1.2 million per claim for each health care provider. This is an indication that the General Assembly did not intend to reduce the available insurance coverage to pay settlements or awards in excess medical malpractice cases.

(b) The structure of Act 135 is such that an issue arises as to the timing of a particular claim and the policy year in which a loss (that is, claim) arises. By way of example, an annual primary policy issued November 1, 1996, which runs until October 31, 1997, shall by law carry a $200,000 primary limit. If a claim occurs pre-December 31, 1996, the Fund’s limit of liability, per the statute, will be $1 million. However, if the claim arises on or after January 1, 1997, through October 31, 1997, the plain language of the statute would mandate the Fund’s liability is only $900,000. Neither the amendments themselves nor the Legislative history suggest that this was a result intended by the General Assembly. Therefore, in instances where the coverage level of the primary policy and the Fund limits do not reach the $1.2 million total, the Fund will provide its coverage as required by law, recognizing the amount of primary coverage available from the insurance policy, issued in compliance with Act 135, against which the claim is made.

History

• Source: The provisions of this Chapter 247 adopted June 27, 1997, effective June 28, 1997, 27 Pa.

31 Pa. Code § 247.2 Section 605 amendment implementation.

(a) The act of November 26, 1996 (P. L. 776, No. 135) (Act 135) added language to section 605 of the Health Care Services Malpractice Act (act) (40 P. S. § 1301.605). Specifically, Act 135 added a notification provision, under which the primary carrier must notify the Medical Professional Liability Catastrophe Loss Fund (Fund) within 180 days of the date on which the notice of claim was received by the health care provider or his insurer. Secondly, Act 135 added language with regard to the issue of ‘‘continuing course of treatment.’’ This latter provision relates to multiple treatments or consultations which take place less than 4 years before the date on which a claim was made against a health care provider (40 P. S. § 1301.605). Both amendments to Section 605 were made effective immediately by Act 135, and by implication, will return to primary carriers additional cases for coverage and defense, and will place the Fund in the role of excess carrier for the claim.

(b) The notification requirements of Act 135 are procedural in nature, and require as a condition precedent to Section 605 status that timely notice of the claim must be provided to the Fund. Therefore, it is incumbent upon insureds, self-insureds and primary carriers to timely notify the Fund of a claim. Because of its procedural nature, the amendment will be implemented commensurate with the effective date of Act 135, that is November 27, 1996, and will apply to all claims reported on or after that date.

(c) The Fund will implement the continuing course of treatment amendments effective November 27, 2000, which is 4 years after the effective date of the Section 605 amendments. This determination is intended to provide primary carriers with the ability to build into their rate filings the costs associated with additional risks and liabilities that will accrue once the new amendments have been fully implemented.

(d) As to the continuing course of treatment provision, the Fund believes that the General Assembly intended that the continuing course of care relate to the manifestation of the claimed injury, and should not apply to unrelated treatments or consultations. By way of example, when a patient has been treated by a physician for routine cancer screening and examinations more than 4 years prior to a claim being made for delay in diagnosis of cancer, and sees the same physician within the 4-year period only for treatment of a hangnail, Section 605 coverage would apply to the claim of delay in diagnosis of cancer. In contrast, a claim alleging professional liability revolving around the hangnail would be considered an excess claim.

History

• Source: The provisions of this Chapter 247 adopted June 27, 1997, effective June 28, 1997, 27 Pa.

Part X Health Maintenance Organization

Chapter 303 Out-of-State Health Maintenance Organization Investments

31 Pa. Code § 303.1 Review of requests of health maintenance organizations to transfer funds out of this Commonwealth—statement of policy.

(a) A request under § 301.65(a) (relating to transfer of funds) may be supported by evidence demonstrating to the Insurance Department that:

(1) The health maintenance organization shall at all times retain legal ownership of the transferred assets.

(2) The health maintenance organization and, under a delinquency proceeding under Article V of The Insurance Department Act of one thousand nine hundred and twenty-one (40 P. S. § § 221.1—221.63), the Insurance Department, will have access to assets transferred to an affiliate in or out of this Commonwealth within a time deemed reasonable by the Insurance Department.

(b) Adoption of the following business practices represents one method by which the criteria in subsection (a) may be satisfied:

(1) Cash receipts shall be under the direct control of the health maintenance organization that generated the receipts. If a system is under the control of a parent or affiliated company, receipts shall be transferred to the health maintenance organization within a reasonable period of time.

(2) Securities purchased on behalf of a health maintenance organization by a parent or affiliated company shall be in the name of the health maintenance organization generating the funds for the security purchases.

(3) Investments of health maintenance organizations may not be pooled with other entities including nondomestic health maintenance organizations unless there is an agreement which vests an undivided interest to the health maintenance organization in the assets held under a pooled arrangement. The arrangements shall be approved by the Insurance Department.

(4) The commingling of cash or investments between health maintenance organizations is prohibited, except as provided in paragraph (1).

(5) When investing in securities, health maintenance organizations shall be governed by the limitations contained in the investment guidelines adopted by the Insurance Department that are applicable to health maintenance organizations.

(6) A health maintenance organization shall keep its securities within this Commonwealth unless permission is granted in writing by the Insurance Department.

History

• Source: The provisions of this Chapter 303 adopted March 25, 1988, effective March 26, 1988, 18 Pa.